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Solve terrorism and make a quick buck to boot!(16 posts)

Solve terrorism and make a quick buck to boot!Spoiler
Jul 29, 2003 3:02 PM
From today's LA Times:
"The war on terrorism has come to this: The Pentagon is setting up a commodity-style market to use real investors -- putting down real money -- to help its generals predict terrorist attacks, coups d'etat and other turmoil in the Middle East.

Under the program, revealed Monday by two of its critics in the Senate, investors with knowledge of the Middle East would be lured -- by the prospect of making money of course -- into using their expertise to buy and sell futures contracts on world events.

And the Pentagon would be able to study the collective wisdom of the free market on such weighty questions as the impact of U.S. involvement in Iraq and the stability of the monarchy in Jordan.

Two angry senators disclosed the program, called the Policy Analysis Market, in hopes of heading off the registration of investors, set to begin Friday. Democratic Sens. Ron Wyden of Oregon and Byron L. Dorgan of North Dakota said more than $500,000 in taxpayer funds has already been spent to develop the project, and the Pentagon has requested $8 million over the next two years. Trading would begin Oct. 1.

"Spending taxpayer dollars to create terrorism betting parlors is as wasteful as it is repugnant," Wyden and Dorgan said Monday in a letter to the Pentagon. "The American people want the federal government to use its resources enhancing our security, not gambling on it."

The Policy Analysis Market initiative is described by the Defense Department's Defense Advanced Research Projects Agency, known as DARPA, as "initially a small research program" to use economic market forces to help predict future events in the Middle East.

It would be overseen by DARPA's Information Awareness Office, whose director is retired Adm. John M. Poindexter, the former Iran-Contra figure, according to DARPA's Web site.

The technology was developed by San Diego-based Net Exchange, in conjunction with DARPA and the Economist Intelligence Unit, the research arm of the publishers of the Economist magazine, DARPA said.

Using a market-style trading system, up to 10,000 investors would buy futures contracts if they believe an event will occur, and try to sell a contract if they believe it won't. They would be motivated by the "prospect of profit and at pain of loss" to make accurate predictions.

The entire system could help predict terrorist attacks, according to a report to Congress on the project, because "the rapid reaction of markets to knowledge held by only a few participants may provide an early warning system to avoid surprise."

DARPA's Web site says government agencies will not be allowed to participate and will not have access to the identities or funds of traders, which Wyden said could allow terrorists to use it.

Indeed, anybody with money to start a trading account could sign up. The theory is that those who buy such futures contracts would be experts in their fields. The market would be a tool for combining, or "aggregating," the informed opinions of many people into a single assessment.

For starters, the market would focus on the economic, civil and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria and Turkey, and the effect of U.S. involvement with each.

Futures contracts, most commonly purchased on the prices of oil, pork bellies and other commodities, often spring up wherever people think money can be made by predicting the future. They can be purchased on upcoming elections, weather patterns and interest-rate decisions by the Federal Reserve.

But under the Pentagon proposal, they would be asked to gamble on questions such as, "Will terrorists attack Israel with bioweapons in the next year?" according to official DARPA Web sites and other government documents.

Other potential subjects include whether Palestinian leader Yasser Arafat would be assassinated and whether the king of Jordan would be deposed.

The DARPA project appears
the rest of the storySpoiler
Jul 29, 2003 3:12 PM
The DARPA project appears to be the first time anyone has proposed betting on when and where a terrorist attack might occur. The Defense Department has requested $3 million for the program for fiscal year 2004, and $5 million for the following year.

At a Capitol Hill news conference, Wyden and Dorgan railed against the initiative, calling it an ill-conceived waste of taxpayer money. They said it could even be manipulated by terrorists so that they could make profits by "betting" on attacks that they had not yet launched.

"Can you imagine if another country set up a betting parlor so that people could ... bet on the assassination of an American political figure?" Dorgan asked. It is, he said, "unbelievably stupid."

Poindexter and other senior DARPA officials could not be reached for comment. But in a statement, DARPA said it "is exploring new ways to help analysts predict and thereby prevent terrorist attacks through the use of futures market mechanisms. 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," it added. "DARPA has undertaken this research as part of its effort to investigate the broadest possible set of new ways to prevent terrorist attacks and will continue to reevaluate the technical promise of the program before committing additional funds beyond Fiscal Year 2003."

In its statement, DARPA called the project "currently a small research program that faces a number of major technical challenges and uncertainties. Chief among these are: Can the market survive and will people continue to participate when U.S. authorities use it to prevent terrorist attacks? Can futures markets be manipulated by adversaries?"

In the 1980s, Poindexter was President Reagan's national security advisor when the administration sold arms to Iran in exchange for the release of American hostages in Lebanon, then illegally diverted the proceeds to the Contra anticommunist guerrillas in Nicaragua. He was convicted of lying to Congress, but his conviction was later overturned."

"DARPA's Web site says government agencies will not be allowed to participate and will not have access to the identities or funds of traders, which Wyden said could allow terrorists to use it."

Yeah, right. The Pentagon is going to set up a system that would allow terrorist to bet they'll kill someone, kill them, then collect the cash from the system.
But the Pentagon will honor the terrorists right to privacy. HAHAHAHHAHA
the rest of the rest of the storyTJeanloz
Jul 30, 2003 5:00 AM
The program was canceled due to criticism from all sides. The critics didn't read the proposal apparently.

The "traders" were to be a select group of middle east experts, trading with a fixed amount of currency. In this way, it would act as a sort of "nuclear clock" for terrorist events. There was no chance for terrorists to make a buck, unless the Pentagon authorized them to trade. It would have been a damn fine way to get a general opinion from a large group of experts, but it was railroaded by politicians who believe that markets are the root of all evil.

I wish people would know what they were talking about before they started talking...
You actually think this is a good idea don't you?!Spoiler
Jul 30, 2003 6:46 AM
Are you actually defending the program or are you incapable of recognizing legitimate criticism of the administration? Wolfie read the proposal and he said it was a bad idea. I think it's just you and DARPA supporting this.

Yeah, there is no chance a terrorist could take advantage of this. It's foolproof. HAHAHAH
I don't think it's a bad idea...TJeanloz
Jul 30, 2003 7:22 AM
Explain how this is a bad idea.

The proposal was to give 100 middle east experts a fictional $100 to bet on the likelyhood of various events. Contrarty to most reports, this was NOT to be a public market - and there really isn't even a reason that the "prices" of certain events would be public information. I think it is a very good idea to poll how strongly a group of experts feel about certain outcomes. No, there is no chance that a terrorist could take advantage of this. Explain to me how they would.
Take a deep breath53T
Jul 30, 2003 10:57 AM
Would one of you please read the plan and think about it for a moment. Does anyone her know how a futures market works? Of course you do. Futures are contracts to buy or sell comodities or securities at a fixed price at some future date. As the value of the underlying commodity (bork bellies) or security (stock) fluctuates, the value of the futures fluctuates.

Here's the catch: Futures have a value because the underlying instuments have value. International relations futures have no such underlying security, therfore they have no value. Furthermore futures with no value are just an abstraction, they can't exist. The whole plan, as described, cannot exist.

Would Jordan be worth more or less if they went to war with Iran in 2006? You can't tell. They might loose, they might win, they might recieve lots of US aid. Not knowing anything about the value of Jordan or Jordanian investments as a result of war leaves Jordan war futures with no value.

The whole thing is silly.
Not true,TJeanloz
Jul 30, 2003 11:03 AM
Under the plan that I read, certain outcomes would be securitized - i.e. there would be a payout if certain events occurred.

And this is really not much different than, say, a Eurodollar future or interest rate future. You can securitize any future event with a payoff. It's just a fancy word for bookmaking.

The advantage the market has over a simple straw poll of experts is that it can judge how strongly somebody feels something is going to happen, which is an advantage over a binary system.
yupDougSloan
Jul 30, 2003 11:39 AM
I have a securities fraud case right now based upon interest rate hedge (swap) agreements. The instrument itself has zero value; it's totally a bet on what will happen in the future.

Doug
I bet that's fascinating,TJeanloz
Jul 30, 2003 11:48 AM
I didn't think swap agreements were regulated at all, aside from normal contract law.

Nothing like explaining a CIRCUS swap to make yourself the life of the party, or not...
difficult at firstDougSloan
Jul 30, 2003 11:54 AM
They (interest rate hedge agreements) are regulated as a futures contract/security. I have now read several books on swaps, and I have to admit the details are hard to grasp. The essential ideas are very simple, but the calculations are complex. Thus, a broker can easily take advantage of a client...

Doug
Really?TJeanloz
Jul 30, 2003 12:01 PM
My assumption has always been that only relatively sophisticated investors get involved with swaps. But I suppose they are useful for a whole range of people. I'm not surprised that a swap dealer would try to take advantage of a client - they've always seemed to be among the slimier variety of traders. I guess certain standardized (mostly plain vanilla) swaps would be regulated, but I didn't think some of the more peculiar ones were.
developersDougSloan
Jul 30, 2003 3:05 PM
My clients are developers who were required to enter into a swap to get a construction loan.

BTW, do you know any experts in the field (swaps, broker duties)? If so, would you let me know? Thanks.

Doug
what about the investorsSpoiler
Jul 30, 2003 12:31 PM
Too bad this program wasn't installed before 9/11. After investors successfully predict an attack on NYC they could throw a huge "I'm F'N rich!" party for all their friends. Admiral Iran-Contra could be the guest of honor. Hell, give the man a cut of the winnings, he deserves it.

Maybe there should be a $1 million bonus for the first person to predict the compete destruction of our planet!

How many Americans would be happy to know my tax money was being used as a reward after a successful terrorists attack?

from the Boston Globe:
"The programs "FutureMAP" was a small program that faced a number of daunting technical and market challenges," including the possibility of market manipulation, DARPA director Anthony J. Tether said in a statement posted on the agency's website."

Tether knew the system would invite corruption that could ENCOURAGE terror attacks rather than prevent them.
It was certainly rumored to have happened,TJeanloz
Jul 30, 2003 12:38 PM
There was an investigation into the large "short" interest in airline stocks pre-9/11, and speculation that Al-Qaeda was making money on the whole thing. I don't know what the outcome ever was.
I need more convincing53T
Jul 31, 2003 6:15 PM
Making book and futures trading are not completly synonamous. You are obviously well versed in futures, where I may have the advantage in bookmaking.

A gambling book can exist as a profitable or break-even venture only because of the handicap. Football is the easiest example, since point spreads are the most coommon way of betting football in the US. An ods maker has the task of assigning the number of points to the underdog to encourage exactly half of the bettors to pick the underdog. In this case half win, half loose, and the system keeps the vigorish. Having an unbalanced bet (twice as many bets on the favorite than on the underdog, for example) is too risky for the conservative professionals that run football books. If the bet is out of balance and the house looses, the house has deep enough pockets to cover the loss in the short term.

Stock futures, on the other hand do not require a house. This is because the underlying stock has some value, that is variable with time. The change in value of a stock from now untill November is real money that is turned into the real value of a futures contract. There is no house. The winners and loosers are always balanced.

How can future wars be securitized without a handicap system? If there is only straight up betting, it is like a sweepstakes and would require massive funding streams.
I guess you could handicap wars. you could set up a book where a shooting war in Israel would be even money, but in Switzerland pays 18 to 1. The odds makers would manipulate the odds until the bets were equalized. Then they would know the betting population's thoughts on what would happen in the future. But why not just ask them?
It's surprisingly similar,TJeanloz
Aug 1, 2003 5:12 AM
The futures market works exactly as you describe the gambling market, except that profit is guaranteed to the "house" by way of the price spread. The underlying may not have any value at all - it could be an option that is underwater, or a Eurodollar future, or an interest rate future of some kind. The winners and losers in the futures market are also balanced - unlike the stock market, futures and options are a zero-sum game.

It's exactly the same as bookmaking, except that the price fluctuates, and the payout is presumed to be constant. Whereas, as I understand football betting, you can always bet any sum of money, by the payout changes depending on the odds. It's exactly the same concept, just changes a different half of the equation. The market itself is the handicapping system (as it is at the big Vegas sportsbooks.)