NewsMax.com
Wednesday, July 30, 2003

The Senators may indeed have won their short, brisk battle to shut down the federal Web site before the first “trade” flashed across the digital board. Armed Services Committee Chairman John Warner, R-Va., said Tuesday afternoon that he got the word from the head of the Pentagon agency overseeing the program that it would “stop all engines on this matter today.”

Before a sudden abridgment of the Web site this week, some of the possibilities the PAM Web site advised it would offer for sale when it went active and accessible were the overthrow of the King of Jordan, the assassination of Yasser Arafat, and a missile attack by North Korea. Bidders would profit if the events for which they hold futures -- including government coups, assassinations and missile attacks -- occur.

According to a report in the N.Y. Times, however, soon after Dorgan and Wyden spoke out, the White House altered the Web site so that the potential events to be considered by the market that were visible earlier in the day at www.policyanalysismarket.org could no longer be seen. By the end of business Tuesday, NewsMax found the site gone from the Internet.

Instead of the former specifics, the abridged Web site stated only, “Initially, PAM will focus on the economic, civil, and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey and the impact of U.S. involvement with each.”

DARPA

Formerly known as Total Information Awareness (TIA), the program comes under the auspices of the Department of Defense’s Defense Advanced Research Projects Agency (DARPA). TIP chief Poindexter is known for his 1991 conviction (later overturned) for perjury in testimony to Congress about his involvement in the Iran-Contra affair.

In a letter to Poindexter, Dorgan and Wyden said they would advocate against any funding for such a program, and told him they want the Policy Analysis Market stopped now.

“The example that you provide in your report would let participants gamble on the question, ‘Will terrorists attack Israel with bio-weapons in the next year?’ Surely, such a threat should be met with intelligence gathering of the highest quality -- not by putting the question to individuals betting on an Internet website,” the Senators wrote.

“Spending taxpayer dollars to create terrorism betting parlors is as wasteful as it is repugnant. The American people want the Federal government to use its resources enhancing our security, not gambling on it,” the Senators added.

The Policy Analysis Market (PAM) and the FutureMAP program, which was slated to follow PAM, would have worked much like other financial markets, with investors buying “futures” in events they think are likely to happen, and selling off futures as they believe events become less likely to happen.

On-line training was scheduled to begin for registered traders on September 1, 2003. Live trading was scheduled to begin on October 1, 2003.

As a means of ensuring the smooth and efficient start of live operations, said the now-defunct Web site, registration would be limited initially to 1,000 traders. As system operations were tuned to the trading load, this limit would have been increased. By January 1, 2004, the limit would have been raised to at least 10,000 traders.

“Just last week the 9/11 report proved that the basics of communication and follow-through ought to be our primary weapons against the terrorist threat,” said Wyden, a member of the Senate Intelligence Committee. “Make-believe markets trading in possibilities that turn the stomach hardly seem like a sensible next step to take with taxpayer money in the war on terror.”

'Appalling Waste'

“This is an appalling waste of taxpayers’ money,” argued Dorgan, a member of the Senate Defense Appropriations Subcommittee. “We need to focus our resources on responsible intelligence gathering, on real terrorist threats. Spending millions of dollars on some kind of fantasy league terror game is absurd and, frankly, ought to make every American angry. What on Earth were they thinking?”

In explaining how the trading would go, Wyden said, "For instance, you may think early on that Prime Minister X is going to be assassinated. So you buy the futures contracts for 5 cents each. As more people begin to think the person's going to be assassinated, the cost of the contract could go up, to 50 cents.

"The payoff if he's assassinated is $1 per future. So if it comes to pass, and those who bought at 5 cents make 95 cents. Those who bought at 50 cents make 50 cents."

Actually, the potential scenarios were more complex and traders may have ended up dealing with “derivatives,” a combination of related future events. The Web Site explained:

“The issues represented by PAM contracts may be interrelated; for example, the economic health of a country may affect civil stability in the country and the disposition of one country’s military may affect the disposition of another country’s military. The trading process at the heart of PAM allows traders to structure combinations of futures contracts. Such combinations represent predictions about interrelated issues that the trader has knowledge of and thus may be able to make money on through PAM. Trading these trader-structured derivatives results in a substantial refinement in predictive power.”

Defending the Program

In initially defending the program, the Pentagon said such futures trading had proven effective in predicting other events like oil prices, elections and movie ticket sales:

"Research indicates that markets are extremely efficient, effective and timely aggregators of dispersed and even hidden information. Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions."

But Congress has not been generally over enthused about some of the goings-on at DARPA. Much more than PAM is involved: