Traders confident in bailout's passage

NEW YORK (Fortune) -- When the House axed a proposed $700 billion bailout of financial institutions on Sept. 29th, many investors panicked. But traders on an online prediction market run by Intrade.com saw some hope, placing the odds of an October passage for the bailout at 80% the next morning. That hope has grown since the Senate passed the bill on Oct 1: With only hours to go before a vote, the site's pickers believe there's a 94% chance that the measure will pass.

Intrade.com, which is based on in Dublin, creates online prediction markets for political, economic and cultural events. Activity at the site shoots up in election periods, but interest in contracts on events affecting the financial markets, such as the bailout's passage, has also soared in recent weeks, says spokesman Chad Rigetti. "Markets that are at the intersection of politics and finance are a huge hit now," he says.

According to Rigetti, $300,000 changed hands in the market for a September bailout passage, which opened on Sept. 23. Since the October contract opened, $60,000 has already been traded.

Rigetti says there's an increased interest in the site's Dow Jones Index market, where traders try to guess how high the index will close. One reason for the attention: "Even though there's a short selling ban, you can still short the Dow on Intrade," he says.

While Intrade has had success in predicting presidential and congressional contests, its political-economic markets have been volatile. The September bailout contract, for example, closed on 63% the day before the bill's failure.

Rigetti points out that those odds aren't bad, since many people were surprised by the news. But, considering that more than twice as many visitors last month came from New York instead of the D.C. area, it's likely that more Intraders are getting their bailout tips from political blogs rather than Hill insiders.

The site is still viewed as a bellwether by many, prompting a satirical treatment from a blogger at liberal news site Daily Kos, who wrote that the newest Intrade market was on an Intrade bailout. Unfortunately, only 6% of the fifteen people who voted supported that rescue.