US realises $8m terrorism gamble is not a good bet.

By Roland Watson in Washington.
534 Words
30 July 2003
The Times
13

Embarrassed Pentagon officials were yesterday forced to scrap a scheme that 
invited speculators to make money out of terrorist attacks, coups and 
assassinations.

Paul Wolfowitz, the Deputy Defence Secretary, said that the online 
initiative was being cancelled a few days before its launch on Friday. He 
also promised an investigation into how $500,000 ( £308,000) of public 
money had been spent and why the projected $8 million scheme had been 
allowed to come so close to fruition. "We will find out exactly how this 
happened," he said.

News of the Policy Analysis Market had sparked disbelief, derision and disgust.

Investors would have been encouraged to bet anonymously on the likelihood of 
unrest around the world. Areas that the Pentagon wanted internet gamblers to 
focus on included the possible assassination of Yassir Arafat, the deposing 
of King Abudullah II of Jordan and a bioterrorist attack on Israel.

Senators said that the idea was so outlandish and in such poor taste that 
most people would assume that it was a hoax. Mr Wolfowitz confirmed 
otherwise. He said that Pentagon officials were supposed to be imaginative, 
but "it sounds like maybe they got too imaginative".

Before the U-turn, US officials had defended the initiative vigorously, 
saying that it could help Washington to predict pivotal events, particularly 
in the Middle East. The theory was that analysts should follow the money if 
they wanted the best forecast of events.

"Research indicates that markets are extremely efficient, effective and 
timely aggregators of dispersed and even hidden information," a Pentagon 
statement, issued after initial criticism, said.

"Futures markets have proven themselves to be good at predicting such things 
as elections results. They are often better than expert opinion."

Such thinking depended on market forces being driven by expert opinion. 
Employees of US government agencies, including the CIA and the Pentagon's 
Defence Intelligence Agency, would have been barred from taking part, but it 
is debatable how highly senior officials regard their analysis anyway, given 
their desire to set up the initiative.

The scheme was dreamt up by the Pentagon's Defence Advanced Research 
Projects Agency, whose Information Awareness Office is led by John 
Poindexter, Ronald Reagan's National Security Adviser in the 1980s, when the 
Administration sold arms to Iran in exchange for the release of US hostages 
in Lebanon.

With Oliver North, Mr Poindexter oversaw the illegal diversion of those 
funds to the Contra guerrillas fighting Nicaragua's elected communist 
Government. His conviction of lying to Congress was later overturned.

Senator Byron Dorgan, a North Dakota Democrat, said: "Can you imagine if 
another country set up a betting parlour sponsored by the government so that 
people could go in and bet on the assassination of an American political 
figure?" Spending taxpayers' money to create terrorism betting rings was "as 
wasteful as it is repugnant".

Critics also questioned the logic of the scheme. While it could allow 
terrorists to make money from their outrages, it also offered them the 
chance to mislead US intelligence. And, if it really worked, allowing 
authorities to prevent attacks or coups, would punters continue to put money 
into it?