Counterparties: UnTrade

By Ben Walsh
November 27, 2012

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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

End the 401(k): it costs the US government $240 billion and doesn’t help Americans save – Matthew O’Brien

London’s traders prepare to be 15% less well compensated – Bloomberg

EU Mess
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

Home prices rose 3.6% over last year – Case-Shiller

Starve-the-beast doesn’t work: Spending doesn’t fall after tax cuts – Christina and David Romer
Basically the best economics article of all time – What If?

Popular Myths
Don’t believe the “net-price” spin that college is actually affordable – The Chronicle of Higher Ed

The Oracle
Warren Buffett: Dimon would be the best Treasuring Secretary during a crisis – Businessweek

The NYT’s R&D lab is working on, among other things, a News Mirror – Ad Week
PRWeb is dedicated to filling Google and Google News with utter crap – Search Engine Land

It’s Academic
Looking at cute animals improves work performance, study says – io9

Data Points
Fox News reveres the classic graphical manipulations of statistics, but isn’t afraid to innovate – Simply Statistics

Reasons why Los Angeles is the worst place ever - Vice


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Two thoughts on eliminating tax-preferred retirement accounts…

(1) Pension plans enjoy tax deferral. Might make them attractive again? Is much to be said for collectivizing retirement planning and distributing the longevity risk.

(2) If retirement accounts didn’t get tax preference, and mortgages weren’t tax advantaged, there would be no incentive for your typical middle class family to borrow against their home to “save” for retirement. The resulting deleveraging could be unpleasant for the bankers who make a living off that behavior.

Posted by TFF | Report as abusive

Pension Plans are the kick @$$ atomic weapons of retirement planning. They combined continuous oversight by skilled and interested parties, legally mandated low fees, participants are always invested on the efficient frontier.

Most importantly by far they allow zero access during working years and generally only an annuity during retirement.

The problem with pensions is that they don’t exist in the private sector anymore and they aient commin back. Pensions worked great when people started working at the plant after high-school put in 45 years (during which the equity market returned 9.5% cagr) and then died at 70.

The government is already in the retirement business via social security and the federal employees thrift plan.

The next step is to mandate retirement savings participation for all workers. Yes it’s another ugly intrusion into the private lives of citizens. The alternative is to continue further down the current path where fewer and fewer prudent hard workers-savers shoulder an ever growing burden of supporting their newcardriving,eatouting, disneyvacationing, $150/monthcellphoning peers.

For truly smart hardworking freedom lovers like TFF (perhaps 10% of the population) I suppose we could offer an opt out provision after completing an online personal finance /retirement planning course.

Posted by y2kurtus | Report as abusive

Minor (but important) stylebook – please don’t use “traders” as if it were synonymous with “investment banking industry employees” (the link to the Bloomberg story on compensation).

Posted by dsquared | Report as abusive

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