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Why does the CFTC allow the Cantor Exchange and not InTrade?

Chris F. Masse — Tue, 16 Mar 2010 09:00:16 +0000

Joe Weisenthal has a small opinion piece on why the CFTC allows real-money prediction markets on movie business, and bans those on politics or sports. The problem in the piece is that Joe is 100% wrong.

Joe says that there can’t be hedging in politics. Wrong. You can hedge your political ads on InTrade.
Joe says that there can’t be hedging in sports. Wrong. Businesses that operate inside a stadium could hedge the risk of the home team losing (which means less business for them).

So. why does the CFTC shy away from hedging on sports and politics? –> Politics. The CFTC is afraid of the US Congress, who would object to politics and sports “gambling”.

The CFTC is a weak institution, in the DC sphere of power. In the recent past, the CFTC lost one important battle against other parts of the US government —even though it was the CFTC that was on the right side of the issue at the time. With politics and sports betting, the CFTC does not want to lose another battle. It is a question of survival.

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Don’t let the best leaves the boat.

Chris F. Masse — Wed, 30 Dec 2009 09:49:02 +0000

Jeffrey Harris, the chief economist at the CFTC who last year said he could find no direct link between speculation and high energy prices, is leaving the agency.

Ayn Rand’s influence on Alan Greenspan is responsible for the 2008 financial crisis.

Chris F. Masse — Tue, 08 Dec 2009 11:33:33 +0000

Or so is PBS’s thesis in “The Warming”.

Pretty convincing.

ADDENDUM

Wikipedia:

Brooksley E. Born is an American attorney and former public official who, from August 26, 1996 to June 1, 1999, was chairperson of the Commodity Futures Trading Commission (CFTC), the federal agency which oversees the futures and commodity options markets. During her tenure on the CFTC, Brooksley Born warned Congress and the President of the need to regulate financial instruments known as over the counter (OTC) derivatives, but her warnings were disregarded. Lack of regulation ultimately led to the crash of the derivatives market, and helped trigger the economic and financial crisis in the fall of 2008.

The Commodity Futures Trading Commission and Securities and Exchange Commission will have authority to decide what derivatives must be centrally cleared rather than letting private parties make the call.

Chris F. Masse — Wed, 02 Dec 2009 16:20:40 +0000

“Central clearing interposes a regulated clearinghouse between the original counterparties in a derivatives transaction and so creates an opportunity to make dealing more transparent.”

CNBC video

The Barack Obama administration made gains in its push for US financial reform, unveiling a landmark bill to tackle systemic risk in the economy and winning congressional committee approval for a measure to expose hedge funds to more government scrutiny.

Chris F. Masse — Fri, 13 Nov 2009 22:11:26 +0000

InTrade should be regulated. InTrade is in total illegality, right now.

Chris F. Masse — Sat, 17 Oct 2009 09:05:47 +0000

CFTC and SEC want authority over foreign exchanges that offer access to U.S. investors.

The Commodity Futures Trading Commission and Securities and Exchange Commission on Friday recommended legislation that would expand the U.S. futures regulator’s authority over foreign exchanges that offer access to U.S. investors.

The heads of major exchanges offered somewhat diverging views on plans by the CFTC and the SEC to reconcile their rule books.

Chris F. Masse — Wed, 02 Sep 2009 14:08:03 +0000

The heads of major exchanges offered somewhat diverging views on plans by the CFTC and the SEC to reconcile their rule books.

“A big concern shared by both exchange operators is that turf battles have slowed the approval of new products.”

The CFTC is seeking a bigger budget to cover ambitious plans to expand its policing of commodities markets.

Chris F. Masse — Wed, 26 Aug 2009 08:25:37 +0000

The CFTC is seeking a bigger budget to cover ambitious plans to expand its policing of commodities markets.

The Obama administration detailed a sweeping plan to more closely oversee the giant market for derivatives.

Chris F. Masse — Wed, 12 Aug 2009 06:45:53 +0000

“The 115-page draft bill would give the bulk of the proposed new powers over derivatives to the Securities and Exchange Commission and the Commodity Futures Trading Commission but also keep banking regulators in the mix by granting them authority to oversee banks that deal in derivatives.”

Don’t shoot the speculators. They predict prices, not set them.

Chris F. Masse — Mon, 13 Jul 2009 07:02:49 +0000

L. Gordon Crovitz in the Wall Street Journal:

More-detailed reporting on who has which kinds of positions in oil would make the market more understandable. It would show that so-called financial speculators are trying to predict price movements, but also trying to hedge risk. Likewise, commercial traders that take delivery of oil are hedging risks, while also predicting future prices. As oil expert Daniel Yergin points out, more visibility “will give a better sense of how much is the market responding to supply and demand in physical oil and how much is it responding to the supply and demand of money on the part of investors.”

It doesn’t make sense to shoot either kind of messenger. Markets are collections of information, translated through trading into prices. These prices, unless there is manipulation, are the best estimate of future supply and demand. Such price discovery should not be controversial, though it too often has been.