As some wag once said (surely there was a first person to say it, but I've no idea who), "Predictions are often difficult, particularly about the future." Much ignorant fuss and feathers was made of the proposal to set up a futures market for dire events. There may be some intelligent arguments against it, but we certainly heard none emanating from the chambers of our elected representatives.

Look, the reality is that we already do this--we just do it inefficiently and ambiguously. What is a stock trade (either long or short) other than a bet on future events? The existing stock and futures markets already perform some of the function that was being proposed here (e.g., orange juice futures do a better job of long-term weather prediction than the US Weather Service), except that it's done by surrogates, and it can be quite opaque. As has been pointed out elsewhere, the terrorists already had the capability to make money on their evil deeds, by shorting airline stocks, or even index funds, or going long on security companies and defense. Everyone who does a stock trade is doing it on the expectation of certain events or non events, so it's hard to see how one can argue that this is moral, but that making the bet directly on the event itself is not so.

All that's being proposed here is to make the predictions more transparent, so we don't have to try to infer why certain stocks or sectors go up and down (as news reporters and stock analysts do absurdly every day--e.g., "Stocks rose today on the expectation that...or as a result of the president's announcement that..."). Rather than making second-hand bets via stock picks, we can get right to the underlying chase, and get an unambiguous market opinion of the event itself.

Sadly, I suspect that if someone tries to do this privately, they'll probably be shut down because it would be "gambling" (though it would be so no more than any stock market trade is a gamble). But if so, Caymans anyone?

There has to be more to this than just harnessing the market to predict events. I don't believe for one second that they didn't have plans to know EXACTLY who was placing what options. The underlying goal was probably to a) uncover identities and b) use the profit motive to turn them against each other. Let's say you're one of Osama's inner circle. You have daily access to him. You're sick of living in a cave and listening to his ranting about the Great Satan. And you now have a way to both get rid of him and make some serious dinars in the process. So you put whatever laundered al Qaeda money you have access to on options for Osama to get whacked by say, Sep. 1st.
The payoff to the good ol' USA is that Osama's gone, we just i.d.'ed more of his goons, and did it with other people's money. For that matter, why pay up when we'll just be sending the Special Forces in after them within hours?
It's a real tragedy this idea got buried by the predictable hysteria.

http://www.tradesports.com/ and the like seem to be getting there. Wager on whether Mr. Davis is governor in March 04, or whether the Dow will close down or up today, or whatever else. Other than predictions of how long Saddam would stay in power, there isn't too much geopolitical yet, but it is coming.