U.S. Futures Trading on Terrorism Prediction Stirs Up Trouble

PAM Investment Strategy

The New York Times and the Associated Press (AP) yesterday introduced the so called “PAM” market. To invest in the market, one has only to put his or her name on the investor list limited to 1,000 starting August 1 and open an account for futures trading, similar to stock trading accounts. The U.S. Defense Ministry plans to expand the investor pool to 10,000 by the end of January next year. Government agencies are not eligible to invest in the market.

Real trading officially begins on October 1. Investors make orders online. For example, an anonymous investor, D, can buy a future contract called “Prime Minister P’s assassination” for five cents, predicting that Prime Minister P from the Middle East will soon be assassinated. If the expectation sells well among other investors, the demand for the contract will go up and so will its price.

The contract stipulates that D will make one dollar for each contract he possesses if P‘s assassination is actually carried out. If the bet turns out in favor of him or her, the investor can make 95 cents with a 5-cent investment. If not, however, the investor will lose all his or her money.

Pentagon blinded by market economy

The PAM market was jointly developed by the Pentagon‘s Defense Advanced Research Projects Agency (DARPA), trading system developer Netexchange, and economic information center EIU. DARPA was once a target of public criticism as the enemy of privacy for its effort to develop the “TIA” technology, which was designed to monitor information on medical, financial, and credit data in the nation under the pretext of preventing terrorism.

The Pentagon claims that PAM can be used to anticipate and prevent future incidents of global concern, such as terrorism, just as future trading floors serve to predict flows of oil and results of elections. It charges that if the “P assassination” sells well, it can be seen as highly likely that someone might be planning on carrying the assassination out.

Backlash from the Democratic Party

The story would be quite different when the fact that the U.S. uses the market as an analytic source is widely known. Terrorist groups can use it for their own sake. Market mechanisms do not function well if investors are identified in advance. (DID DEMOCRATS SAY THIS???)

Senator Byron Dorgan and his colleagues in the Democratic Party, revealing the existence of the futures trading market connected with the Defense Ministry on the day, vehemently denounced the plan, saying, “American citizens‘ tax money is [being] wasted on building a gambling house.”

As the scheme provoked growing outrage, the White House hurried to erase the relevant contents from the government web pages. But still, the administration is under strains. John Poindexter, former national security advisor and advocate of the plan, was one of those under criticism.

Rae-Jeong Park ecopark@donga.com