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Wildcat Banking in the Virtual Frontier

  • second-life
February 5, 2008

Tags Media and CultureMoney and BanksMoney and Banking

The new banking policy in Second Life has strong parallels to the adoption of 19th-century banking regulations in the real world. These regulations were supposed to stop wildcat banking, where ambitious bankers expanded credit through risky loans until defaults led to insolvency and left their depositors empty-handed. Similarly, in Second Life, unregulated banks have offered demand deposits bearing interest rates of 40% or more, at least one of which never actually had any loans underlying its interest-bearing deposits. Cases such as that are almost certainly fraud and should be adjudicated as such, but Linden's adoption of a draconian ban on all interest-paying banks, which had been preceded by a ban on gambling, has established a clear pattern of economic interventionism. This does not bode well for Second Life users, for as Ludwig Von Mises has taught us, middle-of-the-road policy leads to socialism. FULL ARTICLE

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