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fartman2
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Joined: November 26, 2007 20:20:56 UTC
Messages: 71
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fartman2 wrote:

The structural flaws would scare aware far too many knowledgeable investors and leave the contract only to those who are either the biggest risk-takers or least knowledgeable about the law -- neither group is, necessarily, the best to depend on for an assessment of Intrade's viability.


Actually, I'd like to expand on why these contracts are almost meaningless, from a predictive standpoint.

(1) Structural flaw creates a massive imbalance by discouraging shorts:
Unless the structural flaw re expiry payoff on Intrade failure is perfectly addressed (as I advise in an above post), only Longs will be comfortable entering the market -- after all, they need not worry about expiry payoff on Intrade failure as they would receive no payoff anyway. As long as this market's structural flaws scares away the vast majority of those who would otherwise be willing to short it, the price is not predicatively accurate and instead will always remain exceptionally inflated above true-value. I would prefer to believe that Intrade simply did not think this fully out rather than to assume Intrade floated these contracts and the "transparancy theme" knowing full well that the faux "transparancy" would inaccurately be biased in favor of Intrade's continued viability.

(2) Lack of insider trading hurts predictive value:
John Delaney ostensibly offered these contracts as a means of providing "transparency," yet with the same breath he precludes Intrade employees who actually are in the know from participating. While this decision may prevent certain moral hazards, it (a) does NOT facilitate transparency, and (b) creates the illusion of predictive quality comparable to other intrade contracts that is not real. I say the latter because other major failure contracts (e.g. bank failures, government failures, etc.) due not preclude insider trading. To my knowledge, this single Intrade.futures set of contracts has been put on a pedestal and has been treated differently from all of the typical intrade contracts. While I can understand Intrade's interest in not providing its employees with an incentive to bring about Intrade's failure, traders in Intrade.futures have no vested interest in the prevention of moral hazard -- they care only about the absolute result. Thus Intrade is, in its own self interest, hobbling the predictive value of the contract.

If Intrade is serious about transparency, it should publicly release detailed financial information, balance sheets, ventures, business plans, etc. In the absence of a public release of this information, perhaps it could find some third party respected by the public at large that could confidentially review/audit all of Intrade's business records, plans, and practices and release an objective (independent) analysis of the company's viability.

The Intrade.future contract, while perhaps motivated by noble intentions, is so seriously flawed for its stated purposes that, in appearance at least, it seems more of a superficial ploy.
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