MARKETPLACE

SHOW: Marketplace (6:30 PM ET) - SYND

July 29, 2003 Tuesday

LENGTH: 507 words

HEADLINE: Pentagon scraps terrorism futures plan

ANCHORS: CHERYL GLASER

REPORTERS: BOB MOON

BODY:
CHERYL GLASER, anchor:

The Pentagon had been hoping to get more insight on such things by setting up an
online futures market where traders could have wagered on the likelihood of
everything from terrorist attacks to political assassinations. But just one day
after Senate Democrats panned the idea, the Defense Department announced today
the experimental project is being terminated. MARKETPLACE's Bob Moon has that
story.

BOB MOON reporting:

North Dakota Senator Byron Dorgan minced no words on the idea.

Senator BYRON DORGAN (Democrat, North Dakota): This is unbelievably stupid.

MOON: Today Deputy Defense Secretary Paul Wolfowitz conceded the controversial
program may have been too imaginative. The plan called for setting up an online
futures market in which participants would in effect wager on the timing and
probability of potential major events. One posted example included the
assassinations of Yasir Arafat or the king of Jordan. The Web site explained
that, quote, "the rapid reaction of markets to knowledge held by only a few
participants may provide an early warning system to avoid surprise."

James Surowiecki has written extensively on the subject of futures markets for
The New Yorker magazine. He thinks the idea had merit.

Mr. JAMES SUROWIECKI (The New Yorker): The point of the market, of course, would
be to try to harness that trader's greed to the interest of the United States.
That would be the premise. That--that--that's the idea, I think.

MOON: Much like the commodities markets, traders who believed an event would
occur could buy futures contracts. Those who believe the event was unlikely
could try to sell their contracts. Investors who predicted correctly would be
paid the profits generated from those who guessed wrong. But terrorism expert
Harvey Kushner, head of criminal justice at Long Island University, fears market
manipulation would be too tempting, especially for those with a vested interest
in seeing their prediction come to pass.

Mr. HARVEY KUSHNER (Long Island University): It would be an incentive for some
crazy out there or even somebody with an affiliation to strike at a particular
target.

MOON: Kushner points out there were rumors that investigators never pinned down
suggesting some investors made money manipulating airline stocks just before the
9/11 attacks. And journalist James Surowiecki thinks the Pentagon plan might
have had another problem.

Mr. ZIRWICKY: If the traders, so to speak, are betting on certain things
happening and then the Defense Department is looking at the results of that and
saying, 'Wait, this might happen so we should act to stop it,' then the traders
are effectively creating a situation in which they're setting themselves up to
lose.

MOON: The program had been envisioned by the Defense Advanced Research Projects
Agency, or DARPA, the same Pentagon office that drew fire last year for
proposing spying electronically on Americans to monitor potential terrorists.

In New York, I'm Bob Moon for MARKETPLACE.