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[bryant]

Various and sundry commentators have been making alarmed noises about the new DARPA-organized political stock market.

There are a few rational objections. Someone over at CalPundit noted that the system may be very gamable by people who want to conceal the possibility of their own terrorist activity. Kevin Drum notes that there’s the possibility of pissing off allies who would prefer that we not enable a market for futures based on negative events occurring in their country.

On the other hand, I’ve got to look askance at the people who are complaining about the immorality of betting on tragedy. You may not have noticed, but the New York Stock Exchange trades stock in real companies. Those companies employ real people. Every time someone sells a stock short, they’re betting that something bad will happen to those people — something that may cause salary reductions or layoffs.

“Oh, but that’s not a matter of life or death.”

No. Not usually. But sometimes it is. And any way you cut it, it’s still bad things happening to good people.

Comments

[marith.livejournal.com]

Yeah, and I think Wall Street's pretty insane too.

Isn't it probable that people would end up committing and manipulating terrorist activity to match (or not match) predictions? How long before the organized OTB-style betting?

[bryant]

The projected limit on money in the market was $100.

[bryant]

The projected limit on money in the market was $100.

[jadiana.livejournal.com]

Someone had a moment of sanity and this program has been canceled as fast as it was announced.

Odd the timing on that. Canceled the day it is brought into the public eye?

Among the reasons I have for having thought it was ridiculous, I read another that seems to be the strongest argument for NOT implimenting it, that it might actually encourage acts of assassination or terrorism.

Let alone think of how we would look at another country who allowed monetary speculation on acts of terrorism in the US, or assassination of our leaders.

Selling Short

[amberley.livejournal.com]

It doesn't detract from your main point (that futures markets in terrorism are a bad idea), but selling short doesn't necessarily mean that you think something bad will happen to a company, it means you think the company's stock will sell for less in the future than it's selling for now. A company might be doing great, but its stock be ridiculously overpriced (a very dangerous short, to be sure). The best shorts are usually companies that are fraudulent,and when the truth comes out the stock drops.
Whether the truth coming about a company cooking its books counts as "something bad happening" I suppose depends on whether you're part of company management or not.

More interestingly, there were apparently huge numbers of put options bought on the airlines shortly before 9/11, and I've never heard of the government following that to see if it was just dumb luck, or Someone Knew Something.
Perhaps they're following it up but not choosing to talk about it yet.

Re: Selling Short

[dtm]

Actually, I had heard followup news stories on that - the German equivalent of the SEC was in fact very interested - and it turned out to be nothing.

That is, just normal fluctuation in option contracts, like the myth of a baby boom nine months after some large snowstorm or power outage.

Or, it's a government-funded hit list

[dtm]

Let's say that you're rich and want political figure XYZ assassinated. Let's say that you're willing to finance an operation to do this.

So, using the options market, you place a $Q (where Q is large) bet that figure XYZ will not be assassinated. Someone bets against you, said political figure is in fact assassinated, and you pay up. The person who bet against you could be the assassin, a representative of the assassins' organization, or some middleman who takes a small percentage in exchange for washing the money through other third parties.

And you, the assassination financeer, have done all of your financial dealings completely in the public eye, on a government-sanctioned market, and have (at first glance) completely clean hands.

The idea of using bets that condition X will not occur as a way to fund someone to make condition X occur is not at all new; in fact, the idea of using it to fund political assassinations has been explored before.