Oh For Pete’s Sake

I’m late on this; it’s been in my stack for awhile now.  But what in the world can be gained by the government suing Intrade?

Today, Americans were told that they must close their Intrade.com accounts. That happened because the federal government agency known as the “Commodity Futures Trading Commission” (CFTC) today sued the prediction market, where people from all over the world bet about things like who will win elections.

Intrade decided all its U.S. customers must now close their accounts and withdraw their money from the site.

I’m sure someone somewhere feels that I, the wilting consumer, must be protected from myself, but seriously.  How is this good?

What law are they breaking?

In English: the government says that many of the things Intrade allows people to predict – everything from what the price of gold will be in the future to whether the U.S. will go to war soon – are legally considered “commodity options,” and that Intrade broke the law because it isn’t licensed to trade those. The penalty is $140,000 per violation.

So, just get a license:

Why doesn’t Intrade just obey the complicated law and become a licensed exchange? They tried, but the CFTC won’t give them a license. When an established, licensed U.S. commodity exchange applied for permission to do what Intrade does, the CFTC turned them down, too.

The pompous CFTC enforcer claims that the regulation “is important for a number of reasons, including that it enables the CFTC to police market activity.”

This is the perfect microcosm that is the state of government today.  And Stossel sums it up perfectly:

Please. These regulations don’t help police market activity. When people make money on Intrade, Intrade sends them the money. There are no allegations of fraud. Customers are happy with Intrade, judging by increased activity on the site (over $50 million was bet about whether Obama or Romney would win.)

The market polices itself.

In a sane world, government would focus on preventing fraud, not on crushing innovative ideas.

Stossel goes on to point out that this isn’t just a democrat or republican problem, rather it’s the mindset that gentle flower that is the rugged American needs protection from …. from something, surely.  And THIS is the state of our future that I fear.  How to prove to, to convince, people that the future may not be “bad” with these rules, but it certainly is less better.

11 responses to “Oh For Pete’s Sake

  1. Oh teh stupid. Also, Catch 22!

  2. Stossel’s an idiot. Intrade was operating as a partner with a group that had been barred from doing exactly this in 2005. The complaint also alleges that Intrade lied in its Annual Certifications by saying that it only offered those illegal contracts to eligible participants (i.e. not US citizens), when in fact it didn’t police that at all.

    More to the point, I have found no evidence that Intrade actually asked for a license, just that Nadex was denied one. Where is Stossel’s proof?

  3. I’m not necessarily in favor of what’s being done, but I have no trust or respect for Stossel — he’s made false claims and statements so often in order to defend his ideological “faith” that I never take his word for anything. I’m perfectly willing to criticize the CFTC, but Stossel’s word is not enough for me to go on. I need to look into this more.

  4. From intrade’s website:

    “We understand our recent announcement was met with surprise and disappointment by our US customers, but this in no way signals the end of Intrade in the US. In the near future we’ll announce plans for a new exchange model that will allow legal participation from all jurisdictions – including the US. We believe this new model will further enhance Intrade’s position as the leading prediction market platform for real time probabilities about future events.”

  5. Stossel’s an idiot.

    And

    I have no trust or respect for Stossel — he’s made false claims and statements so often in order to defend his ideological “faith” that I never take his word for anything.

    Messenger aside. Seriously, why do we need to be protected from this? Why can’t I risk my own money in a market that has demonstrated an ability to regulate itself?

    If the company steals your money, certainly there are existing laws that speak to theft of services?

    • Seriously, why do we need to be protected from this?
      We don’t, but this is basically gambling and should be treated as such. I also think that poker ought to be legal online.

      The problem is that our securities and market regulations are not so fine tuned as to catch the difference between a prediction market and a futures market. A prediction market, to me, is basically the same as gambling, but in a way a futures market is, too. Should we only regulate futures markets, because they are huge? Should we regulate both, because there is no fundamental difference? I honestly can’t say, because I simply don’t understand futures and the role they play. I sort of get that they smooth markets out in a similar fashion as short sales, but I don’t understand why they’re necessary. Smarter people than me should chime in here.

      That said, the regulations are what they are, and it appears intrade broke them. It also lied about that, and it partnered with someone who had been ordered not to do this. Therefore I have little sympathy for their plight when they are caught.

      Why can’t I risk my own money in a market that has demonstrated an ability to regulate itself?

      Has intrade demonstrated such an ability? How? When?

      If the company steals your money, certainly there are existing laws that speak to theft of services?

      The concern is not that intrade is going to start falsifying numbers. They can’t. I don’t really think there’s any harm in the whole racket (until morons start spouting off about wisdom of crowds and so forth). This is a perfectly good example of a situation where the regs are overbroad and the government doesn’t understand the area in which it has waded. I’d be perfectly happy for Intrade to keep on going and the CFTC to back off.

      But there’s a serious issue here of Stossel. Whether he happens to be right in the general conclusion or not, his own article links to incorrect press releases and says things happened without any citation at all. I wouldn’t link to him, go find a better source if you really need to quote (and I don’t think quoting Stossel adds anything here anyway, his conclusions are so predictable).

      • We don’t, but this is basically gambling and should be treated as such. I also think that poker ought to be legal online.

        Umm, I’m confused. Are you saying that it’s gambling and should be treated as any other gambling outlet BUT that such treatment is silly?

        I sort of get that they smooth markets out in a similar fashion as short sales, but I don’t understand why they’re necessary.

        Off topic, compare the price of onions to the price of, say, oil.

        Has intrade demonstrated such an ability? How? When?

        As far as I know…..there is no complaint of fraud. Intrade is motivated to provide an honest clearing house and not fraud its customers.

        This is a perfectly good example of a situation where the regs are overbroad and the government doesn’t understand the area in which it has waded. I’d be perfectly happy for Intrade to keep on going and the CFTC to back off.

        That’s my point.

        But there’s a serious issue here of Stossel.

        I knew that I shouldn’t have linked Fox. But I was between meetings and jammed for time….

        • Are you saying that it’s gambling and should be treated as any other gambling outlet BUT that such treatment is silly?
          I was unclear, partly because my thoughts on this are mixed.
          1) Intrade falls within the letter of the law on futures markets, and therefore ought to follow those laws and try to get them changed to allow what it is doing without a license to run a futures exchange.
          2) I would totally support that, because Intrade isn’t really a futures exchange in any sense, it’s a gambling website.
          3) I think gambling websites ought to be legal and not regulated by the CFTC (though, obviously, they ought to be regulated by somebody)
          More clear?

          Off topic, compare the price of onions to the price of, say, oil.
          That’s exactly the point (and example) that came to mind. Then again, there was a reason for the ban on onion futures that ought to be in the discussion, if we’re talking about the need for regulation.

          As far as I know…..there is no complaint of fraud. Intrade is motivated to provide an honest clearing house and not fraud its customers.
          I’m not going to put the burden on Intrade to prove they don’t commit fraud, but since you said they had demonstrated an ability to regulate itself I wanted to know how. I’m not sure if the lack of any accusations of fraud/manipulation really proves that they don’t have fraud/manipulation. I do think intrade’s numbers are often wrong, but I think that’s due to the inaccuracy of the traders and not some nefarious undercurrent at Intrade.

          That’s my point.
          I know, I was largely agreeing with you! I know, I know, you’ve never seen me do that so it probably seemed alien and weird. But really, we only disagree on the CFTC taking action here. I think that a company that breaks the letter of the law needs to be brought to bear for that, you think it shouldn’t in this case. I do think it’s interesting that in the case of the pepper sprayed protesters, your stance is that they knew they’d get pepper sprayed and therefore deserved whatever they got, while here you are defending a company that knew it was violating a CFTC Order (and probably federal law) and continued to do so. I think there’s a real disconnect there that doesn’t exist the other direction.

          • I know, I was largely agreeing with you! I know, I know, you’ve never seen me do that so it probably seemed alien and weird.

            Oh!

            Beers and shots for everyone!

            I think that a company that breaks the letter of the law needs to be brought to bear for that, you think it shouldn’t in this case.

            Nah, you’re right. I have the same stance on immigration. I think that there are laws surrounding immigration. I think that those laws are dumb. We should change those laws. But until then, we should enforce them.

            I do think it’s interesting that in the case of the pepper sprayed protesters, your stance is that they knew they’d get pepper sprayed and therefore deserved whatever they got, while here you are defending a company that knew it was violating a CFTC Order (and probably federal law) and continued to do so.

            Well, I think I’m more protesting the absurdity of the whole thing. I don’t think that I’m suggesting the company just ignore the warnings and risk the $140,000 pepper spray.

            In fact, I suggested that Intrade go get that license.

            Anyway….back to the beer…

    • I need to know more before I know if regulation is necessary. Regulation is a practical rather than an ideological matter. It is good when needed, it is bad when it is not needed. That’s one thing you should be praising Obama for, his administration has significantly cut unneeded regulation. The CFTC should have regulated derivative trade back in 1999 (their proposal was just to track how much was being done, nothing more), but were held in check by the free marketeers. We now know that was a mistake. Maybe this time they’re going too far. I need more info to know. I don’t know if this market can regulate itself or has been. I don’t have enough info.

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