Just when you thought the world of speculative high-finance was at a low point, there comes more silliness: a political “predictions” market loftily named the “American Civics Exchange.”
It’s a sort of e-trade politics casino sold as a “risk transfer” opportunity for businesses. As if now that the crony capitalist leaders are out and the socialists are in, it might be cheaper simply to bet against “anti-business” policies than to lobby lawmakers to enact “pro-business” policies. In other words, if the government is going to begin charging your business for spewing chemicals into the sky or the river or both, you can make money betting that the government is going to do so and counter the cost. Genius! … Or not.
The main thing the “American Civics Exchange” is likely to do is get people in their pajamas to lose money.
The press release describes the venture as:
a web-based exchange for political futures — that is, contracts that pay out depending on whether given political outcomes (e.g. enactment of legislation, regulatory decisions, etc.) take place. The idea is similar to weather derivatives that enable companies that are financially exposed to deviations in temperature (utilities, farms, etc.) to hedge that exposure. Similarly, our contracts enable companies (or or fund managers or speculators) to hedge their financial exposure to things like increased tax rates, enactment of harmful legislation, and adverse regulatory decisions.
Is this real? Is it legal?
InTrade, based in Dublin, has been doing something like this for close to a decade, and even though most of the participants in its market are Americans, InTrade can’t get a ruling on whether the business is legal in the States or even whether the people running InTrade here will soon be arrested or deported.
The top trade on offer right now at the Dublin site concerns whether Tim Geithner will depart as secretary of the treasury before midnight eastern time on June 30, 2009.
Buy! No, sell! Wait, has financial-industry journalist Jim Cramer weighed in on this mad money trade yet over at CNBC?
Prediction markets may work for things like Tim Geithner’s possible resignation or, say, who will be the next American Idol winner, but predicting the outcome of political policies… that’s a complex business and betting on it is a recipe for losing however much of your money the derivative geniuses at other exchanges haven’t already gambled away.
Despite what this Web-based financial adviser has to say — and he is of course one of the founders of InTrade — the American Civics Exchange is not a way to “debate political issues with your cash” and it sure doesn’t look like a real financial instrument either. Futures markets work because they determine prices. What will this market determine, exactly? It would need a major critical-mass of money and participants to hedge a business against, say, a minimum wage hike.
No, this feels more like a gift to people who are looking for signs that capitalism as a ruling ideology is in its death throes.