Monthly Archives: May 2014

Whither our Technological Edge?

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USAF Colonel Dean Hullings, of AFSC’s Cyber Superiority Division told a National Space Symposium audience that the US is behind other countries in cyber defensive and offensive capabilities. The only other countries in the mix, it seems to me, are Russia, the PRC, Iran, and Israel. We don’t need to be leading from behind here.

It’s not only a lack of interest on the part of an administration bent on withdrawing the United States from the world and abrogating our leadership role, though. Bureaucracy—not unique to any particular administration, but an entity in itself—is having a major effect, also.

The agency responsible for cyber-related acquisitions—of any type—is the National Reconnaissance Office, a DoD agency separate from the AFSC. The NRO also is set up to do satellites, not networks or cyberspace—it lacks the expertise here to do equipment, software, or personnel acquisition.

This weakness is overlain by the DoD’s poor acquisition process.

Just getting through the budget system takes about two years. Add the requirements process and you’re talking another two years. That means you are about three years behind the latest technologies, thanks to Moore’s Law.

And, again, there’s that bit about understanding what it is that’s being acquired, whether by NRO or DoD generally:

[F]oreign suppliers might build code into chips or firmware to thwart or warp how a US weapon works….

But that’s not enough of a threat.  There’s this, too:

Militaries have been messing with each other’s radios and radars for generations, transmitting deceptive signals to spoof and jam them. But if the enemy’s radios and radars are run by computers—and most now are—you can also transmit signals to hack them. Then, if the enemy’s computers are linked together—and America’s certainly are—your virus can spread throughout their network.

Hmm….

Not the Best Move

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According to Spiegel Online International, the European Central Bank intends to introduce a negative rate on cash deposits member banks make into their ECB accounts—a rate of -0.1%. This means that banks would be paying the ECB to deposit their money with the central bank: if a member deposited €100 million with the ECB, the latter would take a €100,000 fee.

The central bank’s motive is to stimulate more lending by those private and commercial banks, to get more money flowing in the EU’s economy. But with loan rates already at historic lows (the ECB itself is only charging 0.25% and intends to reduce that to 0.15%), it hardly seems likely that loan demand is the only impediment to lending—loan quality, borrower quality also are major factors.

Further, with loan rates so low—there’s no room, for instance, for a premium for poor credit risk—the cost to the lender of defaults goes up a lot: only those enormously low rates are there to absorb default losses.

This is a move that can only end badly for the ECB, and at best end indifferently for the banks and the EU’s overall economy. Banks look to make money, not just to let cash sit around twiddling its thumbs. If the ECB is going to charge a fee for making a deposit, look for the member banks to deposit their cash, instead, with each other.

Signs of this will include an increase in the markets for seven-day repurchase agreements, and variations on these. Repurchase agreements are mechanisms whereby banks will lend each other short-term (typically, seven days…) to cover momentary—and expected, even planned—cash flow shortfalls. Repos will make suitable substitutes for deposit accounts in the ECB.

Look, also, for increases in the markets for interest rate swaps—mechanisms whereby banks will trade future interest income streams with each other, typically with one exchanging a variable rate stream for the other’s fixed rate stream. These swaps generally are used to get (slightly) lower interest rates, or because the bank trading for the one stream finds that more useful to it than the stream it’s trading away. But these will make adequate “deposit” arrangements, also.

Look, among other places, for an increase in riskier “deposit” arrangements, too, with the member banks looking again to such instruments as credit default swaps and mortgage-backed securities. These devices aren’t much riskier, if they’re properly constructed and monitored, their negative press during the Panic of 2008 notwithstanding.

All of these, though, will make borrowing at least slightly more expensive, when (if?) borrowing picks up—hence the “at best indifferent” aspect of the ECB’s move from the private market’s perspective. On the other hand, deposits with the ECB are a major source of the funds the ECB loans out. To the extent CDS and MBS (and/or other financial instruments) do go bad, and to the extent the ECB (or its governmental masters) feels constrained to bailout, again, financial instrument market participants, it’ll be hard-pressed to do so. It won’t have the deposited funds to lend on.

Universities and “Free” Speech

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From the Volokh Conspiracy, via The Washington Post.

In a then-latest in a long line of speech intolerance in the name of tolerance (is this what they’re teaching in these institutions of “higher” “education” these days?), ex-Chancellor of the University of California at Berkeley, Robert Birgeneau, chose to withdraw from giving the commencement speech at Haverford this spring (just what do these pupils think they’re commencing on receipt of their parchments of achievement?). A loud minority of pupils and putative professors objected to Birgeneau’s use of police to break up an Occupy protest while he was at Berkeley, on the odd theory that it’s somehow inappropriate to enforce laws and regulations on college campuses.

Birgeneau’s replacement speaker wasn’t shy about this PC nonsense, however.

Ex-Princeton President William Bowen had this to say on speech “correctness” during the course of his commencement address at Haverford:

I am disappointed that those who wanted to criticize Birgeneau’s handling of events at Berkeley chose to send him such an intemperate list of “demands,” said Bowen, who led Princeton from 1972 to 1988 and last year received the National Humanities Medal from President Obama. “In my view, they should have encouraged him to come and engage in a genuine discussion, not to come, tail between his legs, to respond to an indictment that a self-chosen jury had reached without hearing counter-arguments.”

And

In keeping with the views of many others in higher education, I regard this outcome [the withdrawal of Birgeneau from the commencement address] as a defeat, pure and simple, for Haverford—no victory for anyone who believes, as I think most of us do, in both openness to many points of view and mutual respect.

What he said.

Either we’re a nation whose citizens are free to speak, and where we are free to choose for ourselves to what speech we will listen, or we’re a nation whose citizens are free to speak and to hear only those messages that have been approved for us by our Betters. There is nothing in between.