In the minds of the regulators, there is no worse behavior than not showing them sufficient deference and servility, sometimes known as lese majeste. So what if the various regulatory bureaucracies that litter our lives have never accomplished anything worthwhile? So what if the highly-regulated like Madoff frequently give full access to their files to the SEC and still conduct multi-billion dollar frauds without fear of detection? The people must submit!
Latest to incur the wrath of the regulators is Intrade, the internet political betting site, based in Ireland, where up until now you could place a bet on the outcome of elections for president, senate, governorships, and so on. Intrade has established a well-deserved reputation for accuracy of its predictions. In the weeks before the recent election, they had Obama to win trading in the range of 60 to 70, versus Romney at 30 to 40. And I have never heard any allegation that they failed to pay off appropriately. A useful service, with full financial integrity, completely outside the control of the regulators -- We can't have that!
According to this press release, on November 26 the Commodity Futures Trading Commission sued in Federal court in Washington to shut Intrade down, at least as to taking bets from Americans. Reason? "The CFTC's ban on off-exchange options trading." Here is the quote from the CFTC's Director of Enforcement:
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 listed for trading and traded on a CFTC-registered exchange or unless legally exempt. The requirement for on-exchange trading is important for a number of reasons, including that it enables the CFTC to police market activity and protect market integrity. Today’s action should make it clear that we will intervene in the ‘prediction’ markets, wherever they may be based, when their U.S. activities violate the Commodity Exchange Act or the CFTC’s regulations.
Perhaps it never occurred to you that a contract betting on the outcome of a political election is a "commodity option"? Clearly, you have not read the pages of impenetrable definitions in the Commodity Exchange Act or the CFTC's regulations, nor have you followed the vast expansions of CFTC jurisdiction in the infamous Dodd-Frank law. If you had, you would have known that "commodities" under the jurisdiction of the CFTC include not just things, but also "all services, rights, and interests . . . in which contracts for future delivery are presently or in the future dealt in [sic]," but of course, "except onions." Does a contract betting on the presidential election seem like an onion to you? OK, proceed.
It is quite clear that Intrade and CFTC regulation are completely incompatible. Not only does the CFTC require that all trading take place on one of its exchanges, but also they only allow the trading of contracts as to which they have vetted the terms word by word. Intrade uses the internet and creates hundreds of contracts for specific races in short periods of time. Too bad, that won't work. You are gone.
Meanwhile, I can state with one hundred percent certainty that there are right now multiple Ponzi schemes in regulated enterprises operating right under the CFTC's nose and the CFTC is missing every one of them. Those schemes will come to light when the operators run out of new investor funds, and not before. When a big enough one blows up, the CFTC will promptly call for stricter regulation to better enable them to "police the markets," or something like that.
Intrade was showing them up. Now Intrade, and the American people, are the losers. Can anyone give a reason why the CFTC should not be eliminated?