Second Life Has Opening for Ben Bernanke Avatar

Last week the virtual world of Second Life experienced its first ever bank run. It seems that while the new Federal Reserve discount rate brought relief to the financial crisis in the real world, Ben S. Bernanke’s surprising move has yet to bring calm in virtual reality. Even the Economist magazine ran a story this week of the impending financial crisis in Second Life. Perhaps the virtual world really does mirror the real world? 

Or maybe not. Second Life’s financial problems began when increasing scandals led to a FBI probe into Second Life’s most profitable industry: gambling. Turns out the easiest solution for Linden Labs (Second Life's owners) was simply to ban gambling outright. This move has proved to be a big mistake: gambling was one of only two attractions that had any visitors on an otherwise deserted Second Life (the other is virtual sex shops, still operating).

Shortly after the ban was announced, gambling-loving electronic alter-egos attempted to cash-out so many Linden dollars from Second Life that it forced one of the largest banks, Ginko Financial, to cease operations and declare insolvency, meaning it will be unable to repay U.S. $750,000 to its investors. Amazingly, the bank is still taking deposits.

But that’s not the whole story. The thousands of angry avatars lining up in front of virtual teller machines were shocked to learn that Ginko Financial, an unregulated, unaudited virtual bank promising a hefty 44% annual return and run by a faceless owner (whose identity remains a mystery even in the light of all this controversy), might in fact be a pyramid scheme. 

Weeks ago, at the Economics of Second Life & Virtual Worlds Conference at Columbia Business School, Linden Labs’ John Lester (a.k.a. “Pathfinder Linden”) described the three dimensional virtual world of Second Life as a self-regulating entity. Wistfully, Lester spoke of a lawless Utopian society where simply by virtue of good intentions users are able to define their own sets of rules and regulations. Not too surprisingly, it looks like this fantasy has all but come to an end.

This raises the question, will Ben Bernanke offer a discount rate to struggling Second Lifers?