I've been quietly pondering something the past few days. The risk of exchanges are directly tied to risk of management. Many exchanges have leaders who have a strong ideological sentiment. Sometimes these sentiments disagree and verbal barbs are traded. The problem is that over-asserting moral authority can be as devastating as letting crooks go. There's a right and a wrong way to do everything..
Do exchange heads have a right to assert their ideology? Doing so can potentially put their own exchange and assets at risk if third parties, that mainly being Linden Lab disagrees with the intent of the message and thus exposes their investors to additional potential risk.
A lot of recent argument has risen over the products SL Capex's real life company produces and the legal risks involved in that product. Some assert the Sports Arbitrage product is legal, others illegal. Though the product clearly does not list itself as a gambling instrument, its links to gambling can easily be seen. If it's not a matter decided in the courts because it has no legal grounds, does it become a moral issue? Do exchanges have a right to claim moral authority?
To me, the exchanges have been and always will be an instrument. The only real measure of "morality" is whether or not they operate a system of fair and equitable trading. To me, anything outside is external to the game; the content of real courts and greater powers. Besides, games of chance can be moral if not abused and simply a form of entertainment in some jurisdictions. The problem is the moral fabric of society is so weak that in most cases it must be illegal or severe consequences result because addictions are not overcome. Linden Labs has dictated that inside their world all gambling is illegal, but the applications in question have nothing to do with second life and in fact are sold for "information purposes" only according to the terms of service.
Do the heads of exchanges have the right to take such moral risks with their operations given they have such a great power and sway over the operation of the platform on which so many investor's investments ride?
To me the answer to all the above questions, are no.. not really. But I don't have much of a choice in the matter. Exchange heads will continue to attempt to assert "moral authority" due to competition. Exchange heads will likely to continue to sell their products despite what I may say perhaps.. or perhaps not.. to legal regret and potentially market wide regret. Personally, I don't see much coming of this discussion that will benefit market investors at all on any exchange. All I see is greater risks, even as more information is uncovered and more rhetoric is thrown about.
Wednesday, December 5, 2007
Of management, exchanges, and risk.
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3 comments:
I think this moral authority bit is simply an alternate method of competition. Since you can't easily prove backing by assets, a long track record of honesty, or that you won't go "poof" tomorrow in Second Life, moral authority becomes a way for the exchanges to gather investors. I guess the game becomes to select a moral code which attracts more investors than it scares off and doesn't anger LL.
Like yourself, however, I've mostly ignored it (except when the sparks fly - that's usually fun to watch). I don't know about tying it to riskiness because it's hard to quantify moral authority, and thus a regression would be hard to compute. We could figure the variance of each exchange index from SLQuotes and tie it to the number of press releases or something like that. You up for it?
Nah, It's pretty obvious that when the exchanges start heating up the rhetoric that the market values decline. Some of what they say scares people and the exchange heads need to realize this.
I think we have to draw a line here between moral authority and ethics. I don't see any reason for any business, except religions (and yes they are a business in their own right) to exert any sort of moral authority!
The question here is ethical business practices. The questions, in my opinion, should be (and I will refer directly to the Arb-Int exchange which I believe this post is alluding to):
1) Is Arb violating the LL TOS by running a company in RL that espouses gambling? The answer is NO. Arb is not doing anything illegal, because a) his business is not based in the U.S. and b) the TOS for his exchange does not require anyone to participate in this particular RL business. I would conclude that the way that Arb is handling this web site is not only ethical but also legal. There are many US citizens operating "gambling" sites in off shore areas. The U.S. does not condemn that. They only get excited if you market or sign up US Citizens for such activity.
2) Were Int's actions unethical when he pointed out to Arb that his RL busines practice may be illegal in the U.S. The answer to that is NO, Int had every right to point out a potential illegal activity as one exchange head to another. If he would have left it at that, there would be no issue. But he didn't because it is apparent that he had another agenda.
3) Were Int's actions unethical when he threatened Arb with exposing his ties to the gambling enterprise, unless Arb accepted Int's demands for support of the actions against WSE? YES. That action was unethical, not immoral, but unethical. Also illegal because it constitutes "blackmail" under English and US law.
So in summary, let us please leave moralizing to the organized/disorganized) religions. This is an ethical, thus legal issue. From where I stand, I don't see Arb being the unethical one here. Int's actions are ones made by either a delusional person, an egoist or someone who is ignorant of human events.
Maybe Int should get a real life! We would certainly be better off without him in SL.
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