Posted on 08/07/2003 6:36:06 AM PDT by JohnHuang2
Question: If a veterinarian visiting a Montana ranch should conclude the dead cattle there had died of mad-cow disease, who would know first: Congress, or the cattle futures market?
Answer: In hours, word of how the cows died would panic the trading pits. Argentine cattle futures would soar, U.S. cattle futures sink. The impact would be instant on the stock prices of McDonald's, Burger King and Outback.
Investors in futures markets are acutely attuned to anything that affects the price of the commodities they buy and sell by the hour. One credible meteorologist warning of a long, cold winter or summer drought can create havoc in wheat and corn futures.
Over at the Pentagon, until last week, imaginative people were trying to harness that predictive power of futures markets to help us anticipate and prevent acts of terrorism against Americans.
Their arresting idea, however – of a futures market where the most brilliant anti-terror experts wager on where and how the next strike will come – thus giving policy-makers instant and constant access to the best consensus judgment – was mocked to death.
The day the story broke, Oregon Sen. Ron Wyden ranted, "The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque." North Dakota Sen. Byron Dorgan ridiculed the betting pool as "incredibly stupid."
Well, as Forrest Gump used to say, "Senator, 'Stupid is as stupid does.'"
The principle on which DARPA, the Defense Advanced Research Projects Agency, was improvising and building is an undeniable one: Markets are far superior to bureaucracies in predicting the future.
Markets will ferret out secrets before keepers want them known. When Martha Stewart learned ImClone's stock was falling, she knew something was wrong. She called Sam Wacksal, the president of ImClone. Sam did not return the call. Martha then called her broker, who told her Sam and his family were all selling shares of their own company. Alerted, Martha dumped her shares.
What was the hidden secret? The FDA was about to announce that ImClone's application for approval of a drug the company had invented had been rejected. Though insider trading was being done, the market was correctly signaling imminent bad news for ImClone.
Consider the greatest strategic disasters to befall America last century and how a bettors' market might have predicted them.
Before Pearl Harbor, U.S. Navy officers, aware Japan began its war on Russia in 1904 with a surprise attack on the Russian Pacific squadron at Port Arthur, urged FDR not to transfer the U.S. Pacific fleet from San Diego to Pearl. Administration insiders knew that Japan could not survive the July cutoff of U.S. oil, that FDR had brusquely rejected a summit with Prince Konoye, that an ultimatum had been sent to Tokyo in November telling Japan to get out of China.
Had there been a betting pool among U.S. and British naval officers, and the cryptanalysts who had broken Japan's diplomatic code (and perhaps its naval code), the odds on a war would have been sinking through 1941, as would the odds that the war would start with a Japanese surprise attack on Singapore or Pearl Harbor.
Even two hours warning from a Navy betting pool could have turned Pearl Harbor from a U.S. disaster into a Japanese debacle.
Today, we know there were clues – the 1993 attack on the World Trade Center, terrorist suspects training at U.S. flying schools, NSA-intercepted "chatter" about an impending "big attack" – that, properly assessed, might have prevented the horror of 9-11.
Suppose all the anti-terror experts at CIA, Pentagon, NSA and State, active and retired, had been in a betting pool to wager where al-Qaida would strike next, after the attacks on Khobar Towers, our embassies in Africa and the USS Cole in Aden Harbor. An attack here, using planes as weapons, would have been bet upon and might have been brought to the attention of the FBI and President Bush.
The terrorism betting pool was to be a project of DARPA, the true inventor of the Internet, the market technologies company Net Exchange and the intelligence unit of the Economist. These bright folks were urged to think "outside the box," to explore unorthodox ideas, to create a Distant Early Warning system of terror attacks – so that future 9-11s could be anticipated and aborted.
They were doing their job. But now, the head of DARPA, Adm. John Poindexter, first in his class at Annapolis, has been forced out by know-nothings, "shocked, shocked," that some one would suggest a betting pool. Anyone recall the last time Congress had a new idea?
Is Pat suggesting that active officials would be allowed to participate in this sort of gambling?
Not only could that be an excellent example of the whole loose lips thing, but it seems to me that they would be engaging in insider trading. Insider trading makes for lousy markets, which is why it is outlawed on the US securities exchanges.
I highly doubt this. The FBI would have the names, bank accounts and addresses of the "winners".
Here is where you should spend your focus: FBI agents and analyists don't make that much money, and their money is not contingent on being correct, it is a matter of just showing up for work until retirement. Where the money is made is in the speculation. Let's say that an FBI agent, with all of their resources had a good feel to where the action might be, to simply report to his superiors might result in an "Atta-Boy", and that is pretty much it. So there is no real incentive, other than work ethic and partriotism (which we have no guarentee). But how about if that information slipped to a speculator? How much would that information be worth? Now we have security leaks within the FBI as more and more high level agents with many people under them turning in good information, passes this stuff to the highest private bidder - who may or may not be a friend of this country. IOW, we have institutionalized espionage.
Also look at this problem. You have a new garden industry of anaylsts who are speculating on the next terrorist strike. How does one do that? By collecting as much information on national weak-points and critical services. Some of the best and brightest minds in this nation will be spending their productive hours deliberately seeking the best bridge to blow up, the best electrical facility to dismantle, the best pipeline to sever. They will calculate how easy and how low-tech a terrorist would have to be, and they would be constructing all sorts of scripts on how to systematically destroy this nation. Before any money is placed on a terrorist future, there would be a priceless wealth of information exploiting the most vulnerable strike-points in this nation, complete with data on how bad the damage would be. This information would be priceless to terrorists, and could be delivered to them on a DVD.
Scared yet?
No more calls; we have a winner.
Guess wrong, lose your money. Guess correctly, and be investigated by the FBI.
Gee, I just can't wait to get in on the ground floor....
Poindexter had a new idea. The politicians were small minded.
Poindexter, a genius...of the hard-working variety, should have been left to his tinkering.
And here is the best part. Because of the [un]Patriot Act, the FBI can ransack your house, your business, loot the data from your computer (all of it, including personal stuff you don't want people to see), tap your phones, read your mail and God only knows what else - without ever having any legal obligation to tell you that they have you under surveillance. Now they have your database of information and contacts and no longer need you. In fact they don't want to actually have to pay you for the tip, so it will be in their best interests, both professionally (in that an amatuer showed up the pros) and economically (that payoff could underwrite a training junket in the Carribean). With all of this information, they can haul you off to Gitmo and suspend habeas-corpus, deny you legal assistance and trump up a case of you being a dangerous terrorist, without ever giving you time, your money, or legal counsel to form a defense.
It was a bad idea that should have been shot down on its real flaws (see several posts on this thread) rather than simply hooted down by grandstanding politicians.
From what I've heard of Pat, he's been more right about more things than any other public figure.
Despite our inverse appreciation of Pat's ideas, please see my post number 18, above, then please enlighten me as to why this terror futures market might be a good predictor.
(I'm not being sarcastic--I really want to understand what I am misssing about the thinking behind it).
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