News: Could Morning Money manipulate election betting markets?

Tuesday, October 1, 2024

Could Morning Money manipulate election betting markets?

Oct 01, 2024

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QUICK FIX

For a few hours last month, the U.S. had a legally sanctioned marketplace to wager on which party would control Congress in 2025. If the company behind the market — Kalshi — gets its way, most people will soon be able to place bets on political outcomes 24 hours a day.

That could include yours truly. Your MM host has been known to place unwise wagers on NFL games from time to time. And given the firehose of political and economic information that flows into my inbox, it would certainly be tempting to put money on the Nov. 5 outcome. (To be very clear, that will not happen.)

Journalists aren’t specifically prohibited from betting on Kalshi’s event contract marketplace. The market’s rules do prohibit candidates, members of their staff, pollsters and other politically connected individuals from gambling. A wide range of professions whose platforms affect voter perceptions and policy — or otherwise influence political strategy — are not barred from participating.

Overseas betting markets have been cited by political media — including here at MM — as a way to gauge sentiment around a candidate or race. But they also create potential monetary incentives for skewing coverage or analysis. The challenges and potential conflicts that such a marketplace could present to newsrooms, think tanks, political analysts, academics and economists are head-spinning. How does one separate a legal political wager from the incentive to influence its outcome? Even if institutions establish internal guardrails to prohibit trading, the arrival of these marketplaces opens the door to potential scandal.

It’s far from clear to what extent newsroom leaders are even thinking about this issue. Semafor’s Ben Smith told MM that he didn’t “really want to play pundit.” Jelani Cobb, the longtime New Yorker journalist who is now dean of Columbia University’s journalism school, said he didn’t have enough insight to offer comment.

“In politics, inside information is a very, very wide premise. And a lot of people are down to talk about that information,” said Walt Hickey, the Pulitzer Prize-winning founder of the Numlock newsletter and the executive editor of Sherwood News. “Is [information] that used to be gossip a year ago all of a sudden going to be material financial information that could land you in front of FINRA?” [Disclaimer: Hickey and I worked together on our college newspaper.]

Commodity Futures Trading Commission Chair Rostin Behnam, whose agency would be tasked with regulating Kalshi’s election marketplace should it secure court approval, has warned that commoditized elections could “degrade the integrity of the uniquely American experience of participating in the democratic electoral process.” As Behnam has pointed out, it could lead the CFTC to apply its enforcement mechanisms to police election tactics that may manipulate markets.

Kalshi’s attorneys have maintained that robust, regulated marketplaces are less susceptible to manipulation.

Another challenge for regulators would be defining political market influencers and insider interests from the media, said Subramaniam Vincent, the director of journalism and media ethics at the Markkula Center for Applied Ethics at Santa Clara University.

“Which journalists, social media influencers, YouTubers, podcast hosts, company managers, and even media investors are we going to bar?” Vincent said. Doing so would echo the challenges social media companies faced in their attempts to bar political advertising, or limit political content, during elections.

“Defining what is political was contested,” Vincent added. “What is political content is a cultural question and can be a blur. Trying to draw technical boundaries on it for policy reasons is itself too complicated. Attempting prohibition lists for political market bets is even harder.”

IT’S TUESDAY — I’m liking the Tampa Bay Buccaneers +2.5 for Thursday Night Football. Then again, maybe I’ll stay away. Got tips? Send ‘em my way to ssutton@politico.com.

Driving the Day

The ISM Manufacturing index will be released at 10 a.m. … Job openings data for August will be released at 10 a.m. … Fed Gov. Lisa Cook will deliver a keynote at 11:10 a.m., on "AI, Big Data, and the Path Ahead for Productivity" at the Atlanta Fed’s tech conference … Trump will deliver a speech in Wisconsin on the economy at 1:30 p.m. … House Speaker Mike Johnson will deliver a speech at the New York Stock Exchange at 4:40 p.m. … Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and Boston Fed President Susan Collins will speak at the Atlanta Fed conference at 6:15 p.m. … Walz and Vance debate at 9 p.m.

Breaking overnight: Longshoremen strike — From Ry Rivard and Nick Niedzwiadek: “Dockworkers from New England to Texas walked off the job just after midnight, upending parts of the U.S. supply chain weeks before the election. Tens of thousands of workers struck after the International Longshoremen’s Association and the shipping industry could not reach a new contract after their last six-year deal expired. Their absence means cargo can’t be unloaded at ports all across the Eastern Seaboard and the Gulf Coast.”

— The Chamber of Commerce urged the Biden administration to invoke the Taft-Hartley Act to avert the strike, Sam Ogozalek reports, arguing that it would be “unconscionable to allow a contract dispute to inflict such a shock to our economy.”

— Biden on Monday told reporters that he would not intervene. “There’s collective bargaining, and I don’t believe in Taft-Hartley,” he said.

On the home front — POLITICO has inked a partnership with Capitol AI to bring new AI features to POLITICO Pro. Subscribers later this year will be able to “create custom reports seamlessly by locating, organizing, and integrating our extensive library of political and policy reporting, intelligence, and analysis,” POLITICO EVP Rachel Loeffler said.

A message from Fidelity Investments®:

Fidelity Investments supports eDelivery. Let’s pass S.3815 and enact it into law!

The Economy

Steady as she goes — Federal Reserve Chair Jerome Powell signaled that he’s in no rush to bring interest rates down as the economy remains in “solid shape,” Michael Stratford reports. “If the economy slows more than we expect, then we can cut faster,” he said at a National Association for Business Economics conference in Nashville. “If it slows less than we expect, we can cut slower.”

Banks predict soft landing — The consensus forecast among chief economists assembled by the American Bankers Association is that the economy will expand by 2 percent in the second half of 2024 and in 2025. Unemployment is expected to peak at 4.4 percent in the first half.

“The Fed is close to ‘mission accomplished,’” said Luke Tilley, committee chair and chief economist at M&T Bank/Wilmington Trust. “At the same time, despite expectations for continued growth, the labor market has softened from historically tight levels. That is something that will need to be monitored going forward.”

Aid — The aging American population is increasingly relying on government programs for support, with Republican districts in economically distressed counties requiring the most support, according to The Wall Street Journal’s Aaron Zitner, Jon Kamp and Brian McGill.

Critically: “Many of the counties that rely heavily on government safety-net and social-program money have this in common: They are clustered in the battleground states that will decide the presidential election.”

— Two Biden administration programs to aid student loan borrowers concluded on Monday, according to WaPo’s Danielle Douglas-Gabriel.

China’s stimulus program — The Chinese government’s attempts to reinvigorate its economy with lower rates and new, unspecified fiscal stimulus have caused the country’s stock market to surge, according to The WSJ’s Rebecca Feng and Jason Douglas.

2024 ELECTION

Trump v. Harris on the economy — Bloomberg Economics has broken down the impact that Trump and Harris’s tax agenda would have on total debt. The verdict: “Trump’s tax policies would significantly add to the debt burden, and Harris’s would do nothing to reduce it.”

Big Sky — Control of the Senate will hinge on Democratic Sen. Jon Tester’s uphill battle to fight off a challenge from Republican challenger Tim Sheehy. Wall Street heavyweights are giving to both sides, Bloomberg’s Amanda Gordon reports, with David Solomon of Goldman Sachs, Jon Gray of Blackstone Group and Stephen Mandel of Lone Pine Capital backing Tester. Blackstone’s Steve Schwarzman and hedge fund titans like Ken Griffin, Paul Singer and Cliff Asness have all given to Sheehy.

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Crypto

Emmer pledges SEC funding cuts — House Majority Whip Tom Emmer said Monday that Republicans will slash the SEC's budget if they keep the House, Eleanor Mueller reports.

"When you have renegade bureaucrats like [SEC Chair] Gary Gensler, you need to bring him back under control, and you do that by doing what? By taking his money away," Emmer said at Mainnet, an annual crypto conference in New York City. "We haven't done it in 30 years. And that's another thing you'll see in the next Congress."

Brito departs — Jerry Brito is stepping down as the executive director of Coin Center, a leading crypto think tank, at the end of the year, he wrote on X Monday. Peter Van Valkenburgh, the group's current director of research, will take his place.

Jobs report

Sydney Vermilyea is now a manager at the Center for Inclusive Growth at Mastercard. She most recently was associate director of scheduling for Commerce Secretary Gina Raimondo and is also a Nancy Pelosi alum. — Daniel Lippman

Starla Santana is now a special assistant for the National Space Council. She most recently was an intern at the National Economic Council. — Lippman

Odds and Ends

New group — Companies including Block, Brex, Mercury, Relay, Rho and Stripe have formed the Coalition for Financial Ecosystem Standards (CFES) with the intention of developing standards to promote safety and soundness for nonbank financial services companies. The group was co-founded by Sima Gandhi and Bryan Mulcahey of FS Vector.

— Op-ed: “Bank merger policy has long needed a makeover — just not this one,” writes Karen Petrou for American Banker

— Rep. Bill Huizenga (R-Mich.) appeared on the Banking with Interest podcast, where he said that lawmakers with oversight of regulators need to start looking at how AI could affect sectors like housing, banking and investments.

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