Intrade.com is offering the oppportunity to bet on whether Goldman Sachs CEO Lloyd Blankfein will keep his job through the end of the year and on whether Goldman will settle with the Securities and Exchange Commission. The New York Times reports on this development in an article that concludes with a claim that the Intrade betting is "drawing criticism strikingly similar to that leveled against the complex financial instruments Mr. Blankfein and his underlings were questioned about on Tuesday." The Times quotes George R. Neumann, "a University of Iowa professor of economics who in 1988 invented the Iowa Political Stock Market, the predecessor to the still-popular Iowa Electronic Markets.":
Professor Neumann's online futures market serves primarily as a teaching tool, while Intrade is a profit-making exchange that charges 5 cents a contract.
"I don't know what the economic gain is," Professor Neumann said of the betting on Goldman and its chief, "and it's in bad taste."
The Times doesn't note that not only is the criticism similar in the cases of the bets on Goldman faciitated by Intrade.com and the bets on the housing market facilitated by Goldman, so are the defenses. In each case, the price levels convey information. Clifford Asness makes the case in respect of the housing market that "If these 'side bets' encourage more research, more time and energy, into figuring out whether the current price is too high or too low, they themselves can make prices more accurate."
Some would argue that because the Intrade bets are on a transparent exchange with posted prices visible to anyone, they are even better than Goldman's synthetic CDO, where the price information was more closely held. Tony Blankley argues that this whole notion of looking at something in terms of its "social utility" as opposed to its utility to an individual has its problems.
