In 2003, the Pentagon was forced to pull the plug on a program that would commit $8 million to create a Web site that would encourage investors to bet on futures involving terrorist attacks and public assassinations. The idea was that such a futures market would be accurate at predicting attacks, since the information captured by the market would be free from bias and deception. In other words, the Pentagon theory was that markets don’t lie like people do! So what do we make of accusations by House Democrats that Tom Delay and Bill Frist had day traders working out of their offices in order to take advantage of inside information related to pending legislation? This dkos diary includes all the details of the accusations, as well as the background of the story, but the critical question on the minds of many is whether these shocking accusations could actually be true.
Taking a cue from the Pentagon, perhaps we can look to stock market behavior after the day trading allegations were released to tell us whether the story is true – using the markets as a form of crystal ball. If the Pentagon theory about markets is correct, then it seems they may be telling us that there is substance to the story. Reuters reported yesterday that U.S. stocks suffer biggest loss in nearly 3 years. Economists are saying that the large decline is due to uncertainty over Iran, oil prices, and the release of a new bin Laden threat of terrorist attacks. Then again, it could be an indication that confidence in the credibility of the stock market is a bit lower now that we have the possibility of Republican congressmen gaming the system to take advantage of less knowledgeable investors!
Although Frist and Delay will certainly deny that they were supplying inside information to select traders in order to gain potentially illegal advantage, perhaps the market knows more about the Republican Culture of Corruption than many individual participants would be willing to admit!
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