All Bets Are Off on Terror, Rules Pentagon

The Pentagon yesterday dropped its plan to allow speculators to make bets on future terrorist attacks in the hope that it would help the US military predict future threats.

The $8m scheme, which would have allowed punters to speculate on the likelihood of assassinations, coups and the full range of possible disasters in the Middle East, caused uproar in Congress, where Democratic senators dubbed it a "terrorism betting parlour".

The Pentagon, clearly embarrassed by the scheme, quickly bowed to the pressure. The deputy defence secretary, Paul Wolfowitz, said yesterday: "My understanding is that it is going to be terminated."

The Policy Analysis Market (PAM), as the short-lived scheme was known, was the latest brainchild of the Terrorism Information Awareness (TIA) office, a shadowy corner of the Pentagon's boffins department, the defence advanced research projects agency.

Mr Wolfowitz said the agency was paid to be "brilliantly imaginative", but added: "Maybe they got too imaginative in this area."

Last year, the TIA (then known under the more intimidating name, Total Information Awareness office), proposed establishing an electronic surveillance system that would be able to dip into the personal records of ordinary Americans in the search for terrorist-like behaviour. That plan was also scrapped in the face of public outrage.

The head of the office is retired Admiral John Poindexter, Ronald Reagan's national security adviser.

Admiral Poindexter was convicted for misleading Congress over his part in the Iran-contra scandal, in which arms were sold to Iran in return for the release of hostages in Lebanon, and the proceeds illegally channelled to contra guerrillas in Nicaragua. The conviction was later overturned.

In the PAM, anyone who felt they had geopolitical insight, insider knowledge, or who just felt lucky, could bet on a certain event happening by a buying a futures contract tied to that event.

So, according to an example on the PAM website, policyanalysismarket.org, a punter who believed the Jordanian monarchy would be overthrown could buy a futures contract in "Jordanian overthrow". Its price would go up and down, like the price of pork belly or oil futures, according to how many contracts are bought.

The pay-off for the Pentagon was that it would have access, in theory, to the "buzz" in the markets and on the street. "Research indicates that markets are efficient and timely aggregators of dispersed and even hidden information," the defence department said.

Senators Byron Dorgan and Ron Wyden, both Democrats, wrote to Admiral Poindexter, describing the scheme as a "wasteful and absurd" use of taxpayers' money. "The American people want the federal government to use its resources enhancing our security, not gambling on it," they said.

The two senators also pointed out that, as traders on the system would be anonymous, terrorists could have bet on their own plans, making money on their own attacks.