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What is happening to our cherished freedom to monetize our political, financial, and geopolitical forecasting abilities via an Irish-domiciled prediction market of dubious legality? The Commodity Futures Trading Commission has charged Intrade with violating a ban on off-exchange options trading, and filing false forms with the agency.
Intrade announced it would no longer allow US residents to participate in any so-called real money markets and advised them to close open trades and withdraw funds. Unfortunately for its most prescient (or counterparty-risk averse) users, it appears the Intrade market on the existence of Intrade itself hasn’t been operational since December 2010.
Prediction markets, which can be as accurate as aggregated polling data, have been lauded for their potential social utility. Nate Silver, the recent target of a large amount of misinformed criticism, is displeased: “Out of all things the CFTC could be doing to protect consumers and investors, it chooses to sue Intrade?!?” But Matt Yglesias points out that the alternative, allowing illegal commodity contracts to be sold to US residents, doesn’t seem tolerable if the CFTC is going to exercise anything close to its mandate:
This is futures speculation, there’s a legal way to do it, and what Intrade is doing isn’t that legal way. Now in practice, I doubt there’d be any harm if the CFTC decided to play nice and let this slide. But refusing to let it slide is exactly what we need regulators to do.
Justin Wolfers highlights an alternative path laid out in this 2008 paper, co-authored by more than a dozen academic luminaries, including Nobel laureate Vernon Smith. Its recommendation: allow non-profits and government agencies to run small-stakes prediction markets for research purposes, and private businesses to run internal markets limited to employees or contractors. This would allow “prediction markets [to] deliver on their promise [by] clear[ing] away regulatory barriers that were never intended to inhibit socially productive innovation”. — Ben Walsh
On to today’s links:
The mortgage interest tax deduction is no longer untouchable – Peter Eavis
How a new Congressional proposal could create a “tax bubble” – Nate Silver
How to fix the charitable deduction – Mina Kimes
Everything you need to know about the fiscal cliff in one FAQ – Wonkblog
Another deal on Greece’s debt, a late-night press conference and an inevitable fudging of the numbers – FT Alphaville
This deal “looks to be enough to keep the show on the road for now” – JP Morgan