Ginko rumbles on
The fall out from the collapse of the Ginko Financial rumbles on through the blogsphere. Nobody Fugazi blogs some serious questions about WSE and Ginko, (which seem to boil down to “where’s my money?”) and questions are being asked at Second Life Herald and many other places about where all the money — about $200,000,000 — has gone.
I was very skeptical about the returns which Ginko claimed when they first started up, and was roundly attacked on numerous group chats when I hazarded the opinion that Ginko might be a ponzi scheme. The rumours about this abounded throughout the life of the bank, not least because the bank was offering a 40% return on money invested and refusing to divulge the source of their profits. A ponzi scheme is one where new investors are the ones paying for the profits of the old investors, a type of pyramid scheme.
It was obvious to everyone that if such a system was at the heart of Ginko, then like all ponzi schemes it would eventually fall apart once the rate at which new investors were attracted began to be outstripped by the needs of the current investors. Although the WSE fraud may have accelerated the end, I do not agree with Benjamin Duranske at Virtually Blind that questions asked on blogs brought about the downfall of Ginko. I’m not sure I agree. Questions have been asked from the beginning. Asking questions more loudly when ATMs fail to pay out and daily withdrawal limits are suddenly instituted is hardly the same thing, especially given the negative publicity which Ginko has attracted since it opened. Ginko was brought to its downfall because ponzi systems have to fail eventually. The only question was when.
What seemed very sad to me when I argued with people on group chats who had invested in Ginko, was that people were willing to invest money in something that was the opposite of transparent. As reported recently in the Second Life Herald, Nicholas Portacarrero refused utterly to divulge where the money was invested in order to gain such high returns, and the suspicion always was that this was because the money wasn’t invested at all. It was obvious; if you have a real investment which pays such high returns reliably, what would be the need to open a bank? Wouldn’t you simply borrow all you could at the comparitively paltry rates which banks charge, and pay off the loans using the high rate of return?
Some people are greedy, that seems to be the lesson. They are greedy and will turn a very blind eye to the possible consequences of their greed if you offer them a big enough incentive. The fact that the profits might have been from illegal activities, which was the other possibility, or a ponzi scheme which was going to rip off any investor joining at the bottom of the pyramid, didn’t matter as long as the scheme paid up.
This isn’t the picture I have of SL residents in general: they are usually generous, giving and kind to others. Perhaps someone ought to start the sort of bank which is gaining a lot of ground nowadays: one which is completely transparent, invests only in ethical concerns, and lends money to people with poor credit histories. It might be a lot more successful than the Ginko style of bank.
Edit: to get the name right! Now, where’s my gingko biloba?
August 9th, 2007 • 
Caliandris Pendragon • 
comment | August 10, 2007 at 06:34 | individual comment-link
I completely agree with this post — that the downfall was inevitable because of what it was. But the fact that it was now, I think, and not three months from now, or three months ago, was the community attention stayed focused on it and prevented it from being propped up with nonsense until more people could be convinced to deposit.
They’d had withdrawls be halted before, and were always able to get through by waving their hands and “just trust us, we’re working for you.” Somehow, this time, it went on too long, or there were too many shady deals going on (e.g. trying to “buy” a stock exchange in the middle of this, trying to issue an IPO in a bankrupt company, forcing everybody into Perpetual Bonds that are only tradable for a fee that partly goes to Ginko’s owner) that I think people had just had enough so didn’t let that work. When that didn’t work and word got sufficiently spread — so deposits stopped — it died, because it transparently relied on new deposits to pay old depositors’ claims.
comment | August 10, 2007 at 06:50 | individual comment-link
Actually, I disclosed my financial interest so I would be transparent. In the grand scheme of things, my amount of money is rather small - I’ve spoken with people who had about $9,000 US in. Plus, there have been many questionable practices with the inworld stock exchange, WSE - and it is tied to Ginko through investment (Ginko owns over 1/3 of the company that owns WSE).
So, no, it’s not about where *my* money is… it’s about where the money is going.
comment | August 29, 2007 at 01:51 | individual comment-link
Hey I agree with this viewpoint. I had about 16,000 lindens in that account and as soon as they put up the withdrawl cap I couldn’t retrieve any of my money so I started a concept of shark withdrawls
It always said my withdrawl is too large to process so I did it in multiples of 1000/100/10 and onwards I managed to get about 15,000 this way while waiting for people to make deposits. It worked
I also met a foxface dude that had 180,000 lindens in his account anyways I left about 780 lindens in that account then left it for awhile then I saw the notice that all money was passed on to WSE
so after three weeks of trying to recover the lost lindens I got no response finally I was able to recover the 780 lindens the bond was valued at that amount but when I went to sell it only came out to about 160 lindens I was shocked and mystified. 780 turns into 160. I was wondering what the hell would have happened if I left my 16,000 Since I do not prefer to keep 100 K on hand I have moved on to a more established bank in SL they don’t offer an interest rate at all but at least they are vivid in their customer service. I guess people get really greedy and they want the highest return for their dollar so some people should have put their money in ten banks at least you would have the knowledge to move on if one of those banks collapsed. Ginko took my 600 lindens but I am happy I withdrew it all like a shark and all of these people will be brought down by simple tax evasion laws.