THERE'S NO FUTURE FOR A FUTURES MARKET IN TERRORISM

Bob Tippee

If trading in terrorist attacks, assassinations, and coups typifies creativity at work within the US government on security, Americans should be, well, terrified.

Until exposure of its plan late in July by outraged congressmen, the Pentagon wanted to arbitrage expectations about terrorism in a web-based futures market.

The idea is morally reprehensible and intellectually vacuous. Yet it found enough appeal among military leaders to almost become a real program. This is great cause for worry.

Futures markets don't predict events in any way useful to security planning. They efficiently aggregate information and instantaneously reflect the collective expectations of traders. But those expectations can change instant by instant.

Imagine the blinking confusion of a color-coded national alert system calibrated to a futures market in terrorism as volatile as the futures markets for oil and gas.

What's more, any market's efficiency depends on availability of pertinent information. Did the Pentagon intend to publish classified intelligence to ensure success of its bazaar for international nastiness?

Surely not. Such a market, therefore, could have provided only a running consensus of uninformed best guesses among people willing to risk money on horrible possibilities.

That anyone in the Pentagon considered the resulting data useful to decision-making about terrorism reflects an alarming dearth not only of good ideas but also of judgment.

This wretched idea emerged from the Defense Advanced Research Projects Agency. Its chief, retired Adm. John M. Poindexter, has announced his resignation.

Good riddance. Poindexter overlooked an important fundamental. Futures contracts without some underlying asset are just formalized tools for gambling. What assets can there be in a terrorism market? Demolished buildings? Corpses?

What were Poindexter and his underlings thinking?

A "a senior defense official" anonymously quoted in the New York Times described Poindexter as a "very clever intellect."

Yeah. That's what people said about Enron Corp.'s disgraced bigshots. And all those fallen stars ruined with imaginative trading and misinformation were several large companies, thousands of retirement dreams, the credibility of accounting, and public confidence in private enterprise.

The Pentagon has much more than that at stake. Its officials should know better.

(Author's e-mail: bobt@ogjonline.com)

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