And not all short selling is innocent. Yassir Arafat has a couple billion in assets – I’m guessing that money isn’t stashed under his bed. Bin Laden is supposedly worth between $50 million and $150 million – I’m guessing it isn’t stashed in the rock he uses for a pillow. International terrorism is big business, and what better way to launder money and to help fund it than to keep a bunch of cash “offshore” from Iran or Saudi, in a stock market.

The idea of markets as predictors is at least worth exploring.

I never imagined I’d feel bad about making money. And I never bothered to figure out if those bad feelings were justified or rational. (They probably weren’t). I gave it all to the FDNY and NYPD charity funds and moved on. Sounds dumb today in many ways (why should I feel bad, and why would a couple of checks fix it…) but those were weird emotional times, as you know.

All things being equal, the simpler explanation is the most likely in most cases. Several market sectors were due for a pullback and many market participants had set themselves up accordingly. When it finally happened, hugely amplified and accelerated by the events, large net short positions became immediately suspicious, if not instantly assumed guilty until proven innocent depending on the nature or location of the firm.

I was not so much making an argument as putting a smiley face sticker on my disappointment that this very interesting and potentially valuable project was annihilated so quickly and thoughtlessly.

As for the terrorists trying to make a killing, being too dumb or too smart…

First of all, the market depends on aggregation of prices. A futures market based on middle eastern events, with 10,000 investors minimum, would encompass a lot of folks with information advantages. Brokerages employing ex-Saudi intel and security members as consultants, former Israeli Mossad operatives or Likud members as analysts, and so forth. Maybe it wouldn’t be inside information, but these brokerages would act out of very enlightened self interest. Not everybody would move in the right direction — but in the aggregate, the market would get the price right a lot of the time.

Aggregated futures contracts prices, predicated on the emergence of a Palestinian state, the breakup of OPEC, whatever, could be useful predictors of major action.

In the alternative, if terrorists did invest in this futures market (to “make a killing”) the money trail would quickly out them. Don’t forget, most people go along with the market to get along, and rely on slow accretion of value to make a profit. Those making a killing almost invariably act counterintuitively – ask those who sold when MCI was at $100, and expected to go to $200 about counterintuition. As usual, the SEC (or other government elements) would be on the case of anyone who made a big counterintuitive move just prior to a major market shakeup. That’s how a lot of insider trading investigations get started…

Finally, state sponsored terror is big business. Anybody remember the suspicion about the big European investment houses divesting a lot of American reinsurance company stock just prior to 9/11? Ever wonder why we haven’t heard back that it was all innocent? Somebody knew, or got wind of the attacks by watching Yassir Arafat’s or the Bin Laden family’s portfolio.

Either that, or the market itself predicted the attack.

A couple of points:

First, DARPA is a research outfit. This seems like a legitimate research topic for them even if you believe that this sort of thing is better implemented in the private sector.

Second, there IS a reason why this can’t (currently) be implemented in the private sector. It’s illegal everywhere in the US, and probably in much of the rest of the world. See Robin Hanson’s Idea Futures page for more about the concept (including the legal issues) and lots of good links.

Jim

http://www.sky.com/skynews/article/0,,30200-1098517,00.html

Boy, when dimbulb Congressfolk impugn DARPA’s smarts, something aint right…

Fingerowner, that’s a good question.

Congressional risk market vol would be a little high, don’t you think?