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[Paul Jones <pjones AT metalab.unc.edu>]

this just in to NYTimes

http://www.nytimes.com/2003/07/29/politics/29WIRE-PENT.html

July 29, 2003
Pentagon Abandons Plan for Futures Market on Terror
By CARL HULSE

ASHINGTON, July 29 — The Pentagon office that proposed spying 
electronically on Americans to monitor potential terrorists has quickly 
abandoned an idea in which anonymous speculators would have bet on 
forecasting terrorist attacks, assassinations and coups in an online 
futures market.

Deputy Defense Secretary Paul D. Wolfowitz told the Senate Foreign 
Relations Committee today that program was being "terminated."

And Senator John W. Warner, the Virginia Republican who heads the Senate 
Armed Services Committee, said today that he had conferred with the 
program's director at the Pentagon, "and we mutually agreed that this 
thing should be stopped."

Those statements signaled the end of a program that was met with 
astonishment and derision almost from the moment it was disclosed.

Under the discarded plan, traders bullish on a biological attack on 
Israel, say, or bearish on the chances of a North Korean missile strike 
would have had 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." But two Democratic senators who disclosed the plan on 
Monday 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 
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.

But it seemed obvious today that no explanation would suffice politically. 
Senator Bill Frist of Tennessee, the Republican majority leader, said as 
much in a letter to Senators Warner and Ted Stevens, the Alaska Republican 
who heads the Appropriations Committee.

"I cannot conceive of any reason why the United States should be involved 
in a project of this nature," Mr. Frist wrote.
The Pentagon, in initially 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."

But it became abundantly clear this morning, at the hearing of Senator 
Warner's committee, that whatever the logic of the Pentagon's position it 
had no chance of surviving politically.

"I must say this is perhaps the most irresponsible, outrageous and poorly 
thought-out of anything that I have heard the administration propose to 
date," said Senator Tom Daschle of South Dakota, the Democratic leader.

According to descriptions given to Congress, available at the Web site and 
provided by the two senators, traders who register would have deposited 
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 program, called the Policy Analysis Market, had intended to begin 
registering up to 1,000 traders on Friday. It instead became 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 Policy Analysis Market, like 
how much money participants would have had to deposit in accounts to 
participate. Until today, trading had been scheduled 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 market's Web site said.

The overview of the plan said the market was planning to 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 envisioned 
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.
The two lawmakers said the program needed to adhere to a high standard 
because of the involvement of Admiral Poindexter, who was convicted of 
lying to Congress about weapons sales to Iran and illegal aid to 
Nicaraguan rebels. His conviction was later reversed on the ground that he 
had been given immunity for testimony in which he lied.

In their letter, the senators cited the example from the Pentagon of a 
bioterror attack on Israel.

"Surely, such a threat should be met with intelligence gathering of the 
highest quality — not by putting the question to individuals betting on 
an Internet Web site," they wrote.

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                             Paul Jones
 "Work as if you live in the early days of a better nation." Alasdair Gray
                    http://www.ibiblio.org/pjones/
  pjones AT ibiblio.org   voice: (919) 962-7600     fax: (919) 962-8071
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