Saturday, May 3, 2014

Surveillance state update

From The Wall Street Journal, more surveillance from your federal government: Get Ready for Regulators to Peer Into Your Portfolio.

In December, the Financial Industry Regulatory Authority, which oversees how investments are sold, proposed what it calls Cards, an electronic system that would regularly collect data on balances and transactions in brokerage accounts...

Under Cards (which stands for Comprehensive Automated Risk Data System), Finra would collect—probably weekly—a record of activity at all of the more than 4,100 brokerage firms nationwide.

Finra would scour the data continuously, looking for any hints that a firm or a broker might be taking advantage of a client: excessive trading or commissions, switching from one mutual fund to another, overcharging for bond E*TradeETFC +0.04%s, overconcentrating in risky or illiquid securities, and so on.

Cards “would provide us with a treasure trove of information and the ability to focus quicker on firms that are placing investors at high risk,” Richard Ketchum, Finra’s chairman and chief executive, said in an interview.

Because, you know, there is nothing we would prefer the government to have than a "treasure trove of information" about our financial transactions.

Anyway, the arguments in favor of this practice at least sound like those used to justify the NSA's routine surveillance of the communications of ordinary Americans. Yes, this is all for our own protection. Yes, there are supposedly safeguards to prevent the government or any other nefarious agency from connecting the "treasure trove of information" to individuals. Yes, we are supposed to trust that not only will the federal government not use this information to gain leverage over us in some respect, but that it will protect this now aggregated data from others.

Even people who understand this issue -- and we do not pretend to do -- are concerned:

“This goes beyond mere concerns about Big Brother,” says Henry Hu, who oversaw data analytics as former director of the Division of Economic and Risk Analysis at the Securities and Exchange Commission and is now a law professor at the University of Texas in Austin. “I think Cards creates a new form of systemic risk.”

Mr. Hu worries that Cards would take data that is widely dispersed—say you have money scattered across accounts at E*Trade, Fidelity Investments, Morgan Stanley and Charles Schwab — and centralize it for the first time. That could make it more vulnerable.

“It’s a Pearl Harbor problem,” Mr. Hu says. “All the ships and airplanes are in one place at the same time.”

The probability of the data being breached by a disgruntled employee, a terrorist or an unfriendly government is probably very low, Mr. Hu concedes—but the consequences could be dire.

“Just read any trashy spy novel,” he says. “If you were a hostile foreign government, you would immediately put some of your top people to work” trying to crack into Cards.

True, he's citing trashy spy novels, but it seems to me that we ought to listen to the former director of economic and risk analysis of more or less anything, much less the SEC. It is slightly possible that Professor Hu knows who's on first here.

The urge to control is bipartisan. It is in the nature of people who want to work in government. That is why we need strong legal constraints on the size and power of government. That, in turn, requires a population that understands the danger, and the dehumanization, in demanding that every problem have a solution, and that government be the responsible agency for every solution.

More later.


LL said...

There are many of us who are comfortable tending to our own problems who feel that more government is the problem, not the solution.

TigerHawk said...

Agreed, LL. Sadly, we are less easily panicked, and therefore less pandered to, than the "there oughta be a law" crowd.

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