LL as a direct Lindex "Agent"

I have followed (to a point) the debate about the recent TOS change regarding LL as a possible seller of L$.

I'd like to hear from the economy experts in the forum if the following idea would be feasible, and/or what the consequences would be, both for LL and SL in general.

1) LL sets an official exchange rate for the L$, let's say it will be 300L$/1$, to keep things simple in my example.
2) Lindex is changed to work as follow.
2.a) If I (or any other SL account) sells at a lower exchange rate (i.e. 301L$/1$ or more), the amount is automatically bought for the set price by LL.
2.b) All the L$ bought at point 2.a are put back for sale at the official exchange rate. (300L$).
2.c) If I sell at a less favourable exchange (say 290L$/1L$) the order goes in the queue exactly as now, so it sits "below" any more favourably priced lot.

So, if I try to sell 1200L$ at 400L$/$, LL buys from me instantaneously, gives me 3$ and put the 1200L$ on sale at 300L$/$.

If I try to sell 1200L$ at 299L$/$, it sits there until any 300L$/$ lot is sold

If I try to sell 1200L$ at 300L$/$ (i.e. the "official" exchange rate) my lot will go on top of the queue, before any LL owned "lot", but after any other resident lot at the same price point, in chronological order (sort like it works now, I suppose, except that LL owned lots are always placed *after* any resident lot).

Would it work? This way the L$ should be stable, LL will not lose money because it will resell only stuff bought at lower price, L$ are not "printed", residents are not penalized if they need to cash out in a hurry.

Of course you can still sell L$ outside the system (eBay...) but I suppose the extra convenience of having an integrated system will alternatives not very compelling unless the exchange rate is incredibly better (and then why not selling to LL directly)?

Comments?

Apologies if someone else proposed this already... I have read much of the discussion, but I may have missed it, or it could have been added during the hours I have been away from the forums.

This won't work. Everybody would simply sell at 301L$/$ so that they immediately get their money from LL. LL would have no guarantee that it can resell the L$ so they are taking too much of a risk.

Who would be this "Everybody" you mention? Do you believe there is a large quantity of hoarded L$ "out there" whose owner(s) just sit on hoping the exchange goes back to 250L$/$?

Do you think some other kind of buffer mechanism could make my idea more feasible, somehow?

As an example, LL$ would buy no more than X amount of L$ / Day and will buy lower priced sell orders first.

So my OP would now read:

1) LL sets an official exchange rate for the L$, let's say it will be 300L$/1$, to keep things simple in my example.
1.a) LL will process no more than (say) 3 million L$ / Day starting from lower exchanges first

2) Lindex is changed to work as follow.
2.a) If I (or any other SL account) sells at a lower exchange rate (i.e. 301L$/1$ or more), the amount is automatically bought for the set price by LL - up to the defined process limit.

2.b) All the L$ bought at point 2.a are put back for sale at the official exchange rate. (300L$).
2.c) If I sell at a less favourable exchange (say 290L$/1L$) the order goes in the queue exactly as now, so it sits "below" any more favourably priced lot.

If I want to sell them *today* I have to "underbid" the other sellers just like would have to do today but... LL "plays the bank", absorbing inflated L$ orders and reselling them to a fixed value.

Both the "fixed exchange" and the daily limit could be changed by LL depending on how the economical indicators behave.


Would this work better?

This sounds like it would put a big clamp on everyone's liquidity, while leaving the rate (at best) unchanged. Of course, in reality, there would be MASSIVE undercutting going on to get a piece of that 3mil per day in limited volume. If you want the rate to improve, the solution is to buy and hold all of the L$ under the target rate that you want to see. Simple.

This will never happen. If LL were to begin buying back currency, then every L$ issued and currently in circulation would become a balance sheet liability. On the bright side, they could use that to reduce their tax bill, but I doubt their backers would find an additional $2M in liabilities (with potentially unlimited downside potential) palatable.

Again, on the money, Ricky. (No pun intended.) I also agreed with you in the other forum thread on this subject....

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I also referenced the common accounting practice used by international currency exchange agents of booking 'reasonable' Provisions for revaluations of traded currencies in a Liability account. Such liabilities are periodically adjusted, either up or down, depending on whether the held currencies either increase or decrease in value - in this case on the basis of the then current value of the Linden Dollars held at some point in time against the USD.

I do believe GAAP would somewhat dictate what you describe, and the IRS would undoubtably insist. Understating the Income Statement and Balance Sheet via 'hiding' cash / cash equivalents in some off balance sheet 'funny money' accounts, sinks, etc... might raise some eyebrows in the IRS auditing department.

Good point regarding the investors / venture capitalists. Not a good idea to surprise venture capitalists with new, previoiusly undisclosed liabilities that will impact the agreed upon Return on Investment concerning the recent $11MM infusion of cash by the VC's.

A big potential 'Ouch"....

To paraphrase an old line.... "Ricky, I think this could be the beginning of a beautiful friendship."

Have fun, you bean counter, you.....

Ok, thanks, this clarifies the point completely for me. And also makes amply clear that whatever LL will do, they will never actually buy L$... they can only produce them (stipend), sell them or destroy them through sinks.

Thanks for your answer.

The day the Bank of Linden Labs fixes the exchange rate
is the day hell freezes over.

Fixing the exchange rate would tell the world, "We at Linden Labs
will guarentee you $X amount of USDs for every L$ you sell us."
Which means on Tuesday when LL releases about L$30/million
Linden Dollars as stipends, they effectivelly are paying the users
cash for their account. At the current exchange rate, that would
equal almost $100,000 USDs a week.

What LL is pretty much saying, is they intend to sell potentially
unlimited amounts of L$ for USDs. The effect this will have is
massive inflation. If users are buying "New" Linden Dollars from
Linden Labs instead of "Existing" Linden Dollars off LindenX, they
will add to the currency float. Creating Inflation. Best estimates of
the float is around L$650,297,510 Linden Dollars in circulation.
With a growth rate around L$30/million per week. With LL selling New
dollars directly to the public and keeping the stipends, expect the
currency float to double (L$1.2/Billion) before Dec06. Most likely
causing the L$ to decline from 300s to 600s (US$1.65/per L$1000).


Translation::: Linden Dollar will be Devalued.