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Bank insider steals 200 billion
June 15, 2009 9:00 AM   Subscribe

Bank insider steals 200 billion - a director in EBank in Eve Online has stolen 200 billion ISK (approximately 10% of deposits), engaging in real money trading to fence his loot. Equivalent to ~US$12,000, the theft has left Ebank with concerns over liquidity, security, auditor failure, and a run on the bank by investors. Unlike the real world, there is no government bail-out.
posted by Argyle (93 comments total) 8 users marked this as a favorite

 
Equivalent to ~US$12,000

What?
posted by Mental Wimp at 9:07 AM on June 15, 2009


Sure there can be a 'government bail out' - the Eve money is just digits in a computer and more can just be created to cover the 'loss'.

Works in the real world, why not in Eve?
posted by rough ashlar at 9:09 AM on June 15, 2009


Unlike the real world, there is no government bail-out.

Well why not? $12k would be a small price to pay to prevent hundreds, nay THOUSANDS of angry message board posts.
posted by anti social order at 9:09 AM on June 15, 2009 [3 favorites]


welcome to the REAL world, nerds!
posted by HuronBob at 9:12 AM on June 15, 2009 [4 favorites]


It's known who the scammer was, and presumably CCP can tie his account to his or her real identity. One idea I haven't seen mentioned in the news and blog coverage is to notify the local taxing authority, as it wouldn't surprise me if the scammer also failed to pay income tax on the ill-gotten gains.
posted by jedicus at 9:20 AM on June 15, 2009


Perhaps victims can now go back to their first life and, you know, engage with the real world.

He writes, typing anonymously on the internets.
posted by MuffinMan at 9:23 AM on June 15, 2009 [6 favorites]


Eve’s creators at CCP — which employs its own economist and philosopher — take a laissez-faire approach

Jobs I Want #36: In-House Video-Game Philosopher
posted by brain_drain at 9:25 AM on June 15, 2009 [46 favorites]


I did this same thing with metafilter favorites. I'm still trying to decide what to trade them for.
posted by cjorgensen at 9:30 AM on June 15, 2009 [3 favorites]


This is a lot less serious than real-life bank failures, and not just because of the fact that it's all pretend money for pretend goods anyway.

Why? Because as far as I can tell, Ebank doesn't and can't engage in fractional-reserve banking, which is what real banks do. In real life, a bank might have $10,000 in deposits, but it will actually lend out $200,000 or more, $5 at a time. Basically, they kite checks, knowing that not everyone will want their $5 all at once. The law of large numbers means that when you get big enough, with enough capital, it will almost never happen that more people want money today than what you have in actual deposits. Note, however, the almost.

The fundamental business of real-life banks is lying about how much money they have, and if they get caught lying, they evaporate, because it's completely fiction, top to bottom. Most of the money banks lend out never existed in the first place. (The Austrians claim, and this seems perfectly sensible to me, that this is what causes the business cycle -- phantom money from nothing, created by banks, causes too much expansion, and then when things get overbuilt and turn south, the contraction is too intense because banks stop lending, worsening the downturn that was caused by too much money in the first place. Too much money leads to to little money, because about 95% of it fiction in the first place. Easy come, easy go.)

But Ebank wasn't, as far as I can see, doing that. They have trillions in deposits, but only billions in loans. Their checks don't trade like ISK, so there's no money expansion going on. Without that fundamental fraud, the bank should be extremely resilient to loss, because it just loses what was stolen, not a whole pyramid of imaginary ISK lent out based on the original deposits.

If they're doing that little lending, I don't think they'd be very profitable. They probably charge high interest rates when lending, and give low interest rates to depositors, but it's not going to be anywhere near as profitable as real banks, because they can't easily lie about how much money they have. But their risk of outright collapse should be extremely low.
posted by Malor at 9:34 AM on June 15, 2009 [10 favorites]


Is the real money trading what got this guy banned by the company? I thought in general this sort of backstabbing lulz was half the point of Eve Online.
posted by TheOnlyCoolTim at 9:34 AM on June 15, 2009


Jobs I Want #36: In-House Video-Game Philosopher

I bet he's well paid, too. Last year he probably made over a billion, um, ISK.
posted by The Bellman at 9:35 AM on June 15, 2009 [1 favorite]


There's some insider discussion on ArsTechinca if you're interested.

Basically, Eve is rife with fraud, since you can just start a new account and throw away your identity at any time. Even though the owners of Eve don't allow Real Money Trading (or RMT), some people do make real money farming in-game currency then selling it on eBay.

EVEBank is basically a group of people who enjoy role-playing a large financial system. They finance IPOs and make it easy for people to secure loans when they need it. It's actually a wonderful simulation of how the financial industry is supposed to benefit an economy, and the system works pretty well.

In this case one of the EVEBank memeber, ricdic, apparently needed some quick cash, so he took all the liquid ISK (in game currency) he could get his hands on, sold it on ebay and got banned. It's actually a pretty unusual occurrence (most of the RMTers use disposable accounts since they plan on being banned) and EVEBank is claiming that they'll handle it just fine, though they are notorious for a lack of transparency.
posted by heathkit at 9:39 AM on June 15, 2009 [1 favorite]


Ii's weird that he got banned- I thought CCP supported RMT.
posted by Pope Guilty at 9:41 AM on June 15, 2009


In real life, a bank might have $10,000 in deposits, but it will actually lend out $200,000 or more, $5 at a time. Basically, they kite checks, knowing that not everyone will want their $5 all at once.

What are you going on about? Fractional reserve means that if they receive $200,000 in deposits, they can lend out $180,000 (10% reserve in the US). If there's a run on the bank, yeah, they're short, but they are not kiting checks, and they're not lending more than they receive in deposits.

Part of your comment is accurate, but you're either confused about how it works, or you're being willfully misleading. Either way, the global economy we have today would not be possible without this sort of creation of money. A 50% reserve would lead to a lot more security, but interest rates would be steep, and securing a loan would be difficult because the supply would be low.
posted by explosion at 9:44 AM on June 15, 2009 [3 favorites]


I did this same thing with metafilter favorites. I'm still trying to decide what to trade them for.

Just so you know, cjorgensen, that wasn't a tip, it was an investment. I now own 0.08% of your net worth in good-karma.

I expect a certificate. And shareholder meetings. With strippers.
posted by rokusan at 9:51 AM on June 15, 2009 [2 favorites]


What are you going on about? Fractional reserve means that if they receive $200,000 in deposits, they can lend out $180,000 (10% reserve in the US).

Hah! Man, are you ever clueless. Current Federal Reserve deposit requirements are about 2.5%. Banks lend out WAY more than they take in deposits. WAY more.

Fractional Reserve Banking on Wikipedia.
posted by Malor at 9:53 AM on June 15, 2009


Oh, I get it -- you've got it backwards. A 10% reserve requirement doesn't mean that they can lend $180,000 on $200,000. It means they can lend two million, keeping 10% in reserve.
posted by Malor at 9:54 AM on June 15, 2009 [1 favorite]


cstross, cstross, please pick up the white courtesy telephone please.
posted by doctor_negative at 9:58 AM on June 15, 2009


Apropo of nothing, how are the Hurf-Durf Moon Eaters doing these days?
posted by The Whelk at 9:59 AM on June 15, 2009 [1 favorite]


It's known who the scammer was, and presumably CCP can tie his account to his or her real identity. One idea I haven't seen mentioned in the news and blog coverage is to notify the local taxing authority, as it wouldn't surprise me if the scammer also failed to pay income tax on the ill-gotten gains.

CCP would do almost anything to avoid this actually, and this is why they try to ban Real Money Trading. Can you imagine the results if tax authorities started taxing in-game income (if you withdraw in-game money into 'real' money you already have to pay tax)

This is a lot less serious than real-life bank failures, and not just because of the fact that it's all pretend money for pretend goods anyway.

So you do believe that fiat currencies are real money!
posted by atrazine at 10:00 AM on June 15, 2009


Iceland sure has its share of banking woes.
posted by caddis at 10:12 AM on June 15, 2009 [2 favorites]


No, not really, I was just avoiding that issue because it would make the post too complex, and really didn't matter in this context.

A paragraph explaining that it was 'even less real' than dollars would have been a waste of time, both for me and for you.
posted by Malor at 10:12 AM on June 15, 2009


they can lend out $180,000 (10% reserve in the US).

Naw - that's the textbook example.

0, 3% and 10% depending on deposit size.
posted by rough ashlar at 10:14 AM on June 15, 2009


The fundamental business of real-life banks is lying about how much money they have, and if they get caught lying, they evaporate, because it's completely fiction, top to bottom. Most of the money banks lend out never existed in the first place. (The Austrians claim, and this seems perfectly sensible to me, that this is what causes the business cycle -- phantom money from nothing, created by banks, causes too much expansion, and then when things get overbuilt and turn south, the contraction is too intense because banks stop lending, worsening the downturn that was caused by too much money in the first place. Too much money leads to to little money, because about 95% of it fiction in the first place. Easy come, easy go.)

There's plenty of fiction involved in this paragraph, Malor, but it's probably not where you think it is.
posted by oaf at 10:20 AM on June 15, 2009 [2 favorites]


There's plenty of fiction involved in this paragraph, Malor, but it's probably not where you think it is.

Try being less snide and more descriptive. It'd help those of us that are merely following along.

...or should we just guess?
posted by aramaic at 10:22 AM on June 15, 2009 [5 favorites]


Oh, I get it -- you've got it backwards. A 10% reserve requirement doesn't mean that they can lend $180,000 on $200,000. It means they can lend two million, keeping 10% in reserve.

No, no, you have it backwards. You're confusing the money multiplier and creation of money with the reserve ratio. There is no way to lend out more money than you have!

The money multiplier is 1/reserve-ratio, and 1/(10%) = 10. So after a number of deposits and loans, $200,000 in paper currency will become $2,000,000. On the books though, they've also taken over $2,000,000 in deposits. Of which they were required to keep $200,000 in paper in a vault somewhere.

When person A deposits $200,000 cash to Bank Q, Bank Q cannot loan person B more than $180,000. The rest must remain in reserve. If person B pays C for something, and C deposits $180,000 to Bank Q, they can then lend out most of that again. Keep in mind that they've now taken in $380,000 already in deposits.

Are you confusing the distinction between "dollar" and "dollar bill"? One is worth the other, but they are not the same.
posted by explosion at 10:23 AM on June 15, 2009 [9 favorites]



Naw - that's the textbook example.

0, 3% and 10% depending on deposit size.


I stand corrected. I guess that's why I have a B.S. in Economics, but don't run a bank. Either way, I know enough to sniff out the bullshit that Malor's peddling.
posted by explosion at 10:26 AM on June 15, 2009


Try being less snide and more descriptive. It'd help those of us that are merely following along.

I figured everyone knew by now that Malor thinks that money is worthless (or not "real") unless it's backed by gold, when it's actually worthless only if it's not backed by wealth. Gold is similarly worthless (except for its value as a metal) unless it's backed by wealth. It, like fiat currency, is valuable only because people think it is.

Gold-backed currency is as much "created by banks" and "from nothing" as fiat currency. I doubt Malor will admit that, though.
posted by oaf at 10:35 AM on June 15, 2009 [1 favorite]


I guess that's why I have a B.S. in Economics, but don't run a bank. Either way, I know enough to sniff out the bullshit

Does BS stand for bull shitter - because last time I checked tacking a Bachelor of Science to "Economics" is dismissive of actual Science.

Bachelor of Fine Arts in the Philosophy of Economics would be more accurate. Or perhaps Economics as its own Baccalaureate.

http://www.google.com/search?ie=UTF8&q=why+economics+is+not+science leads to comments on why its not Science. Same kind of way how people get "Nobel Prize for Economics" wrong.

(hint: Its a prize created by a bank in memory of Nobel. Not an actual Nobel prize)

I figured everyone knew by now that Malor thinks that money is worthless (or not "real") unless it's backed by gold

Didn't realize that was his stated position - must have missed that link. If anyone has that link, do post it.
posted by rough ashlar at 10:54 AM on June 15, 2009


So after a number of deposits and loans, $200,000 in paper currency will become $2,000,000.

Ok, I'll admit my ignorance and beg for some kind of link or explanation for dummies that I might have a chance to understand in, uh say, an hour's reading? I'm not used to magic numbers, blame my job, heh.
posted by Iosephus at 10:58 AM on June 15, 2009


A 10% reserve requirement doesn't mean that they can lend $180,000 on $200,000. It means they can lend two million, keeping 10% in reserve.

This is plainly wrong. A bank balance sheet has assets (outstanding loans + cash) on one side, liabilities (deposits) on the other. These need to balance (go figure). The reserve ratio is just the ratio of cash to deposits. You can't loan out more money than you've taken in as deposits.
posted by mr_roboto at 10:59 AM on June 15, 2009 [2 favorites]


200 billion isk can buy you a couple titans and some sweet mods. It's a lot of money for an individual to consider, but in the grand scheme of things, it's really not that much. EBank will be fine and the event gets written up in the NYT.

Ricdic only got banned for selling the money in real life, which actually might end up being the saving grace for EBank. It allows them to demonstrate to their customers that it was a random, isolated event by a player who became desperate in real life (I believe this incident was related to the health needs of one of his kids -- not 100% sure on that, though) and has subsequently been banned from the game. While any kind of fraud is frowned upon in EVE, I don't know anyone who used EBank that didn't think, in the back of their mind, that they might someday wake up victimized by the biggest ponzi scheme in EVE yet. The biggest criticism with EBank, even well before this scandal, was the rate of return vs. the risk. As trustworthy as they had been, it's still EVE, and most people wanted to get a bit more back.

Smart players invest their isk themselves. There's absolutely no reason to store your isk in someone else's pocket if you have the time (and the character) to manage it yourself. So EBank appeals to those who have neither and will continue to do so in some form or another long after this little fiasco.
posted by dopamine at 10:59 AM on June 15, 2009 [1 favorite]


Wow, this is getting crazy up in here. I have a BA in psychology, but the very first line of the wikipedia article on Fractional Reserve Banking:

Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.


clearly indicates Explosion is 1005 correct.
posted by drjimmy11 at 11:00 AM on June 15, 2009


100%
posted by drjimmy11 at 11:00 AM on June 15, 2009


Actually, it's because I double-majored in Computer Science along with my Economics degree, and my college would only award one degree, and as strange as it sounds to have a "B.S. in Economics," I preferred that to having a "B.A." for my Computer Science degree. I can't honestly say I have a "B.A. in Economics" because that is not what I have.

But enough about me, let's get back to the discussion at hand, OK?
posted by explosion at 11:00 AM on June 15, 2009


Ok, I'll admit my ignorance and beg for some kind of link or explanation for dummies that I might have a chance to understand in, uh say, an hour's reading?

The wikipedia page isn't bad.
posted by mr_roboto at 11:01 AM on June 15, 2009


not that it really matters to anyone who doesn't play EVE (or most who do), but it looks like the actual amount is probably 475 billion, not 200 billion.

EBank was set up so that nobody could run away with more than 10% of their capital, which is what ricdic did. however he also managed to slide a 275 billion isk unsecured loan to a third party under the radar of the board of directors shortly before doing so. that loan has since defaulted.

it seems almost a certainty that most or all of that money found its way into ricdic's pockets. even if it didn't, the total loss to EBank is the same.
posted by 256 at 11:01 AM on June 15, 2009


Ok, I'll admit my ignorance and beg for some kind of link or explanation for dummies that I might have a chance to understand in, uh say, an hour's reading?

Wikipedia's write-up of money creation through the money multiplier is pretty good.
posted by explosion at 11:03 AM on June 15, 2009


Didn't realize that was his stated position - must have missed that link.

"Modern money has no inherent value. No remaining government backs its currency with any kind of commodity."

I fully expect someone to dig up a comment I made where I said, basically, that I was fully in Malor's camp. That was before I realized that Malor didn't just think that fiat currency enabled central bankers to inflate the currency more than they should, but that it almost inevitably leads to that sort of thing.
posted by oaf at 11:05 AM on June 15, 2009


also, to answer the multiple questions about why he was banned. yes it was entirely about the real money trading and not at all about the scamming or theft (which are both fully support playstyles).

CCP supports turning real world cash money into ISK, but not the other way around. The way it works is that you can buy a Game Time Card for real money from CCP which is good for a one month extension to your subscription to the game. Then, instead of using it on your own account, you can sell it for isk on the open in-game market.

This means that people can and do pay for their subscription entirely through isk, but it's against the Terms of Service to in any way try and get actual money back out of the system.
posted by 256 at 11:07 AM on June 15, 2009


I might have a chance to understand in, uh say, an hour's reading?

Wikipedia has an entry on Fractional Reserve Banking.
The string federal reserve fractional reserve banking in google comes up with a number of hits.
You will have to decide if Wikipedia is authoratiative or not.
And most of the other links have their roots in the Austrian version of Economic Philosophy (VS Keynesian or Hard metals or technocracy's energy as money or some other whatever) You can spend years down the rabbit holes of who's Philosophy of Economics is right. And if you want a different bunny burrow to go into:
http://www.complementarycurrency.org/materials.php


Reserve requirements:
http://www.federalreserve.gov/monetarypolicy/reservereq.htm
posted by rough ashlar at 11:12 AM on June 15, 2009


"Our financial situation occurred resulting in my having to decide whether we lose our new home (40,000 AUD deposit lost) or I lose whatever dignity I have left in a video game. Obviously I chose the latter."

The guy was going to lose his house, and the only objection people seem to want to muster is that he didn't commit in-game fraud like normal, but instead committed in-game crime for the out-of-game purposes. Wow.
posted by anotherpanacea at 11:12 AM on June 15, 2009 [2 favorites]


what
posted by grubi at 11:12 AM on June 15, 2009 [2 favorites]


You guys fuckin' slay me. And I mean that in a I love you all for it kinda way.

I click on this thread hoping to get some good dish on those EVE Online nerds [per the nerds hierarchy] having some classic EVE Intellidrama -- and instead the thread has derailed steaming right into a financial nerd intellidrama.

I kept scrolling down going "Ok.. ok.. this could get good, but I want to see the EVE drama first. Cause man they're weird (See hierarchy). Aw it's still going on! Wait.. that's getting interesting.. ok maybe I'll read the financial one first. What! There's no EVE Drama?! Hey!"
posted by cavalier at 11:17 AM on June 15, 2009 [4 favorites]


anotherpanacea: i'm curious where you got that quote from. i hadn't yet seen any sort of actual statement from ricdic in the aftermath of this.

also, sorry to still be on topic.
posted by 256 at 11:21 AM on June 15, 2009


So a question for Malor and other anti-fractional reservists: can a bank that strictly sells Certificates of Deposit or bonds loan out more than they recieve?
posted by pwnguin at 11:22 AM on June 15, 2009


That link to Metatalk (and yes would have missed that as I don't hang out in metatalk) doesn't say 'I support gold' or even mention a metals backed money.

I don't know who's self identified as 'lets all go back to gold' on the blue - although I've seen plenty of 'fiat money blows up' kinda comments and expect to see more as the economy continues its grind.

(If it wasn't for the total lack of permanence/storability of the electrical watt - that might make a fine trade item. )
posted by rough ashlar at 11:22 AM on June 15, 2009


The reserve ratio is just the ratio of cash to deposits. You can't loan out more money than you've taken in as deposits.

Of course you can! Plenty of banks have loan-to-deposit ratios greater than one. And even if you're using shorthand to call term debt "deposits", it's still possible for a bank to have $5 in equity, $5 in deposits, $2 in reserves, and $8 in loans, no?
posted by Kwantsar at 11:22 AM on June 15, 2009


I love the idea that backing money with gold or silver somehow gives it non-arbitrary worth- as if the value of gold and silver weren't socially-arrived at values divorced from any actual utility those soft metals have in and of themselves. All wealth is fundamentally arbitrary- if you want it to have actual value, you'd need to return to the barter system. The only reason all the gold in the world is worth more than a silo full of grain or a herd of cattle is because we- humans- have decided to value it and assign to it certain amounts of value.
posted by Pope Guilty at 11:24 AM on June 15, 2009 [4 favorites]


Of course you can! Plenty of banks have loan-to-deposit ratios greater than one. And even if you're using shorthand to call term debt "deposits", it's still possible for a bank to have $5 in equity, $5 in deposits, $2 in reserves, and $8 in loans, no?

Yeah, I was trying to simplify things by working in an imaginary land where banks only have deposits and loans. Assets and liabilities need to balance; the reserve ratio doesn't let you loan out more than you're liable for...
posted by mr_roboto at 11:30 AM on June 15, 2009


What I find most interesting about this story is how EBANK is handling the fallout. This isn't your usual one-man Ponzi scam, it's a full corporation with a series of checks and balances and a governance structure. And public disclosure of accounts. I think it's possible they'll be able to survive this crisis, and in the end have even more confidence.

The real money trade angle on this is ugly. In general CCP frowns on RMT and bans players for using it. Interestingly they do have a sort of legitimate RMT option, via trading Plex game cards. A 30 day card sells in-game for about 400M ISK, and is equivalent to $15 for a month's play. At that exchange rate a 200B ISK theft is worth about $7500 in real dollars. What's clever about PLEX is it gives you a way to turn dollars into ISK (buy a PLEX, sell it in-game) but doesn't really offer a way to turn ISK into dollars. At most you can finance the game for yourself for a few months.
posted by Nelson at 11:33 AM on June 15, 2009


Also worth reading: Ricdic's confession and explanation, in three parts. Long story short: he was sick of the game, he wanted some money, and he talks trash and praise for his colleagues at EBANK.
posted by Nelson at 11:41 AM on June 15, 2009


I'm surprised this isn't considered a crime, since the game currency apparently has real currency value. I guess it's kind of like stealing someone's WoW Sword of Ultimate Blasting...but still, I could go either way.
posted by Edgewise at 11:41 AM on June 15, 2009


I wish these NY Times articles wouldn't so cavalierly misuse descriptive phrases; in banking, we call a "Virtual Bank" a depository institution that lacks physical premises, in other words, isn't a "bricks and mortar" bank. So I sorta tuned out of the bulk of the article when I read far enough to lead this was a pretend bank, not a bona fide virtual bank.

That's not to say these pretend banks can't be of use. I'm in banking, but am taking a sabattical to finish another degree. About a month ago one of my colleagues presented a paper to our research cluster that was accepted for an upcoming conference.

I don't want to disclose too many details, but she's built a virtual banking simulator using OpenSimulator. This allows her to simulate the business and credit cycles, as well as (of particular interest to me as this is one of research interests) asset bubbles.

There has been a fair amount of prior effort in this area, but before OpenSimulator the scale of simulations we could run was much more constrained and, of course, we couldn't incorporate in a realistic manner of one the most important variables - human behaviour.

I've been contributing to her work, in particular we're trying to duplicate prior bubbles (and of course crashes), and once we can effectively simulate a cycle we can look at alternative actions by Central Banks as well as other agents. Of course if one could simulate a bubble one can position trades to be profitable, regardless of actions taken - or not taken - by regulatory officials. Its an interesting effort.

In terms of simulations that aren't computer assisted I've got a few that folks might find interesting :
There is also an interesting online simulation, Bank Rush . I haven't had a chance to play with it too much, but as its based on the financial crisis I'd book marked it for later reference. Note: the first few rounds are free, then you've gotta pay but its comprehensive enough that I'm sure something can be taken away from the trial. If anyone gives it a comprehensive run please post your impressions here.

I guess I'd close by saying The NY Times article was interesting, but I found the title totally, misleading.
posted by Mutant at 11:45 AM on June 15, 2009 [11 favorites]


Methinks this statement is true:

"You can't loan out more money than you've taken in as deposits."

The U.S. government says you cannot lend all of it out. You have to keep a fraction in reserve.

You may continue quibbling.
posted by Xoebe at 11:46 AM on June 15, 2009


I found the title totally, misleading

If X occurs on the Internet then it's a "virtual X" in newspaper headlines.

The actual use of the adjective "virtual" in various discipline-specific nomenclatures is probably totally different.
posted by GuyZero at 11:54 AM on June 15, 2009



I'm surprised this isn't considered a crime, since the game currency apparently has real currency value. I guess it's kind of like stealing someone's WoW Sword of Ultimate Blasting...but still, I could go either way.


Ultimately, all of these game companies have important rules and contract clauses that state that all items, currency, etc. in-game are property of the company, and not of the players. This allows them to dodge tax implications of the transfer of value, and to perform smash-and-grab fixes to accounts, economy, etc. without opening themselves up to lawsuits.

Players can't really sue each other, because they never owned any of it. Players can't sue the game company because of the agreements they made stating that the company can do whatever they want, when they installed the game.

It's interesting to note that when people sell WoW characters, they often put in commentary stating that you're paying consideration for the time they've spent on the character, as the character itself is property of Blizzard.
posted by explosion at 11:57 AM on June 15, 2009 [1 favorite]


Oops, you're correct; fractional reserve banking doesn't let any individual bank lend out more than it has. I remembered this incorrectly, because as a whole SYSTEM, you end up with money being multiplied a very great deal, in an amount equal to 1/reserve percentage. Bank A lends out 90 cents; bank B takes those deposits and lends out 81 cents, and so on. If you have a 10% reserve ratio, you end up with ten dollars in the economy for every real dollar that exists, but if and only if the banks are confident enough to lend the money out. It just takes more than one bank to invent all the extra dollars from nowhere.

As far as gold goes, as I've said many times, I don't care what gets used, it just needs to be something.

oaf said: I figured everyone knew by now that Malor thinks that money is worthless (or not "real") unless it's backed by gold, when it's actually worthless only if it's not backed by wealth.

Your second clause is actually exactly what I mean. Money is only worth what it's backed by. Current dollars are a promise to pay nothing; they're just a claim on the nebulous production of the economy, and there's no limit to how many are produced. They are, in other words, just debt -- pure liquified debt. They're not a hard asset, they're only worth what the issuer can afford to pay, divided by the total number of notes in existence. Promises need to be denominated in something. They need a hard value, or there's no limit to how many promises can be made.

I won't get further into this here, because it's not really relevant to Eve.
posted by Malor at 12:02 PM on June 15, 2009 [1 favorite]


explosion: btw, I'm sorry I called you clueless. You were right, and I was wrong.
posted by Malor at 12:04 PM on June 15, 2009 [5 favorites]


I love reading about EVE Online. The gold standard, not so much.
posted by Bookhouse at 12:05 PM on June 15, 2009 [5 favorites]


I think it's an artifact of how the NYT ports its articles to their site, but at the end of this article, it shows the authors name, in bold, right after the last bit of text.

It took me a moment to notice it, as I'm so desensitized to the SomethingAwful reporting method dealing with anything Eve-related. So, when I read the last line:

"and the moral hazard that goes with banks’ expectation that they will. ROB COX"

...I thought it was just another reference. AMIRITE?
posted by thanotopsis at 12:21 PM on June 15, 2009


Money is only worth what it's backed by.

I'll take the full faith and credit of the United States of Friggin' America as more worthy than a lump of a metal that I have no use for, thank you very much.

Fiat money is a bit abstract, but its advantages in portability and transmutability far outweigh the disadvantage of being backed by "nothing." Fiat money is far from the charade its detractors like to make it out to be. Heck, even when the dollar was backed by gold, you couldn't walk up to Fort Knox and ask for a withdrawal.
posted by explosion at 12:22 PM on June 15, 2009 [3 favorites]


"Our financial situation occurred resulting in my having to decide whether we lose our new home (40,000 AUD deposit lost) or I lose whatever dignity I have left in a video game. Obviously I chose the latter."

Sure, but what happens next month when the mortgage payment is due again?
posted by ODiV at 12:28 PM on June 15, 2009


I'll take the full faith and credit of the United States of Friggin' America

Ya do realize that translates from the power to tax/extract from the citizens, and the credit line is a tad, err, overextended? The US of A has been writing alot of checks that are gonna be hard to keep the promises made as there is only so much planet and energy to extract.

worthy than a lump of a metal that I have no use for

You might want to think about ferrous metals like hand tools, bicycles, cars, iron girders that are the backbone of buildings et la. Or copper wire - that makes 'da networks work.
posted by rough ashlar at 12:43 PM on June 15, 2009


Money is only worth what it's backed by.

And gold is worth so much only because you can trade it for wealth. The same can be said of the $10 bill in my wallet.
posted by oaf at 12:50 PM on June 15, 2009


You might want to think about ferrous metals

According to a quick Google search, scrap steel is $210/tonne, or roughly 10 lbs to the dollar. That's gonna make exchanges mighty tough in a country where people complain about the weight of pocket change.
posted by explosion at 1:24 PM on June 15, 2009


I can't believe we have to read about this bullshit gold standard crap in every single banking thread, even the ones about imaginary banks. Give it a rest, you guys.
posted by ryanrs at 1:30 PM on June 15, 2009 [2 favorites]


The whole question of value and ownership in virtual worlds is one that's in the process of being answered (slowly) in various court cases. Even if your avatar's sword belongs to Blizzard, you still have a property interest in it and the ramifications of that are still being worked out. The site that looks at this stuff is Terra Nova. A recent story described how Sweden's MindArk (Project Entropia) actually obtained a banking license. This, of course, brings some of the game apparatus under regulation. I don't know how Iceland's current banking system/regulations differ from the EU, but if that country does manage to join the EU, then I expect there will be some changes to EveBanking.
posted by CCBC at 1:32 PM on June 15, 2009


Yeah, the idea that this is all make-believe money and make-believe assets is buggy whip thinking. If I invest my time and energy acquiring something that can be traded for real goods and services it isn't a fake asset, it's a real asset.
posted by Justinian at 1:41 PM on June 15, 2009


You might want to think about ferrous metals like hand tools, bicycles, cars, iron girders that are the backbone of buildings et la. Or copper wire - that makes 'da networks work.

Except that asset-backed currencies tend to be based on silver and gold, metals which have very little utility beyond looking pretty.
posted by Pope Guilty at 1:43 PM on June 15, 2009


silver metal which has very little utility beyond looking pretty

Given the anti bacterial property of Silver and the patents being granted to Silver laden 'stuff', are you working with a different definition of 'looking pretty' than I am?

(and medically Gold is use for implants due to the non reactive nature and sometimes in cancer/HIV treatments and even as an attempt to bring back skin collagen/elastin fibers - aka youthful beauty - thus making Gold a true 'look pretty' metal eh?)
posted by rough ashlar at 1:58 PM on June 15, 2009


Is this something I'd have to have a computer and a bank account to understand? (couldn't help it)

Money is not worth what it's backed by, it's worth what we collectively believe about it. It has always been a fiction and has never been anything else.

That said, I'm always fascinated by these in-game economies and how it bleeds over into the 'real' world. Thanks for the post.
posted by gofargogo at 2:15 PM on June 15, 2009



Given the anti bacterial property of Silver and the patents being granted to Silver laden 'stuff', are you working with a different definition of 'looking pretty' than I am?

(and medically Gold is use for implants due to the non reactive nature and sometimes in cancer/HIV treatments and even as an attempt to bring back skin collagen/elastin fibers - aka youthful beauty - thus making Gold a true 'look pretty' metal eh?)


Are you suggesting that the primary value of gold and silver derives from its use in medicine?
posted by Comrade_robot at 2:27 PM on June 15, 2009


Explosion got it right. A piece of paper whose value is backed by the government (i.e. people with guns) is the most reliable currency there is. Call it the lead standard? Sure beats gold or tritanium.

Pope Guilty, gold and silver have at least as much utility as copper. The main reason they are hardly ever used as compared to copper is that they are rare and astronomically expensive.


I'm surprised this isn't considered a crime, since the game currency apparently has real currency value.

Consent. It's OK to scam away someone's money playing poker -- this is just a bigger scam.
posted by justsomebodythatyouusedtoknow at 2:41 PM on June 15, 2009


Sigh - by which I mean used in wiring. Silver has an even lower electronegativity than copper, etc.

Silver also has anti-lycanthropy applications. Do you think that little picture of Lincoln or Laurier will save you when the full moon comes around?
posted by justsomebodythatyouusedtoknow at 2:52 PM on June 15, 2009 [2 favorites]


explosion I'll take the full faith and credit of the United States of Friggin' America as more worthy than a lump of a metal that I have no use for, thank you very much.

At some level, this amounts to using nuclear missiles as currency backing - which is to say, possession of a thing.
posted by aeschenkarnos at 3:08 PM on June 15, 2009



This is actually nowhere near the biggest amount scammed away which I believe stands at 700b . There have been a fair few other shenanigans that have generated press coverage, like the disbanding of BoB .

EvE is definitely one of the deepest MMOs out there as the article demonstrates. Some people do take it very very seriously .

Oh and the EvE economist mentioned publishes a quarterly economic newsletter .

Hmmm...maybe I should resubscribe when I have more time...
posted by Erberus at 4:52 PM on June 15, 2009


CCBC: A recent story described how Sweden's MindArk (Project Entropia) actually obtained a banking license.

Mistaking Entropia for a bank would be an easy mistake to make. All you would have to do is get an account, log in, and think 'Hmm, this is about as much fun as I had earlier today when I had to stand in line waiting for a clerk for an hour and a half earlier today.'
posted by Mitrovarr at 5:03 PM on June 15, 2009 [1 favorite]


"Except that asset-backed currencies tend to be based on silver and gold, metals which have very little utility beyond looking pretty."

Gold is an awesome engineering metal. It's fairly inert, conducts electricity well, plates well, is easy to alloy, can be made very thin, is easily machined, can be cast at home brew temperatures, and is non-poisonous. The only reason you don't see it in products everywhere is its cost which is because its pretty and rare.
posted by Mitheral at 5:20 PM on June 15, 2009


oaf: "And gold is worth so much only because you can trade it for wealth. The same can be said of the $10 bill in my wallet."

This is true, but the argument in favor of gold is generally that it's a better store of value than paper money; i.e. it's a good thing to keep your reserves in, or mandate that your banks (especially your central bank) keep their reserves in.

And the argument in favor of gold in that role is basically a historical one. Not only does it have some intrinsic value while fiat currencies have none by definition, but gold has a long history of being valuable that's orders of magnitude longer than the time fiat dollars have been acceptable for trade. An ounce of gold has been a significant amount of real wealth for thousands of years; that's a track record that shouldn't be taken lightly. Fiat money is, essentially, an experiment, the results of which are yet to be determined and won't be written until we're all dead.

The best argument against gold as a currency that I've come across isn't the "butbutbut gold's wealth isn't intrinsic!!" it's that inflating the real value of gold misallocates resources. If you used gold instead of fiat dollars, there would be a huge incentive to mine gold, far out of line with its actual usefulness. That's essentially a dead-weight loss to the economy — it's using resources that could be better spent on other wealth generating activities. I've yet to see a real counterargument to that, except that the fiat money system has its own dead-weight losses and, due to inflation secondary to the inevitably poor management of such systems (the Austrian philosophy in a nutshell: fiat money is too much temptation to leave to fallible humans, especially ones exposed to the political process), it causes boom/bust cycles that misallocate resources and destroy real wealth. However, I've never seen a comparison of the losses due to each. Maybe such a thing exists, but it seems like it would be very difficult to compute.

Personally, although I'm very in agreement in large part with the Austrians, I don't know if I'd go so far as to force the replacement of fiat currencies. I'd like to see them trade alongside commodity-backed currencies, and see fractional-reserve banks compete for deposits with full-reserve banks and commodity-backed, non-loan-writing "depositories." (Although the easiest way to do this would be to simply eliminate the FDIC and let the chips fall, an alternative would be to mandate FDIC insurance, but offer different rates based on the amount of reserves held, with much higher insurance rates for fractional-reserve lenders and near-zero premiums for metal-backed depositories, since their only risk of loss is theft or fraud.)
posted by Kadin2048 at 5:55 PM on June 15, 2009 [2 favorites]


Let me echo The Whelk... any Hurf Durf Moon Eaters in here who want to update us spectators on the corp's progress?
posted by Kattullus at 7:04 PM on June 15, 2009


Hurf Durf Moon Eaters update:

Basically the Corp is defunct. Ari is the leader of a large corp/alliance and was involved in a big political tangle and didn't have much time to get things rolling. I tried to give out ISK and ships to new players to accelerate their progression and avoid grinding. There were about 3-4 of us playing for a bit together across multiple time zones, but that's just not enough to keep a corp together. We got war-decced by another small corp and without a few more numbers it lead to nothing but frustration.

I left to go do Faction Warfare PvP and have been having a good time. Infinitywaltz and I still chat in-game and even got to meet at the LA Meetup last week.

I'd be happy to help any MeFite that wants to try Eve. Message Dunk Dinkle in game and I'll respond.
posted by Argyle at 7:30 PM on June 15, 2009 [3 favorites]


Given the anti bacterial property of Silver

BREAKING

EXCLUSIVE PICTURE OF ROUGH ASHLAR DISCOVERED
posted by Pope Guilty at 5:03 AM on June 16, 2009


I mean, seriously, if you believe that the market value of gold and silver has more to do with their utility than to do with the fact that as a species we like shiny things more than magpies do, you're pretty much living in a fantasy land.
posted by Pope Guilty at 5:05 AM on June 16, 2009


I never knew a game like this existed! I can finally live my dream of being a space pirate!!!!
posted by Mastercheddaar at 7:09 AM on June 16, 2009


"if you believe that the market value of gold and silver has more to do with their utility than to do with the fact that as a species we like shiny things more than magpies do"

I don't believe that, I was just objecting to the concept that gold has little utility value.
posted by Mitheral at 12:48 PM on June 16, 2009


Gold is useful, yes, but my point is that its value and its utility are completely unrelated, and that its actual value is more or less arbitrary.
posted by Pope Guilty at 3:36 PM on June 16, 2009


gold and silver have at least as much utility as copper. The main reason they are hardly ever used as compared to copper is that they are rare and astronomically expensive.


That basically proves the point that gold and silver is primarily valued not for what it can do, but rather for whatever reason we have decided to value it highly, which makes it capable of being a storage medium for wealth.

If it were primarily valued for its utility, then it wouldn't be too "expensive" to use vs. copper - the price for gold would drop until someone buys it (when supply = demand). If its primary value was its utility, then the price of gold would be its utility value.
posted by I like to eat meat at 5:15 PM on June 17, 2009


i should clarify, gold's price premium over other metals would be directly correlated to its incremental increase in utility vs. other metals if its value were primarily derived from its utility as a metal.
posted by I like to eat meat at 5:17 PM on June 17, 2009


I like to eat meat: "i should clarify, gold's price premium over other metals would be directly correlated to its incremental increase in utility vs. other metals if its value were primarily derived from its utility as a metal."

I don't know what economics is like in Space, but here on Earth, we consider both supply and demand. For much of human history, gold was hard to refine. It's only through electricity that high purity gold can be refined.

Aluminum was a similar situation, but in contrast with gold, aluminum is probably the most abundant available.
posted by pwnguin at 6:14 PM on June 17, 2009


Metafilter: crucified on a derail of gold.
posted by CCBC at 6:21 PM on June 17, 2009 [2 favorites]


Uses of gold.
Uses of silver.

Some of the attempts to explain errant statements here make my head swim. Gold and silver have utility for more than jewelry. Their rarity makes them expensive and so used sparingly. It also is why they have historically been used to store and transport wealth and for coinage (okay, same thing). Speculation and fluctuations in supply and demand drive the price up and down over time. Is there something I'm missing?
posted by Mental Wimp at 9:13 AM on June 18, 2009


It's too soon for yet another Eve Online thread, but interested folks may want to read this history of the Second Great War. Also the followup. Great Synopsis of three years of war centered on BoB. Last week BoB was finally, truly expelled from 0.0 space and broken. War is over!
posted by Nelson at 8:44 AM on June 21, 2009


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