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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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