More Mortgage Crisis Fallout?

The issue of economics in on-line games is a rather interesting one. One economist even produced a paper on the economy of Everquest. I don't have the time to play anymore, but I have dabbled in some on-line role playing games, but I can't see how anyone would invest real money in virtual banks. A rather interesting article on this was in the Wall Street Journal this week.

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.

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.