We need better prediction markets

Agreed. To quote myself [LW(p) · GW(p)] like some kind of asshole:

In order for a prediction market to be "serious", it has to allow epistemically rational people to get very very rich (in fiat currency) without going to jail, and it has to allow anyone to create and arbitrate a binary prediction market for a small fee. Such a platform does not currently exist.

Prediction markets are not magic. It's just the principle of stock market applied to more broad type of questions.

Whether a company commits a huge fraud that will bancrupt it on reveal and lead to billions of dollars in investments being lost, is among the questions that regular stock market is answering. 

A prediction market is only as good as the participants. People with the insider information and highly lucrative information necessary to forecast FTX-like catastrophes generally don't participate in prediction markets, especially not free ones, and probably won't any time soon. That's something that financial and analyst firms can do, because they have ways to guarantee that their org's members are safe, and that they won't get targeted by all sorts of vicious people out there.

Startups are fundamentally incapable of this. Wall street is highly capable of this, possibly also legal and government contractors that I'm not aware of, but it's only possible because those systems are fundamentally closed and ingrained inside large nontransparent institutions that have built up networks of trust for decades.

Sorry if this is a stupid question; I originally wanted to ask on ACX, but the open thread has exploded and now my web browser freezes when I go there.

If I understand it correctly, several EA charities are currently in serious financial problems, because FTX promised to give them tons of money and then... didn't.

Could this be avoided if we simply started following a common-sense rule: "Do not spend the money you do not have yet"? Like, if tomorrow some FTX2 comes and says: "Hey, why don't you do X, I will give you billion dollars", just tell them: "Sure, I will start working on X as soon as the billion dollars appear in my bank account. Until then, we can discuss plans, but I am not spending any of my money, nor doing anything huge and irreversible."

I understand that this is not always simple. For example, if a project requires doing something every year, for 10 years, and someone promises to give you billion dollars each year, and the first year they actually give you the first billion, then you may start doing things and get yourself in a situation where if the second year you suddenly don't get a cent, you may be in a big problem. (Though a possible solution is to always think about the possibility, estimate the cost of shutdown of the operation, and leave that money aside from the first billion.)

Really, my impression is that regardless of whether FTX are the bad guys (though I suppose they probably are), the problem is spending the money you don't have, which seems like an avoidable mistake. Am I completely wrong here? If yes, could someone please ELI5?