INTERVIEW: Ginko CEO Nicholas Portocarrero
By Adam Reuters
SECOND LIFE, Oct 16 (Reuters) — Ginko Financial, Second Life’s best-known bank, is still going strong nearly a year after a withering attack from SL business magnate Anshe Chung. The following is an edited excerpt of an interview between Reuters SL Bureau Chief Adam Reuters and Ginko CEO Nicholas Portocarrero, conducted in-world via instant message.
Reuters: I wanted to talk with you because of your status as the first (only?) bank in-world.
Nicholas Portocarrero: There are others, though we are probably the largest.
There were some ads for banks when we started, but I don’t think any of them actually got off the ground. So maybe not the technically the first.
Reuters: Your bank has gotten quite a bit of attention for your generous interest rates. How does it work? Are you lending out money and charging interest rates to your loan customers?
Nicholas Portocarrero: No, the bank is essentially loaning the money to itself right now.
Reuters: Lending money to yourself? Can you explain more?
Nicholas Portocarrero: Well we invest the money, we don’t actually lend it out at this point.
Reuters: Invest like a venture capitalist for example?
Nicholas Portocarrero: Yea, kind of like that.
Reuters: If I’m doing my math right, your 0.10 % daily rate equals about 44 pct yearly — you must be making a good return on your investments.
Nicholas Portocarrero: That is correct.
Reuters: Obviously there are all kinds of regulations for real-life banks in terms of keeping a certain percentage of depositors’ receipts on-hand at any given time. Do you have similar guidelines?
Nicholas Portocarrero: We keep a L$ reserve of about 5%, sometimes less depending on how the deposits/withdraws went for the day and a USD reserve of no fixed value, which we sometimes trade on the Lindex with.
Reuters: Banking and finance in SL seems a bit like the wild west, with little to no regulation, and people relying on trust and reputation. Would u agree?
Nicholas Portocarrero: I do agree. And it’s a good thing.
Reuters: I know there was a bit of fuss earlier this year with Anshe Chung, where she accused you of paying out interest from other customers’ deposits — a classic hallmark of a pyramid scheme. Is there any good way for you to rebut that, given the lack of oversight and regulation?
Nicholas Portocarrero: There was a lot of oversight and regulation with Enron.
Reuters: True enough. but Enron wasn’t a bank
Nicholas Portocarrero: They took money from people, didn’t they?
Reuters: Not that there aren’t banks that have failed. My point is that Enron cooked their books, but at least there were institutions to inspect those books.
Nicholas Portocarrero: Yea… I’m sure their shareholders appreciated the inspection.
Reuters: Point taken. But you haven’t really answered my question.
Nicholas Portocarrero: I don’t know of any good way to rebut such an accusation.
You are wrong on your terms though. A pyramid scheme and a Ponzi scheme are two different things. We were accused of running a Ponzi scheme.
(Editor’s note: A pyramid scheme depends on “investors” bringing in new recruits who pay them directly. A Ponzi scheme uses funds from new investors to pay established investors)
Reuters: I take it you dispute the allegation?
Nicholas Portocarrero: Of course. I am honest. I understand that people might be uncomfortable with me not disclosing things and not (being) supervised, but I am also uncomfortable disclosing things and being supervised. This is trade, if people are not willing to take this risk, they can just stay away.
In real life, you are practically forbidden from opening a bank of your own. There are just so many barriers.
Reuters: Looks like you’ve found a way around that. But the more successful you are, the bigger the risk you’ll have to play by their rules.
Nicholas Portocarrero: Right, especially considering SL is based in the U.S. Sometimes I wonder if I shouldn’t limit growth, but I guess I’m greedy.
Reuters: Bit of a paradox there. Are you making a good income now?
Nicholas Portocarrero: Me personally or the bank or… what?
Reuters: Either, both — but I was specifically wondering about the bank. Part of the reason I trust my real-life bank is I can know exactly how much money they have, how much they’re making, how much risk they’re carrying, etc.
Nicholas Portocarrero: It does fine, though not all investments have “matured”.
Reuters: Are you profitable at the moment?
Nicholas Portocarrero: I could say yes, but it wouldn’t be entirely accurate. It depends on how things are calculated and (what) you count and don’t count.
