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Betting on Social Security ... literally
Traders weigh in on the reform debate with more than their two cents.
June 10, 2005: 11:04 AM EDT
By Jeanne Sahadi, CNN/Money senior writer
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CNN's Andy Serwer talk about a Web site that offers wagering on almost anything, from Social Security reform to "Mr. and Mrs. Smith."
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NEW YORK (CNN/Money) You figure the standoff between Democrats and Republicans over Social Security reform has to end eventually. You even have an opinion as to how things will turn out.

But would you be willing to put money on it?

Some traders are. There are three futures contracts listed on Intrade, an online futures market based in Dublin, that let traders bet on whether a law will pass allowing workers to divert a portion of their Social Security taxes into individual investment accounts.

Judging from the wagers placed so far, the picture isn't looking good for individual accounts.

The first contract expires on Dec. 31, 2005, meaning traders bet on whether they think a law allowing accounts will pass by then. The next contract expires on June 30, 2006, and the third on Dec. 31, 2006.

As of midday Thursday, traders thought there was only a 9 percent chance the law would pass by Dec. 31 of this year. They give passage by June 30, 2006, a 21 percent chance, and by Dec. 31, 2006, a 27 percent chance.

"So what? Anyone can have an educated opinion," you may say. True, but most people don't have a financial interest in being right.

Granted, the Social Security reform contracts have been drawing paper-thin volume to date. But if volume picks up, it will be worth noting what the traders think.

That's because the predictive value of their bets on Intrade has been impressive to date. For example, a day before the presidential election, traders correctly predicted George Bush would be the winner, and called the outcomes correctly for all 50 states and the District of Columbia.

They also correctly predicted the winners in 33 out of the 34 Senate races.

More recently, they called the winner in the papal election two days before white smoke billowed over St. Peter's Square.

If you're tempted to place your own trade on Social Security reform, keep in mind that it may be illegal to do so from the United States.

"It's a gray issue," said Frank Catania, the former director of the New Jersey Division of Gaming Enforcement and now a consultant to the online gambling industry.

The Department of Justice has indicated that all forms of online gambling are illegal under the Wire Act of 1961, but there are many legal opinions that suggest otherwise, Catania noted. What's more, some states have an outright prohibition on online gambling while others don't.  Top of page

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