Is it me, or has the world gone mad? The US, and hence the rest of the world, is in the midst of stock market chaos. This chaos has been prompted by the stunning realization that lending money to people with no money and limited prospects for earning money may not be a great way to make money, but may well turn out to be a marvellous way to lose money. “Sub-prime” is such an inglorious example of modern diction. Presumably it is only a matter of time before rotten meat is recategorized as “sub-prime foodstuffs” and the comments of lying politicians are described as the “sub-prime truth”. As a consequence of mortgage failures, wholesale banking is being dragged down as well, as banks stop lending to each other for fear that loans may never be repaid. All of this is pushing the price of commodities like gold ever higher, as investors scramble for a safe haven. The idea behind that is that gold is tangible, “real” if you like, in a way that equities or debt could never be. In the midst of this financial mayhem, what news do we hear? Linden Labs, the company behind virtual world Second Life, may be closer to a public stock market listing. Hard to believe, but true nonetheless.
Philip Rosedale, CEO and founder of Linden Labs is to step down and take the role of Chairman, prompting the business to search for a replacement as the business shifts from start-up mode to operational mode (a.k.a. reigning in costs and trying to make more money). Some have commented this is part of a process that will lead to an IPO. Current Linden Labs Chairman Mitch Kapor, who was the founder and fomer CEO of spreadsheet pioneers Lotus, admits that an IPO is “an option under consideration”. Presumably it is only an option because a commercial sale might suit just as well, and be a lot more realistic in a world where markets are going down, not up. However, any kind of sale does make you wonder about the relentless optimism for some kinds of investors. Second Life is not real. It represents what happens when people spend their time making a make-believe world. It has an economy and a currency that can be converted into real-world cash, but the Second Life economy has, in investment-speak, absolutely no fundamentals. Money in Second Life can be taken away or devalued in an instant. People may invest their real-world dollars in virtual real estate or establishing virtual businesses in Second Life, but none of it has any substance. This faith in virtual and intangible worlds that represent a combination of code and human interaction runs contrary to a time where most people are increasingly retrenching in the ever more real and tangible. The mortgage crisis plays on that most primitive of human needs: the need for shelter. No amount of virtual property can substitute for the loss of a real house. In times like these the virtual economists would be wise to keep their real-world ambitions in check.
