In the 21st century fully-wired economy, everything has a price and a market. Markets extend even to the realm of politics; if you wish you can express a point of view on who will win the 2010 senate races in Connecticut or North Dakota, the chance of an attack by China on Taiwan during 2010, or the odds against Fed Chairman Ben Bernanke's being chosen for a second term. Activity in the latter market has been high in the last few days, after a couple of key senators wavered in backing the incumbent. But in today's trading, the market view of Bernanke's odds of a second term made a solid recovery.
John Delaney, an enterprising Irishman, created InTrade in 1999 to capture market intelligence, and the company's reach now extends to business, politics, climate, science and of course the world of sports and entertainment. InTrade participants buy contracts, which are options I suppose, that pay $10 for a winning point of view, and zero for a loser. (Seventy-two percent of Intrade participants think Tiger Woods will return to the PGA Tour before April 30, while just 15 percent are willing to invest in the Higgs boson particle being observed before the end of 2010.)
Ben Bernanke's forecasted prospects, at least in his current job, took a dip last week, from a consistent 90 percent or so to 80, as two key senators pulled their support on Friday, apparently blowing with the wind from the upset Republican senate victory in Massachusetts.
Click on the graph to see a larger version
On Friday morning Senator Russ Feingold (D-Wisc.) announced that he would vote against Chairman Bernanke's second term, on the grounds that poor regulation over mortgage lending and giving banks free rein led to the credit crisis.
Senator Barbara Boxer also pulled her support:
Boxer is no firebreather on economic issues, but considered a more mainstream Democrat from a state that was considered comfortably blue -- until Tuesday's special election in Massachusetts, that is.
I have a lot of respect for Federal Reserve Chairman Ben Bernanke. When the financial crisis hit in late 2008, he took some important steps to prevent what many economists believe could have been an even greater economic catastrophe, said Boxer.
However, it is time for a change -- it is time for Main Street to have a champion at the Fed. Dr. Bernanke played a lead role in crafting the Bush administration's economic policies, which led to the current economic crisis. Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past.
That's from The Huffington Post. THP also informs us that Paul Krugman wants to see Bernanke renominated, while from opposite points on the political compass, Senator John McCain and MoveOn.org both want a new Fed chairman.(And THP relates that Oprah Winfrey interrogated Sarah Palin about a new hair style, but as far as I can tell the topic did not drift to Bernanke.
Back to the wisdom of crowds. At around 4 p.m. Monday, the price of a $10 contract in favor of the Chairman traded at 93. Taking such a bet you would buy in at $9.30, and in the event of BBII, you'd collect $10 from InTrade, less commissions.
I've never looked at InTrade before, but among the many political outcomes you could wager on, this one seems to be the most one-sided. That is, the weight of money is on Ben.
One who seems to be is Donald Luskin, an accomplished investor and trader, and today chief investment officer of Trend Macrolytics, a research firm for institutional investors. On the InTrade web site, Mr. Luskin gets credit for thinking up the Bernanke contract, back in August when President Obama first made his renomination.
In a phone call Monday, Mr. Luskin told me:
These so-called 'prediction markets' are really accurate. They get a first call on things that other means of prediction, such as opinion surveys, don't get. They were all over Scott Brown [last week's Massachusetts upset winner in the U.S. Senate], and a while ago they were even right on the new pope.
These are great little laboratories that show how markets work. The person that knows the most will make the largest bet, and influence the market the most. In a simple opinion poll, any idiot can shoot his mouth off about he wants, rather than what he really predicts,and doesn't have to be right or wrong.
I think replacing the Fed chairman at this point would be foolish. It would make a political statement, surely, but a cartoony one. A new Fed chair would be expected to sweep clean, change policy, etc, and that is the last thing the still-recuperating world economy and financial system need.
So I take it on face value that there's a 93 percent chance that Bernanke will be renominated.