We start with the sublime, welcoming astronaut Scott Kelly back to earth after nearly a year in space — 340 days all told. Wouldn’t you like to know how these first hours and days will feel to Kelly as he regains his earth legs?
And then we have the silly…
Apple’s General Counsel Sewell and FBI Director Comey appeared before House Judiciary Committee
You’d think a Congressional hearing about FBI’s demand to crack open Apple iPhone would be far from silly, but yesterday’s hearing on Apple iPhone encryption…Jim Comey likened the iPhone 5C’s passcode protection to “a guard dog,” told Apple its business model wasn’t public safety, fretted about “warrant-proof spaces” and indulged in a thought exercise by wondering what would happen if Apple engineers were kidnapped and forced to write code.
What. The. Feck.
I think I’ll read about this hearing in French news outlets as it somehow sounds more rational: iPhone verrouillé: le patron du FBI sur le gril face au Congrès américain (iPhone locked: FBI boss grilled by US Congress – Le Monde). Other kickers in Comey’s testimony: an admission that a “mistake was made” (oh, the tell-tale passive voice here) in handling the San Bernardino shooter’s phone, the implication that the NSA couldn’t (wouldn’t?) backdoor the iPhone in question, and that obtaining the code demanded from Apple would set precedent applicable to other cases.
Predictably, Apple’s Bruce Sewell explained that “Building that software tool would not affect just one iPhone. It would weaken the security for all of them.” In other words, FBI’s demand that Apple writes new code to crack the iPhone 5C’s locking mechanism is a direct threat to Apple’s business model, based on secure electronic devices.
Catch the video of the entire hearing on C-SPAN.
Facebook’s Latin American VP arrested after resisting release of WhatsApp data
Here’s another legal precedent, set in another country, where a government made incorrect assumptions about technology. Brazilian law enforcement and courts believed WhatsApp stored data it maintains it doesn’t have, forcing the issue by arresting a Facebook executive though WhatsApp is a separate legal entity in Brazil. Imagine what could happen in Brazil if law enforcement wanted an Apple iPhone 5C unlocked. The executive will be released today, according to recent reports. The underlying case involved the use of WhatsApp messaging by drug traffickers.
USAO-EDNY subpoenaed Citigroup in FIFA bribery, corruption and money laundering allegations
In a financial filing, Citigroup advised it had been subpoenaed by the U.S. Attorney’s office. HSBC advised last week it had been contacted by U.S. law enforcement about its role. No word yet as to whether JPMorgan Chase and Bank of America have been likewise subpoenaed though they were used by FIFA officials. Amazing. We might see banksters perp-walked over a fútbol scandal before we see any prosecuted for events leading to the 2008 financial crisis.
I’m out of here, need to dig out after another winter storm dumped nearly a foot of the fluffy stuff yesterday. I’m open to volunteers, but I don’t expect many snow shovel-armed takers.
If you have to ask what jazz is, you’ll never know. — Louis Armstrong
It’s Friday. Don’t ask, just play.
If you thought FBI vs Apple was part of a plan to break Silicon Valley on encryption, it was
This will be the big buzz today: a secret “decision memo” reveals the government set out to access encrypted user data while putting on a good front about its relations with software companies. No information available about the source (or timing) of the memo; wouldn’t it be ironic if this secret memo had been hacked from a smartphone user’s data?
Looks like Apple may also claim the government is compelling speech. They’ve pulled out the big guns by hiring lawyers Ted Olson and Theodore Boutrous to work on this case.
Whiny telcos upset with Facebook eating their lunch with WhatsApp messaging
Like they couldn’t have seen this coming? Telcos in parts of the world like Central America and Europe have long charged uncompetitive rates for poor messaging service. Enter Facebook, which snapped up WhatsApp and integrated the messaging app in its social media platform. Facebook members now have a free messaging platform that works almost globally. The telcos are now upset that Facebook has eaten their text messaging profits. ¡Qué lástima! Though I admit I wonder if part if this grousing is really a front for governments who don’t like WhatsApp’s threat to intelligence access via telcos’ messaging services.
Citigroup’s Corbat gets a 27% pay increase
Too Big to Fail pays very well, for a very few. For Citigroup’s CEO Michael Corbat, it pays roughly $16.5 million this past year, up from $13 million the previous year. Corbat’s raise rewards him for Citibank’s improved fortunes, based in part on cutting less profitable businesses — like exiting retail banking in Argentina and Brazil.
Mercedes sued for not-so-clean diesel emissions
In a slightly different situation than with automaker VW, Daimler’s Mercedes is accused of selling diesel powered vehicles that do not meet emissions standards at low temperatures. The lawsuit was filed yesterday in New Jersey by a vehicle owner in Illinois, based on information published in Der Spiegel and the results of a study conducted by independent testing agency TNO for the Dutch Ministry of Infrastructure and the Environment. The problem at the heart of the suit:
“…the device in Mercedes’s diesel models turns off pollution controls at temperatures below 50 degrees Fahrenheit (10 Celsius), allowing the autos to violate emissions standards, according to the complaint.”
Mercedes did not disclose to buyers that its BlueTec technology, a system relying on use of urea-based NOX reduction, emitted NOX levels well above emissions standards at low temperatures. I would not be surprised to see more cases soon against Daimler and its Mercedes brand as BlueTec technology has been used in both passenger vehicles and commercial trucks for most of the last ten years.
On our mind: SKYNET
We haven’t forgotten the issue of U.S. military killing innocents *Oops!* from the sky based on metadata. Worth reading:
A “machine learning algorithm”? Imagine this in self-driving cars, hijacked via backdoors by hackers and governments. The ethics behind this technology must be widely debated in public now, before it moves beyond its already-abused role in drone-based warfare.
Should be an entertaining Friday; watch for government spokespersons to indulge in a lot of fancy-footwork jazz today.
Peter Orszag opines from the politically sheltered comfort of his gig at Citigroup that we have too much democracy.
I’ll say more about specific claims he makes below, but first, let me point out a fundamental problem with his argument. He suggests we need to establish institutions insulated from our so-called polarization to tackle the important issues facing this country. That argument is all premised on the assumption that policy wonks sheltered from politics, as he now is, make the right decisions. But not only is his own logic faulty in several ways–for example, he never proves that polarization (and not, say, money in politics or crappy political journalism or a number of other potential causes) is the problem. More importantly, he never once explains why the Fed–that archetypal independent policy institution–hasn’t been more effective at counteracting our economic problems.
If the Fed doesn’t work–and it arguably has not and at the very least has ignored the full employment half of its dual mandate–then there’s no reason to think Orszag’s proposed solution of taking policy out of the political arena would work.
Here’s Orszag’s initial claim that polarization is dooming our country.
During my recent stint in the Obama administration as director of the Office of Management and Budget, it was clear to me that the country’s political polarization was growing worse—harming Washington’s ability to do the basic, necessary work of governing. If you need confirmation of this, look no further than the recent debt-limit debacle, which clearly showed that we are becoming two nations governed by a single Congress—and that paralyzing gridlock is the result.
There are a couple of problems with this. First, in response to the debt limit charade, voter approval of Congress and the President pretty much tanked. And while we don’t know how voters will act on their disgust with Congress’ (and the President’s) inaction, polling at least suggests that Congress will pay for the debt limit fiasco. It also suggests that support for the Tea Party, the architect of that fiasco, continues to decline. Which seems to suggest that democracy is working, it will end up punishing elected representatives for playing games with our country’s future, it will have precisely the result you’d want for such idiocy.
Add in the fact that Orszag later points to the automatic triggers that that flawed political process put in place.
Beyond automatic stabilizers, we also need more backstop rules: events that take place if Congress doesn’t act. In this sense, the fiscal trigger created as part of the debt-limit negotiations is a good step forward. It leads to automatic spending reductions if Congress doesn’t enact measures to reduce the deficit; in other words, it changes the default from inaction to action.
In other words, Orszag points to the debt-limit fiasco (and returns to it in his closing paragraph) as the best example of the problem with politics, but then points to the automatic triggers that resulted from that fiasco as a good thing. I don’t necessarily agree with him on that point, but his own logic doesn’t make any sense. He’s simultaneously saying the debt limit fight was the worst thing ever, but applauding the result.
Curiously, while Orszag tries to claim that the problem with all of Congress is polarization, rather than polarization being a problem in the House and Senate rules being a problem in the Senate (plus, the money in politics and crappy political journalism I mentioned earlier), he makes no mention of the number of centrists in the Senate. Perhaps that’s because the centrists back policy proposals (like immediate cuts) to the right of what Orszag proposes in his piece (which notes that economists advocate holding off on cuts and advocates for progressive taxation). The most likely outcome of more non-partisan or bipartisan commissions, then, are policies that aren’t the ones Orszag champions.
Which means the key to these so-called independent commissions would immediately get us into the question of who chooses them? Peter Orszag cites, among others, former Vice Chair of the Fed, Alan Blinder with approval; but he has been criticized for his own failed independence. Will we use the process that resulted in the selection of Ben Bernanke and the rest of the current Fed, that hasn’t even fulfilled its mandate, much less necessarily made the right decisions on restoring our economy?
In short, Orszag promises that independent wonks will make the right decisions for the country. But in making that argument he shows that even policy wonks sheltered from politics, like him, allow bad logic and personal biases to cloud their decisions.
I made a juvenile joke the other day about the Northeast taking over Commerce and Freedom in Georgia. But the reality that banks are being taken over by the FDIC all over the country is no laughing matter.
FDIC allowed 60 Minutes to follow it as it closed down one small bank–watch the YouTube to see how it works (in this case it was fDiC taking over our Heritage, ha ha).
Two things, though. First, notice Sheila Bair’s reaction to two questions: how many more (she didn’t answer, "tons") and why not Citi (she didn’t answer, "we’re not equipped to take over Citi yet"). If I were Sheila Bair, I’d already be having nightmares about FDIC’s upcoming feast on Citi.
As to the latter point, remember this video shows a five branch bank being taken over, and the FDIC stationed 8 FDIC employees at each branch when they did the simultaneous takeover. How many branches does Citi have? This says 1,400, plus 3,800 ATMs. So 8 employees for all 1,400 branches, and the FDIC needs at least 11,200 employees just for the takeover, even before you get to runs on the ATMs and the website and the infrastructure (and given the global reach of Citi, "simultaneous" gets more challenging). I guess that’s why they’re hiring in big ways.
Add one more thing to the "no one could have imagined" file: The GAO reports that Citigroup and Morgan Stanley have been sneaking their money off shore so as to avoid paying taxes.
The new Government Accountability Office (GAO) report, released today by Sens. Byron L. Dorgan (D-N.D.) and Carl M. Levin (D-Mich.), lists Citigroup and Morgan Stanley as having set up hundreds of tax haven subsidiaries, along with American International Group and Bank of America. Also in the tax-haven list are well-known companies and such federal contractors as American Express, Pepsi and Caterpillar.
"This report shows that some of our country’s largest companies and federal contractors, many of which are household names, continue to use offshore tax havens to avoid paying their fair share of taxes to the U.S. And, some of those companies have even received emergency economic funds from the government," Dorgan said. "I think we should take action to shut down these tax dodgers, and we will be introducing legislation to do just that."
To illustrate the problem, Levin said the report found that Citigroup has set up 427 tax haven subsidiaries to conduct its business, including 91 in Luxembourg, 90 in the Cayman Islands and 35 in the British Virgin Islands. He said other havens include Switzerland, Hong Kong, Panama and Mauritius.
What Levin didn’t say, of course, is that these tax havens allow them to avoid financial oversight, too.
But I’m sure that won’t stop anyone from dumping billions of money into these firms–no questions asked–so they can continue to sneak the money off to the Caymans while the US goes broke.