Amid outcry, Pentagon scraps plans for terror futures market

MIKE MADDEN
Gannett News Service

29 July 2003

WASHINGTON -- The Pentagon won't be taking bets on where terrorists will 
strike next after all.

Confronted by outrage in Congress, Defense Department officials on Tuesday 
scrapped a proposed $8 million program that would have used an online 
futures market -- with real money -- to collect information on security, 
political instability and terrorist plots.

A sample Web site for the project offered traders the opportunity to buy and 
sell contracts betting on whether the Jordanian government would fall, North 
Korea would launch a missile attack or former Palestinian Authority leader 
Yasser Arafat would be assassinated. Contracts on the number of U.S. 
military personnel killed in a given time period were also for sale. If a 
prediction came true, the contract's value would rise, letting traders make 
money if their dire forecasts were right.

Traders were supposed to have been able to sign up starting Friday.

The market was the second plan devised by the Pentagon's Total Information 
Awareness office -- part of the military's in-house think tank, the Defense 
Advance Research Projects Agency -- that had sparked public fury, and some 
lawmakers suggested Tuesday that the office's future could be in jeopardy.

Retired Adm. John Poindexter, a central figure in the 1980s Iran- contra 
scandal, heads the information office, which had earlier proposed a plan to 
build a massive electronic compilation of Americans' personal data. 
Poindexter was convicted of lying to Congress about secret intelligence 
operations in the Reagan administration, though the charge was later thrown 
out on appeal.

"The question is, what more is being planned?" said Sen. Byron Dorgan, 
D-N.D., who denounced the futures market on Monday along with Oregon 
Democrat Ron Wyden, starting the flap over the project. "What additional 
programs are there that we don't yet now about?"

Experts in security and in the economic theories behind using futures 
markets as predictors said the Pentagon plan could have produced some 
valuable insights into what specialists expected to happen in volatile parts 
of the world. But along the way from design to implementation, it became 
clear that the market had turned into a public relations nightmare for the 
Pentagon.

"It looks bad that you're making money off someone's death," said University 
of Iowa economics professor George Neumann, a director of the university's 
Iowa Electronic Markets project, which uses futures markets to predict 
election results. "Academics are just not equipped for PR statements."

Both Republicans and Democrats denounced the plan on Tuesday, saying 
Congress was never informed that the Pentagon planned to establish the program.

Pentagon officials indicated there were no plans to ask Poindexter to 
resign. Lawmakers left open the possibility of hearings into what else the 
Total Information Awareness office was working on.

"I'm concerned about the idea, I'm concerned about the means, I'm concerned 
about the fact that Congress wasn't consulted about it, I'm concerned about 
the whole thing," said Sen. Pat Roberts, R- Kan., chairman of the Senate 
Intelligence Committee.

Over its 45-year history, DARPA has conducted cutting-edge research for 
defense purposes, but critics say it sometimes gets too far ahead of the 
curve. The agency helped lay the groundwork for the Internet, helped invent 
global positioning systems technology, developed the M-16 rifle and built 
the initial prototypes for the radar-invisible stealth bomber.

"When you call for innovative thinking, you've got to remember that most of 
it isn't very good," said Anthony Cordesman, a security analyst with the 
Center for Strategic and International Studies. "(But) what do you want, 
people who come up with a lot of ideas, many of which will never fly and 
shouldn't fly, or people that only play it safe?"

Once the terror futures program was officially canceled, politics seemed to 
seep into the fray. Republicans called the market idea a mistake but said it 
didn't indicate any wrongdoing on the part of the administration. Democrats, 
though, pushed harder, with Dorgan calling for the people responsible to "be 
earning their salary in the private sector" instead of with the government.

Senate Minority Leader Tom Daschle, D-S.D., said the Bush administration 
owed an apology to U.S. troops and victims of terrorism, including the Sept. 
11 attacks.

"All Americans have a right to know the purpose of this program, how much 
was spent on it, and, most importantly, who thought this was a good idea in 
the first place," Daschle said.

(Contributing: Jon Frandsen, GNS)