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Monday, November 26, 2012

Breaking: CFTC Shuts Down Intrade in US

You've got to be kidding me.

From the Commodity Futures Trading Commission website:
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed a civil complaint in federal district court in Washington, DC, charging Intrade The Prediction Market Limited (Intrade) and Trade Exchange Network Limited (TEN), Irish companies based in Dublin, Ireland, with offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers, all in violation of the CFTC’s ban on off-exchange options trading. ...
Why aren't prediction markets a form of free speech?

Update: Harry Eagar points out that Intrade claims that it will be back shortly with a U.S. compliant platform.

HT: Marginal Revolution

30 comments:

Harry Eagar said...

Intrade says it will be back shortly with a US-compliant platform. Why it didn't earlier, then, is a mystery.

I am puzzled by the whole thing.

Intrade is just a gambling platform -- nothing wrong with that, I have made a lot of money on Intrade. It does not really, as it claims, allow you to 'match your skill,' at least not in any very meaningful sense.

On the other hand, I am not sure what option is supposed to be at issue. If I win, can I take delivery instead of settling accounts? No.

I have not been able to find out exact figures about volumes, although it looks as if the betting on the presidential vote may have totaled in the tens of millions. Most bets evidently are smaller -- around $50 or less, I surmise from the numbers of shares being offered.

I seem to have been one of only very, very few who bet thousands at a time.

It does seem the CFTC ought to have bigger fish to fry.

Harry Eagar said...

Intrade says it will be back shortly with a US-compliant platform. Why it didn't earlier, then, is a mystery.

I am puzzled by the whole thing.

Intrade is just a gambling platform -- nothing wrong with that, I have made a lot of money on Intrade. It does not really, as it claims, allow you to 'match your skill,' at least not in any very meaningful sense.

On the other hand, I am not sure what option is supposed to be at issue. If I win, can I take delivery instead of settling accounts? No.

I have not been able to find out exact figures about volumes, although it looks as if the betting on the presidential vote may have totaled in the tens of millions. Most bets evidently are smaller -- around $50 or less, I surmise from the numbers of shares being offered.

I seem to have been one of only very, very few who bet thousands at a time.

It does seem the CFTC ought to have bigger fish to fry.

Bret said...

Harry,

I guess I'm not set up to blog "breaking" news since I'm too random to keep abreast of updates in a timely fashion but it was fun to beat Instapundit at some tidbit just once. Thanks for the update.

I agree with wondering why a prediction market represents an option since you can't take delivery or otherwise procure the result.

Bret said...

I'm also curious if aog or hey skipper notice that Harry agrees that the government has perhaps directed resources in a non-optimal matter ("ought to have bigger fish to fry"). :-)

Annoying Old Guy said...

Bret;

Yes, I would say this represents a first for Eagar, not supporting government regulation. I found it very difficult to not remark on it without being snarky so I let it slide until you asked.

Bret said...

Probably at least a second - I believe that Harry doesn't believe the government should do anything about global warming either. But this one is still notable because it's specifically about a market.

Harry Eagar said...

A market I make money in, a cynic might say.

There are other places where I think regulation is unneeded -- soda pop, for example. But the scope for needed regulation exceeds overegulation by orfers of magnitude.

Hey Skipper said...

But the scope for needed regulation exceeds overegulation by orders of magnitude.

I tried parsing that sentence several times, and couldn't get it to hang together.

There are classes of problems -- which aren't all that difficult to identify -- where regulation is the only real answer.

However, at this point there are almost no cases of insufficient regulation, and instances beyond numbering of overregulation.

Harry Eagar said...

Credit swaps? Organic peanut butter?

Which do you think is overregulated?

Hey Skipper said...

Harry, rather than get into specifics, which is easily enough done, I'm going to come at it from another angle:

How big are the Federal Register and the tax code?


Susan's Husband said...

Which is overregulated? Both.

Bret said...

I have to go with both being over regulated, at least partly because both are quite poorly regulated so that regulation is just wasted effort that reduces productivity.

Organic foods are largely a scam. There's stuff like a broccoli grower who grows 1000 acres of conventional broccoli and 20 acres of organic but, amazingly, sells 1000 acres of organic and only 20 of conventional. Nobody can catch him because the organic and conventional broccoli are chemically indistinguishable. Lots of stuff like that.

The regulators are clueless about credit swaps. The rules are still evolving but ultimately I think they're likely to add all kinds of inefficiency while protecting nothing.

Harry Eagar said...

Because, as we know from experience, credit swapping is entirely benign

Susan's Husband said...

Mr. Eagar;

Who said or even implied it was entirely benign?

Susan's Husband said...

Another of those many under-regulated situations being rectified by our honest and reliable government.

Harry Eagar said...

I picked organic peanut butter because the largest manufacturer was poisoning children until shut down by regulators a couple days ago. You can tell who reads newspapers.

Market forces obviously were not sufficient to protect the children. Who could have guessed?

Susan's Husband said...

"You can tell who reads newspapers" - thank you for noticing, that's a source of misinformation I actively avoid.

One can observe that regulation were not sufficient either as despite the large amount the incident was not prevented. Apparently the only level of regulation sufficient is to simply forbid the manufacture of the product. I'm not sure how well that will work as an across the board technique. Could you describe that for us?

Bret said...

Thank heavens that the regulators shut down numerous plants, drove the price of organic peanut butter up significantly adversely affecting millions of people, all because 41 people were "sickened" (none died)!

And if it weren't for our wonderful regulators, even though people are aware of the contamination issue, nothing would've been fixed or addressed because apparently we believe the public is so stupid that it would continue eating peanut butter containing salmonella and wouldn't pressured stores and other middlemen to force the problem to be fixed.

This is exactly a case where the regulators just made things worse.

erp said...

Maybe all "organic" products should be banned. BTW -- exactly what is un-organic peanut butter?

Harry Eagar said...

Not all the factories were shut down. just the one poisoning children.

Sometimes people do die. Recall Odwalla organic juice?

erp said...

no need to go back that far -- see sandy.

Bret said...

But even in the case where people die, here is the order of events:

1. Even with regulations and regulators increasing the cost of producing goods and services, something bad happens, in this case illness due to salmonella. So the regulations and regulators didn't do any good or apparently not enough good - people got sick anyway.

2. Regulators find some entity to blame, perhaps guilty of something, perhaps not.

3. Regulators use entity as a scapegoat. As explained by the EPA official Al Armendariz the strategy is this: "It was kind of like how the Romans used to conquer little villages in the Mediterranean. They’d go into a little Turkish town somewhere, they’d find the first five guys they saw, and they would crucify them. And then you know that town was really easy to manage for the next few years. . . . So, that’s our general philosophy.You hit them as hard as you can, and you make examples out of them, and there is a deterrent effect there. And, companies that are smart see that, they don’t want to play that game, and they decide at that point that it’s time to clean up.”

4. Scapegoat badly damaged, often driven out of business.

5. Other companies in industry enjoy bonanza for a while as shortages drive the price up, up, up enabling windfall profits.

6. Eventually other companies increase capacity and price comes back down except some increase remains to pay for yet more regulations which may but probably don't address any real problems because the regulators don't have expertise to know what really ought to be done.

7. The cycle repeats each time damaging many innocent workers and consumers IN ADDITION to those sickened and those, if any, who die.

Salmonella is not completely preventable. Every fresh food contains salmonella. Normal immune systems aren't bothered unless the concentrations are really high. 47 sickened people out of tens of millions of jars of peanut butter is a damn good track record. The response was way out of bounds in my opinion and just makes 99.9999+% of us worse off.

Harry Eagar said...

You start the sequence too late. It begins:
0. Business purposefully sell poison food.

Nothing shows the immorality of market choices more clearly, though, than your list.

If the only judgment of efficiency is price, then any increase in price, for whatever reason, is bad. People with a wider perspective might think differently.

Guy is always harping on evidence. I bet you cannot provide evidence of any store managers sending out their stockboys to mark up prices on the non-recalled peanut butter.

Hasn't happened where I shop. Prices are unchanged.


Annoying Old Guy said...

"Business purposefully sell poison food"

Allow me to harp yet again and ask, do you have any evidence of that?

I find it indicative that you consider requests for evidence to be "harping", not the sort of thing a normal person would do.

And yes, any increase in price, for whatever reason, is bad. Your failure in analysis is once again your inability to deal with the concept of "comparison". People with a wider perspective realize that you can do this, for instance comparing the bad of rising prices to the bad of tolerating the cause of rising prices in order to decide which is worse. You should try looking at the wider world sometime, it's an interesting place.

Bret said...

"0. Business purposefully sell poison food."

No doubt that sometime in all of history that's happened.

But obviously poisoning ones clientele makes for few repeat customers and clearly isn't in the interest of the business.

You just wrote warmly about a baker on Restating the Obvious. Should I assume the baker was poisoning his clientele? After all, bakers are businessmen too.

Harry Eagar said...

Before saying that poisoning the customers is bad for repeat business, you should look up the history of the Pure Food and Drug Act.

But we can safely assume that this business knew it was pushing salmonella. Why wouldn't it know conditions in its plant better than anybody else? You cannot simultaneously claim that the regulators were deficient and claim they should have known even if the owner didn't. That's illogical.

As we know, from sworn depositions (Ford was a notorious example), businesses often make a calculation that providing a safe product is worse for profits than pushing an unsafe one off on unsuspecting customers.

There is also the question of how the individual customer determines who it was that poisoned him. If you get sick, there is often no obvious way to know that peanut butter was to blame.

Some centralized monitor is necessary to aggregate information. Berton Rouche made a career of writing for the New Yorker about how difficult that is.

Annoying Old Guy said...

"You cannot simultaneously claim that the regulators were deficient and claim they should have known even if the owner didn't"

Could you point out where anyone made such a claim?

Harry Eagar said...

Bloomberg reports everything that can possibly be said about efficiency, retail pricing and markets here:

http://www.bloomberg.com/news/2012-12-05/wal-mart-nixed-paying-bangladesh-suppliers-to-fight-fire.html

Annoying Old Guy said...

Hmmm, not seeing that claim in your cited article.

erp said...

The sad thing is that Harry really believes that what Bloomberg et al. is selling is true.