The Political Umpire

With the Senate set to confirm Elena Kagan to the country's highest court today, the renewed media focus on the nexus between law and politics got me thinking about another legal/political question: Should the political prediction market industry create its own court?

In an interesting article in this month's ABA Journal, Eriq Gardner profiled a site called SportsJudge, which arbitrates fantasy sports disputes. Started by a lawyer named Marc Edelman, the site draws on contract principles and its own common law of fantasy sport precedents to resolve disputes among league participants.

While the prediction market industry doesn't yet have the economic impact of the fantasy sports sector, it certainly does have its own fair share of contract disputes. Intrade CEO John Delaney has acknowledged the inevitable difficulty of dealing with ambiguities in contract language, despite downplaying the frequency of such disputes at Intrade.

Still, as the industry continues to grow and the number of contracts climbs, there will be an obvious need for lawyers to carefully craft contract language and arbitrate conflicts. In fact, much of the early criticism of political prediction markets has centered around the potential problems of market manipulation. In a fascinating forthcoming journal article on that issue, Alexandra Newman, a colleague of mine, argues persuasively that political prediction markets should be treated like a league of their own.

So, how about an independent arbitrator for political prediction markets who could quickly rule on contract spats and accusations of market manipulation? Judges, after all, bend over backwards to avoid adjudicating non-justiciable political questions. Thus, even if political prediction markets gained full legal status from the CFTC, it would be hard to imagine that such cases could be resolved efficiently by the courts.

To that end, Politickr, a newly minted law school graduate, proposes becoming the industry's first political prediction market arbitrator. Any other lawyers interested in joining me to create the SportsJudge.com for political prediction markets?

Morning Odds and Ends

Kansas Secretary of State Chris Biggs predicts just 19% turnout in today's primary, where Jim Moran and the Palin-backed Todd Tiahrt are battling for the GOP nomination for Senator Brownback's seat.

Despite the 2008 Democratic Primary drama, DNC Committee decides to keep controversial superdelegates and predicts impact on future primaries will be negligible.

Michael Barone, who boasts that he wrote the first mainstream media piece in July 1994 predicting that Republicans would recapture the House, predicts that history will repeat itself this November.

Experts predict more than 15 million surveillance cameras in China by 2014.

Recorded Futures, a startup that monitors the real-time web and catalogs predictions, has received financial backing from both Google and the CIA. Politickr will be taking the beta site for a spin over the next month and will report back on the new search engine for predictions.

Researchers predict ethnicity of Facebook users based on US Census data and analysis of names.

Afternoon Predictions

NPR readers predict the winners of today's primaries - 60% think Lincoln will prevail in Arkansas, but 53% think it'll require a runoff. Rand Paul, Joe Sestak, and Mark Critz are also predicted to win.

Nate Silver says Joe Sestak is a 3:1 favorite in today's PA senate primary.

The political statistician also predicts that the Dems may soon be searching for a new senate candidate in CT following a Times report that Blumenthal lied about serving in Vietnam.

The Fix is holding a Primary Day Prediction Contest - So far, Wash Post amateur pundits are predicting a Sestak victory but are split over the race for Murtha's PA House seat.

Latest Intrade prices on today's primary races:

PA Senate: Sestak 80/Specter 20

PA-17: Repub Burns 58/Dem Critz 40

AR Senate: Lincoln 80/Halter 20

KY Senate: Paul 90/Grayson 20

What Happened to the American Civics Exchange?

As the Cantor Exchange, a futures exchange for movies, prepares to open next month, the American Civics Exchange, which billed itself as "the first US-based commercial market for political futures," appears to have quietly closed.

AmCiv launched nearly a year ago after announcing that it had filed a notice with the CFTC to operate as an "exempt board of trade." Accordingly, only institutional investors and multi-millionaires were allowed to trade with real money.

The Exchange listed event derivatives dealing purely with public policy questions, such as whether cap and trade would be passed and whether Congress would increase tax rates. It never delved into political predictions, and it was also apparently never listed in the CFTC's online directory of exempt boards of trade.

A request for comment on the current status of AmCiv was not immediately returned by its (former) general counsel.

Here Comes Health Care Reform

In a blog post this morning headlined "Health Care Resurrection," Paul Krugman alluded to the latest Intrade odds on reform. The likelihood of a health care overhaul is now trading at 62.5%, which is up nearly 10 points since yesterday and over 20 points since early last week.

Krugman claims he isn't completely convinced of the predictive power of political prediction markets, but he is keeping a close eye on Intrade.

"Betting markets don’t have any mystical power, but they do summarize conventional wisdom pretty well," he said, "and judging from Intrade, health reform has gone from a long shot to more likely than not."

But Business Insider suggests there's a better reason to pay even closer attention to the Intrade price on health care than Krugman purports: "What we're witnessing is the equivalent of political insider trading," said Joe Weisenthal. "This doesn't just reflect conventional wisdom. No, this is Washington DC insiders speaking here."

Weisenthal contacted Intrade CEO John Delaney, who said that a lot of the volume on the health care contract is coming from the Washington DC area.

The Bottom Line - If you haven't already invested in the health care contract, now might be a good time to get on board. Senator Specter just told MSNBC "momentum is building." Dan Rather, Katty Kay, Andrea Mitchell, and Joe Klein all predicted on Chris Matthews' Sunday show that health care reform will pass. Health and Human Services Secretary Sebellius told David Gregory on Meet the Press on Sunday that "we'll have the votes." Rachel Maddow predicted last night on her show that health care reform can't be stopped. Even if Pelosi loses her grip on the House and Congressman Stupak and his Blue Dog supporters somehow thwart the final effort, the contract is likely to keep climbing on Intrade in advance of the final whip count.

Paterson Probably Staying Put

As another disastrous week for NY's disgraced governor comes to a close, a majority of New Yorkers are now telling pollsters they want David Paterson to resign. But political prediction market traders at Intrade are growing more confident that the accidental governor isn't going anywhere.

As of this afternoon, Intrade gives Paterson a 55% chance of departing by July 1. The likelihood of him leaving office is down 18 points from yesterday's close, and 25 points from a high of 80% earlier in the week. While fewer than 400 shares have been traded so far, volume has picked up steadily during the last few days of the scandal.

Some pundits are crediting Al Sharpton's show of support for Paterson's improving prospects. Last night, at the second summit at Sylvia's restaurant since last Saturday, Al Sharpton and a number of prominent black politicians said that Paterson should stay put.

"Most of those in the room tonight strongly felt that the Governor should continue," said Sharpton.

Chris Cillizza, author of "The Fix" blog at the Washington Post, seized on Sharpton's statement in offering advice to a reader in a web chat today on whether to buy into an office pool on Paterson's resignation.

"I think he bought himself a little time when leading African-American leaders decided not to call for his resignation last night," said Cillizza. "Will paterson resign ultimately? I think it depends on what else -- if anything -- the New York Times has on him."

The Bottom Line - Traders would be wise to take Cillizza's advice. Barring another bombshell from the Times, the chance of Paterson leaving will likely continue to decline by the day, at least until Andrew Cuomo announces the results of his investigation.

Although increasingly isolated, Paterson is already trying to turn the page. He has political events planned for this evening and several scheduled for early next week. To that end, he appears determined to follow in the footsteps of the obstinate Mark Sanford and legendarily resilient Rod Blagojevich.

Whether another article, leak, or slew of staff resignations will ultimately force his hand, of course, remains unclear. But as long as he's able to buy time, traders should probably not buy the Paterson resignation contract.

John Stossel: Health Care Reform Will Pass

John Stossel, who profiled Intrade on ABC's 20/20 before the 2008 election, is still tracking political prediction markets. Although he has since left ABC for Fox Business, Stossel has not stopped citing the wisdom of the crowd.

In a post on his Fox Business blog this afternoon, Stossel proclaimed: "Obamacare is coming."

"Uh -oh...the Intrade betting odds that Obamacare will pass are now above 50%," he wrote. "That means that smart people who put their money where their mouths are now think that it is likely that some form of Obamacare will pass before June 30th. The odds dropped as low as 20% after Scott Brown's election, but as I write this, the trading is at 52 cents (winners win a dollar for each 52 cent bet."

As of this writing, the health care contract is trading just above 55, down from the 60% mark it reached yesterday.

White House Press Secretary Robert Gibbs, of course, gave traders reason to feel bullish about health care reform yesterday.

During his daily briefing, he said: "I literally believe that what I said on a television show this morning was the President leaves for Indonesia and Australia on March 18th, and we believe that -- I believe that, based on conversations that I've had in the building, that we're on schedule to get this through the House by then."