Internaut: Terrorism futures might just have a future

Shawn P. McCarthy

Now that John Poindexter has resigned from the Defense Advanced Research Projects Agency and the furor has died down over the quashed proposal for an online market in terrorism futures, consider why it isn't so far-fetched and might spring up again.

According to the Securities and Exchange Commission, the days before the Sept. 11, 2001, terror attacks saw a huge increase in the number of short sales of stock in American Airlines, United Airlines and companies housed in the World Trade Center.

In short selling, investors borrow and immediately sell shares of stock in hopes of buying lower-priced shares later, replacing the borrowed stock and pocketing the profit. Investors short-sell only if they believe the price will drop. The increase in short sales in September 2001 meant that lots of people believed something bad was going to happen to those companies.

So who were these people? In some cases they could have been terrorists themselves, using their insider knowledge to raise money. But it's likely others piggybacked on that advance knowledge'relatives, friends of friends and others who heard the whispers and decided to speculate a little.

Valuable intelligence can be gleaned from financial speculation. Terrorist activity influences such speculation, even if the activity itself remains secret.

A wealth of financial information travels over the Internet. Just visit the stock message boards at Yahoo.com or RagingBull.

com to see how such speculation works. Thousands of rumors swirl, but people put their money behind only the rumors they believe.

A terrorism futures market would shine a light on the most believable rumors. People who would never admit to U.S. intelligence officials that they've heard of terrorist plans might still try to cash in on their knowledge. An anonymous futures market would give them a venue while tapping into two underutilized sources of intelligence'international business acumen and outright greed.

It's not a new concept. For example, a market for betting on the rise and fall of celebrities exists, at www.bbc.co.uk/celebdaq. You can also speculate on political markets and educational events, at www.biz.uiowa.edu/iem.

Intelligence work always has a certain level of signal noise from planted information, rumors and misunderstandings. But if you follow the money, much of the time it points to the truth.

A terrorism futures market would act as a signal booster, letting a true signal rise above the noise because of the number of bettors who believe in it.

The fatal flaw, of course, is that such a market could be manipulated in terrible ways.
  • False rumors could focus attention on one hot spot while terrorists secretly planned for another.

  • Terrorists could blackmail a location or an organization that refused to agree to their demands.

  • The market could become a self-funding mechanism for terrorism.

These worries, along with the unseemly notion of profiting from terrorism, scuttled the idea. But the idea is intriguing enough that we could see it resurrected by some commercial enterprise.
In fact, I'm willing to place money on it.

Shawn P. McCarthy is president of an information services development company. E-mail him at internaut@diagonalmediagroup.com.

About the Author

Shawn McCarthy, a former writer for GCN, is senior analyst and program manager for government IT opportunities at IDC.

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