• Government Crushes Innovative Online Prediction Market

      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.

      That's terrible news for all of us who want more input into what's going to happen in the future. Bettors on Intrade.com have made incredibly accurate predictions about elections - because they, unlike TV pundits, have real money on the line. This year, I watched on election night as TV pundits said "too close to call... too close to call..." while the bettors on Intrade knew that it was not a close call.

      Intrade has also successfully predicted events like Saddam Hussein's capture and the winner of the Oscars. People with the best information trade about those events, and drive up the odds on Intrade.

      Why did the American government sue Intrade? It was not for operating an online gambling operation, but for allegedly violating America's incomprehensible financial regulations -- specifically, these ones:

      "Section 4c(b) and 9(a)(3) of the [Commodity Exchange] Act, §§6c(b) and 13(a)(3) (2006); Section 2(e) of the Act, as amended by the Dodd-Frank Act, to be codified at 7 U.S.C. § 2(e); and Regulation 32, as amended, to be codified at 17 C.F.R. § 32 (2011);"

      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.

      In a press release, the CFTC's chief enforcer went out of his way to target "prediction markets":

      "It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction' contracts, unless they are... traded on a CFTC-registered exchange... Today's action should make it clear that we will intervene in the ‘prediction' markets, wherever they may be based."

      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."

      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.

      Both Republicans and Democrats are at fault for creating the bloated government agencies that do things like this. President Obama also deserves blame, indirectly, for appointing Gary Gensler as the head of the CFTC, who in turn appointed the anti- prediction market prosecutor quoted above.

      Related articles and videos:

      Intrade Tells U.S. Customers to Empty Accounts After CFTC Suit

      Can Betting Odds Predict Future?

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