Or, and I beg you to consider this radical position: we arrest people who break the law (insider trading is illegal) and those who knowingly help them to do so (the operators of the prediction markets).

How quickly we accept the death of even the ideal of rule of law in favor of embracing a return to an explicit rule by might, fuck-you-got-mine mentality.

We also care about the world outside the prediction markets. If decision-makers have an incentive to "throw the match" by making surprising decisions, that will impair the decision-making, which will affect the rest of us. Likewise, sufficiently-wealthy actors will be able to manipulate the behaviour of officials by betting against the behaviour they want to see, much like an assassination market.