InTrade has closed down

by on March 10, 2013 at 10:58 pm in Economics, Law | Permalink

Their somewhat mysterious announcement, which refers to financial irregularities, can be read here.

1 dirk March 10, 2013 at 11:14 pm

What were the odds of this happening?

2 Beans March 11, 2013 at 2:27 am

InInTrade is also down.

3 DocMerlin March 10, 2013 at 11:21 pm

Candidates can’t raise money if everyone knows ahead of time who is going to win.

4 Ed March 10, 2013 at 11:36 pm

Sad to see this happening. I wonder what if any role the U.S. Government had in the shut down.

Meanwhile, if you want a prediction market that is stable, that has a nearly 20 year history, that charges no fees, and is legal in the U.S., try the Iowa Electronic Markets. It is a tad bit boring (no predictions on current events, other than big political contests). And decidedly low-tech (mail in a paper check and application, withdraws by snail mail only). But can’t beat being run by the University of Iowa as a research project and having received a blessing from the SEC. Also no fees, other than $5 sign-up fee.

5 asdf March 10, 2013 at 11:45 pm

Trading at intrade is way down for a long time.

6 Rahul March 11, 2013 at 12:40 am

Did people tire of prediction markets or shift to competing markets (if any?), I wonder.

7 asdf March 11, 2013 at 1:43 am

I believe it got the same crackdown online poker did. Like online poker it continued to exist, but as a shell of its former self.

You don’t need to completely obliterate something. You just have to make it difficult enough to do business that the mainstream stays away. Only addicts keep going when its illegal.

8 DocMerlin March 11, 2013 at 5:17 am

This.

9 mw March 11, 2013 at 12:03 am

Free markets–where’s my regulatory forbearance?!

10 Andrew' March 11, 2013 at 5:55 am

Thank goodness the government shut them down.

11 DocMerlin March 11, 2013 at 6:08 am

There is a bitcoin prediction market, now, which has reasonable volume.

12 asdf March 11, 2013 at 10:59 am

This is why people who think Bitcoin is going to change the world are crazy.

People seem to think that because there is an economy for illegal drugs that the government can’t stop things. Of course they can stop things. Not completely, but they can eliminate 90%+. If you had a free market in cocaine and you could buy it at the 7/11 checkout aisle cocaine usage would be orders of magnitude higher.

In terms of dramatically lowering drug use drug laws work. They have bad side effects because drugs are addicting enough that the people still involved in those markets do crazy and dangerous things, but that’s and enforcement issue. Countries which have fiddled with the legality issue (where they are still illegal, but enforcement is very focused and they aren’t going after everyone for possession) deal with some of this. However, its not free market where anyone can just make and sell any drug anywhere at any price.

Similairly poker, intrade, bitcoin, all of them will never be totally eliminated. There will always be a hardcore that needs a fix. And in the case of bitcoin there is certainly an illegal money laundering angle as well. So if they came down hard on it I would expect it to still be around but to be a shell of its former self, not some challenge to the monetary order.

13 Cliff March 11, 2013 at 11:05 am

There will always be a hardcore that needs a fix of bitcoin? You’re nuts, dude.

The main “bad side effects” are gangsters killing tens of thousands of people, along with the creation of a permanent criminal underclass and the incarceration of hundreds of thousands of young men, which have nothing to do with addiction.

14 asdf March 11, 2013 at 11:39 am

Long after poker got the smackdown I still saw people going to incredible lengths to open foriegn bank accounts and risk putting their money on sites that might never pay it back. I put myself through college playing professionally and I can tell you I’ve seen a lot of gambling addicts up close.

Bitcoin is basically gambling too. That plus a way for people to launder drug money.

The illegal market for drugs has everything to do with addiction. Chewing gum is illegal in Singapore. Do you see chewing gum gang drive buys?

There is an illegal market for drugs because there are people willing to pay any price. So they are willing to pay any price because they are addicts. Since there will always be some demand at any price no matter what the costs of avoiding law enforcement are you will be able to sell some at a profit.

People aren’t willing to pay any price for chewing gum.

15 Rahul March 11, 2013 at 1:54 pm

If you had a free market in cocaine and you could buy it at the 7/11 checkout aisle cocaine usage would be orders of magnitude higher.

Is this borne out by empirical evidence? e.g. Is usage of marijuana orders of magnitude higher in Netherlands? Or even Portugal?

I am skeptical.

16 Chris March 11, 2013 at 2:30 pm

I agree with Rahul – cocaine use might go up but not orders of magnitude. Cocaine isn’t that hard to get, anyone with a sufficiently large social network knows someone who knows someone. I choose not to use cocaine and that wouldn’t change if it were suddenly on sale at 7/11.

17 asdf March 11, 2013 at 8:48 pm

“Cocaine isn’t that hard to get, anyone with a sufficiently large social network knows someone who knows someone. ”

What kind of hoodlums are you hanging out with?

If I took a random sample of the people I work with I bet most would fail to acquire cocaine even if they wanted it.

18 Bill March 11, 2013 at 6:37 am

“At this time and until further notice, it is not possible to make any payments to members in accordance with their settled account balance until the investigations have concluded. ”

Hmmm.

Does that mean that my InTrade bet, er, rather prediction, that I placed on InTrade as to whether it would close down will not be settled? According to the data, there was a 70% chance InTrade would continue.

Where is Fama when you need him.

19 Andrew' March 11, 2013 at 7:45 am

Who needs gambling when you have The Fed?

And if you really doubt Fama, why don’t you go own the stock market?

20 john personna March 11, 2013 at 10:51 am

Inefficient markets do not really imply predictable markets. That is the predictor’s hope, but there is another option.

21 Brian Donohue March 11, 2013 at 6:37 pm

A: See, that there market is inefficient.

B: Oh, how can you tell?

A: I can tell, boyo. I can tell.

B: Ah, so the price is not to be trusted as conveying accurate information eh?

A: That’s right.

B: Is the price too high or too low?

A: Well, that’s the tricky part. We’re not sure. All we know for sure is that it’s inefficient, so…one or the other.

22 Anurag March 11, 2013 at 10:36 am

A 70% percent chance does not mean a 100% certainty 🙂
Similarly, EMH does not say that markets are *always* right.

23 john personna March 11, 2013 at 10:52 am

Weak EMH is no EMH at all, and good riddance.

24 Cliff March 11, 2013 at 11:08 am

Weak beer is no beer at all!

25 Anurag March 11, 2013 at 12:03 pm

Who said the statement “EMH does not say that markets are *always* right” is stating a Weak form of EMH? That statement will apply to strong and semi-strong form also.
I’ve seen most proponents of EMH subscribe to the semi-strong form .. the one about all *publicly* available information.

26 john personna March 11, 2013 at 3:07 pm

It was my understanding that the strongish forms had been disproved by event studies. I like Justin Fox’s “The Myth of the Rational Market” as the best long read on this.

27 john pesonna March 11, 2013 at 3:08 pm

(I suppose Mandelbrot’s “The Misbehavior of Markets” is technically even better, but it’s a harder read 😉

28 Cliff March 11, 2013 at 11:07 am

Yeah, because nothing with a 30% probability of happening has ever happened before.

29 AyeJay March 11, 2013 at 9:34 am

According to Irish magazine Phoenix (Jan 11,2013 and not on the internet, I’m afraid) Intrade “filed accounts which raise questions over payments made into bank accounts controlled by the founder of the firm, John Delaney…According to the 2010 accounts for Intrade…over $1.2 million was transferred into accounts controlled by Delaney. The nature of these payments is unclear because of insufficient documentation, the accounts state….A note from the Intrade accounts also states that the current directors are aware of issues identified related to ‘significant financial inaccuracies’ in the company’s internal accounts for previous years”.(p.42) Delaney, it should be noted, died in 2011.

30 AyeJay March 11, 2013 at 11:20 am

http://rajivsethi.blogspot.ie/2012/11/death-of-prediction-market.html

“While this design is safe in theory, there was no mechanism in place to ensure that these commitments would, in fact, be met. When Intrade closed its doors to US residents in November, it did so in response to an action by the CFTC. I wondered at the time whether there was regulatory concern about the segregation of funds:
Even though the exchange claims to keep this margin in segregated accounts, separate from company funds, there is always the possibility that its deposits are not fully insured and could be lost if the Irish banking system were to collapse. These losses would ultimately be incurred by traders, who would then have very limited legal recourse.
Similar concerns were raised in an exchange with Dave Pennock on twitter. I thought at the time that the biggest risk came from failures in the Irish banking system, and discounted the possibility that trader margin could be deliberately co-mingled with company funds, invested in risky securities, or simply embezzled. This may have been too optimistic a view, especially given the precedent of MF Global.”

31 PKSully March 11, 2013 at 11:43 am

I had a trading account at REFCO, I had a trading account at MF Global, I don’t have an account on InTrade so I conclude that the accounts are safe.

32 Andrew' March 11, 2013 at 11:47 am

I suspect we shouldn’t shut down everything that has the ability to co-mingle or be embezzled. We could consider letting the ones that do fail while the ones that don’t take up the business.

33 Rajiv Sethi March 11, 2013 at 3:21 pm

AyeJay, you linked to an older post but quoted from this one, posted today:

http://rajivsethi.blogspot.com/2013/03/a-prediction-market-mystery.html

34 AyeJay March 11, 2013 at 4:23 pm

Indeed I did. Apologies.

35 AyeJay March 11, 2013 at 6:13 pm

Just as an aside…according to their last filed accounts some Intrade members segregated funds were held with either Danske bank or Anglo-Irish Bank aka the Irish Banking Resolution Corp. IBRC was unceremoniously liquidated on February 6 2013. Some depositors have lost out, despite some level of state compensation. Surely Intrade hadn’t continued to deposit funds in IBRC?

36 Bernard Guerrero March 11, 2013 at 12:58 pm

“According to the 2010 accounts for Intrade…over $1.2 million was transferred into accounts controlled by Delaney….Delaney, it should be noted, died in 2011.”

Let the conspeorizing begin!

37 Mark Thorson March 11, 2013 at 4:04 pm

Since 2011, the money has been going to somebody named Watson in Poughkeepsie.

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