'Second Life,' Banks Closed

Cheer Up, Ben:
Your Economy Isn't
As Bad as This One
In the Make-Believe World
Of 'Second Life,' Banks
Are Really Collapsing
By ROBIN SIDEL
January 23, 2008; Page A1

In the real world, banks are reeling from the subprime-mortgage mess. In the online game Second Life, a shutdown of the make-believe banking system is causing real-life havoc for thousands of people.


Robin Sidel
At BCX Bank, a sign said it was "not currently accepting deposits or paying interest."
Yesterday, the San Francisco company that runs the popular fantasy game pulled the plug on about a dozen pretend financial institutions that were funded with actual money from some of the 12 million registered users of Second Life. Linden Lab said the move was triggered by complaints that some of the virtual banks had reneged on promises to pay high returns on customer deposits.

Second Life is an elaborate online world where players create new identities for themselves -- images called avatars. These avatars can own land, run businesses and build homes. And there's a link to the real economy: To buy things, players use credit cards or eBay Inc.'s alternative payment service PayPal to convert actual U.S. currency into "Linden dollars," which can be deposited using pretend ATMs into Second Life's virtual banks.

The banks of Second Life were operated by other players, who enticed deposits by offering interest rates. While some banks paid interest as promised, others used depositors' money for unsuccessful Second Life land and gambling deals. Under its new banking rules, Second Life says only chartered banks will be allowed -- though it isn't clear any real chartered banks will operate in the virtual play world.

The shutdown has caused a real-life bank run by Second Life depositors. Though some players managed to get their Linden dollars out, others are finding that they can no longer make withdrawals from the make-believe ATMs. As a result, they can't exchange their Linden-dollar deposits back into real dollars. Linden officials won't say how much money has been lost, but a run on another virtual bank in August may have cost Second Life depositors an estimated $750,000 in actual money.

Play Money to Real Money

"Everyone thinks that because you're losing play money, it excuses everything, but it's convertible to real money," says a Second Life player whose avatar is named UpMe Beam. On Sunday night, the female character was wandering topless through the virtual lobby of a Second Life bank called BCX Bank, where a sign said it was "not currently accepting deposits or paying interest."

In real life, UpMe Beam is a man who says that he is a certified public accountant who has audited banks. He wouldn't disclose his name, but says he has been unable to withdraw $5 he deposited in November to see how a Second Life bank works.

Steve Smith, who runs BCX bank under the avatar name Travis Ristow, yesterday said depositors -- who are owed a total of $20,000 -- will be able to get their money back next week. The bank, which had promised to pay depositors more than 200% in annual interest, is now allowing only small withdrawals.

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Should make-believe business be more regulated?Read Wendy Bounds's latest post and share your thoughts. "This won't affect us long term. It's just a short-term difficulty," said Mr. Smith, 40 years old, who also has significant land and real-estate interests in Second Life. He said he retired from the real-life mortgage business to devote his time exclusively to his Second Life enterprises.

"There is not a whole lot that is fake about this," says Robert Bloomfield, a professor at Cornell University's Johnson School of Management. Mr. Bloomfield's own Second Life avatar, named Beyers Sellers, hosts a pretend television show in the online game about virtual economics.

Plans for Shutdown