Pentagon dumps plan for futures market in Mideast terrorism

From wire reports

WASHINGTON -- The Pentagon unceremoniously jettisoned plans Tuesday to establish a futures market in Middle Eastern terror attacks, handing another in a long string of defeats to Iran-Contra figure John M. Poindexter, the point man for the program.

Responding to widespread outrage over the idea of setting up a commodity-style market for investors to bet on the likelihood of attacks, assassinations and other mayhem, Pentagon officials agreed to abandon the plan only three days before registration of participants was to begin.

Republicans said they knew nothing about the program and would never have approved it. They called the head of the Pentagon agency overseeing the project to Capitol Hill to answer questions.

Democrats demanded details of any related Pentagon programs, an apology from the Bush administration and the firing of those responsible for the market.

"I think those who thought it up ought not only close down the program. They ought not be on the public payroll any longer," said Sen. Byron Dorgan, D-N.D, at a news conference.

At a hearing where senators criticized the program, Deputy Defense Secretary Paul Wolfowitz said, "I share your shock at this kind of program." But he also defended the Pentagon office that came up with the project, saying "it is brilliantly imaginative in places where we want them to be imaginative."

Bizarre market

Dorgan and Sen. Ron Wyden, D-Ore., touched off the furor Monday by disclosing details of the Policy Analysis Market, a project that seemed so bizarre that some lawmakers said they thought it was a hoax.

The Pentagon's Defense Advanced Research Projects Agency, working with two private partners, would have set up an Internet futures trading market on events in the Middle East. Traders could buy and sell futures contracts based on their predictions about what would happen in the region. Examples given on the market's Web site included the assassination of Palestinian leader Yasser Arafat and a biological weapons attack on Israel.

Investors were to begin registering Friday, and trading was to begin Oct. 1.

From the trading patterns, the Pentagon agency, known as DARPA, hoped to gain clues about possible terrorist attacks. In statements Monday and Tuesday, it said markets are often better than experts in making predictions.

The plan was being carried out by a unit of the Defense Department headed by Poindexter, a retired admiral and one-time national security adviser to President Reagan.

Over a public career of more than three decades, Poindexter has pushed space-based weapons, Star Wars-style command bunkers and computer-controlled surveillance techniques as solutions to national security needs.

Efforts to reach Poindexter for comment were unsuccessful.

Terrorism price

The plan would have established a market, similar to those used to predict the prices of oil and other commodities, in which anonymous investors would place bets on the likelihood of political turmoil in the Middle East. The theory was that the collective wisdom of informed investors - Arab policy experts, for example - would be reflected in the prices of these futures contracts, helping national security officials to predict trouble such as assassinations or terrorist attacks.

On the project's Web site, which was taken down, organizers contended that markets are often more accurate than other methods of predicting the future, including experts' opinions.

But once the proposal was aired publicly, members of Congress from both parties reacted with outrage. Top Republicans such as Sen. John Warner, R-Va., contacted the Defense Department, and by the end of the day the program was history.

Lawmakers said more than $600,000 in taxpayer funds had already been spent to get the program started. Registration of traders was supposed to begin Friday. The Pentagon had requested another $8 million over the next two years.

Asked later whether Poindexter would retain his job as head of the Information Awareness Office of the Defense Advanced Research Project Agency, Pentagon spokesman Lawrence DiRita said, "At the moment, Admiral Poindexter continues to serve in DARPA."

The defense research agency, including the unit that Poindexter heads, was created to find unorthodox methods for pursuing national security. And on its face, the futures market idea seems to fit that bill.

"I think it might really provide some signals about where the next terror attack will be," said Yale economist Robert Shiller, one of the nation's leading financial theorists.

The problem, said Shiller, is that such a market could have produced some horrendous side-effects.

For example, it could have provided attackers with a means of enriching themselves by their very attacks. Terrorists or organizations connected with them could have placed bets on the bombing of a particular building or the assassination of a political figure, then collected when they pulled off the attack.

In order to be of any use to counter-terrorism officials, the bets would have had to be fairly specific. But that could effectively have given terrorists a road map of the most destructive options.

Beyond these specifics, analysts said the proposal suffered a grander flaw.

"It's morally repugnant," Shiller said.