Pentagon scraps terror betting plans

http://www.guardian.co.uk/usa/story/0,12271,1008215,00.html

Pentagon scraps terror betting plans

Mark Tran and agencies
Tuesday July 29, 2003
The Guardian

The Pentagon today said it would abandon plans to create a futures
trading market to help predict terrorist attacks and assassinations in
the Middle East, after fierce criticism by politicians.

The initiative, called the Policy Analysis Market (Pam), was to allow
traders to place money on an online market to back their hunches on, for
example, a coup in Jordan or a biological attack on Israel.

After details of the plan were disclosed yesterday, Senate Democratic
Leader Thomas Daschle condemned the scheme as "an incentive actually to
commit acts of terrorism".

Today, the chairman of the Senate armed services committee, Republican
Senator John Warner, said he spoke by phone with the programme’s
director, "and we mutually agreed that this thing should be stopped".

Mr Warner said he also consulted with Senate intelligence committee
chairman Pat Roberts and appropriations committee chairman Senator Ted
Stevens, both Republicans, and they agreed "that this should be
immediately disestablished".

They said they would recommend that the Pentagon freezes spending on the
programme and would officially pull the plug on it during government
budget negotiations later this year.

Pam was a joint project of the Pentagon’s defence advanced research
projects agency and two private companies: Net Exchange, a market
technologies company, and the Economist Intelligence Unit, part of the
Economist magazine. It was widely condemned after it was revealed
yesterday by two Democrat senators.

One of them, Byron Dorgan, a Democratic senator from North Dakota,
called the concept a "sick idea".

"I think this is unbelievably stupid," he told reporters. "It combines
the worst of all our instincts. It is a tragic waste of taxpayers’
money, it will be offensive to almost everyone. Can you imagine if
another country set up a betting parlour so that people could go in ...
and bet on the assassination of an American political figure, or the
overthrow of this institution or that institution."

The Pentagon had argued that analysts often use prices from various
markets as indicators of potential events. A website promoting the plan
said: "Pam refines this approach by trading futures contracts that deal
with underlying fundamentals of relevance to the Middle East initially."

In the section about becoming a Pam trader, the website said: "Whatever
a prospective trader’s interest in Pam, involvement in this group
prediction process should prove engaging and may prove profitable."

More generally, the Pentagon said Pam formed part of its search for the
broadest possible set of new ways to prevent terrorist attacks.

"Research indicates that markets are extremely efficient, effective and
timely aggregators of dispersed and even hidden information," the
defence department said. "Futures markets have proved themselves to be
good at predicting such things as elections results; they are often
better than expert opinions."

Live trading was scheduled to start in October, with registration
limited initially to 1,000 traders, rising to at least 10,000 by January
next year. Traders would have been asked to deposit money into an
account and win or lose money depending on how well they predicted events.

The Pam trading system would ensure that the prices for a futures
contract on a particular issue - such as the fall of the Jordan monarchy
during the Iraq war - added up to $1. Thus the price for a contract
would also be a prediction, with 35 cents equalling a 35% prediction of
the monarchy’s downfall. If that occured, the person who has paid 35
cents would have made 65 cents profit.

Critics of the idea pointed out the scope for abuse as terrorists could
take part because the traders’ identities would have been unknown.

"This appears to encourage terrorists to participate, either to profit
from their terrorist activities or to bet against them in order to
mislead US intelligence authorities," said Mr Dorgan and a fellow
critic, Senator Ron Wyden, a Democrat from Oregon.

So far $750,000 (£461,000) has been spent on the project and the
Pentagon wanted another $8m for the internet programme.

Opponents said that Pam originated from the same Pentagon office that
proposed spying electronically on Americans as an anti-terrorist
measure, the terrorism information awareness office, led by Admiral John
Poindexter.

The national security adviser under President Ronald Reagan, Mr
Poindexter resigned over the Iran-Contra scandal, when he and Oliver
North, a marine colonel, set up a plan to sell arms secretly to Iran and
funnel the receipts to Nicaraguan rebels.