Monday, April 04, 2005

Why Anything Is Possible 

Why did a hoax on a purported scheme by the Pentagon to invest war money in Wall Street via a specially-created Office of Special Brokerage Services sound reasonable to my ears?
May be it was because of this, from the aptly named Robert Looney, writing in Strategic Insights for the Naval Postgraduate School:
"With the development during the last several decades of well functioning futures markets for many commodities, private sector analysts often use the prices from these markets as indictors of potential events. The use of petroleum futures contract prices (Looney, Schrady, Brown, 2001) is an example of the manner in which traders gauged the likely outcome of events such as the U.S. Naval response to Iraq's invasion of Kuwait in 1990. In a like manner, the movement of petroleum futures prices in late March 2003, after the recent Iraq war began, reflected the implications traders drew concerning the outcome of the conflict—falling rapidly in the first few days of the conflict, but rising again after it became apparent the Iraqi regime would not fall in a matter of days. Before the Iraq war began, oil prices, incorporating a war premium, suggested there was a very high probability of a conflict (Leigh, Wolfers and Zitzewitz, 2003)."
That's right. Remember the DARPA flap in 2003 over the plan to create a Policy Analysis Market wherein intelligence agencies could trade futures in world events? I.e., "Trading in these events, as in the case of petroleum futures, would produce price movements that could be easily translated into the likely occurrence of future incidents, such as the likelihood of a coup in Yemen." Looney explained:
"The presumption was that in many cases, intelligence derived in this manner would be more accurate than that obtained through traditional means (see Figure 1, from the original PAM web site). Initially the site was to be confined to political economic, civil and military futures of the key Middle Eastern countries of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey, and the impact of U.S. involvement with each. A typical bet would involve issues such as whether the United States would pull its troops out of Saudi Arabia (Coy 2003), or whether the Egyptian currency was likely to fall by 20% by the end of the year. Assassinations, the most controversial feature of PAM and the most publicized, were not officially listed as a likely market."
For the curious, this is the Figure 1 referenced in the quote above, showing the accuracy of the, shall we call it, "Free Market" school of geopolitical gaming:
si_pam_fig_1 The basic idea behind this was that, in regular investments, particularly volatile, risky investments like futures, what drives the market is information. Investors are highly motivated to gather accurate information, and "..the collective response of a group to any question of knowledge is going to be both the best response possible...and a remarkably accurate response as well..." Very simplistically put, and based at least in part on the idea that a group pools more knowledge than any individual or few numbers of people can, the PAM idea would have offered quarterly contracts betting on the likelihood of specific events like war, economic stability, regime changes, etc., and the Defense Department and intelligence agencies would have watched the results of the trades and proceeded accordingly.

It all came out prematurely, and DARPA became a laughingstock, but at the time of his report, Looney believed PAM would rise out of its own ashes:
"Thus, while it was a public relations disaster, some version of the program will likely be introduced on a restricted basis, perhaps along the lines suggested above, in an attempt to better tap the country's disperse knowledge base, human insight, and analytical expertise."
Who knows? Things have gotten so absurd that nothing seems too outlandish to reject out of hand anymore.

And that, ladies and gentlemen, is in part how a mere joke came to look like a yet another perfectly credible batshit government scheme.

corrente SBL - New Location
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The Washington Chestnut
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