back to the Black Table

As if we'd needed more proof that the current administration is managing America's foreign policy for a profit, The New York Times broke the story yesterday that the Pentagon had been cooking up "an online futures trading market ... in which anonymous speculators would bet on forecasting terrorist attacks, assassinations and coups" in a selection of Middle East countries.

Once the Times, aided by a pair of Democratic senators, had lifted the rock of secrecy under which the program had been hiding, the Pentagon quickly killed the project. But morbid commodities traders and dead pool participants would have grasped the idea immediately.

When will Ahmed Chalabai (for example) be gunned down in Baghdad? How likely is it? Then they'd buy futures, which is a bet (say 50 cents) that hey buys it by a certain date, based on all the information they know. If they're wrong, they eat the 50 cents. If they're right, they get a buck when the story goes out on the newswire.

This thought exercise was set to go live -- with real money at stake, and real, anonymous participants -- on October 1. It was to have been brought to you by the Terrorism Information Office, formerly known as the more Orwellian Total Information Awareness Office, which proposed open spying on every peace of electronic data generated by American civilians and happens to be run by Admiral John M. Poindexter, Reagan's national security advisor and a convicted felon for his role in Iran/Contra (it was later overturned).

If the preceding paragraphs sound like preparations to attack the President's latest insane scheme and terrible PR move -- what will Tony Blair think, for example, when the entire White House (anonymously) shorts his chances of reelection? -- then I apologize.

This is a brilliant idea.

For once, the administration's twin obsessions -- unfettered capitalism and anti-terrorism -- would have entwined in a single, golden braid. The plan was an almost perfect representation of the republican/libertarian belief that the collective wisdom of the marketplace -- where huge quantities of brainpower meets a giant capacity for greed -- will always be greater than a far shallower pool of investors, whether that be a day trader, Morgan Stanley or the CIA.

In declaring that anyone may make their voice heard in intelligence analysis if they are willing to put their money where their mouth is, Poindexter and the Pentagon would have gambled that their futures market will attract enough great minds thinking alike that patterns will emerge that are recognizable even at a view from the top. "Research indicates that markets are extremely efficient, effective and timely aggregators of dispersed and even hidden information," the Defense Department told the Times in a statement. "Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions."

The expert opinions the White House is seeking to subvert in this instance likely belong to officials at the CIA and State Department, both of which dragged their feet and screamed when the president's inner circle demanded their intelligence on Iraq and its WMD match the message they had already intended to send.

But that doesn't undercut the essential truth of the DoD's defense. It is widely accepted on Wall Street that outperforming the market in the long run as an individual investor, i.e., through selective culling of information about a limited number of commodities, is virtually impossible.

And there have been parallel, if far less drastic disasters, on Wall Street when a cabal of extremely intelligent men, guided by years of training and the most sophisticated pattern searching algorithims that had ever been written, failed to predict a catastrophic event that nearly brought down the American economy.

I'm thinking specifically of the 1998 meltdown of Long-Term Research Capital, a hedge fund that featured veterans from top brokerage houses and the Federal Reserve, and a few Nobel laureates in economics. None of them was able to save the fund from collapsing during the Asian and Russian fiscal crises of that year, when every supposedly unbeatable bet the fund's principals went bust, resulting in losses in the hundreds of billions and requiring a federal bailout. It was as if a financial 9/11 was averted after the planes had already taken off.

But Wall Street's hive mind is the most massive and sophisticated exchange of information and speculative bets based on information yet devised; the Future Terrors Market (it will be back, and with a snappier name) would have launched with only 1,000 participants, according to the original Times story, and would have scaled up to maybe 10,000 by the end of the year. The Pentagon never said how much cash participants would have had to ante up.

The FTM's critics in the Senate immediately zeroed in on the anonymity issue, suggesting that terrorists themselves could profit in the ultimate acts of insider trading. This echoes the urban myth (which makes quite a bit of sense, actually) that the masterminds behind 9/11 massively shorted airline stocks before the attacks and reaped massive gains in the panic afterward. But the small size of the FTM's proposed charter membership would have permitted rigorous screening, and it's likely that a real-life version would still have rigid guidelines for participants, not to mention a mechanism for tracing individual traders.

The flip side, and ultimately the reason for why the FTM should be built, is that it records, measures and reflects the weight of the intelligence community's opinion in unbiased real time. If the FTM had been in place last fall, CIA analysts would have made a killing by now selling futures to gullible Pentagon paper pushers that WMDs would have been found by now, or that the yellowcake uranium was real. Rather than playing out intercine squabbles in The Washington Post or the Times, intelligence agencies and cabinet level departments pissed off at Presidential meddling could place heavy wagers that ensure, at least, a well-compensated irrelevancy inside the reigning administration. For real fun, the Oval Office could decide to stake each department's annual budget on the quality of their work and the deftness of their futures trading. Rumsfeld would have still owned the president's ear after Iraq, but the DoD would have lost its shirt to its colleagues at Langley (and would have paid for a lot of phone taps).

And it would introduce a level of transparency to the inner workings of the intelligence community, especially if Poindexter broke out the positions on various issues on an agency by agency basis. Covering the Pentagon would be like covering Wall Street, and maybe both the New Yorker's Seymour Hersh and The New York Times' Judith Miller would be out of jobs (a wash).

Like I said, it's a brilliant idea. But that's all it is at the moment -- the devil is in the details, and there are already a lot of devils in the intelligence game who think it's perfectly germane to spy on everyone, whether enemy, ally or civilian.

The only position I would take in such a market is that the various players, acting in unison or squabbling as usual, will continue to erode my freedoms. I'm certain it would pan out in the long run.



Greg Lindsay once covered privacy and the electronic spy capabilities of the U.S. Government for Time Digital.