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Recession Comes to 'Second Life'

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Recession Comes to 'Second Life'

Digital Life

Recession Comes to 'Second Life'

Recession Comes to 'Second Life'

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

It turns out the global economy is not the only one that's suffering. The virtual economy in the virtual world Second Life is also in shambles. But who cares? It's just a virtual world, right? Yes, reports the Wall Street Journal's Robin Sidel, but this virtual world, with virtual banks, uses real money.

TOURE, host:

Second Life is an online community, a virtual world that uses real money, and because money is the root of all evil, there are money problems in the virtual universe. Apparently, virtual banks in Second Life were collecting money at interest rates of up to 200 percent, which, even a fifth grader can tell you, is unsustainable. The banks had no regulations and no insurance, and were run by regular folks who had no more experience in banking than our producer Jacob.

Can you guess what happened next, Alison? The banks failed.


No way. Really?

(Soundbite of laughter)



TOURE: One may have lost $750,000 in real money. This week, Second Life closed all the banks, and now allow only real world-chartered banks to open banks in Second Life - perhaps something that should have been obvious from the start. How about that? You go to a virtual world for escape and run into the same foundering economy that we have in the real world.

Robin Sidel, a special senior writer, a senior special writer on the banking industry for The Wall Street Journal, wrote about the Second Life banking crisis.

Robin, how are you?

Ms. ROBIN SIDEL (Senior Special Writer, The Wall Street Journal): Hi. Good morning.

TOURE: For listeners who don't know much about Second Life, can you briefly tell us what it is?

Ms. SIDEL: Well, I think the people who are - like you and me, and perhaps who don't do this regularly, it's a game. You download their software. There is a virtual world. You create a little computer-generated image, and you wander around this virtual world, doing pretty much anything that you would do in the real world.

TOURE: But I mean, it's not a game in the sense that you can win or lose. It's an experience.

Ms. SIDEL: Right. It's not a structured game. It's just a separate world.

TOURE: But the thing that makes Second Life sexy is that it uses real money.

Ms. SIDEL: Yes, if you want to. You don't need to be using money in Second Life, but a lot of people do.

TOURE: So how do you acquire money?

Ms. SIDEL: Well, you go to - just like you would if you go to France and need some euros, you go to the currency exchange called the LindeX, and you buy your Linden Dollars.

TOURE: Oh, wow. So, now, you know, there is millions of people using Second Life or having the Second Life experience using real money. Is there some economists watching over things to make sure things don't go haywire?

Ms. SIDEL: Within Second Life, I'm not really sure. But there are many, many economists who are studying virtual economies, which I was actually very surprised to hear because who would have thought? But they are looking at virtual economies and seeing if there are correlations with the real economy, and looking at what happens in a, pretty much an unregulated environment.

TOURE: Mm-hmm. I mean...

Ms. SIDEL: Something - it's all about real academic point of view.

TOURE: I mean, it's a good test.

Ms. SIDEL: It's interesting.

TOURE: But isn't it sort of obvious that even in a virtual world, only chartered insured banks should be trusted with your money? I mean, aren't the people who were swindled here to blame for poor judgment? I mean, 200 percent interest rates don't even pass the smell test.

Ms. SIDEL: Well, everybody wants something that is going to make some money, right? People go to Atlantic City and Las Vegas and play a game and hope to, you know, get the big money on the slot machine with all the bells ringing. So it's pretty much the same kind of thing, and, you know, everybody thinks they can outsmart somebody else.

TOURE: Hmm. The L.A. Times says after the banks were closed, Second Life's stocks plunged and real estate prices plunged - the entire economy went south. But is there a correlation between the recession in the real world and the economic troubles in Second Life?

Ms. SIDEL: Well, it's funny. People have really different views on that. Over the past several months, some real world companies that participate in Second Life for advertising and marketing have pulled out or pulled back a bit, realizing that it hasn't created whatever kind of interest that they had expected.

People think if the real - there are two views of thought. People think if the real world economy really weakens, that people will be increasingly unemployed, and dancing around Second Life with nothing to do, and spending money perhaps that they don't have. Other people think, if that, in fact, happens, that people without jobs - if they do lose their jobs, they'll go into Second Life and become entrepreneurs and make some money.

TOURE: Are people actually making money in Second Life?

Ms. SIDEL: Yeah, they are. I spoke with one - actually, a graduate student, who was operating one of these banks. And with the money that he was getting from depositors, he was buying and selling currency on the Linden Exchange. And he says that he has made $15,000 over the past couple of years. And there are people who run all kinds of businesses, selling clothes that people buy for their avatars, and are making actual money.

TOURE: Wow. Wow. So now, some of the virtual bankers were investing in Second Life real estate, but help me understand how virtual real estate would appreciate in value.

Ms. SIDEL: Because when you buy a piece of land, you develop it just like you develop it in the real world. And people build things and people pay you rent and people pay you to build on a land. So it's a moneymaking venture.

TOURE: Wow. Okay. Well, that makes a lot of sense.

Robin Sidel, a senior special writer on the banking industry for The Wall Street Journal.

Thanks for talking with us.

Ms. SIDEL: Okay. Thank you very much.

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