Democratic Underground  

Futures Shock
August 26, 2003
By The Plaid Adder

I know that just keeping up with the horror du jour has become a full-time job lately. But we can't allow our outrage over the abomination of the moment to prevent us from learning from history - even very recent history. So I want to go back in time, a whole...what, two, three weeks, when we first learned that the folks at the Pentagon had put into practice what may be their sickest idea yet: trading terrorism futures.

Once the story broke, the storm passed quickly, because John Poindexter, the convicted felon whose idea this was, was quickly thrown to the wolves. But although this may at first seem like simply the most extravagant bit of lunacy perpetrated by a clique of Rumsfeld cronies who are careening out of control, my crackpot theory is that this was actually a highly revealing indication of what may really be rotten in the states of America.

Before 9/11, I used to divert myself sometimes while I was hanging out in the Loop by going up to the visitors' gallery at the Chicago Board of Trade and watching the futures traders. I've seen the informational video about futures a few times, and find the information curiously hard to retain. But as far as I can tell, here's how futures trading works. A farmer who is growing a crop of, say, soybeans, is worried about fluctuations in the price of soybeans. To protect himself from a possible price crash, he sells a futures contract, in which he promises to deliver his crop at a certain time of year for a certain fixed price. No matter what happens, when that contract comes due, Mr. Farmer will get the price he contracted for, whether it's higher or lower than the going market rate. If there's a price crash, he's happy. If there's a huge rise in the price, well, he's sad, but he can take comfort in knowing that he has managed his risk.

After that, however, it gets complicated, because the contract itself can be bought and sold. At that point, the people trading it are basically betting on whether the price of soybeans will go up or down. If the contract says you're paying Mr. Farmer 50 cents a bushel for his crop in November, and you think that in November soybeans are gonna be going for $2.00 a bushel, then you'll be willing to pay for that contract - in fact, you will be willing to pay more for the contract than it is technically worth, because you think you'll still make a profit in November. Or, you will be willing to pay more for Mr. Farmer's contract because you think you can unload it in October for more than you paid for it to someone who shares your faith in soybean prices.

Watching this all work out on the floor of the Board of Trade is fascinating. The system began as a way for farmers to organize the delivery of their crops in advance so they wouldn't have to haul them all to market on the same day and dump what they couldn't sell on the way home. It has now been refined to the point where it is almost totally imaginary. There is no grain on the floor of the Board of Trade; just a lot of people in brightly colored jackets representing the various trading firms standing around in sunken tiered depressions known as "pits" yelling and making hand gestures at each other while they monitor the constantly changing prices on the boards above them. As chaotic as it is, there is a kind of pattern to it, which you can detect as you watch from above; it becomes almost balletic. Movement ripples from one pit to the next as something happens that gets everyone in a tizzy; the explosion of arm-waving and shouting is controlled into something approaching form by the limited repetoire of gestures (hands faced out to sell, faced in to buy, various other motions to indicate the number of contracts and price). Every once in a while, after a big crescendo, someone will throw a pile of torn-up order sheets into the air, and they cascade to the ground like confetti.

It was that last gesture that fascinated me the most, because it seemed so pointless. But it happens all over the floor, integrated into the rhythm; waterfall after waterfall of white bits of paper, thrown into the air in a moment of excitement or disgust or frustration or whatever. I thought, really, this isn't just trading; it's theater, it's ritual, it's tradition. There are all kinds of excrescences that are not absolutely necessary and not really rational: the quirkiness of the jacket patterns, the surprisingly diverse gestural styles of the traders, and the simple fact that in an increasingly electronic age this is all done through face-to-face (and often face-in-your-face) interaction. Trading in the pits is all about eye contact, vocalization, bodies moving in space.

In addition to being the home of the Chicago Board of Trade, Chicago is also home to the Chicago school of economics, which holds that political economy can and should be stripped down to its most ruthless utilitarian bones, and that any attempt to honor the dictates of compassion or humanity where they conflict with the naked power of capitalism is a blasphemy against reason and the public good. The Chicago school is all about rationalizing everything, and justifies its heartlessness on the grounds that they are not being cruel, but simply rational and realistic.

I've always thought that the spectacle on the floor of the Board of Trade disproved that premise. Capitalism is at its heart no more 'objective' than any other belief system. It has its own rituals, culture, traditions, and articles of faith; and as in any other religion, its most fanatical devotees will go against their own self-interest in order to remain faithful to its dogma. If the dance of futures trading at the CBOT is an expression of a kind of capitalist ecstasy, the market in terrorism futures was the rank flower of the occult and necromantic side of capitalism.

The 'rationale' behind the terrorism futures market was based on "efficient market theory." This is something that is actually recognized by economists as legitimate, and the summary is: it is possible to use the market to predict the future. Because a large market is essentially a betting pool with tens of thousands of players, all of whom have a financial interest in guessing right, everyone is pooling their information, which makes it more likely that the group will pick the actual winner. They are not, of course, sharing this info with each other, so the prediction becomes apparent only when you look at the big picture.

So this was the theory on "terrorism futures:" the Pentagon would make available a number of futures contracts - not on soybeans, but on the likelihood of a given terrorism-related event taking place on or before a particular time. The example always given was the "Saddam September" contract, which 'contracted' to deliver a certain amount of cash if Saddam was captured by U.S. forces on or before September 30 2003. The point was to watch what happened as people sold and bought the contracts for each other. The idea, apparently, was that people who had information that led them to believe Saddam would be captured by September 30 would buy up a load of these contracts, whereas those who had information suggesting the contrary would be dumping them. And based on the price of "Saddam September" futures, we would be able to predict...whether we would or would not capture Saddam Hussein by the end of September.

OK, there's the first problem: they're trying to use the market to predict their own behavior.

Even to people who buy the efficient market theory, this makes no sense; the market is too small, they're trying to predict the wrong kind of thing. I, in my heathen ignorance of all things capitalist, go further: I cannot see the "terrorism futures" market as anything other than magical thinking. This is capitalism as divination; it is as rational and as likely to be useful as consulting a ouija board. It is a particularly egregious example of a fanatical and uncritical faith in capitalism which has become so intense as to be insane. These people believe that the market will deliver them. They believe that it knows all. They are using it as an oracle. This is not good.

The reasons that this idea was sick and wrong to start with are obvious, and were obvious even to our congressional leaders and bootlicking media lackeys: 1) all the profit is blood money; 2) it potentially rewards the very terrorists we seek to eradicate; 3) it sets up a conflict of interest, whereby American investors could end up having a financial interest in seeing our own troops killed or more civilians blown up; and 4) there is just something viscerally disturbing about betting on the life or death of a human being as if it were the outcome of a horse race. What was never really articulated during the scandal is the fact that what is wrong with the terrorism futures market is what is wrong with this administration as a whole. The war in Iraq is the expression of the same kind of fanaticism. It's an oil-baron jihad, a crusade to open up the deserts of the Middle East to church of capital. And it is being prosecuted by its adherents with the same myopia, obsession, and failure to grasp reality that characterizes any other brand of religious fundamentalist.

So, I know the terrorism futures story is, like, so July; but do not let it pass quite from your ken as you read today's developments. Capitalist zeal is what got us into this mess. Poindexter's plan for getting out of it was the capitalist equivalent of reading entrails. It's too bad that a lot of those entrails belong to our own soldiers.


The Plaid Adder's demented ravings have been delighting an equally demented online audience since 1996. More of the same can be found at The Adder's Lair.

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