METANOMICS BANKING FORUM - JANUARY 14, 2008

ONDER SKALL: Hello everyone, and welcome to a special followup session of Metanomics

produced by Clever Zebra, in conjunction with Cornell’s Johnson Graduate School of

Management.

I’d like to take a brief moment to thank the sponsors of the Metanomics Series. They are

Generali Group, SAP, Kelly Services, Cisco Systems, Sun Microsystems, and Saxo Bank,

who were good enough to host today’s event again. And of course none of this would be

possible without SLCN, who are the best ones to talk to when it comes to working with video

and virtual worlds.

Avatars across the grid at all event partner locations can join the conversation by joining the

Metanomics Group. If you have questions for our guests today, you can send them directly

to our host, Beyers Sellers.

Today’s session of Metanomics is being held to address a radical shift in policy. Linden Lab

has regulated Second Life Banks, effectively shutting them down until they can change their

way they do business. Our guests today include key figures related to this issue and

introducing them will be our host, Beyers Sellers.

BEYERS SELLERS: Well, hello everyone, and welcome to what we’re calling a forum on

banking and the Linden banking policy in Second Life. We’re doing things quite differently

from a technical standpoint today; rather than having a shout-cast in which everyone who is

on the panel is talking through Skype and it’s being streamed into Second Life, we are

actually using Second Life Voice. One of goals for doing this is to allow people within

Second Life here on the Saxo Bank sim to be able to ask questions directly of our panelists.

Well, we have a number of panelists, and I would like to start by introducing Travis Ristow,

who is the CEO of BCX Bank and in-world Bank, and IntLibber Brautigan, who is the

chairman of Ancapistan Capital Exchange. So welcome, the two of you.

We also have two lawyers, Joshua Fairfield, who is at Washington & Lee School of Law,

and Benjamin Duranske, who runs the blog, virtuallyblind.com, and is writing a book soon to

come out, called “Virtual Law.”

Finally, we have representatives of U.S. regulatory bodies, so we have two regulatory

bodies represented. One is Dan Miller, who I am just now trying to teleport on to our sim--

and actually if we can go ahead and raise that limit by one or two. Dan’s name, Jillian, is DM

Darkstone, and if you could arrange for him to get in-world, that would be wonderful. Again

that’s just DM Darkstone.

And then finally we have Dave Altig joining us from the Federal Reserve Bank of Atlanta. He

is the Director of Research there and I understand that he also is in a room with a number of

regulators. Dave is more of a macro-economist, but he’s got some bank regulators in with

him.

Okay, well that’s enough for introductions. What I’d like to do now is go to questions, and

what we would like to do here is we’d like to start with questions for the people who are

actually running the banks. So today we’re going to work from the inside out, so we’re going

to start with the people who are actually running the banks, so that would be IntLibber and

Travis, and then we’ll move, gradually, to the lawyers, who are quite familiar with issues in

virtual law, and we’ll culminate with getting the prospective of our real-life regulators.

So that said, our first question from the audience is going to come from Temporal Mitra who

has some questions about the role of banking in the Second Life economy. Temporal, are

you ready to take it away?

TEMPORAL MITRA: Certainly I am, and I have a lot of questions and I don’t want to co-opt

the questioning so I’ll ask a couple, defer to other people, and I’ll be happy to come back to

them later if that works for you, Beyers.

My first question is in Real Life I think banks serve three primary purposes. One is to lend

money, another is to protect money, and another is to convert money so it can be more

easily handled, like cashiers checks, wire transfers, etcetera. In Second Life, those are not

really a consideration, because lending money is unregulated, it’s uncollateralized, for the

most part, and so it’s relatively unsafe. There’s no need to protect money beyond keeping

your Second Life account password secure and there’s no need to convert money; you can

pay any amount to any resident with the click of a mouse. So with all this being said, why do

we even need banks in Second Life at all? What purpose do they truly serve?

BEYERS SELLERS: Okay. So let’s see. Travis, do you want to take a stab at that?

TRAVIS RISTOW: Yeah, I would like to just take a brief stab at it and then I’ll let anybody

else that wants to say something, say something. Here’s the deal. Loans are collateralized,

for the most part. So that’s an incorrect statement on your--or observation on your part,

Temporal. And we do actually offer other services as far as sub-accounts and the ability to

have joint accounts with other people that are in your company or in your circle of friends,

husbands, wives, that type of thing. So actually, we do have services that we offer as well.

So I think they do serve a good purpose. I’ve never, ever said that they were absolutely

necessary, but they do serve a good purpose as far as giving people loans that need loans

for whatever reason if they can’t get the money elsewhere. A lot of people only want to have

their money coming from Second Life because, obviously, it’s less risk on their side.

TEMPORAL MITRA: Well, well, hold on. Then you’re saying there’s a need for loans. I’ve

got to disagree with that because in Second Life there’s not a need for anything. This is a

virtual platform. You don’t need food, you don’t need clothing, you don’t need shelter, so

there is no actual need to borrow money for anything.

If you want to start a business you could create a product, you could sell it without owning

land, without having a dime in your account. So exactly why--I’ll ask the question again--

why--and there are group wallets that allow you to have sharing of funds between avatars.

So why, again, do we need banks?

TRAVIS RISTOW: Why again do we need banks? I got your question. The fact of the

matter is you're right. Nobody needs anything. You know what? Nobody needs--in real life

nobody needs that brand-new car when they’ve already got another car. People want to

upgrade in Second Life as much as they do in real life. We give them--

TEMPORAL MITRA: Well, that’s not entirely true. In real life, if we don’t have a car--

TRAVIS RISTOW: --well, you know, I’m not going to debate that part with you. The fact is

there is the need, so I’m just going to ahead and yield to someone else. They can go ahead

and--

INTLIBBER BRAUTIGAN: I’m an excellent example of why banks are needed. I came into

SL--I’ll tell people a little bit about my real life here. I left my Real Life job a couple years ago

in order to take care of my still-elderly parents. My mom’s disabled, my father’s suffering

from cancer. And I came home to take care of them and I need to be able to earn money

from home. I cannot spend time out of the house, so I need to be able to make money

online. I started as a blogger, Google killed their AdSense program, I came into SL to

promote my blog and I interviewed Thor Columbia, who was the CEO at that time, of Meta

Bank. And our interview article from that brought them a lot of business and it taught me a

lot about how the SL economy works and so I decided to get into land. I had about 200

bucks in Google AdSense earnings, and that’s all I had to risk, and I was going to buy 8,000

square meters.

And the bank was very happy with the extra business they got from the article I wrote in my

blog on the interview, and so they decided to finance me to buy a half sim instead. And that

was the start of Brautigan and Tuck Holdings, and we’ve since grown. I paid off that loan in

two months, so to try to disprove Ben’s prior statements about 100 percent default rates on

loans, I paid off that loan in two months, and then the bank infested again. They were one of

the investors in our next stage of expansion to ten sims, and we grew from there to 12 sims,

and we paid off that loan as well. So that has allowed me to quickly, within a few months,

build enough of an income where I can help pay my father’s mortgage, pay for his chemo

treatments, that sort of thing. If I had just started in SL making some products, the difficulty

in getting market exposure when there’s so many other people out there who already have

so much market control, the big names--you know, Symon, you name it--trying to break into

markets where there’s already plenty of competition, it’s extremely difficult and it takes--from

what I’ve seen, even Symon took six months to a year for her to establish her brand. And for

someone in my situation, I didn’t have six months to a year to establish a brand to start to

make some decent money.

And there’s a lot of people who are in similar financial situations. People who are medically

bankrupt, they're stuck at home, maybe they’re shut-ins, maybe they aren’t able to get

around. There’s a lot of reasons why people come to SL looking to make a Real Life living.

And this serves a larger purpose, in terms of people being able to access capital to build

businesses. Now--

BEYERS SELLERS: Well, I just have a couple of followup questions if I could, just real

short ones. The first one is can you tell us how much you paid, what interest rate you were

paying on those loans that you took out?

INTLIBBER BRAUTIGAN: Yeah, I was paying about 7.5 percent a month.

BEYERS SELLERS: Seven and a half percent a month. Okay, thanks. And then why did

you not access Real Life capital markets that would have charged substantially less?

INTLIBBER BRAUTIGAN: Well, a) I was unemployed. I had no income, so therefore I was

not qualified to receive any loans whatsoever from anybody. My credit cards were maxed

helping to cover my family’s expenses. Basically I was on the verge of bankruptcy myself,

due to no fault of my own, just a dedication to taking care of my family. And so there was no

way I could have accessed any capital markets in the real world.

BEYERS SELLERS: I guess my first questions have to do with the interest rates that are

being charged and I understand--IntLibber answered my question about his interest rate

being quite high, saying basically he couldn’t access outside markets, but that still raises the

question of what the appropriate interest rates might be or what, as Linden calls it, a

sustainable interest rate, might be within Second Life, and the answer that we got from our

session on Thursday--I believe this was primarily from IntLibber but Travis seemed to agree

as well--is that the economy of Second Life is growing very rapidly. And so if you have rapid

growth, if you have rapid inflation, then high interest rates are appropriate.

Well I did a little bit of checking on the Web site of Linden Lab, and although it’s true that the

money supply is growing, it’s really growing only at about 6 percent a month or so on,

somewhere right around there. The total amount of land also is very similar. And so--now,

Travis, you are offering interest rates on the order of 2.5 percent a week, which is

substantially higher than the growth rate--and, of course the growth and the money supply is

some combination of real growth and simply nominal inflationary growth, and that’s hard to

sort out.

But I’m wondering if you can again address this question, Travis, about how these interest

rates are reasonable, when they still seem to exceed the growth rate in the economy?

TRAVIS RISTOW: Sure, I’d love to. This is how we come about our interest rates. Every

single loan that we do is actually--

BEYERS SELLERS: If I can just interrupt for one moment, someone who has speakers on

their computer has an open mic, so we’re all hearing some echo. So if you could just check

that you are muting your microphone, if you are listening rather than talking, that would be

great. Sorry about that. Thanks a lot.

TRAVIS RISTOW: Okay, checking again here. Okay, here’s the issue that I see. The risk in

Second Life is excessively more than in Real Life. In Real Life you have the person’s actual,

Real Life information. You can go ahead and take them to court. You could do a lot of other

things. Send them in collection agencies, whatever. Here we cannot do that. So in my

opinion, the amount of interest that we charge is directly related to the risks that we take

here in Second Life.

BEYERS SELLERS: Travis? You still there?

TRAVIS RISTOW: Yes.

BEYERS SELLERS: Oh, okay.

TRAVIS RISTOW: Yeah, that was pretty much all I needed to say.

BEYERS SELLERS: Okay. So the interest rate is not so much a reflection of the need for

growth, but it’s really recouping the losses from the likelihood of default?

TRAVIS RISTOW: Well no, not necessarily from the likelihood of default, but it’s mixed. It’s

mixed between the growth in Second Life as far as many people that want to borrow money-

-and I will go ahead and say want to, not need to--that want to borrow money, for whatever

reason, if it’s to build themselves a business so that they can try to make some money on

Second Life, whatever. It is a combination between that and the risks that we take every

time that we make a loan.

And just to let you know, we do every loan on a case-by-case basis. We only actually

approve somewhere around--I mean I don’t know the exact percentage, but maybe 10 to 15

percent of the loan requests that come through, because we don’t generally loan on malls or

clubs, that type of thing, because they have proven not to be very good as far as loan risks.

But as far as our overall default rate, I mean, our maximum default rate in one month has

been about between 20 and 30 percent. And again, it’s got to do with more factors than just

our interest rate.

BEYERS SELLERS: Okay, thanks a lot. We’ve got Harper Verisferd(?) up on one of our

mics and she has some questions that she is asking on behalf of others. Harper, let loose.

HARPER VERISFERD: Well, I’m asking the question on behalf of Alyssya actually who was

unable to speak before, and so I’m just going to read what she’s written to me. She said,

“My question was aimed towards those like Ben and Josh who obviously have strong Real

Life skills pertaining to this topic, but I question their ability to tailor their experience to the

virtual world. Essentially when I first came to SL as a real-life private banker and investment

advisor, I found myself of very similar opinions to you, Ben. However, since then I am sure

that I actually started to incorporate myself into a strong SL business, a range of

businesses, to get a better idea of how things operate here. My point is this: of course SL is

very different to real life; there is no governing protection or backup to businesses here.

Risks are higher and so are potential profits. Time runs at a much accelerated speed and

SL never sleeps, just to name a few. My question for you, Ben and Josh, is do you feel it

beneficial for a virtual world to start trying to enforce Real Life standards that really don’t

compensate for the differences in the real world? And would not a set of regulations that

take into account the differences in the virtual world be more beneficial for all? What’s your

thoughts there?” And she has another question.

BEYERS SELLERS: Okay, well let’s get to that one first. Ben, you were mentioned

explicitly twice in the question, so do you want to start off on this one?

BENJAMIN DURANSKE: Probably will surprise some people. But I think that, in terms of

the health of virtual worlds that the best thing that can happen in a virtual world, from a legal

perspective, is for the virtual world to develop internal policies that take into account exactly

the things that the questioner asked.

I think it’s critically important for virtual worlds to develop in-world dispute resolution

systems, to develop in-world regulation of their own financial industries. While I’m hesitant to

say that this is in fact a new land and it’s somehow exempt from law because the truth is, it’s

not, and Real Life law will continue to intrude to the degree that the virtual world doesn’t

take these things into account.

I think that the ideal solution is exactly what the questioner insists is the right answer, and

that is for virtual worlds to self-police, for creative individuals within these spaces to come up

with analogs to Real World governments and regulatory agencies and court systems that

allow users to seek redress when something goes wrong.

Now what we have in Second Life today is almost the complete absence of those systems.

And I think that that’s largely because Linden Lab has chosen to take a very hands-off

approach to governance. So it’s impossible for a virtual world resident to seek redress

against another virtual world resident for fraud or for trademark infringement or copyright

infringement. There just aren’t any tools in place. And a few people are trying to build some,

but they aren’t very effective because, without Linden Labs participation, there is simply no

teeth to any policy that anyone puts in place.

In the long run I think the questioner is right. I think the best way to stave off Real World

intrusion is for solid in-world institutions to develop. If that doesn’t happen then I think the

real world will come knocking at the door and I think that’s what we’ve been seeing recently.

BEYERS SELLERS: Okay, Josh, do you want to address that as well?

JOSHUA FAIRFIELD: Sure, I’ll take a crack at it. I think I agree with both the questioner

and Ben’s excellent response that what we want is some form of law to give structure to

these transactions, and we want the standards that are developed within virtual worlds to

apply to those virtual worlds.

But in getting there I think I differ pretty dramatically from Ben’s approach. I think we’re here

today because of the affect of Real World law in virtual worlds, and everything I’ve seen

says that that’s going to continue. I think that Real World law already bounds and constrains

virtual worlds, even if you think about contract law which sets the terms of service, the

enforceable conditions under which we access such a world.

Every part of a virtual world is going to be affected by law. Real World courts are going to

take virtual disputes; they already have. There are three cases ongoing right now, at least.

So then the question is how do we preserve what the questioner really wanted. And the way

we preserve what the questioner really wanted was we tell courts what they need to do is

apply the standards in the same slot that we usually look to for industry custom and

practice, or for industries and groups that do set up self-regulation. And then we see that

there’s a process by which groups set their own standards and then those standards get

incorporated into common law court decisions or they get used to construe courts and

contracts, and I think that then gives Second Life standards the force of real law.

Now, I want to say one place I’m not going with this. Second Life is not a separate space. It

does not have a separate sovereignty and it will not be able to pass its own laws that

contradict Real World law. That it won’t be able to do. But what it will be able to do, I think, is

make a strong statement that, gee, things are a little bit different here, as you said, and

these are the standards and the norms that we’ve developed and courts ought to

incorporate those into Real World law.

BEYERS SELLERS: If I can follow up before we go back to Harper--and this is also, again,

both for Ben and for Josh. Why could Linden not simply have taken this self-regulatory view

and said, “We are going to give banks some more time to figure out how they can develop

their own best practices, their own methods of protecting consumers and protecting against

fraud”? Because the answers that you both were giving suggest there is some space for that

occurring, and so I’m just trying to figure out why banking is not one of those spaces but, at

least as of today, securities law is.

BENJAMIN DURANSKE: I’ll start with the answer to that and then I’ll turn this over to Josh.

I think that Josh and I disagree on vastly less than we agree on. We approach this from

different perspectives. I was a practicing attorney in intellectual property litigation for several

years before I took a break to write this book and focus on these things and I expect to be

back practicing later this year. Josh was a professor of repute in this field and I think that his

answer is directed at what courts should do. Mine is very much directed at what will avoid

litigation, and I think that we are pretty compatible aside from the fact that our approaches

are different.

I think that if these institutions exist that they’ll both inform courts when they have to make

decisions and in some cases they’ll head off litigation at the pass by providing virtual-world

residents the opportunity to resolve disputes in-world.

As to Beyers’ followup question, I think that Linden Lab has boxed itself into a corner, to a

degree, with its policy of non-intervention. And by not doing anything up to this point it is in a

position where it uncomfortably has to make blanket policy statements that destroy whole

sectors of the economy, as opposed to picking away and regulating on a piece-by-piece

basis. And it’s just corporate policy. They’ve decided to take a hands-off approach.

I think that--and I don’t know if this is true, but I would suspect that we will see a competitor

to Second Life at some point that will take a much more hands-on approach. There.com

does, to some degree. I think probably more than more most Second Life residents would

like, but I think there’s a middle ground where, you know, for instance even Entropia

Universe which is basically a game, issued banking licenses and by charging a lot of money

and collecting a lot of data about the people that they were issuing banking licenses to,

made those valuable and, in some sense, protected their consumers from unscrupulous

bankers. I think that we’ll see something like that develop and I think that if it doesn’t

develop here it will develop elsewhere.

BEYERS SELLERS: Josh, do you have a followup?

JOSHUA FAIRFIELD: Sure, I’ll follow up on that. I think that Ben’s absolutely right in that

self-help has always been a good backstop to law. So we get to lock our doors in the real

world, but if someone breaks in then we have legal recourse. And to the extent that

alternative dispute resolution within virtual worlds is that sort of self-help, then I think it’s

going to be a wonderful addition to our set of legal tools.

But where I think we may diverge a little bit--and I’ll sign up to the idea that this is largely just

due to differences in approach. The idea of non-intervention being a bad idea and

intervention being a good idea. Across the range of issues--and this goes well beyond

banking law--I’ve noticed something in Internet regulation. And I’ll call it the God paradox.

So the God paradox says that game service providers want to be gods because they thing

that if they don’t control certain things, if they don’t intervene, they may be legally liable.

Well, the problem is that, once you’re God, you’re responsible for everything that happens.

And we’ve seen this again and again in Internet regulation. In the ‘90s the issue was, gee, is

an Internet service provider liable for copyright-infringing pictures placed on their bulletin

boards? Or are they liable for defamatory statements that people have made?

And through Real World regulation, we had to resolve the God paradox because the

problem was that if they controlled the content, then they were liable for that content. And I

think that a direction that I would personally nudge--and this is personal opinion and nothing

more--that I would personally nudge game services providers would be to say, “You know

what? You guys are a lot more like service providers than gods. And in the long run you

need to not be responsible for the actions the people take through your communications

network, through the virtual world. That needs to be the responsibility of the people who

engage in the bad acts.”

And so I think that they have been nudged by the threat of legal liability toward taking action,

toward shutting down the banks, but I don’t think that’s going to be a good move for them in

the long term, because I think that the next crisis is going to happen and, in that next crisis,

people are going to say, “Well, gee, you take such a strong interventionist stance in the

world, so you’re responsible when things go wrong.” And I don’t know that in the long term

that’s a good move for them to make.

You know, the Bell phone companies aren’t responsible for what we say over the phone.

Skype isn’t responsible for what I say over Skype. Again, Internet service providers aren’t

responsible for what I post on their sites and I think that it’s a scary move if game services

providers are going to eventually become responsible for actions in virtual worlds.

BEYERS SELLERS: Excuse me; I think I had my mute on. Thanks a lot, Josh and Ben. I’m

going to send this back to Harper, who has another question from Alyssya. Harper?

HARPER VERISFERD: Yes, this also is from Alyssya. Her second question is, “Do you feel

that SL is better off without any financial services as part of its economy? I mean, Ben, you

have already given your viewpoint on the benefits of this from a Linden Labs point of view,

but I’m interested to know if you feel the SL economy, from a consumer point of view, is

better off without financial services, and why?

Also, Ben, you do seem to be saying that all banks within SL are basically crooks”--this is

from Alyssya--“and not operating ethically. Surely recent events make this opinion null and

void. Some of these banks are no longer taking deposits, hence limiting any profit during

this period, and working around the clock to support customers and work through this

challenge. Surely if this statement was correct and they were crooks then they would have

long since disappeared, taking advantage of this as leaving with as much funds as possible.

The point is they haven’t left; they are still working around the clock. If they were crooks, as

you say, surely they wouldn’t be here. Or am I missing something here? And I guess I would

say IntLibber wouldn’t be sitting on the stage at this point.”

BEYERS SELLERS: Ben?

BENJAMIN DURANSKE: Sure. I think that it’s an excellent question. I think it’s also a very

good example of the reason that I, personally, would be a terrible representative for a group

of people who want to pursue one of these organizations. The reason for that is that there is

a concept of intent that’s necessary to say that somebody did something illegal. And so if

IntLibber--well, I don’t think IntLibber actually ran a bank--but if IntLibber--or else Travis, for

instance, I think is a better example--really intended to steal a lot of money from people,

then I think he probably would have taken the money and ran. And I think that the

questioner is right about that. And he didn’t. I think that that’s evidence that he didn’t intend

to do that.

I think that there, however, is an awful lot of misunderstanding of what’s going to happen in

the long run when people set up what appear to initially be successful business models in

Second Life. I think that if you look at the original Ponzi scheme by Charles Ponzi, Charles

Ponzi believed in his heart of hearts that he was going to be able to return everybody’s

money. He thought it was a self-sustaining environment. It isn’t--it wasn’t, and he lost a lot of

people’s money. The same was true of Nicholas Portocarrero in Second Life with Ginko.

I actually believe--and I’ve said this before--that when he started Ginko he didn’t intend to

defraud a great number of people. I think he intended to make a lot of people a lot of money

and I think that, to some degree, that’s even true of some of the more complicated banks

and financial institutions that we see today.

I think that Travis’ bank charges an extraordinarily high rate of interest against collateralized

Second Life land and probably claims, well, a fair portion of that land. We know it does,

because he told us earlier that one of the months that they had they claimed 20 or 30

percent defaults. But, you know, if that land’s collateralized then that’s a fair bit of land that

the bank’s claiming.

Now, I don’t know what the business model there is. I’m certainly not pointing a finger at

Travis and saying that he’s doing anything wrong. And I don’t think that most of these

people are, as the questioner said, crooks. I do think that most of them could be prosecuted

for fraud, however. And the reason for that is that fraud, specifically, lets a prosecutor

establish intent through circumstantial evidence, and the circumstances of these banks, in

some cases, charging as much as 20,000 percent a year interest. At the high end, even Mr.

Ristow’s bank charges a functional interest rate that is 2 million percent a year--

TRAVIS RISTOW: Now, I’m going to need to respond to that.

BENJAMIN DURANSKE: --someone’s on their microphones there--and I understand you

want to respond to that; that’s fine. But when you run the numbers, if this is compounded

weekly, that’s what you come up with. Now, maybe people pay it back--

HARPER VERISFERD: But can I interrupt, Ben? You keep bringing up this APR. Nobody

lets a loan sit for a year on SL. These loans are churning within weeks. So that’s a really

poor example. I mean time moves so much quicker here and that’s what Alyssya was trying

to point out previously. So that this kind of example seems a little wrong to me. I mean I

heard you speak about it last week--or somebody speak about it last week--and I thought

about it, and Travis is granting a loan that’s probably going to flip in a week. It’s going to get

paid back in a week. So that interest rate doesn’t seem so exorbitant to me, then. Does that

make sense?

TRAVIS RISTOW: And I would like to go ahead and respond here.

BENJAMIN DURANSKE: And I understand Travis wants to speak.

[CROSSTALK]

BEYERS SELLERS: If I could step in. For a moment, if I can step in, let’s let Travis respond

to some of the numerical details here.

BENJAMIN DURANSKE: I think that would be helpful.

BEYERS SELLERS: Travis?

TRAVIS RISTOW: Okay, that would be great because then I won’t get lost in the 5,000

accusations here, and that’s exactly what they are. Here’s the situation, Ben. Your 22,700

percent is insane. And what you need to do is you need to actually look at what we do.

Interest on our loans is not compound. So it actually comes out to the 572 percent that you

actually have in your blog before you decide to start compounding it.

For a lawyer, I would think that you would do your research, but this is the third major point

that you have tried to make without any basis in fact. And I’m not sure if it’s to make yourself

look good or smarter or whatever, but the fact is, when you put this in the blogs and you put

this out here in a forum like this, it is straight up slander.

Now, furthermore, it goes with your close to 100 percent default rate--

BENJAMIN DURANSKE: I thought you said loans compounded weekly, Travis? I asked

you that directly; you said it was compounded weekly.

TRAVIS RISTOW: Yeah, you asked me if our interest on our savings was compounded

weekly, and that it is. And I have made that statement over and over and over again.

BENJAMIN DURANSKE: Okay, so we’re only talking about 600 percent a year interest. It’s

still an absurdly high amount of interest. I mean there’s just no denying it.

TRAVIS RISTOW: It’s absurd in Real Life. It’s not so absurd here. You know, the fact of the

matter is everything is priced differently here. And this is Second Life; it is not Real Life. You

cannot buy things for the same price.

JOSHUA FAIRFIELD: But it is real money. It’s real people’s money that you’re borrowing

and loaning at these interest rates.

INTLIBBER BRAUTIGAN: Is it real money?

BEYERS SELLERS: Now, who asked that?

INTLIBBER BRAUTIGAN: That was me, IntLibber. I mean, that’s the $64 million Linden

question here that nobody seems to want to touch, Linden Lab most of all. Even when

they’re going around saying we have to have banking licenses, and they’re still insisting the

Linden dollar is a limited license product.

How can someone insist on a government charter to handle a privately issued, limited-

license product? I mean that’s an absurd demand right there. And as Josh was talking about

game gods taking responsibility, you know, that’s one of the most absurd things I’ve ever

seen come out of LL(?), and there’s been a lot of funny things that they’ve said in the past.

JOSHUA FAIRFIELD: Yeah, just to back that up there’s the God paradox, right? So you

have to have a banking license to handle it, but we can print it and we’re not held to any of

the standard rules saying, gee, you can’t print money.

INTLIBBER BRAUTIGAN: Right. Under the Federal Reserve Act of 1913, only the Federal

Reserve can create fiat current money in the United States of America. And Second Life

servers are in the United States of America, so if Linden Lab is saying the Linden dollar is

real money, then they’re breaking federal law. Plain and simple. And the penalties for that

range from $250,000 to $500,000 for each instance of issuing the funds, and 5 to 10 years

in prison for every act of issuing those Linden dollars. So I don’t think that that’s someplace

that Linden Lab wants to go.

Now, pertaining to my statements in a prior show about my attitude towards the Linden

dollar is I have to treat Linden dollars as if it’s real money because that’s my fiduciary

responsibility to my depositors and to the people that are either borrowing money or that are

investing money in stocks on my exchange. This is a matter of taking things seriously. And I

will point to, for example, the Congressional testimony a couple years ago by Alan

Greenspan when Congressman Ron Paul asked him why he holds to a belief in the need for

a gold standard, but is governing over a fiat money system in the Federal Reserve and how

he can reconcile those.

And Greenspan replied, saying that while, yes, the Federal Reserve System is a complete

fiat money system, there’s absolutely nothing backing the U.S. dollar. It’s a complete fiction.

He managed the Federal Reserve system as if the U.S. was on a gold standard. And it was

by operating in that manner that he was able to keep the economy stable and growing at

much better than it was under prior Fed chairmen.

And as someone who takes his business responsibly here in SL, I have to take the same

attitude. I have to take my depositors’ money seriously. And Travis has to do the same

thing. We’re serious business people. We’re definitely not here to defraud anybody and we

bust our butts day in and day out for many hours. I work 12 to 16 hours a day in SL because

I take my investors’ and depositors’ money extremely seriously.

Whether or not the Linden dollar is actual, real money, the fact is neither the Linden dollar,

nor the U.S. dollar, are real money. Real money is gold and silver under the U.S.

Constitution. The U.S. dollar is only considered money because of legal tender laws that

say, hey, it’s as good as real money. Okay? There is no law saying the Linden dollar is as

good as real money, which is gold and silver. That’s the legal situation and that’s why I take

the attitude that I do.

BENJAMIN DURANSKE: I do want to answer the original question that was asked, though,

which I think was an excellent question.

BEYERS SELLERS: This is Ben?

BENJAMIN DURANSKE: This is Ben Duranske.

BEYERS SELLERS: Okay someone has--I think our sound is better. Actually, Ben, if you

could move your mic just slightly away from your mouth, I think we’ll get better sound.

BENJAMIN DURANSKE: Have you got me there?

BEYERS SELLER: Perfect.

BENJAMIN DURANSKE: Excellent. Yeah, I do want to answer the original question,

because I didn’t get a chance to. I first want to say--and I stressed this last time--that I don’t

know the details of the financial operations of either of the two gentlemen with whom I share

the stage, or with any particular Second Life bank, with the exception of Ginko, which I ran a

script against their Web site for several months and tracked.

And last week when we discussed this, I think even Travis and I agreed that a large number

of the organizations in Second Life that handle money are fly-by-night organizations. That

said, I’ve been in email communication with a gentleman who is a phenomenal example of a

bank in Second Life that is very sad to see leave. All of his depositors are receiving all of

their money immediately. He was able to immediately cover all deposits. And the reason he

was able to do that is he was offering a relatively low rate of return in comparison to most of

the other banks, and he was doing it using a fairly common Real World financial services

trading plan where he was investing in foreign currency and using an arbitrage opportunity

that was created in that field.

He told everybody what he was doing. He ran his bank on a 512 square meter plot of land.

He didn’t have a fancy area for people to go visit. He didn’t have bodyguards and fancy suits

and a nice lobby. And I think it’s sad to see him go. There are other institutions that I don’t

know about who I’m also sad to see go, I’m sure. And in the long run I think that we’ll see

some of these institutions come back with some Real World licensing behind them.

So to answer the original question here before we got off on a lot of back-and-forth,

personally, I would say that I think it’s sad that some of the banks have disappeared, but

that I think that the vast majority of them disappearing, overall, does the grid a favor.

BEYERS SELLERS: I’d like to follow that up with a question. This is Beyers again. And I

think this is primarily for Travis and for IntLibber and it’s a question that I just put into the

Metanomics chat just a minute or so ago.

And the question is this: here we’ve had almost a complete shutdown of banking in advance

of the effective date of the ban on banking as banks try to sort out what they’re doing, and it

really hasn’t had, as far as I can tell, much of any affect on the Second Life economy. There

were a few reports of fire sale prices on land, but that was pretty quick and, as far as my

sources tell me, not too much of a long-term effect. There were crashes in the financial

markets because the banks themselves, of course, are suffering, but it’s not like we’ve seen

any effect in Linden exchange rates, in commerce, or any of the things that you would

expect if banking were actually an important part of the economy.

So I’m wondering if you guys--I mean is this your impression as well? Do you disagree with

the facts as I’ve stated them? And either way, I guess, can you just talk about what that

might mean for the role of banking in the Second Life?

TRAVIS RISTOW: Sure, I’ll go ahead.

BEYERS SELLERS: Okay, this is Travis?

TRAVIS RISTOW: Yeah, this is Travis. Right now I don’t see the entire effect of what’s

going on. We’re so involved in trying to--well, actually just reorganize the bank as another

entity and get our depositors all paid off. So that is actually where I’m spending most of my

time right now. But unfortunately I do hear reports otherwise. And in fact I do know that we

have an influx of loan requests right now. We have more requests than we could have taken

even if this was the normal time.

BEYERS SELLERS: Very interesting. And IntLibber, do you have a different view on that?

Or let’s see, did IntLibber crash? I think he may have crashed.

INTLIBBER BRAUTIGAN: I’m sorry; I missed the question.

BEYERS SELLERS: There you are.

INTLIBBER BRAUTIGAN: I was interrupted by something here. Can you quickly repeat the

question?

BEYERS SELLERS: Yeah. The question is have you seen much of an economic effect of

the banking ban? As I was saying, I haven’t really seen much reaction outside of the

financial institutions themselves, but as far as land prices or commerce and so on, it seems

kind of like a non-event.

INTLIBBER BRAUTIGAN: Well, land prices have gone up since last month a little bit. We

have, in terms of the Ace Exchange, while in the few hours before I came on the morning

that the rule was changed, we had some withdrawals, we didn’t experience any sort of the

kind of runs that a lot of the other banks experienced. And that was primarily because the

Ace Exchange does not pay interest and we keep at full reserves because we want people

to--it’s their money, they can invest it how they want, and we’re not going to be playing any

games with it in the meantime.

So a lot of people see that and that gives them confidence that we’re going to still be here

down the road and that we’re not going to be subject to this rule. So we haven’t seen any

real issues with that at all, other than people trying to get the money out of other institutions

so they can put it here where the market is still in operation.

BEYERS SELLERS: Thank you very much. So let’s see. At this point let me just mention

that we’ve gone just a little shy of an hour and have primarily been ignoring our friends, the

Real World regulators who are here, giving them a chance to absorb what’s going on and try

to sort out their take.

I would like to get one more question from Temporal, which I believe is more in-world

oriented, and then let’s turn to the take that Dan Miller from the Joint Economic Committee

of U.S. Congress, and Dave Altig and his colleagues at the Federal Reserve Bank, may

have on this. But for the moment, Temporal you have I know a number of questions you’d

like to ask; pick your favorite one.

TEMPORAL MITRA: Actually, my favorite one, I think, at this point would be, I believe, for

the regulators.

BEYERS SELLERS: Okay, shoot.

TEMPORAL MITRA: Assuming that any in-world banks are able to become accredited to

the satisfaction of the Lindens, they’re currently charging what I would term “exorbitant

interest” on loans. I mean we’ve heard over 500 percent annually, I’ve seen 300 percent. I’m

sure there’s more and lesser amounts out there. Since they have Real World accreditation--

and in the real world, this would be a practice called usury, I believe, charging more interest

than you are legally allowed to. Do you expect the banks to have to become subject to the

same maximum interest rates that we see in the real world?

BEYERS SELLERS: Well, maybe that’s something we should direct to our friends at the

Federal Reserve Bank of Atlanta. Dave, are you there?

DAVID ALTIG: I’m here. Could you repeat the question for me?

BEYERS SELLERS: Yeah, I think I can. I’m not great at summarizing questions, but I

believe the shortest version is, if banks are actually licensed to provide services in virtual

world like Second Life, are they going to be subject to the same usury laws? We’re hearing

about hundreds of percent annualized interest rates in Second Life, which apparently is the

going market rate. So if someone actually got a banking license, would they be able to

charge rates like that, or would they be restricted to more typical rates?

RICHARD JONES: Hello?

BEYERS SELLERS: Yes?

RICHARD JONES: Hi. I’m Richard Jones, I’m a colleague of Dave’s here at the Federal

Reserve and--

BEYERS SELLERS: Okay, can you give us your title?

RICHARD JONES: General Counsel.

BEYERS SELLERS: General Counsel. Whoa! Wonderful.

RICHARD JONES: Just put “legal” there; that would work. Generally, usury laws are

governed by the state jurisdiction in which the bank is located. So if you’re going to have

usury restriction, it would have to be a restriction that’s in place by the jurisdiction where the

bank is.

DAVID ALTIG: I think that was the answer. The issue was there--this is Dave again--there

is no sort of Federal usury restriction, so there is no general application of the usury law that

can be kind of invoked as a general principle here.

BEYERS SELLERS: Okay. Well, let me ask, then, just following up on this, as far as I can

tell banking regulation is a lot more complicated than securities regulation, which I’m a little

more familiar with. It’s this whole interconnected set of Federal and State guidelines. If

someone were to set up a bank in Second Life, what jurisdiction would even be relevant

here?

And I should mention people are saying--I’m getting several comments saying, “Why is it

even the U.S.? You know, this is a very U.S.-oriented panel. Where would you see any of

the federal or state regulations coming in?

DAVID ALTIG: The answer is we don’t know the answer to that.

BEYERS SELLERS: I feel better already. And let’s see, Dan? Dan Miller, you are

representing here the Joint Economic Committee of the U.S. Congress, and I’m wondering if

you have a take on what you’ve heard here? Let’s see, do we have Dan? Okay, we may

have lost Dan for a little bit. Let me just again ask a little more of Dave, if you’re still there?

DAVID ALTIG: I’m here.

BEYERS SELLERS: Yeah, Dave, so you’ve heard a fair bit of discussion here about this in-

world banking and I’ve got, actually, a number of questions for you, and perhaps others do

as well. Please type them into the Metanomics chat. But before I do that, do you have any

sort of general reactions to what you’ve heard here?

And I know you’re relatively new to Second Life banking, but do you see the issues as being

similar to, or just radically different from issues in Real World banking?

DAVID ALTIG: Well, I should start I guess by saying I’m participating here more as an

interested observer than necessarily an official of the Federal Reserve, so I’m going to give

you some reactions that obviously don’t necessarily reflect any official position. But let me

react to a few things that were said before, and largely as a macro-economist or a monetary

macro-economist than anything else.

So I think the session opened with this question of why do we need banks in Second Life?

I’m going to use the word “banks” loosely here, not so much as a legal construction, but

rather as some sort of institution that channels funds from one place to another, whatever

that might be.

The answer to that, from a macro-economist point of view, I think, is that the evidence

seems to pretty clearly suggest that development, in the real world in any event, is pretty

tightly connected to the capacity financial intermediation of some sort to take place. So if I

was an individual who was thinking carefully about the growth of a virtual economy, I would

naturally turn my thoughts to thinking about whether or not this very sort of fundamental

spurts of growth can exist and thrive.

There was the question--which I thought was a good one--about why can’t this role simply

be played by Real World capital markets? And the answer is I guess that it could, although

the right analogy here might be something along the lines of micro-lending. There really may

not be any profitable opportunity for kind of a standard Real World financial institution to

play this role of channeling funds within Second Life or within any other virtual economy.

To the extent that you have thriving financial intermediation, I think we’re learning a good bit

in the real world about what it takes to actually make such activities thrive transparency and

appropriate channel for disseminating information, basically about the balance sheets of

people who are engaged in different sides of the contracts. I guess we might say, more

appropriately, we’re learning a lot of lessons about what happens when you don’t have that

kind of transparency.

But does that mean that transparency has to be invoked by a regulatory authority or, I think,

God, as was suggested at one point as in the form in Second Life of the Linden Corporation

or something? Not necessarily. I mean we have in Real World history lots of examples of

institutions, like clearinghouses and cooperatives, which basically set rules for the collective

which could clearly be any one who wants to join in hands with other financial institutions

and provide sort of a backstop insurance or some sort of monitoring function has to play by

certain rules, and the rules presumably could be you have to let potential depositors and

potential borrowers know an awful lot about the situation, the solvency of the institution, and

so on. So that certainly is one route to take that doesn’t require an extensive network of

regulatory rules.

But I do think that in the end you can pretty much probably project that the growth of the

world is bounded without some way of doing channeling of funds from lenders to borrowers.

I’ll take whatever questions you--

BEYERS SELLERS: Yeah, great. Thanks so much for that answer. One question that came

up--and now I’ve lost track of exactly who asked this, but I think it was Alana(?). The

question is, “What is banking if someone just decides that they’re going to lend money to

their friends? Is that something that necessarily needs to fall under banking regulation?

Because it’s not exactly clear what it is that Linden is banning without a license. And so

presumably that’s something I can do on my own on an informal basis. Am I wrong about

that?”

DAVID ALTIG: Well, I’m going to be a little bit careful here because “bank” in the real world,

of course, has a legal meaning, legal status, that doesn’t really necessarily extend to all

circumstances, and it’s pretty clear it doesn’t as of now extend to the circumstances we’re

talking here. So I want to be careful about whether I want to say any particular set of

activities is a bank because only a specific set of activities is a bank if they conform to the

definition of a bank under the law. And that’s quite a separate thing from, I think, probably

what was being asked.

BEYERS SELLERS: Okay. What’s unusual about the policy to me, I will say, is that they’re

very explicit, that they are--it seems very narrow. They are saying that if you are offering a

fixed--if you have an object in Second Life that by clicking on it you can deposit money in

exchange for a fixed interest rate or other direct return, then that is something you’re not

allowed to do which seems to allow informal face-to-face behaviors like that, and also

seems to allow providing, for example, dividends instead of interest.

So I guess I agree with your statement that there are very explicit definitions of banking in

the real world that vary from jurisdiction to jurisdiction, and I just have a lot of trouble figuring

out how to make the connection from that to what Linden is talking about in their policies.

DAVID ALTIG: I think one way--and of course, again, I’m not speaking for anyone--but I

think one way to interpret the way Linden has interpreted things is that they have looked at a

certain set of activities. They’ve said, “Those things look like banking activities to us,” and so

there are rules that govern things that look like banking activities and we’re going to restrict

a presence in Second Life to be institutions that actually fall under the jurisdiction of

regulators in that way.

BEYERS SELLERS: Thanks so much, Dave, for weighing in. I believe Dan Miller from the

Joint Economic Committee of Congress now has a voice in working order. Dan, you there?

DAN MILLER: Yes, can you hear me?

BEYERS SELLERS: Oh wonderful. Yes we can.

DAN MILLER: Oh, very good. My apologies.

BEYERS SELLERS: Welcome to you. Let me just start by giving you an opportunity--I

mean you’ve been able to hear the discussion--let me just give you an opportunity to react

to anything that you care to.

DAN MILLER: Well, I think one of things that strikes me as being an important aspect of

this announcement from Linden Labs is the fact that we’re seeing a virtual world trying to

self-regulate. And I think that’s a very important development. You can argue about the

specifics of [AUDIO GAP] about it and if you think it’s good or bad and what the right interest

rates are for a virtual world. But it’s important because I think a lot of regulatory agencies

being regulatory agencies they like to regulate. And if they see a vacuum, my sense is--this

is just my personal, sort of gut instinct--is that their reaction is to try to fill that vacuum. And

when you have virtual world stepping forward and trying to self-regulate, the virtual worlds

are going to fill that vacuum. And it may be that you’ll have different sets of regulations

according to different virtual worlds, and for the most part I think that’s a good thing because

we’ll see what works in one world [AUDIO GAP] another world.

Users might be more risk averse and their happy with a particular set of regulations in virtual

world A, and in virtual world B they want less regulation. And they’re willing to accept the

risks that go along with that. So that would be my only general comment at this point.

BEYERS SELLERS: So now my understanding, Dan, is that you’re a Republican, you’re a

staff member for a Republican Congressman and they’re not jumping up and down in

excitement at the thought of new regulations. Am I characterizing your attitude

appropriately?

DAN MILLER: Well, yeah, I would say that it would be fair to characterize the Republican

caucus in the House of Representatives. And I work for the minority staff--the Republican

staff [AUDIO GAP] generally in favor of free markets more than regulatory intervention.

BEYERS SELLERS: So then I guess I’m just wondering what your--when you talk about

regulation within the virtual world, I guess I’m just trying to sort out--one thing that we’ve

seen attempted with, depending on who you talk to, varying levels of success, is true

regulation--I guess I think of it as industry self-regulation where we have groups like the

Second Life Exchange Commission or the Virtual World Business Bureau who are without

the help of Linden Lab or Real World. Real World governmental bodies are trying to deal

with mediation and set standards for transparency and so on.

Now in this case, Linden Lab themselves basically said, “You can’t engage in this set of

activities. And instead we’re going to hand that over to the Real World regulators. You show

us your license to engage in banking in Kentucky or wherever, and we will let you bank in

Second Life,” is how it sounds to me. So I guess I’m just curious, then, your take on that. Is

that a direction that you personally like to see or concerns you?

DAN MILLER: What I think I’d personally like to see is to see different approaches tried.

And you know, I think it’s appropriate for Second Life to impose the side that they want to

impose some set of regulations and what essentially they’ve done is said, “Well, we could if

we really wanted to. We could go and look at banking laws and regulations in the EU and

[AUDIO GAP] [in?] Korea and the U.S. and pick and choose what we like and don’t like.” But

the--I guess you can call it the transaction costs of basically becoming experts on all the

different banking laws and picking and choosing what they wanted are too high, so they

simply said, “We’ll just take the whole thing and pull it in.” And there may be other reasons

why they chose to do that, but they just adopted the U.S. banking code as a whole. I don’t

really have a personal opinion as to whether or not that’s a good thing, but I’m glad to see

some sort of movement on this part in this direction.

BEYERS SELLERS: Okay. If I could follow this up--and this is as much for Dave Altig from

the Fed as it is for you, Dan. One way to look at this is that Linden Lab has basically given

permission to people who want to engage in banking in Second Life to identify the

jurisdiction that has the banking regulations that are most suitable to them which, you know,

just to be cynical about it we can say would be the jurisdiction that has the most lax, low-

cost compliance built into it.

And so I guess I’m wondering, first of all, whether you think that people--well, actually I

guess let me just say I think people might well go to, as someone is suggesting here, the

Nigerian Banking Commission and--because I get a lot of emails from them, I should say,

offering me wonderful deals if I just give them a little money they’re going to give me a lot.

Anyway, someone goes to a country, they get a license from that country; they are then able

to provide banking to everyone in Second Life. And I’m wondering, first, whether you think

that’s a direction that might well happen in virtual world. And second, what implications does

that have for Real World regulation? Are we moving into a global reality where people can

just search for the lowest-compliance regulators and use them for all their banking needs?

DAVID ALTIG: Of course the right answer is I don’t know.

BEYERS SELLERS: Now, this is Dave?

DAVID ALTIG: This is Dave, right. I will say that those problems are present in the real

world as well as in Second Life or any other virtual world, so it’s true that the operations of

the bank proceed under the restrictions of their charters and the legal environment that

governs their activities. So as far as I know, there’s no reason that the scenarios that you’re

contemplating couldn’t happen. And perhaps they will, but that’s speculation.

BEYERS SELLERS: And you mentioned, Dave, this isn’t restricted to virtual worlds. We’re

in a global economy now and there’s nothing special, really, about virtual worlds that make

this only a problem in this context. So is this an issue that the Fed has dealt with or is

currently dealing with with Internet banking? Hello, Dave, are you--

DAVID ALTIG: I’m here; the lawyers are consulting with me.

BEYERS SELLERS: Oh, the lawyers are consulting. Okay. Well, let’s see, Dan, do you

want to weigh in on this? Is this an issue that you’ve--

DAN MILLER: Well let me offer one perspe--and that is--

BEYERS SELLERS: Okay, someone has a mic open and is causing some feedback. I

know it really interferes with my train of thought.

DAN MILLER: Yeah. Can you hear me?

BEYERS SELLERS: Yeah, that sounds better.

DAN MILLER: Okay. You mentioned that there might be a sort of race to the least regulated

country like--without meaning to say anything bad about Nigeria, maybe it’s Nigeria. But I

don’t think that’s necessarily going to be the case. What banks want to do is to have a

certain credibility in the world. And if they’re offering 500 or 600 percent interest rates and

they’re based in Nigerian laws, well, that might cause some people to be hesitant to put their

money in that bank. If the bank is in accordance with EU or U.S. laws, they’re going to have

more confidence in that.

So I think that what you’ll see is banks will probably choose maybe a number of different

countries in which to incorporate or get certified in, and they’re going to try to strike the right

balance between avoiding burdensome, unnecessary regulation and at the same time

having a credible banking system so that people know they’re not just a fly-by-night

operation.

BEYERS SELLERS: Okay. Yeah. Thanks, Dan. Let’s see, Dave, did your lawyers come up

with anything that they’d like to talk about on that last point?

DAVID ALTIG: They told me, “No comment.” No, obviously it’s the same sort of issues we

are talking about with the chartering in different locations pertains to the Internet banking.

So it is an issue that’s out there, and it’s one that’s sort of under continual discussion and

study and will continue to be so as these bits of activities become more prevalent.

BEYERS SELLERS: Okay--

JOSHUA FAIRFIELD: Beyers, one--

BEYERS SELLERS: Yes. This is Joshua?

JOSHUA FAIRFIELD: I was just going to say one followup on that--this is Joshua. One

thing about the race to the bottom that occurred to me as I was listening to those excellent

comments, countries will go after people who engage in transgressions of their banking or

consumer lending laws, whether or not Linden Labs thinks that their accreditation from

whatever country is sufficient.

Now, normally, the problem with getting to a fly-by-night lending operation in the

international context is that you can’t reach their assets. That’s actually much less of a

problem in Second Life because some of the assets, a significant portion of the assets, are

going to be under the control of Linden which is subject to United States government

jurisdiction. So there’s much less of a problem of people being completely outside of the

reach of the governments that, like Dan mentioned, have higher standards for lending.

BEYERS SELLERS: Thank you very much. So actually, I want to go back. I have a couple

questions for the guests we started with, Travis, and on this one particularly, IntLibber. I just

want to make sure, gentlemen, you are still there?

INTLIBBER BRAUTIGAN: Yes, I’m here.

BEYERS SELLERS: Okay, great, that is, that’s IntLibber?

INTLIBBER BRAUTIGAN: Yep, IntLibber.

BEYERS SELLERS: Okay.

TRAVIS RISTOW: I’m here as well.

BEYERS SELLERS: So here’s my question and it has to do with the fact that usually when

we talk about regulation for banking, at least most of us here listening to this show in

Second Life are consumers and we think about regulation as a way of protecting the small

depositors. In fact in Second Life it seems like the real big banking scandals have been

really inter-bank transactions.

And I’d like to just summarize a few of these to the best of my ability and I’ll first give the

caveat that I am in no way an investigative reporter; I’m relying on work other people have

done. Prokofy Neva has written extensively on this, for example, as have a number of other

people.

But one case, for example, is with Ginko Financial where in fact I guess, according to

Prokofy, there is a number of the assets of Ginko as they started to fail ended up in your

hands, IntLibber, and she suggests, anyway, that your role in that is not inconsequential.

We also have the--yeah, I don’t want to pick on your IntLibber; I’m going to run through a

short list. The other one is what happened between the World Stock Exchange or really

Hope Capital, the banking portion of the World Stock Exchange and Midas. And I

understand there’s even a lawyer involved in this now, that, in fact, Midas depositors have

hired a lawyer on retainer.

And allegedly what happened there is that Midas bought a bunch of bonds as Hope Capital

wanted to raise money, Hope Capital refused or declined, whatever, to pay the interest or

dividends on those securities, which put Midas in a difficult position at which point Hope

Capital said, “Well, now that you tell us you’re insolvent, we are going to take all your assets

and delist you,” and so on and that was a huge money issue.

And then another one--this moves more into the securities realm, but there were reports that

IntLibber, you and Arbitrage had some disputes over--which I admit I understand least well

of all of these, but that you wanted Arbitrage to stick with the SLEC in some way and

threatened some sort of Real World repercussions if he did not.

So I guess in part I guess I would like to hear the take of the people on the panel. We do

have IntLibber, Travis and Arbitrage, whom I’m sure know much more about these things

than I do. But more generally I’m just wondering from you and also from the other panelists

what it means when the big problems it appears that the big banks are having are actually

between one another rather than with consumers?

I’ll just close with a maxim I heard, I believe this comes from India which is, “When

elephants fight, the grass gets trampled.” And in this case I guess the elephants would be

the exchanges and the grass would be all of the consumers. And so I think there is some

concern there. Anyway, IntLibber, you want to respond to some of that?

INTLIBBER BRAUTIGAN: Yeah. Regarding the Ginko situation, Prokofy seems to never

pass up an opportunity to be completely wrong about things and never seems to investigate

what the actual facts are. Here’s the situation the relationship between B&T and Ginko:

Ginko had bought a sims’ worth of land in our estate and they’d invested several million

Lindens in our IPO. That was the extent of that.

When Linden banned gambling and the casino owners drained Ginko’s reserves and

Nicholas was forced to liquidate, he had his in-world stock in B&T. He had about, I think,

three or four times as much invested in Hope Capital stock, as well as in a couple other

stocks on the World Stock Exchange. By that time we were listed on SL CapEx, and he

could have sold off those stocks at any time and he did not.

When Luke refused to let Nicholas buy back the Ginko bonds at market rates, Nicholas was

unable to raise enough funds to pay the interest. He could have possibly liquidated his B&T

stock and his Hope Capital stock, except Luke prohibited him from selling his Hope Capital

stock. But he could have liquidated his B&T stock. He had sold off a few million shares of

B&T in order to try to pay his expenses and interest, but it was really--he was caught

upside-down in a significant manner.

After Luke squeezed Nicholas into giving up his assets, Luke basically wanted Nicholas--

after Luke pulled his squeeze play on him--to give Luke all of the Ginko assets and that

would have included all the B&T stock.

Now, Luke and B&T generally do not have a decent relationship at this point in time and our

personal concern was that he would show zero concern for the Ginko bond holders or for

B&T and would simply use that as a chance to tank our stock. And by that time we had

delisted from SL CapEx and were building the Ace Exchange and we had just gotten it open

and so what we decided to do at that point was--because he also still had a sim in our

estate, was we took the sim and we took the stock and we put those assets into the custody

of Shaun Altman, who was one of the big Ginko bond holders, and so he’s essentially

running a Ginko liquidation trust to essentially obtain as much value for those assets as

possible and, by doing so, he will then have, at some point, funds, and then he can confront

Luke and publically require that he put those funds directly to the Ginko bond holders alone

and not just to all of the booby-prize winners in the WTF stock that Luke likes to stick all the

people of the companies that he seizes. And so that’s essentially the situation there.

We are trying to act in the best interest of the Ginko depositors and bond holders in

protecting the assets and making sure that at least the ones that we were able to gain

control of, that we’re able to help get maximum value for, and that’s going to take some

time.

We did sell off the sim, and Shaun has those funds. But as far as the stock, the terms of that

agreement was that the stock needs to reach a price of 20 percent under the net asset

value of the company before he can sell B&T shares from that fund. So right now the stock

has not met that price threshold yet and so that’s where things are standing right there. But

we are trying to do as much as we can for those Ginko bond holders without doing

something that would essentially destroy the value of B&T. So we’re trying to do the right

thing there.

As for the Midas thing, the only involvement I had there that I can comment on is that when

Luke had announced that he wasn’t going to pay the interest on the Hope Capital bond to

Midas, Midas asked for my advice. I told him that he needed to first back up his stockholder

list before he confronted Luke about anything. And he did not and as soon as he went over

there and confronted him, Luke poofed his whole stockholders and converted them

immediately to WTF and seized his assets. That is--in my opinion, that’s reprehensible.

Someone who’s running an exchange has a huge fiduciary responsibility to not act in a

predatory manner like Luke is doing.

But one of the reasons I founded the SL Exchange Commission last year was because I

had seen signs of that sort of predatory behavior by Luke very early on. I’ve known Luke

longer than just about anybody else in SL. I had built his original exchange building and he

had told me at that time he was going to use the exchange to take over the banking industry

in SL. And that, from all intents and purposes, appears to be what he’s doing by whatever

means he’s able to. So that’s all I can comment there.

As regards the situation between myself and Arbitrage Wise in terms of SLEC, the SL

CapEx was--they had only joined the SLEC in order to obstruct things. Bogart Beck had

volunteered to chair a committee and then never held a single meeting of the committee and

they essentially tried to obstruct a lot of things and the situation with my putting some

demands upon Arbitrage is that Arb has invested his depositors’ money in some software

development, which is some very shady legal situation and I can’t really comment on that

beyond that. But I leave that to the legal experts to investigate whether Juice Trading is

legal gambling software or not.

However, Arbitrage’s attempts to claim that my insistence that he start playing nice and

playing by the rules trying to claim that that was some sort of a blackmail falls on its face

because to be blackmailing you have to demand money. And I didn't because I’m not

interested in that; all I was interested in is people doing the right thing and people operating

in a legitimate manner.

It’s too bad that Arb chose to continue to operate in a non-legitimate manner and try to

make things look bad for me. But the fact is that I’ve always operated from the start an

interest toward the good of the public interest here. And that’s all my interest has been on

that.

BEYERS SELLERS: Oh, excuse me; I was talking with my mute on. But thank you,

IntLibber, so much for responding in detail to those, and I would like to--you know, I think

what I’m going to do here is simply let the people who are writing blogs and cover this stuff

deconstruct what you’ve said. I asked Arbitrage if he’d like to respond. Unfortunately he

does not have voice right now, so I guess that will also be a delay as well.

Now Travis, I have a question for you, and I know you also would like to make a statement.

The question comes from Annie Sonnie(?) which is, basically, “What is the best advice for

BCX investors right now?”

So I will let you--I know you have comments you want to make. I’ll let you go ahead and

make those and hopefully you can respond to Annie’s question as well.

TRAVIS RISTOW: Thank you, Beyers. I would like to respond to Annie’s question; I’ll do

that first. What we would like to see is as many as our depositors just hang tight. We are

allowing smaller withdrawals right now. We are working on getting the liquidity issues to be

taken care of and, at that time then we can go ahead and pay everybody off. I have no issue

with that.

What I do also want to say is that in regards to the inter-bank issue that is something that

personally hasn’t affected BCX. We have dealt with a couple of other banks for different

reasons, you know, loaning--primarily loaning--and we do have a couple of banks that are

invested with us. But as far as inter-bank deals like that of some of the other companies,

that hasn’t been an issue for us. Now--

BEYERS SELLERS: Excuse me, Travis, do you care to hazard a guess as to why that

hasn’t been an issue? I mean is that just because you haven’t engaged in them, or that

you’ve exercised more care?

TRAVIS RISTOW: Now, I can’t really say I’ve exercised more care. I’m not going to say

that. It is just something that we chose not to do. We chose to try to keep as much of our

assets as close to home as possible that we actually had physical control of.

BEYERS SELLERS: Okay, yeah. Thanks. So go on; I didn’t mean to interrupt.

TRAVIS RISTOW: Okay. My question--and this is kind of a question and kind of a

statement, and I would like to hear from anybody else on this panel--as far as Real Life

banking issues, one of the issues that has come up is if we chose that route--which is, to be

quite honest, not such a great route to choose because the problem that we would have

would be actually just straight up financial--the income potential for the amount that we

would have to put out and the amount of regulations, the amount of paperwork, and the

amount of extra employees that we have, don’t really seem to be beneficial at this time

because there’s, in my opinion, not enough money flowing to talk that kind of a deal.

But anyway, my real concern is if you were to choose a banking route, wouldn’t this actually

end up being a terms-of-service violation as far as Linden Labs is concerned, personally?

Because we would have to take a lot of Real Life information as far as if we were to do it

from the U.S., because we would have Patriot Act concerns, Truth in Lending, and that kind

of stuff. There’s a lot to be considered, and if we’re actually asking for real people’s

information then that is something that is strictly prohibited in the Linden Labs’ terms of

service.

BEYERS SELLERS: Okay, other members of the panel, would you like to weigh in on the

implications of, I guess, going legit?

BENJAMIN DURANSKE: I can say something about it. I think that my understanding of the

terms of service, to the extent that they integrate the community standards, is that they are

not allowed to disclose other peoples’ Real Life information in Second Life. But, I, for

instance give a great deal of information about who I really am. I think Travis and IntLibber

both do as well. I know Joshua Fairfield is Fairfield--

BEYERS SELLERS: Just to clarify, this is Ben, right?

BENJAMIN DURANKSE: My apologies, Beyers. Yes, this is Ben again. I think that Linden

Lab is, in fact, trying to encourage people to partner up with legitimate institutions or get

banking licenses. And to the degree that there would be a dispute between your contract

with Linden Lab via the terms of service and the opportunity to open up a real banking

institution I would suspect that Linden Lab would be amenable to talking about it they I think

are legitimately encouraging Real Life banking in Second Life.

I think that the Federal Reserve speaker--I think that’s Dave--made a good point, which is

that there’s a good reason for virtual worlds to want there to be a banking system and I

think, in the long run, there will be. To the extent that the terms of service are conflicting with

that, I would open a dialogue with Linden Lab, if you’re really interested in opening a bank in

Second Life.

BEYERS SELLERS: Okay, we have come to the end of our time here. What I’d like to do is

just offer members of the panel a chance to make a brief closing comment, if you have one.

So whoever would like to pipe up, if you’ve got some remarks you’d like to make, just start

right in.

JOSHUA FAIRFIELD: Well, this is Josh Fairfield. I just want to say thanks very much,

Beyers, for putting this together on such short notice and bringing together a bunch of great

people to talk about this. This has been a wonderful event.

BEYERS SELLERS: Okay, thank you. Thank you for coming. That’s Josh Fairfield from the

Washington & Lee School of Law.

BENJAMIN DURANSKE: This is Ben Duranske. I’ll also join Josh in thanking Beyers for

putting together a terrific panel, both this time and immediately after the banking crisis about

a week ago. And I wanted to clarify something I said earlier, because I have been in

communication with the gentleman I’ve been emailing with, and he is more than happy for

me to identify SL Bank as the bank that he was running, and also point out that I was

incorrect. He’s not running a foreign currency exchange for this; he was actually doing

arbitrage on inefficiencies and virtual land and currency markets which is, I think, pretty

good evidence as to some of the points that was made earlier that the currency market and

the virtual land market can support some significant profits.

But he was paying 27 to 30 percent a year in interest, and that’s a lot less than a lot of the

illegitimate banks were paying. So I’m sorry to see him go. The avatar associated with that

was Twofull Hoftman(?) and it’s Joshua Zarwall(?) who emailed me and told me that I could

go ahead and talk about this. So I’m sorry to see some of the banks go. And while I do

believe that most of them were fraudulent, could have been prosecuted that way, I don’t

think that all of them were, and I think it’s sad for Second Life to see some of these

institutions disappear.

BEYERS SELLERS: Thanks for those comments. So let’s see, Dan Miller or Dave Altig?

Any closing comments?

DAN MILLER: Yes, I’d like to say what a pleasure it’s been to sit on this panel and to hear

all the comments. And thanks to Beyers for putting it together, because I think it’s very

important for members of Second Life and of virtual worlds, generally, to discuss and work

through these issues of trying to balance between Real World regulations and self-

regulation.

And as I think I said before, if there is a regulatory vacuum, my sense and my gut instinct is

that the Real World regulators will tend to move to regulate that space to occupy that space.

And that if the residents of Second Life and virtual worlds like having the worlds self-

regulated and run without the government stepping in and banning certain activities or trying

to keep up with the latest technology, which is tough even for a tech company to do much

less the government, that these virtual world operators need to implement regulations like

what Second Life has done. So I'll just [INAUDIBLE]

BEYERS SELLERS: Okay. Thank you. Dave?

DAVE ALTIG: Yeah, I’ll add my thanks to the invitation to participate in what I think was an

extremely interesting discussion. There’s obviously a ton of issues left to be resolved here

and I look forward to the debate about how they get resolved.

BEYERS SELLERS: Thank you so much for coming. And let’s see, we have--looks like

IntLibber and Travis are still here. Any brief closing comments?

INTLIBBER BRAUTIGAN: I just want to say that this session and the previous session has

been a great chance for everybody to have a public discussion about this issue so that all

views can be heard because a lot of the times all we see is the official word or whatever the

biggest mouths get to put on their blogs. And I think it’s really important that we got not only

a lot of people from in-world to ask questions and get answers straight from the horse’s

mouth, but to get people from outside of SL with the legal acumen or the authority to give

some opinions about how things are and how things should be, and I’m glad to see this

happen and I want to thank you for providing this forum.

BEYERS SELLERS: And Travis, I guess you are last to go.

TRAVIS RISTOW: I’d also like to say thank you. This was a great chance for the banks to

be heard as far as our side. It’s a good spot for us to learn a little bit more about what

everybody else is thinking as far as external regulators or possible regulators. It’s just a

good altogether venue to hear everybody’s opinions. I think you had an excellent panel, and

I look forward to seeing where this goes.

BEYERS SELLERS: Well, I thank all of you for joining the panel and to what appears to be

a fairly large audience spread throughout Second Life watching us. I know there are a

number of people also watching us live on SLCN TV. I’d like to extend a special thanks to

Saxo Bank, the Real Life bank which, by the way is licensed for many banking services in

Denmark, but is not yet offering banking services within Second Life; however, on their

behalf I do invite you to discover the rest of the island here at Saxo after the show and for

those of you who want to learn about foreign exchange markets, feel free to visit the trading

game that’s in the building I believe right on this floor. Winners are paid out in Lindens, so

that’s something to take a look at.

I’d also like to extend a special welcome and thanks to Lars Christensen who is here in the

Second Life as Lars Karmona(?), the CEO of Saxo Bank. So thank you very much for all of

your help and I hope you have found this interesting. This has certainly been a fun panel to

put together, and I am looking forward to going home and getting some sleep. So again,

thanks to everyone. Thanks to SLCN and Saxo Bank and to our many sponsors. And we will

see you next week for Metanomics 11:00 a.m. Second Life time. Bye-bye.

[END OF AUDIO]

Documents: unproofed_cor1002.doc Transcribed by: http://www.hiredhand.com Second Life avatar: Transcriptionist Writer