Bloghost Chris F. Masse has kindly, if somewhat persistently, solicited my opinion about the recent Statement on Prediction Markets, signed by various luminaries. I gather that Robert W. Hahn & Paul C. Tetlock largely authored the Statement and organized its signing; the document certainly seems to reflect their views about the proper regulatory regime for prediction markets. At any rate, I would say of the Statement what I said about Hahn and Tetlock’s earlier proposal for regulating prediction markets: The gentlemen evince the best of intentions but I fear they misunderstand the relevant legal principles and sorely underestimate the costs of CFTC regulation–even regulation “lite”–of prediction markets.
Ask anybody who suffered the recent bloodletting at Hedgestreet: CFTC regulation can impose crushing burdens. It has nearly driven that innovative business into the ground. And, notably, the Statement proposes funding a new corp of CFTC bureaucrats, devoted entirely to prediction markets.
(Thanks for using my middle initial, Chris. I hope you liked the return on your investment. Now, if you’ll excuse me, I’ve got to get back to grading exams.)
If you think Prediction markets aren’t growing now, adding the current CFTC (and NFA) model to the equation is like adding salt to your vegetable garden — look ma – the plants are dying on the vine!
At the most primitive level, the prediction market category needs more startups in the mix, but startups can’t afford the cost of regulation that the CFTC requires… it’s just a non-starter.
If the CFTC were to be involved it would have to be at a “lite-mode” where the CFTC requirements were simply about reporting and monitoring the market…
How is that hearing going, Barney Frank?
Our markets turn their potential to you, whoo hoo hoo
What’s that you say, CFTC
A government agency must find something newsworthy to do, true true true
{Fade out with some winsome guitar plucking, with a “goo goo g’joob” thrown in for good measure …}