It truly is a very good thing for the Lindens to ban unregulated banking. Banking is not intrinsically bad, it is just that history shows clearly that it requires some degree of oversight to reduce deliberate fraud and maintain transparency– provide adequate information to all parties. A problem in this regard is that providing this amount of oversight is a very expensive proposition, requiring a legal system, monitoring organizations like the US SEC, economic and financial experts to draft appropriate regulation and manage macro effects such as money supply, and so on. SL today simply does not have anywhere near the resources to provide this level of

On the other hand, if SL is to fulfill its potential, “in world” financing and investment is certainly appropriate and necessary. So, how can LL provide some degree of protection without mirroring the entire regulatory structure that a RL entity would need? One mechanism is to rely on outside institutions. Tie the currency to another currency, force investors to invest through established RL financial markets. To a large extent that is what the unregulated banking ban has done, and the approach the Lindens have taken in maintaining the $L at a more or less fixed USD rate.

But Teufel’s institution brings to life a new requirement, the need to establish some amount of banking and investment opportunity, a mechanism to allow the gradual evolution of a full fledged financial system as the SL economy grows (perhaps!) into a real economy. One possible mechanism for this would be to create analogy with the US SEC’s “accredited investor” (http://www.sec.gov/answers/accred.htm). The SEC tries regulate investment markets in a way that is protective of most investors, but still allows room for circumstances which they cannot forsee or in which the normal regulation must be relaxed. The status of “accredited investor” might be based on resources that the investor has available, or on declarations that the investor makes as to their ability to understand risk and sustain loss.

Here is perhaps an opportunity for the SL legal and financial communities to meet and propose a system that allows honest institutions like Teufel’s to work to help develop an independent and healthy financial system that is primarily “in-world”.

Residents don’t NEED banks. They don’t have to worry about their house burning down and all their Linden’s disappearing. If they don’t NEED them, then I don’t believe they NEED regulation, because the resident can choose.

They don’t need the banks to finance their loan or provide as a source of savings (with or without return) because there are places outside of SL that can do that. Credit cards and http://www.prosper.com/prm/combo2.htm are just a couple of options.

If people have these other options, but are STILL choosing to do business with these “banks”, then they must have a reason. None that I could come up with seemed like a good enough reason to take the choice out of the hands of all residents. I’ve put what I came up with at the end.

I understand that many (if not most) are just like that a guy selling Rolexs and Oakleys on the sidewalk for cheap which are probably fake or possibly stolen

But if there are a few banks that have some kind of plan (even if it doesn’t make sense) and they are transparent about who they are and what their plan is, then it should be up to the person to decide. That’s the crux of the matter, it should be the resident’s freedom to choose.

To try to turn this back to a legal question. How much policing can LL do before they become legally responsible for policing ALL other activities? A.K.A, when would classifieds fall under discriminatory scrutiny, what about Taxable income reporting on virtual gains, not to mention Stock Exchanges.

Should anyone purporting to be a business at all, first prove to LL that they hold a business license in their area? Should lawyers have to prove their qualifications?

At what point does LL actually become required to become the governing body they so strongly seem to want to avoid.

Reasons I came up with why people would use inworld banks:

1. They think the bank is actually the “official bank of SL”, and therefore secured and safe.
2. They are naive or greedy to think that the deal they found isn’t “too good to be true”, but is instead a “once in a lifetime opportunity”.
3. They want to promote the idea (to others or themselves) that the SL economy is completely independent and self sustainable.
4. They want to participate in some form of P2P based community lending, or believe or trust that person with their money.

LL should take measures to make sure no one thinks #1 is true (which should be part of their stance on using “SL” in website names and other things purporting to be “the official SL” anything).

You can’t protect everyone in #2 because there will always be a way to separate a fool and his money. If they haven’t learned this lesson yet, then its better for them to learn it over a $50 US investment in SL, rather then several hundreds or thousands in RL. Giving your money to someone anonymous is stupid, no matter how good the “deal”

#3 and #4 aren’t really harmful, and could actually be good for the SL economy.

Basicly 4 sources:
Official blog post & FAQ
Telephone conversation with Patch Linden by Sully Okelly (http://www.slcapex.com/forums/topic/LCA/1118)
Conversations with our lawyer
Conversations directly with Linden Lab (Matthew Linden)

Matthew Linden was kind of totally useless, and finally got mad for repeated requests for clarification of the policy, the discussion went in circles: He basicly told anything i want to do requires somekind of registration, bank charter or so forth. Even, laws applicable would not require such (ie. personal loans), even if it is an regular, real life contract.

However, they opened up themselves to huge myriad of auditing: If everyone doing personal loans etc. start submitting their contract papers to LL ….

Linden Lab, Inc. simply shot themselves in their foot, in more than one way. Most press about Second Life is about the banking crisis, right now. Thus the call for stories.
(Aswell we saw the standard, let’s bury the bad stuff blog posting flood)

A hat tip and apology to Teufel for missing an island in the sea of discontent. Great work, Teufel, and I hope that your future endeavors go well.

Teufel is a welcome relief from the braggarts and blingtards who’ve muddied the waters and brought about LL’s over-reaction. Your discussion was clear, honest, and focused, especially in contrast to the (typically) incoherent policy from LL.

I hadn’t known of SL Bank; if Teufel does re-enter as an arbitrage fund, I’d look very seriously at investing Extropia‘s savings.