Poindexter's future

[Kenneth Campbell <kkc@xxxxxxxxxxxx>]

I would have bought futures on Poindexter getting axed after announcing
a futures market.

Ken.

--
In spite of the cost of living, it's still popular.
          -- Laurence J. Peter


--- cut here ---


Poindexter to Leave Pentagon Research Job
Project to Create Futures Market on Events in Middle East Caused
Controversy

By Bradley Graham
Washington Post Staff Writer
Friday, August 1, 2003; Page A01


John M. Poindexter, the retired rear admiral involved in the Pentagon's
ill-fated plan to launch an online futures market for betting on Middle
Eastern developments, will be leaving his job with a Defense Department
research agency, a senior defense official said yesterday.

The departure had been demanded by lawmakers outraged over the notion
that the Pentagon should set up a system enabling people to profit from
predictions of terrorist attacks and other events. Poindexter, who has
not spoken publicly about the initiative since it sparked a political
firestorm Monday, has headed the office at the Defense Advanced Research
Projects Agency (DARPA) responsible for developing the trading program.

Since joining DARPA in January 2002, Poindexter also has been embroiled
in controversy over a computerized surveillance project to collect
information about potential terrorist threats by scouring financial,
travel, medical and other databases. After critics blasted the project
for potential invasions of privacy, lawmakers and the Defense Department
placed limits on it.

The official said that Poindexter had not been asked to resign, but
added that Defense Secretary Donald H. Rumsfeld and senior aides had
agreed the onetime national security adviser to President Ronald
Reagan -- and a central figure then in the Iran-contra scandal -- had
become too much of a political lightning rod. Poindexter is "working
through the details" of his resignation and "expects to offer" it within
a few weeks, the official said.

"He realizes that it's become difficult for projects he's involved in to
get a dispassionate hearing," the official said.

While Poindexter had supervisory responsibility for the futures project,
others at the Defense Department also played important roles in shaping
or approving it. But there was no word yesterday on their fate -- or the
future of the Information Awareness Office that Poindexter has headed.
News of Poindexter's resignation was first reported in yesterday's Wall
Street Journal.

"The problem is more than the fact that Admiral Poindexter was put in
charge of these projects," Sen. Patrick J. Leahy (D-Vt.) said yesterday
in a statement suggesting lawmakers may not be content to let the matter
rest. "The problem is that these projects were just fine with the
administration until the public found out about them."

But several involved with the futures trading plan defended it
vigorously in interviews, saying the project's purpose has been
distorted by critics and abandoned too quickly by top Pentagon officials
unprepared to explain its value and nature. Sponsors saw it as a method
of collecting information and insights useful to the Defense Department

The project, known as the Policy Analysis Market, was conceived by
Michael Foster, a math and computer science specialist who joined DARPA
in 2000 as a program manager, on temporary assignment from the National
Science Foundation, according to several people familiar with the
project's history. One of his models for creating a market that could
help the Pentagon predict events was the political futures market at the
University of Iowa, which has proven better than pollsters and pundits
in predicting the outcome of presidential elections.

"DARPA is a relatively entrepreneurial organization," said Robin Hanson,
an assistant professor of economics at George Mason University, whose
work on futures markets also helped inspire Foster. "They give program
managers a lot of discretion and a lot of ability to create new
concepts, and then reward them heavily based on how they do."

According to a chronology prepared by the Pentagon, the go-ahead for the
project came in the spring of 2001 from an unidentified official in the
Defense Research and Engineering office. After inviting proposals in May
2001, DARPA awarded initial design contracts to two small firms --
Neoteric Technologies of Huntsville, Ala., and Net Exchange of San
Diego, a 10-person business started in the early 1990s by economist John
Ledyard, Hanson's thesis adviser at the California Institute of
Technology.

While Neoteric took a comparatively conservative approach, Net Exchange
decided on a more ambitious one, both in terms of technology and scope.
Its original plan was to create a market that would try to anticipate
major events not just in the Middle East but Southwest and Central Asia
as well. The market also would be limited to intelligence analysts and
others in the U.S. government.

But the idea of setting up an internal market ran into legal
prohibitions against moving money among agencies funded under separate
congressional appropriations. So Net Exchange devised a public market.
It also narrowed the scope to eight countries in the Middle East.

Under the plan, much of the trading was to have centered on futures
contracts based on general indices regarding the economic health, civil
stability and military posture of these countries. To build the indices,
Net Exchange contracted with the Economist Intelligence Unit, which
specializes in country analysis.

Some "specific event" contracts also were to be written, covering the
possibility of a terrorist attack, assassination or coup. But these
contracts, which stirred the political outcry this week, were never
meant to be the market's focus, said Charles Polk, Net Exchange's
president.

"It was never billed as a market in terrorism," he said. "It was to be a
market in the future of the Middle East."

In late 2002, Poindexter approved field testing of the plan, which
envisioned registering traders today and starting trades on Oct. 1.
Among those briefed on the plan as it developed were officials not only
in DARPA but in intelligence agencies and the Securities and Exchange
Commission, Polk said. But neither Rumsfeld nor his senior staff knew of
the program before this week, according to a senior defense official,
who said such small research programs do not normally receive such
high-level attention.

Polk said he had heard no expressions of moral outrage in any of the
briefings, although he did anticipate possible concerns being raised
about some of the planned trading once the market went public. He said
the market would not have traded in any events that were not being
widely speculated about in news stories, government meetings or policy
seminars. He also dismissed the idea that terrorists could have profited
from the market, noting its relatively small planned size.

In May, the program came to the attention of two Democratic senators --
Ron Wyden (Ore.) and Byron L. Dorgan (N.D.) -- who saw it listed in a
report on the programs being run by Poindexter's office. The senators
could not discern much from the report. But a tip they received last
week directed them to the program's Web site, which showed as trading
examples the possibility of betting on the assassination of Palestinian
leader Yasser Arafat or the overthrow of Jordan's monarchy.

The senators called a news conference Monday to denounce the project as
bizarre and morally repugnant, unleashing a torrent of similar criticism
from other lawmakers and prompting Rumsfeld to cancel it. Hanson,
reflecting on what went wrong, said one thing he would have done
differently was post different examples on the Web site.

"They allowed the project to be distorted," he said of the effort's
critics. "But it's still our fault for allowing them."