Monday, October 20, 2008

Are political investors mispricing risk?

The global financial system has gone into meltdown as investors suddenly realize they have mispriced risk for too long. Now, however, they see risk everywhere as a large percentage of the world's debt instruments turn out to have been holograms of fraud.

I have to wonder if we are seeing the same mispricing of risk in the 2008.PRES.McCAIN and 2008.PRES.OBAMA markets.

Investors are giving McCain a mere 15.2% chance of winning this election. And even that seems generous compared to the electoral college polling.

Are Intrade markets, however, failing to price in the risk of voting fraud?

Both campaigns are now warning of fraud and, yet, the markets look priced to perfection. Just like the stock markets before they collapsed.

While Obama is, as the markets reflect, far ahead in all the polls, favorability ratings and enthusiasm levels, what exactly are the algorithms that will translate these numbers into a vote?

Part of the reason that financial investors, for example, mispriced risk was that trading desks used proprietary algorithmic trading models they claimed almost eliminated risk. It turns out those algorithms weren't so miraculously immune to risk, or fraud, after all. As those trading desk algorithms are proprietary, of course, investors will never know just what formula it was that wiped out their net worth.

But just as triple AAA rated Collateralized Debt Obligation suddenly became worth 9 cents on the dollar, can five votes become worth say just one vote with the proprietary software running the electronic voting machines? Or, as I like to call them - the Miracle 51% voting machine.

The past two elections in America have been marred by the suspicion of not quite fair elections thanks to these electronic voting machines that, for example, gave sometimes drastically different results from the exit polls. Conveniently, the final results were so close that it was hard to cry 'foul' without seeming a poor loser. While the exit polls, of course, may have been inaccurate, we will never know if the voting machines were, too, as they leave no record and there is no way to examine the proprietary software on which the voting machines operate.

Remarkably, these paperless voting machines are apparently still around in several states.

And in West Virginia, where Intrade is giving McCain a 75% chance of
winning, there are already reports of votes for Obama 'flipping' to McCain.

The Charleston Gazette reports:

Three Putnam County voters say electronic voting machines changed their votes from Democrats to Republicans when they cast early ballots last week. .

This is the second West Virginia county where voters have reported this problem. Last week, three voters in Jackson County told The Charleston Gazette their electronic vote for "Barack Obama" kept flipping to "John McCain".

In both counties, Republicans are responsible for overseeing elections. Both county clerks said the problem is isolated.
No case of a Republican vote flipping Democrat has yet been reported.

Aside from the electronic voting machines, there is the old fashioned variety of vote suppression.

Robert Kennedy Jr. and Greg Palast argue in the latest issue of Rolling Stone that the election has, in fact, already been stolen and McCain is the 'winner:'
In state after state, Republican operatives — the party's elite commandos of bare-knuckle politics — are wielding new federal legislation to systematically disenfranchise Democrats. If this year's race is as close as the past two elections, the GOP's nationwide campaign could be large enough to determine the presidency in November. "I don't think the Democrats get it," says John Boyd, a voting-rights attorney in Albuquerque who has taken on the Republican Party for impeding access to the ballot. "All these new rules and games are turning voting into an obstacle course that could flip the vote to the GOP in half a dozen states."
Voter fraud has been a big issue in recent US elections. In the 2004 and 2006 election cycles, Republicans alleged widespread voting fraud by Democrats. They are now doing it again with the 2008 election.

But doth the elephant protest too much?

David Iglesias thinks so. As the FBI begins probe of a group called Acorn Iglesias had this to say:
"I'm astounded that this issue is being trotted out again," Iglesias told TPMmuckraker. "Based on what I saw in 2004 and 2006, it's a scare tactic." In 2006, Iglesias was fired as U.S. attorney thanks partly to his reluctance to pursue voter-fraud cases as aggressively as DOJ wanted -- one of several U.S. attorneys fired for inappropriate political reasons, according to a recently released report by DOJ's Office of the Inspector General.
And while the media is amplifying the Republican claims that Democrats are involved in widespread voter fraud via Acorn, a Republican operative has been quietly arrested for voter registration fraud in California:
The owner of a firm that the California Republican Party hired to register tens of thousands of voters this year was arrested in Ontario over the weekend on suspicion of voter registration fraud...

State and local investigators allege that Mark Jacoby fraudulently registered himself to vote at a childhood California address where he no longer lives so he would appear to meet the legal requirement that all signature gatherers be eligible to vote in California. His firm, Young Political Majors, or YPM, collects petition signatures and registers voters in California and other states..

Jacoby's arrest by state investigators and the Ontario Police Department late Saturday came after dozens of voters said they were duped into registering as Republicans by people employed by YPM. The voters said YPM workers tricked them by saying they were signing a petition to toughen penalties against child molesters..

The firm was paid $7 to $12 for every Californian it registered as a member of the GOP.
Regardless of whether or not any of these cases of voting registration fraud translates into actual voting fraud, the one thing that is clear is that the integrity of the US voting system is becoming increasingly suspect.

And with so many charges of voting fraud out there, it would seem there is no smoke without fire.

I don't buy Republican suggestions that Obama would need to participate in all the fraud they allege is happening. What on earth would be the point? Usually it's the guy behind in the game that needs to cheat. And the US ain't Russia where 90% wins are deemed necessary.

Nor am I convinced, however, by Kennedy and Palast's theory that the election has already been stolen for McCain. Unlike 2000 or 2004, all the polls and markets are just so overwhelmingly indicating an Obama landslide. And the $150 million raised by the Obama campaign in September suggests millions of American voters have skin in this outcome - unlike 2004 when Kerry support was always lukewarm, for example.

No. The Kennedy-Palast scenario is just too difficult to do in 2008. Such a theft could only happen if the resulting win is plausible. There would just be way too much explaining to have to do.

Furthermore, even the giants of the Republican party and/or Conservativism are planning on voting for Obama:

Christopher Buckley, son of William F., endorsed Obama:

Obama has in him—I think, despite his sometimes airy-fairy "We are
the people we have been waiting for" silly rhetoric—the potential to be
a good, perhaps even great leader. He is, it seems clear enough, what
the historical moment seems to be calling for.

So, I wish him all the best. We are all in this together. Necessity
is the mother of bipartisanship. And so, for the first time in my life,
I'll be pulling the Democratic lever in November. As the saying goes,
God save the United States of America.

Colin Powell announced on Sunday that he is endorsing Obama.
"I firmly believe that at this point in America's history, we need a president that will not just continue, even with a new face and with the changes and with some maverick aspects, who will not just continue basically the policies that we have been following in recent years," Powell said..

"I think we need a transformational figure. I think we need a president who is a generational change and that's why I'm supporting Barack Obama, not out of any lack of respect or admiration for Sen. John McCain."

.... Powell went on to say of Governor Palin . . .

"I don't believe she's ready to be president of the United States."
Endorsements galore from Republican leaning newspapers are also inconvenient to the Kennedy-Palast scenario.

The Chicago Tribune in their first Democratic Presidential endorsement ever:
McCain failed in his most important executive decision. Give him credit for choosing a female running mate--but he passed up any number of supremely qualified Republican women who could have served. Having called Obama not ready to lead, McCain chose Alaska Gov. Sarah Palin. His campaign has tried to stage-manage Palin's exposure to the public. But it's clear she is not prepared to step in at a moment's notice and serve as president. McCain put his campaign before his country.
The Salt Lake Tribune:
Then, out of nowhere, and without proper vetting, the impetuous McCain picked Alaska Gov. Sarah Palin as his running mate. She quickly proved grievously underequipped to step into the presidency should McCain, at 72 and with a history of health problems, die in office. More than any single factor, McCain's bad judgment in choosing the inarticulate, insular and ethically challenged Palin disqualifies him for the presidency.
The LA Times, which has not endorsed a Presidential candidate in decades:
Indeed, the presidential campaign has rendered McCain nearly unrecognizable. His selection of Sarah Palin as his running mate was, as a short-term political tactic, brilliant. It was also irresponsible, as Palin is the most unqualified vice presidential nominee of a major party in living memory. The decision calls into question just what kind of thinking -- if that's the appropriate word -- would drive the White House in a McCain presidency. Fortunately, the public has shown more discernment, and the early enthusiasm for Palin has given way to national ridicule of her candidacy and McCain's judgment.
Regardless, both sides are gearing up with massive legal teams - one to prevent certain voters from voting and the other to ensure certain voters can vote.

Bloomberg reports in "Obama Assembles US's 'Largest Law Firm' to Monitor Election:'

In Florida, Democratic lawyer Charles H. Lichtman has assembled almost 5,000 lawyers to monitor precincts, assist voters turned away at the polls and litigate any disputes that can't be resolved out of court.

"On Election Day, I will be managing the largest law firm in the country, albeit for one day,'' said Lichtman, 53, a Fort Lauderdale corporate lawyer and veteran of the five-week recount after the 2000 election when Florida eventually delivered the presidency to George W. Bush.
I think election night is going to be a lot longer than most people think.

And, heck, at only 15.2, 2008.PRES.McCAIN looks like a potentially profitable hedge against the risk of a hologram of an election.


Intrade said...

hammockman said :

    Thanks INTRADE - We appreciate your forum

Intrade said...

Anonymous User said :

    Palast is generally on the ball when it comes to presidential election rigging.

Intrade said...

Anonymous User said :

    an army of warriors can be held back, but not an idea whose time has come.

Intrade said...

TJ said :


Intrade said...

Red-blooded American said :

    Cheerio there Max,

I'm sure you are a good bloke but you have absolutey no idea what you're talking when it comes to American politics.

Of course, you are basing much of your analysis on reports in the main stream media which is dominated by leftists. The overwhelming instances of fraud exist on the left. Ever heard of ACORN? You certainly didn't mention it in your article. And, you won't find it in most newspapers because they are covering it up. You can find it on the Internet however, and if you'd look you will find that the FBI is investingating ACORN engineered voter fraud in 12 states!

Exit polls are notoriously wrong and are used by the big three networks to try and supress the vote of Republicans in western states by suggesting that the election is over the and...wait for it...surprise, the Democrats already won so don't waste your time voting out there in Nevada and Arizona, and Colorado, your vote won't make any difference.

Anyway, I won't go on, but I would recommend wading a pool that you are more familiar with.

Joe the Plumber

Intrade said...

kankan said :

Exit polls are not notoriously wrong, if by notoriously wrong, Red-blooded, you mean frequently wrong. They have been notoriously wrong in battleground states with e-vote machines and Republican Sec of States, such as Florida 2000 and Onio 2004, but strangely in 2004 the exit polls were right on for Senate races, House races, and president in non-battleground states. I would call this curious, not notorious. I know you want your side to win, but really be open to the truth and facts in front of you. I wanted Hill to come back in NH primary and she did, but I had to admit her comeback win in the face of pre-polls and exit polls that said otherwise was just plain fishy, especially when Obama won in paper ballots and Hill won on e-machines (and no, the precints with e-machines were not weighted to Hill in pre- or exit polls or demographics. Be proud your side has found a way to win in spite of how stupid liberal people vote. Embrace it, do not deny it and put your Intrade money where your mouth is a put moeny a come behind victory for McCain in a battleground state with emachines and laugh at stupid Dems who were too weak to cheat as well

Intrade said...

kankan said :

    Excellent point…when 2006 exit polls were right on for senators, house reps and president in non-battleground states but were the exit polls were wrong in Kerry predictions in Ohio, Florida, what is more likely - the pre-polls, exit polls and prediction markets are wrong or the voting process was messed with?

Just the open legal or quasi-legal things the Republicans do to disenfranchise likely Democratic voters is enough to tweak results: things like voter roll purges in selective precincts, challenging voters and provisional ballots in selective precincts, providing few voting machines at college campus precincts or urban precincts, caging voters, etc.. Likely voters become unlikely voters when they have to stand in the rain til 2am to vote as some in Ohio 2004 had to. But this just shows why pre-election polls would be off, how the heck can exit polls that are right in almost every other case be so wrong in exactly the right place for Repubs. Could it be the electronic machines with no paper trail and possible illegal manipulation of the counting and rejection or provisional ballots?

Intrade said...

kankankan said :

    Just the legal, not factually challenged things Repubs and Repub Sec of States have done add up to a lot more than Acorn falsely registering Dallas Cowboys, clearly not very efficient way to rig elections. David Iglesias said his DOJ district investigated over 100 reports of voter fraud and did not have enough to indict on one of them. Not that I think voter fraud is non-existent and shouldn’t be investigated and prosecuted. I want clean elections in all manners. But come on, if Dems wanted to rig an election, what is more efficient? things like purging voters likely to be voting for your opponent, limiting machines in certain precincts, hiring insiders IT guys to flip votes etc. or hiring Acorn to make false voters, then paying people to pretend to be those people and getting them fake ID’s to match those names, as they would be ID’d the first time vote?

Intrade said...

kankan said :

    Obama will have to win by wide margins or the media will invoke Bradley effect (who are these white Republicans or Reagan Democrat types that are ashamed to say to an exit poller they voted for the white war-hero fiscal conservative repub with a culturally conservative VP, lest it make them look racist ???). Be wary of any battleground state that has electronic voting machines and/or has hired an outside consultant to clean/mess with voter rolls. Be also wary of any story line that gains some itty bitty traction to explain a last minute surge/comeback by McCain in a key state or two, kind of like they tried to do with Joe the Plumber, or perhaps the exhumation of Rev Wright. If you see such a story line gaining traction, bet the farm on McCain, especially in a battleground states with e-voting machines, voter roll purging, and/or a Republican Sec of State. And then ignore the exit polls in the news coverage, they are “flawed”, and wait for the “real” results and collect your money while you kiss your democracy good-bye.

Intrade said...

kankan said :

    What did the prediction markets say for Florida where 18,000 votes went missing in largely Dem precincts and the Repub House candidate won by 369 votes? Why do these strange computer glitches seem to always favor Repubs? If a Repub voted on a e-machine and saw their vote flipped to a Dem, wouldn’t Fox News be all over it? But the opposite is happening in early voting in W VA and I bet it is not MSM news on any network, and I bet fair and balanced Fox does not discuss it.

Point is, do not trust your money on a state with emachines, evern if ballot is paper, usually machines counts, and is not checked unless close enough for re-count, and then usually checked by running ballots thru machine agains

Intrade said... said :

    There is no such thing as an American politician elected without voter fraud.

If the people elected via this process were otherwise capable -- that would be one thing ... but the reverse is more or less true.

As far as expecting any elected US person being capable of leading the US out of a long term economic crisis as in the 1930s, late 1940s: no such person exists.

Intrade said...

webbittown said :

    it will come like a thief in the night......the canadian hand ballot system....and all elections run by a single agency....counting of the ballots within an hour of poll closing,
and the ability to go to sleep on election nite.

just hang in there. it is only 4-6 voting cycles away.

Intrade said...

seth said :

    Red-blooded American: I think you will find mention of ACORN in the article, where a former US attorney decries the hysteria about ACORN and calls that a non-issue.

Please, before you say what a writer "certainly didn't mention" in an article, read the article. The main stream media may be dominated by leftists, but the right wing media is dominated by people like you, who don't bother to find out what the truth is before they declare what is "certainly" the truth.

Intrade said...

ASHOLE said :

    Pointing to the LATimes as a republican paper is just foolish. Having one quote about Acorn and not even discussing how many states are now involved in looking into them. I am sure voter fraud has occurred in all elections in the world. It should be brought to the front of the paper every time it is found no matter which side does it. It should not be ignored. And bring up a US DA who was fired for not going after voter fraud cases does not dismiss the cases against Acorn in now 12 states. I am also not really surprised you did not bring up the 10 people who are being investigated in Ohio for moving there for one month from NY.

Intrade said...

analman said :

    if you think that the markets are not pricing it in, why dont you trade the contracts until they are pricing that in. if you think that the contracts are not at their fair value, then put your money where your mouth is and trade !

Intrade said...

Tendrils said :

    This column is weak. Surely intrade can do better

How are a few pockets of fraud going to alter a national landslide

Intrade said...

AH said :

    A private investigation of Ohio exit poll anomolies in 2004 show that in one county the chance of exit poll number being off simply by chance is over 5 billion to 1

Intrade said...

FGFM said :

    "And, you won't find it in most newspapers because they are covering it up."

Is that why I see ACORN mentioned in thousands of papers as indexed by Google News?

Intrade said...

Mcguyver said :

    quote: Max Keiser is a frequent guest on Al Jazeera, France24, and PressTV....end quote.

That explains everything right there. No further details needed. Al Jazeera???!!!


Buy McCain contracts, sell Obama contracts and make some money off George Soro's dumping his money here to manipulate the prices.

Intrade said...

TSC said :

    Godo Assesment of the present sutiation. I totally agree from the point of risk investment, the odds agaisnt McCain are a cpmpeling argument to buy McCains which are a much cheaper price. Now, I see, today , there is agood arbriatge ratio build in the position. I will hedge the position to 52-48 just in case. But I am totally comforatble three days before the election to buy Mcacains at $15

Intrade said...

Chris said :

    Clueless about sums up everything here, save one post from that Joe guy. It's obvious the writer has limited to no knowledge of the US electoral system and most of the commenters still believe the prior two presidential elections were "stolen". How come the right didn't steal the 2006 election if that's the way things are?

Intrade said...

pilotlarry said :

    while I agree with Max's assessment of potential vote-count skewing by fraudulent manipulation of electronic voting machines, as exit polling showed was likely done in Ohio, 2004, it seems to me that bettors will have factored their opinions of that happening in this election, just as they measure the rest of their opinions. Then, they put their money down.

Intrade said...

John said :

    Interesting point Max Keiser. In my opinion Obama has already won this election. I mean very little in life is certain and for this reason Obama winning is not 100%. But just looking at the electoral college map and being generous to McCain lets expand the tossup category. Lets say that 7 states are tossups instead of six...but these seven tossups are all must win for in the polls and my opinion the intrade markets are pricing some of these a little too strongly for lets assume that these seven tossups are true coin flips. The question is what are the odds of McCain winning 7 consecutive coin flips. Assuming the simple odds against winning 7 consecutive coin flips...we should say that such an event should occur .7% of the time. So Obama should be purchased up to 99.3...except the transaction cost of expiring contracts which should push Obama back to 98.3 subtract .1 for impatient purchasing expenses and you buy Obama till 98.2, now you are breakeven and being breakeven probably won't make a trade unless you have a massive amount of cash in your other words you will survey all other contracts looking to maximize opportunity costs...if you are like me and think some of the states are more coinflippish you are probably more willing to take a gamble on Ohio going for McCain...or Georgia going for Obama...So even if Obama should price at 98.2 you might need at least 3-4% to make the trade...lets say 3.5% so Obama peak at 94.7% Currently Obama is trading at 90.7 so 4% of the difference might be the risk price...and while I agree with you that this is a little light on a risk basis nevertheless this risk is juxtaposed with the contervalling greed of not missing a near sure thing. If only Intrade had buying opportunities like this every day! It is not every day that you can buy a contract as sure as Obama08(99.3%)at 90.7. I mean if this election occured a thousand times McCain would only win 3 times. That is not absolute certainty but close enough.

Intrade said...

maqifrnswa said :

    The argument here presupposes that the only way McCain can win is if there is voter fraud. Even without tampering (which, for some miraculous reason, only Republicans have figured out how to do), McCain may be underpriced at a 1:9 shot of winning (which is what the contracts are trading at now). I think risk has been miscalculated even before considering the "certainty" that votes will nefariously flip for McCain. Obama, most likely, will win - but in futures contracts the price at which you buy and sell is what matters.

Intrade said...

HeyThisAintKoolAid! said :

    Red-blooded American. Question.

Have you EVER known the Republican party to be on the side of ensuring every eligible American citizen has the necessary tools to exercise their right to vote? No. You only hear of them running blanket voter suppression campaigns and schemes to STRIP fellow Americans of that right. From here on out...just watch...EVERY single national election will play out the same way from that particular perspective.

ACORN pays people to register voters and probably some of those individuals being paid were trying to just get paid. On the other hand the Republican Party just got caught with absolute fraud in the case of Mark Jacoby, head of YPM(AND HE WAS ARRESTED!) for changing individuals registrations, tricking individuals in to registering as Republicans in order to be able to vote on important local issues.

There was a massive robocall campaign taking place this weekend in several battleground states telling people that due to the high voter turn out...Repubs vote on Nov. 4th, Dems on Nov. 5th.

And in the last Presidential election this was one of many incidents that occured...which is a FACT...not a rumor..and not RHETORIC!

"By Jonathan Finer
Washington Post Staff Writer
Wednesday, February 9, 2005

BOSTON, Feb. 8 -- A federal judge in New Hampshire sentenced the former president of an Alexandria political consulting firm on Tuesday to five months in prison, the first jail term handed out in connection with the jamming of state Democratic Party phone lines on Election Day in 2002.
Raymond was the first to be sentenced of three men charged after the revelation that Democratic get-out-the-vote efforts in Manchester, Nashua, Rochester and Claremont were peppered with more than 800 computer-generated calls over a period of 90 minutes on the morning of Nov. 5, 2002."

"Firefighters in Manchester, who were offering rides to the polls independently of the two parties, were also targeted, prosecutors said. Police later determined that an Idaho-based firm called Milo Enterprises had been engaged by GOP Marketplace to make automated hang-up calls."

Intrade said...


    This is typical Rovian attack strategy, used very effectively in the last couple cycles. Accuse the other side of some illegal, imoral, unethical behavior and vilify them to no end, meanwhile ACTUALLY committing the very same offense. By the time the other side catches on, it's usually too late and any opposition raised by the dems is treated as old news and tit for tat fingerpointing relegated to page 4 of the Establishment Press. As for ACORN, voter registration fraud is not voter fraud. Voter fraud is when ACTUAL votes are manipulated. The concern with electronic voting machines is that Walden O'dell, the former CEO of Diebold (one of two companies that provides over 80% of these machines) publicly stated that he would do everything in his power to deliver a victory for GW in Ohio in '04. With the "Black Box" style proprietary software employed on these machines and the lack of real auditing by third party professionals, he most certainly could have. Isn't it shocking to find out that whole counties vote tallies seemed to be flipped. Or that "bugs" were causing votes to flip from the dem to the gop candidate. Or that exit poll data were outside the statistical margin of error coincidentally in favor of the gop candidate. Another important concern is the voter supression tactics only touched upon in this article and commented on below. All of these should shave more than a few percentage points from the Dem's numbers. The dems still don't have an effective deffense for this, only that they have to win in a complete landslide so there is no question of the winner.

Intrade said...

Schwerdtfeger said :

    I think that the risk was assessed quite right - it was a composition of the inaccuracy of polling data (leading to the 80% chance in Virginia, for example) and the risk of "something" coming up in the last fourteen days. You could see that Obama progressed more or less on a straight line toward the 100% - with a small bump on the last weekend, when his aunt was reported to be in Boston illegally.

However, I think that the 2012 market is too early to open - as shows the little traffic. The reason is not that people can not assess the initial risks (Historically, most but not all presidents have received nomination for a second term, one can make reasonable assumptions for the dems nomination market) , but because of the required return to an investment. If a potential short-seller wants to make at least 5% on his frozen funds, he has to ask way above the probability that Obama gets the nomination, while the potential buyer can only bid way below that. So any serious market activity has to overcome this relatively high spread of four years lost interest for both.

So for anything that is happening in the more than a few months in the future, there needs to be sufficient ambiguity of risk in order to attract investors.

Intrade said...

peconic said :

    There's a very simple way to stop most voter fraud, just require voters to id themselves before they vote. You have to show id to do lots of things, like get on a plane. Why not to vote? The Republicans have repeatedly tried to pass a law requiring this, and they would even fund ids for those that don't have them and can't afford them(very few people). Of course, the Dems fight this at every turn. There is no plausible explanation for why they would do this if not to protect voter fraud, which skews overwhelmingly Democrat (most recent case: NYC yuppies falsely voting for Obama in Ohio...and then there's ACORN...). Stop deluding yourself.