The crackdown on prediction market insider trading

0:00On the program today we'll do some data, we'll talk oil, and an observation or two about the state of play and this economy. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizzole. It is Tuesday, today, the seventh day of April, as always, to have you along, everybody. Our throughline today, as it was yesterday and as it will be the rest of the week, unless an until events change our mind, is inflation. Price levels, as you know, were already elevated and war does tend to be inflationary. About which the war that is given the president's public pronouncements the past 18 or so hours, an observation must be made. Markets are not the economy as you know, nor, as we're seeing, are they a guardrail, stocks

1:03basically flat day in the face of the president's astounding threats. With that as prologue, Thursday, Friday, this week, bring us two of our regularly scheduled updates on inflation, PCE, the Fed's favorite, and then the consumer price index. That is hard data. Today, though, something softer, the New York Fed's survey of consumer expectations for the month of March. For that first month of the war, consumers said they think inflation a year from now is going to be 3.4 percent. That is up from the 3 percent even they were thinking back in February. Daniel Ackerman has more on that. Consumers tend to base their inflation expectations for the future on prices they see today, specifically on prices that they see often. Loretta Mester is with the Wharton School. Consumers are going to be buying gasoline maybe once a week if they're using their card to commute. And that gas price keeps climbing as the war in Iran continues. And yet Bill Adams of Fifth Third Bank says, I was actually a little surprised that inflation

2:06expectations didn't rise more than they did. Adams says expectations were higher in past energy shocks like the Russian invasion of Ukraine in 2022. In this case, he says consumers aren't sure the war in Iran will last all that long. It looks like consumers were expecting this conflict to be a relatively short-lived one and its impact on the U.S. economy to also be relatively short-lived. Inflation expectations for three to five years out barely budged. Still, Kayla Brune of Morning Consult says the rise in the short-term number is important. We see that consumers are already changing their behavior. While they're spending more on gas, we're seeing consumers saying they're cutting back on other categories while this sort of price shock is hitting. That could hurt consumer demand, bringing inflation down. But if consumers continue to expect higher inflation, well, they might just get it. Says Bill Adams of Fifth Third Bank. The Fed is incredibly attentive to expectations because they see inflation as basically set

3:07by four looking expectations that become self-reinforcing. Some says if people expect higher prices in the future, they'll buy more now. And that added demand can raise prices all on its own. I'm Daniel Ackerman for Marketplace. Wall Street on this day of the president's deadline, as I said, unfazed. We will have the details when we do the numbers. I had a conversation the other day about oil prices, the difference between Brent crude and West Texas and how futures prices and spot prices compare.

4:07Along those lines here is today's tidbit. You want a barrel of crude right now on the spot, as it were? That'll be $144.46, thank you very much, a record. What's important about that price, other than its absolute level, is that it's in dollars as are almost all oil trades globally, part of what's come to be known as the petrodollar system, a system that is under some pressure a month and a week or so into the war in Iran. We've called the Edward Fishman for a Primmer. He's on the Council of Foreign Relations, also the author of choke points, American power and the age of economic warfare, and we welcome back to the program. Thanks for having me, Kai. Let's just do a very quick Primmer here on the petrodollar system. Why countries pay for oil in dollars? Sure. This is a linchpin of the dollar's role as the primary currency in the global economy. The origin of the petrodollar actually goes to the early 70s.

5:08After the Arab oil embargo in 1973, the United States economy was in terrible shape. We were running big deficits because of the Vietnam War, and inflation was spiking. Richard Nixon's Treasury Secretary, this guy named William Simon, came up with an idea. What if we could persuade the Saudi government, the main seller of oil in the world, to sell its oil in dollars and take the dollars that it earned from selling oil and using that to buy U.S. government debt, basically plugging U.S. fiscal deficits. That was the origin of the petrodollar. In exchange, the U.S. agreed to allow the Saudis to buy U.S. government debt outside of the normal auctions, and we also provided the Saudis with military assistance. But that was the foundation of the petrodollar, and it is a deal that has persisted to this day. It's other Gulf countries as well, and basically what happens is oil dollars get recycled back into U.S. government debt. That's right. It's been essential to allow the U.S. to run these fiscal deficits year after year after year, but it's also been more important than that, but oil is the world's most traded commodity.

6:12The fact that that is priced in dollars and settled in dollars around the world has produced so much demand for dollars and has fundamentally put the dollar at the center of the global economy. Okay. Here we are, April of 2026, the street of Hamuz is closed. That oil from those Gulf countries is locked in, let us say, what is that doing? What do you suppose that might do to this petrodollar system that has benefited the U.S. fiscal year for 50 plus years? Well, look, there have always been outliers. Countries that are sort of on the fringes of the system, and Iran has always been one because they've been under sanctions. They haven't been able to transact in dollars, and so in recent years, Iran has effectively sold all of its oil to China. So they've been accepting payment in Iran, the Chinese currency. What's happened now is by establishing itself as gatekeeper of the Strait of Hamuz. Iran doesn't just control its own oil supplies. It's controlling 20% of global oil exports on a daily basis.

7:14And allegedly, what they're doing now is they're telling tankers that in order to get through the Strait of Hamuz, they have to pay a toll to Iran in Iran, in R&B. And so Iran is taking direct aim at this petrodollar system and really trying to change the global paradigm as a consequence of this war. You know, the demise of the U.S. dollars, the global reserve currency, has been foretold often and with some decree of vociferousness. It has yet to come to pass, and it's not coming tomorrow, but one does imagine that if the petrodollar system goes away, that could speed up a little bit. If the petrodollar were to go, that would be a huge chink in the armor of the dollar's roll. It wouldn't necessarily spell the end of it, but you just got to imagine this is the world's most traded commodity, oil. If oil starts being priced in Chinese yuan, that would be a substantial knock to the dollar's roll and frankly, a boon for China. Is it too late, do you think, to stop this, you know, potential slide?

8:16It's not too late. You know, one of the other countries that had been outside of the petrodollar system up until very recently was Venezuela. Before the Maduro raid in January, Venezuela was selling almost all of its oil to China and accepting payment in RMB. Well, just hours after former Venezuelan president Nicholas Maduro was dropped off at the Metropolitan Detention Center in Brooklyn, the Trump administration announced that Venezuelan oil would henceforth be priced in dollars. So they have sort of forcibly brought Venezuela back into the petrodollar system. I think the outcome of this war in Iran, whether Iran actually does establish itself as gatekeeper of the straight-of-war moves or whether the U.S. can successfully reopen the straight, that will be profoundly important to the future of the petrodollar system. Edward Fishman, is it the Council on Foreign Relations? He's also written a book, very relevant to our conversation today. It's called Choke Points. Eddie, thanks a lot. I appreciate your time. It was my pleasure. Good to talk to you.

9:42The good news is that a week or two ago, the prediction markets, Kalshian Polymarket, rolled out new policies that they said will limit insider trading. Politicians wouldn't be allowed to trade on their own campaigns. People involved in professional college sports wouldn't be allowed to trade on the sports that they're affiliated with. And the commodities futures trading commission said that going after that kind of insider trading is an enforcement priority. All of which might then reasonably lead one to conclude that insider trading on those markets is universally recognized as bad, kind of as marketplace of Megan McCarty Carino reports. To understand what's going on with prediction markets right now, it helps to have a working knowledge of the 1983 movie Trading Places, which turns on a plot to trade on stolen government information. There's a lot going on, but basically Eddie Murphy plays a down on his look, con man and Dan Acroix is a Hoidi-Toy-D commodities broker.

10:45Orphales. I have a hunch, something very exciting is going to happen in the portfolio market this morning. Acroix evil bosses, the Duke brothers, and act a convoluted scheme to make the two trade places as a social experiment. Are we talking about a wager end of? Then Murphy and Acroix team up to get revenge. It occurs to me that the best way you heard rich people is by turning them into poor people. They intercept a secret USDA report on the orange crop. The dukes were planning to use to make a killing on orange juice futures. They feed the dukes fake report and then they use the real secret information to get rich themselves and retire to a tropical paradise. The setup is pure Hollywood, but the idea that you could get away with a scheme like this was accurate, says Andrew Verstein, a lot professor at UCLA.

11:47For most of American history, if you came to have some information that gave you a really strong sense of what was going to happen in commodity prices, you could trade commodity futures and options and make money with that information and there wouldn't be any possible legal consequence to you. He says commodities were seen as different from stocks. They don't have shareholders who would get screwed over by stock price manipulation and most people trading in the markets like farmers with knowledge of their own crops are insiders to a certain extent. It wasn't until 2010 with the passage of the Dodd-Frank Act that trading on material non-public information was actually made illegal in commodities markets. The CFTC chairman had gone to Congress and said we actually do want to be able to prosecute insider trading. We saw the movie trading places and we want that stuff to be illegal. One provision was even nicknamed the Eddie Murphy rule, but Verstein says how the

12:48law should be applied in the real world is still somewhat unsettled. And how it should be applied to prediction markets, which yes, fall under the same regulation as orange juice futures, that's even more unsettled. I am mostly interested in these as an information institution. The main social value is that they tell us about things. Robin Hansen is an economist at George Mason University and part of an intellectual movement that has long promoted prediction markets as powerful forecasting tools. Want to know if rent control will affect housing prices or if interest rates will rise or fall, prediction markets, the argument goes, give you fast real-time data, the aggregate beliefs of people willing to put their money where their mouth is. And that means we want it to be okay for people who have big advantages to use them because that'll give us the information. White information makes predictions more accurate, but it can also lead to corruption and

13:49mistrust, says Yesha Yadav, a law professor at Vanderbilt University. People may never want to get involved ultimately down the line if they feel like, hang on, you know, this market's going to be super rigged against me at all times. She says there's broad consensus the law prohibits people from trading on government secrets or stolen information. Kalshi and Polymarket have also banned anyone with influence on real-world outcomes from betting on what they call events contracts. But Yadav says enforcement is the challenge. Prediction markets are home to goodness knows how many different types of contracts. The number of contracts are multiplying and proliferating every single day. She says it looks like the platforms recognize insider trading is a threat to their business and are taking actions to prevent it, at least in the U.S. Some of the most questionable bets have happened offshore, where Polymarket allows trading anonymously. I'm Megan McCarty, Corino for Marketplace.

15:16Coming up, it is a nicer airport and it's quieter and there's no wait times. My kind of airport, I'll tell you what, but first, sure why not? Let's do the numbers. Dow and dust rolls off 85 points to date, two tenths percent, 46,584. The Nasdaq rose 21 points, a tenth percent, 22,017, the S&P 500 ticked up 5 points, that's just under a tenth percent, rather, 66 and 16. We heard from Megan McCarty, Corino about insider trading and prediction markets, how about some associated companies, shall we say, Robin Hood Markets Incorporated, did start as you know as a financial market trading, apt if two tenths of one percent, drab kings added two tenths percent, flutter entertainment, that's the parent company of Fandall, subtracted about a tenth of one percent, sorry subtracted about one percent on the day, Intel is going to be working with SpaceX, XAI and Tesla, to create specially designed chips for both companies that Elon Musk's planned tariff fab facility in Texas, tariff fab chips are

16:17going to be used in Tesla Robo Taxis, also its Optimus robot project, what could possibly go wrong, Tesla down one and three quarters percent today, Intel, climbed about four and two tenths percent, Intel competitor Nvidia, inched up a quarter of one percent, Bond prices rose, the yield on the 10 year Tino fell 4.30 percent, you're listening to Marketplace. This is Marketplace, I'm Kai Rizzo, among the many, many slices of this economy that the federal government measures, is a category known as durable goods, orders placed with domestic manufacturers for everything from industrial machinery to washing machinery, expensive stuff that is supposed to last, we just got data from February, durable goods orders down 1.4 percent, a third straight monthly decline, and you know what, three attendants does make, and it's a trend that predates the war, Marketplace's Nova Sofo makes it

17:18makes sense, durable goods orders can be very volatile month to month, one large order at Boeing and it looks like we're doing well and one bad order at Boeing and we're falling out of the sky, if you'll excuse the metaphor. Harry Schwaeter at the University of Michigan says, look over a longer time horizon and orders have declined in four out of the last five months. This could be taken as an indicator that things are slowing down, but that slow down is uneven. Jason Miller is with Michigan State University. A lot of sectors that are more sort of consumer centric are, and maybe a little bit of a weaker condition than what they were heading into last year at this time. But business investment, especially in technology, is strong, think AI, automation. The business investment measure called core capital goods orders increased about half a percent in February. It's important to remember that February isn't pre-war reading. Barnard Yarrow, so if Oxford Economics says the data still has to catch up with higher

18:22energy prices. The trajectory for capital spending by businesses, it is just not going to be as robust as it would have been in the absence of old geopolitical tensions in the Middle East. And there's not much room to maneuver, says Hitendra Chattervati at Arizona State University because tariffs are still taking a bite out of economic growth. At this moment, we are barely holding our head above the water. If the energy shock caused by the Iran war persists, things could go south very, very fast. The silver lining, analysts say, is that AI spending and new tax breaks for capital expenditures should prop up business investment for now. I'm Novosafo for Marketplace. You don't have to have been squeezed in a middle seat on a totally booked flight or have

19:40been stuck in an airport delayed for some reason, or have heard the news about far worse things happening to know that our airspace is overcrowded and under resourced. Meanwhile, passenger numbers just keep going up, and that traffic the FAA says is expected to increase especially quickly at the big hubs, airports that each handle at least 1% of commercial passengers every year think Atlanta and Chicago and LAX. But we do have hundreds of smaller airports that could help alleviate some of that congestion as Marketplace's Henriette reports. Donna Dracunis lives in rural northeastern Vermont, so anytime she wants to fly, she has to choose from a few different airports all a few hours away. There's the three-hour drive to Boston Logan, a major international hub that handles more than a thousand flights a day, or just under two hours to Vermont's largest airport in Burlington. And with about 30 departures a day, there aren't nearly as many destinations to choose from, but... It is a nicer airport and it's quieter and there's no wait times.

20:42Up until recently though, there was a downside. Four of the airport's gates were clustered in one narrow hallway. They used to wait in that long hallway, and it was so hot and it was, you know, never... It never felt clean because it was just so old and worn out. But that changed in late March when the Burlington Airport opened a new, spacious area of the terminal, funded by a $34 million Congressional earmark. Four new gates, high ceilings, lots of space to spread out. Dracunis was on the first flight to depart from one of the new gates. It's like amazing. There's a fireplace and the kids play room and everything. I had no idea that it was going to be like that. Making this small hub airport a lot nicer could help relieve some of the congestion at other big hubs, like Boston, at least a bit, because Burlington is competing for market share. The airport's director of aviation, Nick Longos, says Burlington attracts half of the three million or so passengers that fly in and out of its market, which stretches from northern New York through New Hampshire. That means there's another 1.5 million flyers that choose other airports.

21:49His goal, get more of them to choose Burlington. So people don't have to drive two, three, four hours to find a flight. If we have it here, we'll be able to serve that same customer. And in turn, that customer won't be adding traffic to Boston's skies. But enticing airlines to spread routes to more small hubs like Burlington is not an easy sell. Says Robert Mann, an independent airline industry analyst. The issue is, you know, people want to fly where they want to fly. They want to fly from and to those big places. And airlines build their networks to serve the most profitable routes. The borrower phrase, why do people rob banks while that's where the money is? Why do airlines schedule to these major airports? Well, that's where the money is. So big hubs end up with more service and congestion than small airports. The FAA projects that activity at large hubs will grow about twice as fast as at small hubs in the coming years. At the same time, the country faces a persistent shortage of air traffic controllers.

22:49Says Dan Bubb, a professor in residence at the University of Nevada, Las Vegas. It makes one wonder, is our air traffic system reaching its saturation point in terms of the maximum level of stress it can handle? One short term solution, Bubb says, the FAA can tell airlines we're capping the number of flights at certain hubs during peak hours. It's going to be a difficult conversation, though, because airlines don't want to cut their flights. But the conversation is already underway at one major airport, Chicago, O'Hare. In March, the FAA told airlines that they'd overpacked their Chicago schedules for this coming summer. So regulators may limit the number of flights in and out of O'Hare. A similar limit is already in place at Newark Airport, in New Jersey. Getting flights isn't an ideal solution, Bubb says. So in the long run, he thinks the industry should take a second look at smaller hubs. They get overlooked, I think they're undervalued, and I think it would be prudent to strongly consider increasing their visibility and making greater use of them.

23:50In Burlington, aviation director Nick Longo hopes that happens. His next goal is upgrading the other six gates at the airport. We need to adjust how our jet bridges work, how people get access to these aircraft, and some space to do it. The airport was designed in the 1950s, he says, to gain more market share, it needs to stay up to date. In Burlington, Vermont, I'm Henry App for Marketplace. This final note on the way out today, in which I'm going to repeat myself, but it does seem like today is a good day for that. The institutions of this economy depend on the institutions of this democracy.

24:54Their regulation, transparency, the right of a recourse when wronged, and the rule of law, international law, too. Jordan Mangy, Sunil Maharaj, Janet Wynn, Olga Oksman, and Virginia K. Smith are the digital team around here. I'm Kai, Rizdal Wee-Wills, see you tomorrow, everybody. This is APM. Why do we keep putting off the financial tasks we know we need to do? I'm Rizma Khrase, and this week on my podcast, This Is Uncomfortable, I talk with a behavioral expert about commitment devices, the tricks we can use to force ourselves to follow through. The most extreme form of commitment device is literally saying you're going to find

25:57yourself. Like, I'm going to have to give $50 to a politician's campaign who I hate if I haven't done this by next Friday. Listen to This Is Uncomfortable, wherever you get your podcasts.