New York Times
July 29 2003
Pentagon Prepares a Futures Market on Terror Attacks
By CARL HULSE
WASHINGTON, July 28 - The Pentagon office that proposed spying electronically
on Americans to monitor potential terrorists has a new experiment. It is an
online futures trading market, disclosed today by critics, in which anonymous
speculators would bet on forecasting terrorist attacks, assassinations and
coups.
Traders bullish on a biological attack on Israel or bearish on the chances of a
North Korean missile strike would have the opportunity to bet on the likelihood
of such events on a new Internet site established by the Defense Advanced
Research Projects Agency.
The Pentagon called its latest idea a new way of predicting events and part of
its search for the "broadest possible set of new ways to prevent terrorist
attacks." Two Democratic senators who reported the plan called it morally
repugnant and grotesque. The senators said the program fell under the control
of Adm. John M. Poindexter, President Ronald Reagan's national security
adviser.
One of the two senators, Byron L. Dorgan of North Dakota, said the idea seemed
so preposterous that he had trouble persuading people it was not a hoax. "Can
you imagine," Mr. Dorgan asked, "if another country set up a betting parlor so
that people could go in - and is sponsored by the government itself - people
could go in and bet on the assassination of an American political figure?"
After Mr. Dorgan and his fellow critic, Ron Wyden of Oregon, spoke out, the
Pentagon sought to play down the importance of a program for which the Bush
administration has sought $8 million through 2005. The White House also altered
the Web site so that the potential events to be considered by the market that
were visible earlier in the day at http://www.policyanalysismarket.org could no
longer be seen.
But by that time, Republican officials in the Senate were privately shaking
their heads over the planned trading. One top aide said he hoped that the
Pentagon had a good explanation for it.
The Pentagon, in defending the program, said such futures trading had proven
effective in predicting other events like oil prices, elections and movie
ticket sales.
"Research indicates that markets are extremely efficient, effective and timely
aggregators of dispersed and even hidden information," the Defense Department
said in a statement. "Futures markets have proven themselves to be good at
predicting such things as elections results; they are often better than expert
opinions."
According to descriptions given to Congress, available at the Web site and
provided by the two senators, traders who register would deposit money into an
account similar to a stock account and win or lose money based on predicting
events.
"For instance," Mr. Wyden said, "you may think early on that Prime Minister X
is going to be assassinated. So you buy the futures contracts for 5 cents each.
As more people begin to think the person's going to be assassinated, the cost
of the contract could go up, to 50 cents.
"The payoff if he's assassinated is $1 per future. So if it comes to pass, and
those who bought at 5 cents make 95 cents. Those who bought at 50 cents make 50
cents."
The senators also suggested that terrorists could participate because the
traders' identities will be unknown.
"This appears to encourage terrorists to participate, either to profit from
their terrorist activities or to bet against them in order to mislead U.S.
intelligence authorities," they said in a letter to Admiral Poindexter, the
director of the Terrorism Information Awareness Office, which the opponents
said had developed the idea.
The initiative, called the Policy Analysis Market, is to begin registering up
to 1,000 traders on Friday. It is the latest problem for the advanced projects
agency, or Darpa, a Pentagon unit that has run into controversy for the
Terrorism Information Office. Admiral Poindexter once described a sweeping
electronic surveillance plan as a way of forestalling terrorism by tapping into
computer databases to collect medical, travel, credit and financial records.
Worried about the reach of the program, Congress this year prohibited what was
called the Total Information Awareness program from being used against
Americans. Its name was changed to the Terrorism Information Awareness program.
This month, the Senate agreed to block all spending on the program. The House
did not. Mr. Wyden said he hoped that the new disclosure about the trading
program would be the death blow for Admiral Poindexter's plan.
The Pentagon did not provide details of the program like how much money
participants would have to deposit in accounts. Trading is to begin on Oct. 1,
with the number of participants initially limited to 1,000 and possibly
expanding to 10,000 by Jan. 1.
"Involvement in this group prediction process should prove engaging and may
prove profitable," the Web site said.
The overview of the plan said the market would focus on the economic, civil and
military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria and
Turkey and the consequences of United States involvement with those nations.
The creators of the market envision other trappings of existing markets like
derivatives.
In a statement, Darpa said the trading idea was "currently a small research
program that faces a number of major technical challenges and uncertainties."
"Chief among these," the agency said, "are: Can the market survive and will
people continue to participate when U.S. authorities use it to prevent
terrorist attacks? Can futures markets be manipulated by adversaries?"
Mr. Dorgan and Mr. Wyden called for an immediate end to the project and said
they would use its existence to justify cutting off financial support for the
overall effort. In the letter to Admiral Poindexter, they called the initiative
a "wasteful and absurd" use of tax dollars.
"The American people want the federal government to use its resources enhancing
our security, not gambling on it," the letter said.
http://www.nytimes.com/2003/07/29/politics/29TERR.html
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New York Times
July 29 2003
Pentagon Abandons Plan for Futures Market on Terror
By THE ASSOCIATED PRESS
WASHINGTON -- The Pentagon will abandon a plan to establish a futures market to
help predict terrorist strikes, the chairman of the Senate Armed Services
Committee said Tuesday.
Sen. John Warner, R-Va., said he spoke by phone with the program's director,
"and we mutually agreed that this thing should be stopped."
Warner announced the decision not long after Senate Democratic Leader Thomas
Daschle took to the floor to denounce the program as "an incentive actually to
commit acts of terrorism."
Warner made the announcement during a confirmation hearing for retired Gen.
Peter J. Schoomaker, nominated to be Army chief of staff.
http://www.nytimes.com/2003/07/29/politics/29WIRE-PENT.html?hp
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