The Pentagon today came under fire for a novel idea to create a futures trading market to help it predict terrorist attacks and assassinations in the Middle East.
The initiative, called the Policy Analysis Market (Pam), will 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.
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 — Pam has already earned derision.
Byron Dorgan, a Democratic senator from North Dakota, called the concept, described by the Pentagon as a ”market for the future of the Middle East”, a ”sick idea”.
”I think this is unbelievably stupid,” he told reporters yesterday. ”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?”
But the Pentagon argues that analysts often use prices from various markets as indicators of potential events.
”Pam refines this approach by trading futures contracts that deal with underlying fundamentals of relevance to the Middle East initially,” the Pam website says.
In the section about becoming a Pam trader, the website says: ”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 says Pam is 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 is scheduled to start in October, with registration limited initially to 1 000 traders, rising to at least 10 000 by January next year. Traders who register would deposit money into an account and win or lose money depending on how well they predict events.
The Pam trading system makes sure that the prices for a futures contract on a particular issue — say the fall of the Jordan monarchy during the Iraq war — add up to $1. Thus the price for a contract is also a prediction, with 35 cents equalling a 35% prediction of the monarchy’s downfall. If that occurs, the person who has paid 35 cents will have made 65 cents profit.
Critics of the idea point out the scope for abuse as terrorists could take part 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 US intelligence authorities,” said Dorgan and a fellow critic, Senator Ron Wyden, a Democrat from Oregon.
So far $750 000 has been spent on the project and the Pentagon wants another $8-million for the internet programme. Critics of the idea 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, 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.
Because of the controversy it has stirred up, the site has already removed some of the more provocative scenarios, like a graphic showing hypothetical futures contracts in terrorist activities. – Guardian Unlimited Â