|
In a market mechanism like this one we could actually stand a better chance at seeing who is "making the market" versus just speculating about it. If contracts for a "U.S. invasion of Iraq in 2003" were offered and suddenly started ramping up in price back in early 2002, then we wouldn't just be talking about the Bush administration's bellicose rhetoric in 2002, we could have been talking about quantifiable, demonstrable evidence that there would be a U.S. invasion of Iraq in 2003.
First of all, I don't see the value of this information, even if we could get it. I seriously doubt someone in the Bush camp would have been buying Iraqi invasion calls a year and a half ago, and if outsiders bought them, why is that information any more valuable than analyzing the rhetoric? Barring insider information, it would just be an index sentiment expressed in dollars -- there are public opinion polls that measure the same thing, but have less of a chance of influencing policy or actions, because there is no potential financial incentive involved.
If you eventually allowed something like streaming quotes at different "levels" like NASDAQ and NYSE along with buyer and seller information, think of the information we as people would have at our disposal: Who wants what in a quantifiable manner. No more bait and switch, no more rope-a-dope rhetoric; the proof would be in the contracts.
A similar problem to the one stated above. No real insider is likely to get involved with this, which makes the practical value of this information nil. Saddam wasn't going to buy Iraqi Invasion 2003 calls as a hedge against a U.S. invasion -- he had no way of cashing in. Neither would any other Iraqi insider. The Nine of Spades in the infamous deck isn't going to go to Chicago to exercize his Iraqi Invasion Calls, so he wouldn't buy them in the first place. For him, the invasion is practically a matter of life or death, and there is simply no way he can manage that risk through the financial markets -- they aren't made for that. So he doesn't play the game.
The real issue I have though, is that for financial markets to work properly, people have to have confidence in them. In normal futures trading, there are market forces at work that generally ensure people behave in a more or less 'ethical' fashion. If I buy May 04 Wheat Calls, any attempt to manipulate the price of wheat on my behalf is likely to cost more than my possible gains; moreover, there are regulating bodies that can investigate irregularities. The Hunt brothers' famous attempt to corner the silver market comes to mind: they lost their asses and got sued. How can anyone sue Osama Bin Laden? If Sharon tips off his crooked son about a 'targeted killing' in Israel, and his son shares the information with a friend who then acts on it, how does anyone prove insider trading? What is to be the enforcement mechanism? Is someone going to go to Israel and sue Sharon? Why should he be considered at fault? Why should he care anyway? No one is going to have faith in this system, therefore nobody will play. The nagging suspicion that you got took by someone who knew something you didn't would be crippling, IMO. It already comes to play in a relatively well-regulated system; this one is begging to be abused.
Finally, the idea that this could actually influence policy and action is totally repugnant to me. I can buy all the citrus contracts in the world, and it's not going to influence the weather in Florida. The same isn't true of terrorism contracts, or assassination deals. According to Wolfowitz, there are mercenaries at work in Iraq who will blow shit up for $200. The potential here is far in excess of that. If I could find a sucker big enough on the other end, I could go into the terrorism business. I doubt that sucker would be there after a while, but just the potential should have been enough to shut this down.
|