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Indian pipedream: "Our campuses are physically secure… The entire perimeter is guarded which we believe enable us to be fully secure"


Shock waves still reverberate through the Indian high-tech community following the December 28 attack against one of the "temples" of Indian's "knowledge society," the Indian Institute of Science (IISc) in Bangalore. "The IISc is one of the country’s more prestigious educational and research institutions. It does research and development work for a number of multinational and local technology companies, and some of its alumnus occupy key positions in the country’s outsourcing industry." IISc' presence in Bangalore is "a key reason that the city became India's technology powerhouse. That's why the psychological impact of the attack is immense—analogous to the impact that an attack on MIT would have in the United States."

Political attacks have turned economic in India.

Shock waves should be reverberating though US outsourcing assets in the Indian subcontinent, but they remain inert in the face of a "twofer" attack that "damages the Indian state and its ability for economic gain directly, and damages US and European firms indirectly -- where an attack on US soil would be prohibitive in terms of placing surveillance and strike teams on the ground."

For those following the attack progression of the Pakistani Lashkar-e-Toiba or LeT, the outcome was clear. In June, 2005, I wrote in Commercial blindness: a "twofer" attack on the Indian state and US and European outsourcing assets:

One must wonder how inattentive major US outsourcers can be, and how 'missing in action' that major consultancies such as Forrester can be, so as to not recognize the physical threat to core outsourcing facilities in India. Perhaps it is the mere continuation of the lesser lapse of failing to factor intellectual property (IP) theft risk in supposedly low cost areas. (See Intellectual property theft: the unspoken unknown of offshoring.) Even more curious is the effective absence of concern by Europeans who would normally have an attentive ear to the near and middle east…

The threat to IT and outsourcing assets in Bangalore and Hyderabad should be taken seriously despite the bland denials from Indian authorities who are understandably anxious to protect what amounts to the core of Indian economic revival…

Who can blame the Indians for keeping mum, but where are the US and European firms that should have a fiduciary responsibility to their stakeholders and to their clients who data and business continuity are in the possession of their Indian entities and outsourcing partners?...

The only thing that the Indians have going for them is that the great unwashed commercial consumers in the West do not know who Lashkar-e-Toiba, Army of the Pure, really is.

The threat was seeping into consular channels as an October 2005 warden message noted:

[T]terrorists may be planning attacks on U.S. interests in India in the near future… information suggests that an attack could be aimed at U.S. interests in the Indian cities of Hyderabad, New Delhi, Mumbai and Calcutta. Facilities associated with the United States or locations where U.S. citizens and other foreigners congregate or visit could be targeted.

Yet the 28 December attack against IISc was a bolt to the Indian IT and BPO outsourcing community. Worse, more attacks are feared despite drastic manhunts:

Indian intelligence is concerned that Mangalore and other Andhra Pradesh cities are becoming Lashkar e-Tayyaba centers and are concerned that 'sleeper cells' of the Pakistani-based militant outfit will carry out further attacks.

Indian intelligence believes that Mangalore and other cities in Andhra Pradesh are being radicalized by Lashkar e-Tayyaba. The Press Trust of India reported that Indian security officials in Bangalore attack have arrested three individuals connected with the attack, believed to have links with Lashker e-Tayyaba and the al Hadees Muslim sect.

While one must always use caution in taking Indian public statements regarding Pakistani actors at face value, it is true that Indian intelligence has made a sustained effort to penetrate and disrupt LeT and other Muslim jihadist groups, even on Pakistani soil. Despite this remarkable effort, jihadists are shifting assets south and east of the Line of Control, the de facto border dividing the disputed zones of Indian and Pakistani controlled Jammu and Kashmir, towards targets that offer a force multiplier against the Indian state.

Damage control is underway following the IISc attack to placate US and European outsourcing clients. Nandan Nilekani, CEO of a major Indian outsourcer, Infosys Technologies Limited, was quick to attempt to play down risk to US firms:

"Our campuses are physically secure. We have all kinds of checks that we do. The entire perimeter is guarded which we believe enable us to be fully secure."

The interviewer went on to quote Nilekani as saying, "Even after American companies factor in additional security costs, doing business in India is still far cheaper than staying home."

Today, perhaps. Tomorrow, no. Extending the "twofer" concept in October 2005, we had forecast this attack progression:

  1. Personnel and symbolic targets
  2. Expat data and business process outsourcing (BPO) centers
  3. Manufacturing and development centers

The latter two target groups can cause supply chain disruptions. It is overlooked, for example, that great numbers of US banks have Indian data centers, attacks against which have a multiplier effect in that the bank and all its customers are affected.

Targeting data, BPO and manufacturing facilities leverages the operations and business continuity of US and European firms that would otherwise be difficult to attack directly, while embarrassing the Indian government in demonstrating that it cannot protect its offshoring endeavors, thereby driving potential investors to areas presumed to offer less risk. Unfortunately, relocating from India elsewhere in Asia merely exchanges direct attack risks to more intellectual property loss risks.

Bangalore's Indian Institute of Science (IISc) is a premier symbolic target. Expect others to follow from both jihadist and Naxalite Maoist (also here and here) attackers. The Indian Institutes of Technology (IITs) (Delhi, Kanpur, Mumbai, et al), and the Indian Institutes of Management (IIMs) (Ahmedabad, Bangalore, Calcutta, et al) are equally vulnerable as are virtually every expat outsourcing facility and personnel compound.

The key for expat firms that have no viable options for relocation is to conduct a rigorous vulnerability assessment, then implement the appropriate risk mediation interventions for personnel, facilities and data.

The Threat to India's High-Tech Sector
By Fred Burton
January 11, 2006

Bangalore IT security
Miranda Kennedy
Marketplace, NPR
January 6, 2006

Indian security concerned recent attack prelude to more
By John C.K. Daly Jan 6, 2006, 8:38 GMT
United Press International

India's Knowledge Society Attacked
By John Ribeiro - IDG News Service (Bangalore Bureau)
Jan 04, 2006

Reported terror plots raise fears in south India
By Saritha Rai
International Herald Tribune

Arrest in Bangalore attack case
BBC News
Last Updated: Tuesday, 3 January 2006, 13:57 GMT

Intelligence agencies fear more IISc-type attacks
Rediff India Abroad
January 01, 2006 22:04 IST
Last Updated: January 01, 2006 22:10 IST

Bangalore unnerved by shooting
By Saritha Rai
International Herald Tribune
DECEMBER 30, 2005

Fresh security alert in Bangalore
BBC News
Last Updated: Friday, 30 December 2005, 14:53 GMT

Massive hunt for India attacker
BBC News
Last Updated: Thursday, 29 December 2005, 10:15 GMT

Is Outsourcing the Next Terror Target?
Dec. 29, 2005

Hyderabad put on alert following B'lore attack
Press Trust of India
Hyderabad, December 28, 2005

India's National Magazine
Volume 22 - Issue 21, Oct. 08 - 21, 2005

Warden Message: Possible Threat to U.S. Interests in India
Consular Affairs Bulletins
South / Central Asia - India
10 Oct 2005

The Naxalite-affected States
May 9, 2005

Gordon Housworth

InfoT Public  Risk Containment and Pricing Public  Strategic Risk Public  Terrorism Public  


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Dispensing with the prattle that states that trade will not war


While outsourcing will undoubtedly be a whipping boy in the US 2008 elections, the process will not have abated and its effects will mark many nations, the US included, for decades to come. I heartily recommend The World Is Round, John Gray's review of Tom Friedman's The World Is Flat: A Brief History of the Twenty-first Century as the most realistic analysis of what outsourcing and globalism will and will not do:

[Karl] Marx's view of globalization lives on, and nowhere more vigorously than in the writings of Thomas Friedman. Like Marx, Friedman believes that globalization is in the end compatible with only one economic system; and like Marx he believes that this system enables humanity to leave war, tyranny, and poverty behind…

[Friedman] shares Marx's blind spots. Because they were on opposite sides of the cold war it is often assumed that neoliberalism and Marxism are fundamentally antagonistic systems of ideas. In fact they belong to the same style of thinking, and share many of the same disabling limitations. For Marxists and neoliberals alike it is technological advance that fuels economic development, and economic forces that shape society. Politics and culture are secondary phenomena, sometimes capable of retarding human progress; but in the last analysis they cannot prevail against advancing technology and growing productivity.

Friedman is unequivocal in endorsing this reductive philosophy… Technological determinism may contain a kernel of truth but it suggests a misleadingly simple view of history. [Friedman ignores the] the persistent power of religion and nationalism forces that in his simple, deterministic worldview should be withering away.

It is an irony of history that a view of the world falsified by the Communist collapse should have been adopted, in some of its most misleading aspects, by the victors in the cold war. Neoliberals, such as Friedman, have reproduced the weakest features of Marx's thoughtits consistent underestimation of nationalist and religious movements and its unidirectional view of history. They have failed to absorb Marx's insights into the anarchic and self-destructive qualities of capitalism. Marx viewed the unfettered market as a revolutionary force, and understood that its expansion throughout the world was bound to be disruptive and violent. As capitalism spreads, it turns society upside down, destroying entire industries, ways of life, and regimes. This can hardly be expected to be a peaceful process, and in fact it has been accompanied by major conflicts and social upheavals. The expansion of European capitalism in the nineteenth century involved the Opium Wars, genocide in the Belgian Congo, the Great Game in Central Asia, and many other forms of imperial conquest and rivalry. The seeming triumph of global capitalism at the end of the twentieth century followed two world wars, the cold war, and savage neocolonial conflicts.

Over the past two hundred years, the spread of capitalism and industrialization has gone hand in hand with war and revolution. It is a fact that would not have surprised Marx. Why do Friedman and other neoliberals believe things will be any different in the twenty-first century? Part of the answer lies in an ambiguity in the idea of globalization. In current discussion two different notions are commonly conflated: the belief that we are living in a period of rapid and continuous technological innovation, which has the effect of linking up events and activities throughout the world more widely and quickly than before; and the belief that this process is leading to a single worldwide economic system. The first is an empirical proposition and plainly true, the second a groundless ideological assertion. Like Marx, Friedman elides the two…

It is necessary to distinguish between globalization—the ongoing process of worldwide industrialization—and the various economic systems in which this process has occurred. Globalization did not stop when Lenin came to power in Russia. It went on—actively accelerated by Stalin's policies of agricultural collectivization. Nor was globalization in any way slowed by the dirigiste regimes that developed in Asia —first in Japan in the Meiji era and later in the militarist period, then after World War II in Korea and Taiwan. All these regimes were vehicles through which globalization continued its advance. Worldwide industrialization continued when the liberal international economic order fell apart after World War I, and it will carry on if the global economic regime that was established after the fall of communism falls apart in its turn.

There is no systematic connection between globalization and the free market. It is no more essentially friendly to liberal capitalism than to central planning or East Asian dirigisme. Driven by technological changes that occur in many regimes, the process of globalization is more powerful than any of them. This is a truth that Friedman—as an avowed technological determinist—should accept readily enough. If he does not, it is because it shows how baseless are the utopian hopes he attaches to a process that abounds in conflicts and contradictions. Globalization makes the world smaller. It may also make it—or sections of it—richer. It does not make it more peaceful, or more liberal. Least of all does it make it flat.

I urge the reader to the full review and its refutation of the halcyon view that Friedman espouses. Gray is not the only observer to note that Friedman's book is an interesting article over inflated. Dispense with The World Is Flat and go to Friedman's NYT article, It's a Flat World, After All which is the essence of the book. But read Gray first.

It is clear to a growing number of US nationals that our failure to keep abreast of scientific and technical education and research and to build and retain a substantive manufacturing capacity in those emerging sectors is going to soon put the US on the declining end of the robust nationality of other states. The most piercing analysis of the implications of offshoring rise from Alan Blinder (former vice chairman, Board of Governors of the Federal Reserve System and former member of the Council of Economic Advisers, now at Princeton). Unlike many economists whose works seem remote from politics, Blinder blends them both in what I submit are essential reading to understanding the economic and political implications of offshoring. The horizon is not attractive.

Comparative advantage is the name of the game and ours has been allowed to lapse. Always an obscure concept save for economists, comparative advantage is not well understood by lay readers and certainly not by those whose jobs move overseas. Blinder does as good a job as I've seen in presenting economics in political human scale. All things being equal, world per capita incomes will indeed level in globalization. The US will have a painful economic and political adjustment for its failure to retain its advantage. From Blinder's Fear of Offshoring:

The furor over [N. Gregory] Mankiw’s remarks [on offshoring for which he was excoriated in the press and by Congress] was grotesquely out of proportion to the current importance of offshoring, which is still largely a prospective phenomenon. While we have no reliable national data on the extent of offshoring, the fragmentary studies that have been done to date have concluded that fewer than a million U.S. service-sector jobs have been lost to offshoring up to now. A million jobs may sound like a lot. But in the gigantic U.S. labor market, with its rapid turnover, a million jobs is less than two week’s normal gross job losses.

But here’s the great irony. Looking to the future, I believe that Mankiw and other economists who interpret offshoring as nothing more than international business as usual are greatly underestimating both its importance and its disruptive impact on Western societies. Sometimes quantitative change is so large that it brings about qualitative change. Indeed, I will argue in this paper that we have barely seen the tip of an offshoring iceberg that, as the rest of it is revealed, may prove to be something to behold.

Continuing this theme of 'You ain't seen nothing yet,' listen to the audio of Blinder's discussion and Q&A of Fear of Offshoring (text here). Here's a snippet on winners "or some constituencies that are winning here that maybe don’t quite understand yet that they’re winning" and losers in response to the question, "Over time, will some of those winners more clearly identify their own positive stake in this and serve as a counterweight to the political pressures the other way?":

I’m not very optimistic about that. I think that with some pockets in which it’s dramatically untrue — like the financial services industry, which is a winner from globalization and understands it’s a winner and understands the basic principles of comparative advantage — because after all, everybody in financial services has taken Economics 101. I think it’s true. (Laughter.) In the land as a whole — just take construction workers as an example — these basic principles are not understood; this is abstract gobbledygook to them and there’s no connection made between globalization and income gains. And by the way, they’re not completely wacky on this because — this, again, won’t surprise you — if you actually tried to decompose the income gains over the last decade into what’s due to trade and what’s due to non-trade, you won’t get that much from trade. So it’s not like they’re missing the lion’s share of the story; it’s only a minor part of the story.

But I’m pretty pessimistic for the following reason: David Ricardo taught us the basic story here in the early part of the — very early part of the 19th century. And Adam Smith had most of the idea anyway 35 years before that. So here we are 230 years after Adam Smith, and how many people understand comparative advantage? Well, it’s a pretty small number. And we economists have vast experience in trying to persuade people of this case, and we fail and fail and fail. I mean, when I come to the lecture on comparative advantage at Princeton in Economics 101, I start the lecture by saying you’re about now — you’re all about to cross a line, which you’ll never cross back in the other direction, between the minority of the world that understands comparative advantage and therefore believes in trade, and the majority of the world that doesn’t and therefore doesn’t. And I think that’s largely true, and I think it’s always going to be a minority. (Laughs.) I don’t see that we get to a majority on that.

So I’m not — while your point about there being winners is 100 percent correct — couldn’t be more correct — I’m not at all convinced that we get to the point where the winners become a powerful political force.

Blinder thinks that offshoring will rise above all other issues as a political force in US politics:

I think when it comes to politics, the three most salient issues are jobs, jobs, jobs. Everything else is tertiary after jobs — politically, not economically. Economists would start with wages actually. They say, "The jobs will take care of themselves; we start with wages." But that’s not the way the political world thinks of it… [The] reason that China has become the big threat, if I may — let’s just say competitor — in manufacturing and the reason that India has become the big competitor in business services is they put in place the infrastructure necessary to do it. That includes trained people, communications. Now a lot of this the private sector had to do, especially in India, because the public sector was not actually doing it. But some of it had come out of the public sector. And you know, put in open — well, I shouldn’t say "open" because they’re not fully open. Let’s just say real markets moved towards capitalism. This formula is available elsewhere, so it’s not going to stay only in China and India. And as you well know, as everyone in this room well knows, it’s not foreordained that America stays ahead — so far ahead of the rest of the world as it’s been for the last hundred years or so.

So significant catch-up has already happened in Japan, Singapore, Hong Kong, Korea — South Korea, that is — and a variety of other places — should be expected. Now politically, you know, I think Americans have been used to being at the top of the heap for a very long time. And the notion — I think I mentioned this before — the notion that the rest of the world is — or large swaths of the rest of the world is catching up to us at a rapid rate is going to be a source of political angst. I mean, one thing we know about people, as opposed to homo-economicus, is that people care about their relative standing. There’s a huge literature about this in economics. Like if everybody’s standard of living goes up 30 percent, people don’t report that they’re happier, but if mine goes up 30 percent and yours doesn’t, I’m much happier. (Laughter.) Well, this is going to play out on the global scale. Americans are not going to like the idea — and they’re going to complain to their government, do something about this — as the income gap between India and China on the one hand, and us on the other hand, closes. And it will close. And one result of this — and again, especially the job loss that goes with it — and I mean here the gross job loss. It’s not going to be a consolation to the people that lose their jobs to say, "Well, some other guy gained a job; it doesn’t matter" — it’s the gross lost jobs — is going to be constant, unremitting strain on the liberal trading regime, constant clamorings from various sources to stop this process in one way or another. And it’s going to be a big fight. It’s going to be a big fight.

I would refer readers to a short four article series on the structural issues surrounding outsourcing: Reforms, not rhetoric, needed to keep jobs on U.S. soil, Companies determined to retain 'secret sauce', How India is handling international backlash, and The next battlefields for advanced technology.

But given where we are now, it is going to be a fight, domestically and abroad.

Fear of Offshoring (Audio)
Speaker: Alan S. Blinder
Presider: Andrew Crockett, President, JP Morgan Chase
Council on Foreign Relations, New York, NY
December 13, 2005
University Channel

Fear of Offshoring [Rush Transcript; Federal News Service, Inc.]
Speaker: Alan S. Blinder
Presider: Andrew Crockett, President, JP Morgan Chase
Council on Foreign Relations, New York, NY
December 13, 2005

Fear of Offshoring
By Alan S. Blinder
Princeton University
CEPS Working Paper No. 119
December 2005

Economic Advice and Political Decisions: A Clash of Civilizations?
By Alan S. Blinder
Princeton University
CEPS Working Paper No. 112
July 2005

The World Is Round
By John Gray
The New York Review of Books
Volume 52, Number 13
August 11, 2005

It's a Flat World, After All
New York Times
April 3, 2005
Fee Archive
Mirror, Mirror, MirrorMirror

Reforms, not rhetoric, needed to keep jobs on U.S. soil
By Ed Frauenheim and Mike Yamamoto
May 4, 2004, 4:00AM PT

Companies determined to retain 'secret sauce'
By Mike Ricciuti and Mike Yamamoto
May 5, 2004, 4:00AM PT

How India is handling international backlash
By Dinesh C. Sharma and Mike Yamamoto
May 6, 2004, 4:00AM PT

The next battlefields for advanced technology
By Mike Ricciuti, Ed Frauenheim and Mike Yamamoto
May 7, 2004, 4:00AM PT

Bush, Adviser Assailed for Stance on 'Offshoring' Jobs
By Jonathan Weisman
Washington Post
February 11, 2004

Gordon Housworth

InfoT Public  Strategic Risk Public  


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NSA, signals intelligence, "meta-media" tools and the GOOGLEZON


The NSA was designed to monitor a relatively contained number of official communications pipelines in nation-states -- for example, microwave transmissions from Moscow to an intercontinental ballistic missile (ICBM) base in Siberia. But as Michael Hayden, then NSA director, [said] in late 2002: "We've gone from chasing the telecommunications structure of a slow-moving, technologically inferior, resource-poor nation-state -- and we could do that pretty well -- to chasing a communications structure in which an al Qaeda member can go into a storefront in Istanbul and buy for $100 a communications device that is absolutely cutting edge, and for which he has had to make no investment for development."...

NSA conducts broad-based surveillance indiscriminately over communications lines that few bad guys even use any longer. [NSA] isn't picking up much because the smartest terrorist groups have long since stopped talking about their plans over cell phones or land lines -- or to the extent they do, it's probably to plant disinformation. Today the challenge isn't decoding an intercepted message from a known enemy; instead it's figuring out what is and isn't a message and who the enemy is...

The result is that the NSA is overwhelmed by millions of phone calls and e-mail contacts that it simply can't digest. And it's not just a question of finding the needle in the haystack; today's surveillance professionals aren't sure what the needle looks like. The agency has adjusted, but it continues to perform what some experts consider to be primitive, broad-based techniques, like random keyword searches on the Web for Islamist tag lines. As a December 2002 report by the Senate Select Intelligence Committee noted, "Only a tiny fraction of the daily intercepts are actually ever reviewed by humans, and much of what is collected gets lost in the deluge of data."

[Communications] between terrorist groups today [is] either "air-gapped" [or] or it occurs through Web sites.

Terrorists, criminals, pornographers and many bloggers are among the most flexible and creative users of an emerging class of products that I call "meta-media" tools. Burdened with extraordinary legacy drag, I fear that high street journalists, their masthead papers and established intel and analysis agencies bringing up the rear. Readers should note that it was a toss as to whether the lead dinosaur in this article was the intel community or high street journalism.

Meta-media tools have been with us commencing with Internet Relay Chat (IRC), "designed from the onset as a means of instant communication via the net (not to be confused with the Web which also sits on the net), for group (one-to-many) communication in discussion forums called channels, but it also permits one-to-one communication." (See New breed of hostile Navaho Talkers, parts 1 and 2.) IRC remains a threat today and is augmented by a widening array of channels and tools many of which are outside NSA's conventional surveillance.

Last December, I was invited by a professional journalist society to listen to the incoming editors of the three principal local papers discuss their views on serving the needs of the community. My question in the Q&A was, "How many of you and your staffs are familiar with Googlezon, and of those that are, what are you doing about it?" Only two were aware, but they dodged the follow-on regarding impact. By the number of heads in the audience that swiveled when I posed the question, many saying, "Googlezon?," it was clear that the audience was in no better shape. Sitting ducks all to the expectations of the MySpace generation:

The MySpace generation, by contrast, lives comfortably in both [online and face-time social] worlds at once. Increasingly, America's middle- and upper-class youth use social networks as virtual community centers, a place to go and sit for a while (sometimes hours). While older folks come and go for a task, Adams and her social circle are just as likely to socialize online as off. This is partly a function of how much more comfortable young people are on the Web: Fully 87% of 12- to 17-year-olds use the Internet, vs. two-thirds of adults, according to the Pew Internet & American Life Project.

The fluidity of these networks is astonishing; their demands on advertising, retaining relevance to consumers and expanding functionality is warp speed in relation to conventional unidirectional print mediums. The fluidity of interconnected online communities is matched by the explosions in text, video and music technologies, products and bandwidths that connect them. The Consumer Electronics Show (CES) is currently showing off a new crop of new meta-media tools, a continuing hallmark of which is increasing interconnectivity, which in signals intercept terms means more and different protocols and bandwidths to sweep. Microsoft's Gates paints a "2010" landscape in which users seamlessly migrate between devices as they pursue their various tasks, continually receiving customized digital media wherever they are.

To an asymmetrical terrorist, this could double as a tool for a COTS battlefield communications dominance, one that would be cloaked among hundreds of thousands of innocent commercial users.

Consider the ease with which the collegiate War News Radio journalism site and its podcasts inexpensively and effectively used some of these tools to reach out to a variety of Iraqi, European, and US sources and individuals without leaving their Swarthmore College campus.

The technology that has had transformed the child pornography market is transforming other criminal and terrorist communications. While some readers will consider this subject stressful, it is instructive to apply the canopy of enabling technologies that link juvenile 'camwhores' (also here) to pedophile subscribers to the establishment of clandestine terrorist websites, even in areas of low technological awareness:

Not long ago, adults sexually attracted to children were largely isolated from one another. But the Internet has created a virtual community where they can readily communicate and reinforce their feelings...

As soon as [juvenile named] Justin hooked [a simple webcam] to his bedroom computer and loaded the software, his picture was automatically posted on, an Internet directory of Webcam users, along with his contact information. Then he waited to hear from other teenagers.

No one Justin's age ever contacted him from that listing. But within minutes he heard from his first online predator. That man was soon followed by another, then another...

It was as if the news shot around the Web. By appearing on camera bare-chested, Justin sent an important message...

His new friends were generous. One explained how to put together a "wish list" on, where Justin could ask for anything, including computer equipment, toys, music CD's or movies. Anyone who knew his wish-list name - Justin Camboy - could buy him a gift. Amazon delivered the presents without revealing his address to the buyers...

[The] road to cyberporn stardom was paved with cool new equipment. When his growing legion of fans complained about the quality of his Webcam, he put top-rated cameras and computer gear on his Amazon wish list, and his fans rushed to buy him all of it...

Justin's desk became a high-tech playhouse. To avoid suspicions, he hid the Webcams behind his desk until nighttime. Whenever his mother asked about his new technology and money, Justin told her they were fruits of his Web site development business. In a way, it was true; with one fan's help, he had by then opened his own pornographic Web site, called

Minors who run these sites find their anonymity amusing, joking that their customers may be the only adults who know of their activities. It is, in the words of one teenage site operator, the "Webcam Matrix," a reference to the movie in which a computerized world exists without the knowledge of most of humanity...

As he grew familiar with the online underground, Justin learned he was not alone in the business. Other teenagers were doing the same things, taking advantage of an Internet infrastructure of support that was perfectly suited to illicit business.

As a result, while it helped to have Justin's computer skills, even minors who fumbled with technology could operate successful pornography businesses. Yahoo, America Online and MSN were starting to offer free instant message services that contained embedded ability to transmit video, with no expertise required. The programs were offered online, without parental controls. No telltale credit card numbers or other identifying information was necessary. In minutes, any adolescent could have a video and text system up and running, without anyone knowing, a fact that concerns some law enforcement officials.

There were also credit card processing services that handled payments without requiring tax identification numbers. There were companies that helped stream live video onto the Internet - including one in Indiana that offered the service at no charge if the company president could watch free. And there were sites - portals, in the Web vernacular - that took paid advertising from teenage Webcam addresses and allowed fans to vote for their favorites.

I find it increasingly easy to extend these social, commercial and technology trends to a future media landscape, coined Googlezon, in EPIC 2014 (film and transcript):

In the year 2014 people have access to a breadth and depth of information unimaginable in an earlier age. Everyone contributes in some way. Everyone participates to create a living, breathing mediascape. However, the Press, as you know it, has ceased to exist. The Fourth Estate’s fortunes have waned. 20th Century news organizations are an after-thought, a lonely remnant of a not too distant past...

2006 – Google combines all of its services [and] all of its searches into the Google Grid, a universal platform that provides a functionally limitless amount of storage space and bandwidth to store and share media of all kinds. Always online, accessible from anywhere. Each user selects her own level of privacy. She can store her content securely on the Google Grid, or publish it for all to see. It has never been easier for anyone, everyone to create as well as consume media...

The French seem to share such sentiments about "America's digital-culture imperialism." When Google announced a ten year plan to digitize the literary world, notably the literary heritage of much of Europe, it was hailed as "the new ogre of literature": "A recent phrase born in the French press, "omnigooglization," has even come to be shorthand for America's digital-culture imperialism, stirring old fears of waning French influence reminiscent of recent political struggles. Is Google the new Iraq -- or just the new Disney?" Back to EPIC 2014:

2008 - Google and Amazon join forces to form Googlezon. Google supplies the Google Grid and unparalled search technology. Amazon supplies the social recommendation engine and its huge commercial infrastructure. Together, they use their detailed knowledge of every user’s social network, demographics, consumption habits and interests to provide total customization of content - and advertising...

In 2011, the slumbering Fourth Estate awakes to make its first and final stand. The New York Times Company sues Googlezon, claiming that the company’s fact-stripping robots are a violation of copyright law...

[In] 2014, Googlezon unleashes EPIC [(Evolving Personalized Information Construct), a] system by which our sprawling, chaotic mediascape is filtered, ordered and delivered. Everyone contributes now – from blog entries, to phone-cam images, to video reports, to full investigations. Many people get paid too – a tiny cut of Googlezon’s immense advertising revenue, proportional to the popularity of their contributions.

EPIC produces a custom contents package for each user, using his choices, his consumption habits, his interests, his demographics, his social network – to shape the product. A new generation of freelance editors has sprung up, people who sell their ability to connect, filter and prioritize the contents of EPIC. We all subscribe to many Editors; EPIC allows us to mix and match their choices however we like. At its best, edited for the savviest readers, EPIC is a summary of the world – deeper, broader and more nuanced than anything ever available before.

While the actual date may vary, Google will get there more quickly than NSA. That begs the issue of a 'private label' Google supplanting or replacing NSA. How many private label versions will exist? Who will own them? Will an adversary be able to purchase a "good enough" version before NSA can adapt?

Coming Soon to TV Land: The Internet, Actually
New York Times
January 7, 2006

After long wait, line between PCs, TVs blurring
By Philipp Gollner
Sat Jan 7, 2006 12:36 PM ET

Gates shares his vision of the digital lifestyle
Gates shows off gadgets, software that let users access customized digital media any time, anywhere
By Elizabeth Montalbano
IDG News Service
January 05, 2006

Gates at CES: Digital workstyle circa 2010
Posted by Dan Farber @ 7:31 pm
Between The Lines
January 4, 2006

Data, Music, Video: Raising a Curtain on Future Gadgetry
New York Times
January 2, 2006

The NSA's Overt Problem
So Many Conversations, So Few Clues to the Terrorists' Chatter
By Michael Hirsh
Washington Post
January 1, 2006

Inside NSA's World
William Arkin
Early Warning
December 20, 2005; 08:30 AM ET

by Ben McGrath
New Yorker
Issue of 2005-12-26 and 2006-01-02
Posted 2005-12-19

Through His Webcam, a Boy Joins a Sordid Online World
New York Times
December 19, 2005

The MySpace Generation
They live online. They buy online. They play online. Their power is growing
By Jessi Hempel, with Paula Lehman in New York
Business Week
DECEMBER 12, 2005
Cover Story Podcast

Prepaid Cards: Candy For Criminals?
Law enforcement officials say they're ready tools for thieves, drug rings -- even terrorists
By Chester Dawson
Business Week
December 12, 2005

BROOKE GLADSTONE interview of MATT THOMPSON, co-creator, along with Robin Sloan, of
EPIC 2014
On The Media
December 2, 2005

Summary Of The World: Googlezon And The Newsmasters EPIC
Robin Good
Transcription of most of EPIC 2014. While it does not go all the way to the end of the video it is close. There are also good links/articles on the page.
November 29, 2004
NOTE: Useful to have this transcript up while you watch
EPIC 2014

EPIC 2014
Internet movie by Robin Sloan and Matt Thompson
Museum of Media History

Epic 2015
Sequel/alternate version
by Robin Sloan and Matt Thompson

Radio Warfare
by Lee Norsworthy
August 18-24, 2005

Google, The French, And World Domination; The Culture War Begins
By Jason Lee Miller
Published: 2005-05-13

What Does France Have Against Google?
By Scott Lamb
Spiegel Online
March 25, 2005 Print

‘War News Radio’ searches for its news niche
The Phoenix
March 17, 2005

Gordon Housworth

InfoT Public  Infrastructure Defense Public  Strategic Risk Public  Terrorism Public  


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Goebbels on propaganda: learning from those we detest


One cannot examine propaganda without consulting one of its masters, Joseph Goebbels, even though the field rose in the US "with Walter Lippman, journalist, and Edward Bernays, psychologist, who proceeded to create intense anti-German sentiment in favor of joining the British in WW I." (See "Congregation for Propagating the Faith" to agitprop to oppo research; four centuries of manipulating public opinion, foreign and domestic.)

Speaking of Woodrow Wilson's Committee on Public Information (CPI) "which at its peak employed 150,000 people" with the goal of creating a ""war will" among an ethnically diverse American population," Hitler noted in Mein Kampf that:

"the war propaganda of the English and Americans was psychologically correct. After four and one-half years a revolution broke out in Germany, slogans for which came from the enemy's propaganda."

Both Hitler and Goebbels took notice of Bernays' group mind and engineering consent and the potential of mass-scale propaganda to control public opinion, while Goebbels became one of its most masterful disseminators. Exchange National Socialism for your "ism" of choice, along with a few nouns, and Goebbels still speaks to us today. But it is important to understand both how propaganda speaks to us and how we listen to it. The German Propaganda Archive defines propaganda as the "systematic attempt to persuade a public to accept the views of its leaders," or more simply, "moving the masses, but is careful to note Jacques Ellul's observation that 'that modern society is such as to render propaganda almost necessary':

[In] order for propaganda to be so far-ranging, it must correspond to a need [in this case] the State and the authorities. [propaganda is not] an active power vs. passive masses... For propaganda to succeed, it must correspond to a need for propaganda on the individual's part... ; one cannot reach through propaganda those who do not need what it offers. The propagandee is by no means just an innocent victim. He provides the psychological action of propaganda, and not merely leads himself to it, but even derives satisfaction from it. Without this previous, implicit consent, without this need for propaganda experienced by practically every citizen of the technological age, propaganda could not spread... [There] is a citizen who craves propaganda from the bottom of his being and a propagandist who responds to this craving. Propagandists would not exist without potential propagandees to begin with. To understand that propaganda is not just a deliberate and more or less arbitrary creation by some people in power is therefore essential. It is a strictly sociological phenomenon, in the sense that it has its roots and reasons in the need of the group that will sustain it.

Propaganda is a cooperative, comissive process.

Early on, Goebbels understood this bi-directional nature of propaganda. A 1928 speech, Knowledge and Propaganda, delivered as training to party cadres, was one of Goebbels most detailed discussions of propaganda. A powerful discourse, I quote from it here as it is context for our subsequent discussions of propaganda usage within the US and in Iraq. Keep in mind that we can learn much from those that we detest, and to exchange National Socialism for your "ism" of choice:
There is really little point to discussing propaganda. It is a matter of practice, not of theory. One cannot determine theoretically whether one propaganda is better than another. Rather, that propaganda is good that has the desired results, and that propaganda is bad that does not lead to the desired results. It does not matter how clever it is, for the task of propaganda is not to be clever, its task is to lead to success. I therefore avoid theoretical discussions about propaganda, for there is no point to it. Propaganda shows that it is good if over a certain period it can win over and fire up people for an idea. If it fails to do so, it is bad propaganda. If propaganda wins the people it wanted to win, it was presumably good, and if not, it was presumably bad. No one can say that your propaganda is too crude or low or brutal, or that it is not decent enough, for those are not the relevant criteria. Its purpose is not to be decent, or gentle, or weak, or modest; it is to be successful. That is why I have intentionally chosen to discuss propaganda along with a second theme, knowledge. Otherwise, our discussion this evening would be of little value. We have not gathered to discuss lovely theories, but rather to find ways of practically working together to deal with our everyday challenges.
Goebbels proceeds to discuss propaganda and its role in political life:
[We] can do that only when we begin with the origin of propaganda itself, namely the idea, then move to the target of propaganda, namely people.
Ideas in themselves are timeless. They are not tied to individuals, much less to a people. They rest in a people, it is true, and affect their attitudes. Ideas, people say, are in the clouds. When someone comes along who can put in words what everyone feels in their hearts, each feels: "Yes! That is what I have always wanted and hoped for." That is what happens the first time one hears one of Hitler's major speeches%u2026
History proves that the greatest world movements have always developed when their leaders knew how to unify their followers under a short, clear theme. [Speaking of Christianity] Christ's goal was clear and simple%u2026 Because this teaching was simple, crisp, clear, and understandable, enabling the broad masses to stand behind it, it in the end conquered the world.
One then builds a whole system of thought on such a brief, crisply formulated idea. The idea does not remain limited to this single statement, rather it is applied to every aspect of daily life and becomes the guide for all human activity %u2014 politics, culture, the economy, every area of human behavior. It becomes a worldview%u2026
I am a National Socialist when I see everything in politics, culture or the economy from this standpoint. I therefore do not evaluate the theater from the standpoint of whether it is elegant or amusing, rather I ask: Is it good for my people, is it useful for them, does it strengthen the community? If so, the community in turn can benefit, support and strengthen me. I do not see the economy as some sort of way of making money, rather I want an economy that will strengthen the people, make them healthy and powerful. Then too I can expect that this people will support and maintain me. If I see things in this way, I see the economy in National Socialist terms. If I develop this crisp, clear idea into a system of thought that includes all human drives, wishes and actions, I have a worldview.
As an idea develops into a worldview, the goal is the state. The knowledge does not remain the property of a certain group, but fights for power. It is not just the fantasy of a few people among the people, rather it becomes the idea of the rulers, the circles that have power. The view does not only preach, but it is carried out in practice. Then the idea becomes the worldview of the state. The worldview has become a government organism when it seizes power and can influence life not only in theory, but in practical everyday life%u2026
Each movement begins as a party. That does not mean it has to follow the methods of parliamentary parties. We see a party as a part of the people. As an idea spreads, becoming a worldview that spreads to the community, the community will want to give the idea practical form. The party will feel the necessity to organize%u2026 Gradually, a strong organism develops, a party ready to fight for its ideals. A party that does not want that will indeed continue to preach its ideals, but will never bring them into reality%u2026
The state needs a worldview. Christianity also conquered the state, and in the moment that it conquered the state it began to carry out practical political activity. You can with justice claim: "Yes, but at the moment Christianity took over the state, it began to cease being Christian." That is the tragedy of all great ideas. At the moment they enter the realm of this life of sin, of the all-too-human, they leave the heavens and lose their romantic magic. They become something normal. We are not discussing whether or not one can change the nature of life%u2026
You can see that a movement needs an organization if it is to conquer the state %u2014 and it must conquer the state if it wants to do something of positive and historic significance%u2026
If a movement has the strength to take over government positions of power, then it has the right to form the government as it wishes. Anyone who disagrees is a foolish theoretician. Politics is governed not by moral principles, but by power. If a movement conquers the state, it has the right to form the state. You can see how these three elements combine ideals and personalities. The idea leads to a worldview, the worldview to the state, the individual becomes a party, the party becomes the nation.
The important thing is not to find people who agree with me about every theoretical jot and tittle, but rather that I find people who are willing to fight with me for a worldview. Winning people over to something that I have recognized as right, that is what we call propaganda. At first there is knowledge; it uses propaganda to find the manpower that will transform knowledge into politics. Propaganda stands between the idea and the worldview, between the worldview and the state, between the individual and the party, between the party and the nation%u2026 Propaganda stands between the one and the many, between the idea and the worldview. Propaganda is nothing other than the forerunner to organization. Once it has done this, it is the forerunner to state control. It is always a means to an end.
Although I must hold unshakably and unalterably to the idea, propaganda adjusts itself to the prevailing conditions. Propaganda is always flexible. It says different things here than it does there. It cannot be polished, laminated and stuffed; rather it must occupy the space between the one and the many. I talk differently on the streetcar with the conductor than I do with a businessman. If I did not, the businessman would think I was crazy and the streetcar conductor would not understand me. That means propaganda cannot be limited. It changes according to whom I am trying to reach%u2026
[There] is no ABC of propaganda. One can make propaganda, or one cannot. Propaganda is an art%u2026 One is either a propagandist, or one is not. It is wrong to look down on a propagandist. There are people who say a propagandist is merely a good drummer. This displays a certain envy and lack of ability. They are mostly mediocre philosophers whom the masses ignore%u2026 It is foolish to look down on propagandists. The propagandist has a certain role within the party%u2026 You can see how propaganda relates to the worldview and to the organization. After we have finished the hard work of moving the idea and the worldview from the individuals to the masses, propaganda has the task of taking the knowledge of the mass and enabling it to take over the state%u2026
Propaganda is absolutely necessary, even if it is only a means to an end. Otherwise, the idea could never take over the state. I must be able to get what I think important across to many people. The task of a gifted propagandist is to take that which many have thought and put it in a way that reaches everyone from the educated to the common man%u2026 I can recall a Hitler speech in Jena. Half the audience were Marxists, half students and university professors [yet] the university professor and the average man had understood what Hitler said. That is the greatness of our movement, that it can use language to reach the broad masses%u2026
Goebbels turns to the mechanics, the "essential characteristics of propaganda" that still rings clear today (practitioners are recommended to the full text), then concludes:
The task of the leaders and followers is to drive this knowledge ever deeper into the hearts of our shattered nation. Each must make that clear, each must think things through. Everything we do must be clear. We will never give up. If everything is clear, one does not have to be an outstanding speaker. If he can say it all in a few words, he is a propagandist. If we have an army of such propagandists, from the littlest to the Fuhrer himself, and if each spreads our crystal-clear knowledge to the masses, the day will come which our worldview takes over the state, when our organization seizes the reins of power, when we are no longer members of a slave colony, but citizens of a political state that we ourselves have formed.
The United States Information Agency (USIA) was established in 1953 by Dwight Eisenhower as an independent foreign affairs agency within the US executive branch, tasked with explaining US foreign policy and national interests. It was effectively over in 1999.
The Anti-Propaganda Tradition in the United States
John Brown
Bulletin Board for Peace
29 June 2003
Propaganda: The Formation of Men's Attitudes
Jacques Ellul
Trans. Konrad Kellen & Jean Lerner. New York: Knopf, 1965; Random House/ Vintage 1973
ISBN 0394718747
Substantial excerpts
Knowledge and Propaganda
by Joseph Goebbels
Translated by Randall Bytwerk, et al
"Erkenntnis und Propaganda," Signale der neuen Zeit. 25 ausgewuhlte Reden von Dr. Joseph Goebbels (Munich: Zentralverlag der NSDAP., 1934), pp. 28-52.
Gordon Housworth

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Avian Flu emerges as the new lighting rod for predictive futures markets


On 1 November 2005, Intrade, announced "Trading on Bird Flu -- 65% probability of U.S. case by March 2006!" with regards to its trading activity on H5N1 avian flu contracts:

Intrade launched its two bird flu contracts -- one predicting that the potentially deadly, pandemic-causing Asian bird flu will hit the U.S. in December, the other that it will hit in March -- on Oct. 18. (The December contract is now trading at 6, meaning the market is currently predicting a 6 percent chance of the flu hitting the U.S. on or before Dec. 31, the March at 29.6.) [The] the bird flu contracts are among the most popular on the futures markets site, and [Intrade] expects betting on the bird flu only to increase as the contracts' closing dates -- Dec. 31 and March 31, respectively -- approach and as more cases of the bird flu crop up around the world.

Contracts on the Intrade exchange can be bought or sold between other members... If, for instance, someone purchases a December bird flu contract at a purchase price of, say, $16, and a strain of H5N1 is confirmed in the U.S. on or before Dec. 31, that person wins whatever his or her buy price is against 100. In other words, the profit on each contract purchased at that price will be 100 minus 16, or 84 points, multiplied by 10 cents per point or $8.40. (Because contracts trade between 0 and 100 "points," you can think of the price at any time to be the percentage probability of that event occurring.) According to Keating, most investors buy about $500 worth of shares.

These trades are the best predictors yet of the appearance of H5N1 on US soil, yet they are being attacked as was DARPA' aborted Policy Analysis Market (PAM), part of Futures Markets Applied to Prediction (FutureMAP) program, in October 2003. The superb, but politically tone-deaf PAM website was removed by the afternoon after being attacked on the Senate floor:

You ask whether there are traders or traitors--T-R-A-D-E-R-S or T-R- A-I-T-O-R-S. As we understand it, even terrorists would be allowed to bet on the likelihood of future terrorist attacks... this is perhaps the most irresponsible, outrageous, and poorly thought out of anything I have heard the administration propose to date. For the life of me, I cannot believe anybody would seriously propose that we trade in death, that we set up a futures market on when, as the Web site proposed, the King of Jordan could be overthrown, when a leader would be assassinated, when a terrorist attack would occur. Most traders try to influence their investments. How long would it be before you saw traders investing in a way that would bring about the desired result?

I am reminded of similar civilian unease with the likes of megadeath, spasm response, and counterforce collateral damage as the defense intellectuals of the 1960s, which included Albert Wohlstetter, Bernard Brodie and Herman Kahn, attempted to reduce emotion in the emerging field of strategic analysis. "In the early 1960s, Kahn was the most public, and notorious, expert in this new field of strategic analysis [eventually becoming] the model for Dr. Strangelove in Stanley Kubrick’s movie."

Much of the concept of applying commodity-style trading markets and combinatorial betting technology to war gaming rose with Robin Hanson at George Mason University. Zillman has a fine bibliography on prediction markets and futures here and here, while GWU has a good directory of the PAM-related items. I side with Jack Marshall of Pro Ethics on both the "wisdom of crowds" aspect of futures markets removed of bias and the benefit, rather than harm, of these futures markets betting on Avian flu and other events:

"It would be different if, say, after 9/11 people are betting on where the next person's remains would be found, but this is far less sinister than that... In postmodernist America we have a black humor and a detachment from a lot of catastrophe anyway. Betting on an abstract event, buying futures in abstraction doesn't necessarily make things any worse."

Spann and Skiera have some useful pointers on the value of a virtual stock market (VSM) that employs the efficient market hypothesis, i.e., a "market is efficient if all available information is always fully reflected in the prices," in order to create stocks with payoffs dependent upon the market outcome and allow participants place futures according to their opinion of the outcome.

Internet-based virtual stock markets (VSM) can be used to:

predict future market developments and events of political, as well as business and economic interest. The basic idea of such a VSM is to bring a group of participants together via the Internet and let them trade shares of virtual stocks. These stocks represent a bet on the outcome of future market situations. Their value depends on the realization of these market situations, thus making the stock prices a predictor of these market situations. Basically, virtual stock markets are a method to organize Internet-based interactions with experts, consumers and other persons in order to elicit their information concerning future events. Such types of VSMs have been applied successfully in the field of political forecasting for over a decade, showing a high predictive validity, often outperforming opinion polls in terms of forecast accuracy.

Spann and Skiera proceed to describe the design criteria for a VSM:

  • Choice of the forecasting goal (formulating the payoff rule, selecting duration and selecting or attracting a savvy group of participants)
  • Creation of incentives for participation and information revelation (performance based rewards based upon participants investing their own money or vying for shares of virtual stocks and virtual money)
  • Financial market design (tested design that meets the risk appetites of the participants, the structure of the goal, satisfaction of any and all legal and political jurisdictions, et al

VSMs work when the:

  • Future market condition/event to be predicted are clearly stated so that participants' expectations correlate to the "stock" dividend
  • Participants have threshold knowledge about the future market situation to be predicted
  • Payoff mechanism incents the participants "to invest their time and participate as well as reveal their true valuations"

VSM can be applied to:

any quantifiable business-forecasting problem where potential traders possess relevant knowledge. [Examples are] any binary event (e.g., bankruptcy, litigation victory, change of management or successful product introduction) [as well as gradated] sales, market share, profit, company stock price or time-to-market of new product introductions [and] foreign policy events... any event in the public domain [such as] voting behavior... economic indicators [and] rates set by the Federal Reserve Bank.

Use of VSMs in such areas as aborted "policy analysis market" include:

  • Nontraditional means of evaluating, by means of a stock price, an otherwise ambiguous condition
  • Aggregation of information by an "objective" market mechanism independent of the hierarchical position of the trader
  • Capacity to "obtain further information from the "outside"
  • Integration of information which "otherwise might have been buried in large documents or hierarchies"
  • Identification of persons or agencies that excel in prediction

We need more such markets, not fewer, as we need better visibility and prediction of events critical to our economic and strategic wellbeing. Such markets can also force governments, ours and others, to publicly confront issues that they might otherwise shirk.

Betting on Bird Flu
New York Times
December 17, 2005

Betting on bird flu
A growing market allows investors to make money off of disease and natural disasters. And so far, their predictions have been dead-on.
By A.J. Daulerio
Dec. 13, 2005

Prediction Markets and Information Futures
By Marcus P. Zillman
Virtual Private Library
April 2005
Also at Prediction Markets in HTML

Man and Machine in the 1960s
Sungook Hong
University of Toronto,
Seoul National University
Techné 7:3 Spring 2004 Hong, Man and Machine / 49

Taking Stock of Virtual Markets
By Martin Spann and Bernd Skiera
OR/MS Today - October 2003
Institute for Operations Research and the Management Sciences

Business intelligence worth betting on
By Dan Farber, Tech Update
July 31, 2003 9:35 AM PT

The Case for Terrorism Futures
By Noah Shachtman
02:00 AM Jul. 30, 2003 PT

Pentagon Folds Hand in Online Terrorism Futures Scheme
By Roy Mark
July 29, 2003

Congressional Record: July 29, 2003 (Senate)
Page S10082-S10083

Pentagon Prepares A Futures Market On Terror Attacks
New York Times
July 29, 2003


Idea Futures
(a.k.a. Prediction Markets, Information Markets)
by Robin Hanson

Gordon Housworth

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US intellectual property protection: the targets are asleep or unarmed, the advising guardians are AWOL and the police are offering placebos


To paraphrase the misattributed quote of Everett Dirksen, a billion to India, a billion to China, and pretty soon you're taking about serious outsourcing - and along with it an uncontrolled and unprotected intellectual property (IP) stream. The unremitting drumbeat of each InfoWorld RSS feed item that crosses my desk (see link list below) on yet another offshore investment reminds me of the laxity of US administrations to address strategic shortfalls in things so essential as K-16+ education, promoting advanced technologies - genetics and biologics included, and what I call the "sleeping princess" vulnerability of irreplaceable IP.

David Berlind's The United States of India notes:

In less than two months time it has become clear that, between Cisco, Intel, and now Microsoft, India will get injected with at least $3.8 billion. China is getting similar injections. According to a report in InfoWorld, Intel chairman Craig Barrett talked about why education is making China more competitive while he was cutting the ribbon on a new $200 million test and assembly center his company built in the western Chinese city of Chengdu.

The landscape for global IP protection (and that includes both domestic and offshore locations) is not a pretty one. Worse, I see no improvement since penning A tipping point in intellectual property protection? in January 2005. (I submit the predictions in Emerging Information Technology (IT) themes in India and China and Refining a China forecast as well.)

I wager that the majority of firms do not know that they are at risk and that, if they do become aware, do not know where to turn for assistance. Fearful of alienating one or more factions with unknown consequences, firms silently capitulate. Targets that are waking seem mostly to feel disarmed despite the presence of heroic individuals. Their leadership does seem to be engaging despite every indicator that they are aware, an equally fatal condition. Consider our current view of global IP risk:

  • Venture Capitalists (VCs) hire management for their nascent firms to produce and deliver a product stream leading to an initial public offering (IPO), not for risk management and risk remediation.
  • VCs are herding their stables to Asia to "save costs," often housing their charges into a single R&D hive that creates a target rich environment that will only culminate in local firms producing similar products before the US startups get to their rev one product.
  • Established industrial firms continue offshoring (see Multisourcing, parts 1 and 2) for lower cost, global 24X7 reach for their firm and their clients, richer talent pool, emerging market base, some of all of the above depending upon the locale. Such firms continue to confuse low cost with low risk.
  • Industrial firms confuse IT approaches such as network packet sniffing and hardware control mechanisms as remedies to IP theft which they are not. Hardware remedies have their place but form only a minority of an effective protective envelope.
  • The established guardian community - major management consultancies, banks, investment houses and law firms - is restrained by fear of reprisal by a host government refusing them business in a designated country. (Witness the concern of repercussions of even advising Unocal and its suitor Chevron against acquisition by CNOOC where those advising firms were exposed across sectors in seeking other Chinese business.)
  • The guardian community is itself a source of IP hemorrhage as aggressive 'up or out' programs flush talent out their back door, taking with them IP on both their prior employer as well as the employer's clients.
  • Those guardians not cowed (a microscopic group) are no better prepared that their benighted brethren in their operational knowledge of truly effective, non-confrontational means to affect IP protection, i.e., should one of these firms make recommendations, the client will only be lulled into a false sense of security that will put more of their IP at risk.
  • The compliance, policy, and legal instruments being floated by DoJ and the FBI are effectively non-remedies as they do nothing to instill competent cost effective IP protection in the target firms, offer no recourse for overseas infractions outside US jurisdiction, save for very limited areas, and do nothing to remediate the direct and drag-along loss of the IP theft.
  • Avoiding reprisal is so strong that the guardian community will often refer their clients to pursue the ineffective DoJ/FBI compliance, policy, and legal instruments.

In short, the targets are asleep or unarmed, the advising guardians are AWOL and the police are offering placebos. Not an comfortable condition as my predictions from January 2005 still stand:

  • Emerging Asian suppliers will displace less efficient US suppliers in US supply chains
  • US OEMs will continue their pursuit of lowest cost suppliers, abandoning historic ‘domestic’ suppliers in favor of new Asian suppliers

And if it is not too late:

  • After enduring growing losses, US OEMs and major manufacturers will use IP security as a key selector for suppliers in the critical path of their supply chains
  • Protective IP programs will be essential to a supply chain’s critical path, and so the health of the supply chain. (The trajectory of IP protection will mimic that of the rise of part quality as a mandatory selection criterion.)

The United States of India
Posted by David Berlind @ 7:10 am
December 7, 2005

China surpasses U.S. as top IT goods supplier, OECD says
China exported $180 billion in ICT goods last year compared to U.S. exports of $149 billion
By Nancy Gohring, IDG News Service
December 12, 2005

Europe's IT industry losing ground
Survey shows U.S. and Asian firms offer better pricing, greater flexibility in contracts
By Jeremy Kirk, IDG News Service
December 12, 2005

India's outsourcing valued at $60 billion by 2010
Industry could face a shortage of half a million workers
By John Ribeiro, IDG News Service
December 12, 2005

Aviva to expand outsourcing in India
British insurance company to double the staff offering BPO and call center services
By John Ribeiro, IDG News Service
December 12, 2005

Lenovo wants to take on new markets in 2006
Lenovo to focus on SMB customers in the U.S. and Europe
By Sumner Lemon, IDG News Service
December 09, 2005

Microsoft to invest $1.7 billion in India
Microsoft is latest technology company making large investment in anticipation of a boom in India's IT market
By John Ribeiro, IDG News Service
December 07, 2005

Intel will invest over $1 billion in India
Intel to expand its business in India, invest to help stimulate technological innovation
By John Ribeiro, IDG News Service
December 05, 2005

EDS likely to double Chinese, Indian workforces
The company currently has up to 20,000 employees in those regions
By China Martens, IDG News Service
November 30, 2005

Juniper to double technical staff in India
Center in Bangalore works on software and hardware development
By John Ribeiro, IDG News Service
November 23, 2005

HP opens research lab in China
Beijing lab will be HP's sixth research facility
By China Martens, IDG News Service
November 15, 2005 sets up second development center in India
Center will focus on developing new features for Amazon's sites
By John Ribeiro, IDG News Service
October 21, 2005

Cisco to invest $1.1 billion in India
Company will triple the number of staff it employs in India
By John Ribeiro, IDG News Service
October 19, 2005

Intel lauds Chinese CPU development
Intel exec says the Godson-2 chip shows fast uptake in design prowess by the Chinese
By Dan Nystedt, IDG News Service
October 18, 2005

Gartner: China's tech industry needs government support
Analyst firm says China's goal of becoming tech leader by 2010 will demand policies across several areas
By Sumner Lemon, IDG News Service
September 01, 2005

India's Infosys plans huge expansion in China
Outsourcer to grow its staff in China from 250 to 6,000 during next five years
By John Ribeiro, IDG News Service
August 04, 2005

CNOOC Throws In Towel
Shu-Ching Jean Chen and Claire Poole

There's a New China Syndrome on Wall Street
New York Times
July 24, 2005

The Big Tug of War Over Unocal
New York Times
July 6, 2005
Mirror, Mirror

China throws down gauntlet to USA Inc
Frank Kane
The Observer (UK)
Sunday June 26, 2005

Uncle Sam's CNOOC dilemma
Chinese oil company makes trump bid for Unocal. But will the US block it as it did with Hutch bid for Global Crossing?
By Steven Irvine
Finance Asia
24 June 2005

Goldman goes 'unsolicited'
Investment bank and J.P. Morgan would provide financing
By David Weidner, MarketWatch
23 June 2005

Gordon Housworth

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Redirect: Leaching away of inside-the-beltway economic expertise


Original article

A private comment from a knowledgeable inside-the-beltway colleague reminded me that one should think of this political appointee "market as more commodity than employment" and that the "decisive feature" of this vacuum is the "cycle" - precisely the current point in the election cycle. Having lived through a few such cycles, he notes that they are "something to behold up close" but that the current flap is not that "bad or unusual" given the point in the election cycle and the "apparent difficulties of a Republican succession." His opinion was that all the people who "want to cash in on their waning influence... while they can" have already left.

Using a financial analogy, he explained that "political interest rates" are rising and that the "Bush White House influence market is in backwardation." (Classic backwardation is a market condition in which a futures price is lower in the distant delivery months than in the near delivery months.)

My trackback was that I can understand cycle as driver, e.g., lame duck administration and uncertainty of assured party succession, yet am intrigued by the comment that it is not "that bad." Albeit based on limited research, my reading is that the administration's difficulty has been long in effect, i.e., much earlier in the electoral cycle - apparently back to the first Bush43 term. Accepting cycle as driver, I ask what pushes it earlier or pushes it to greater extreme?

Paraphrasing our discussion: Every administration runs through these appointment cycles. At this low point, working levels rise to policy level, i.e., the individual in the "acting" capacity may have been doing all of the work prior to the vacancy while some of those in an acting capacity will shift their focus to policy soundness over the conforming of policy to agendas or ideologies. Condoleezza Rice was pointed out as an example, effectiveness included, of why the National Security Advisor Rice was different from the present SecState Rice.

As I cannot remember a more divisive political environment - at least in the postwar era - my feeling is that the "dissolution of the center resulting in polarization and an adversarial relationship between the parties as well as between government and academia" have made the cyclic effect you cite far more extreme. (The effect that I had in mind is what physicists call superposition: in wave mechanics, superposition is the interference of waves, or summing of amplitude's at the point of intersection; similarly, in quantum mechanics, the summation of probability distributions that represent possible states of a system. (In lay terms, the Tacoma Narrows bridge went down to superposition/resonance of standing waves.))

Yes, there is no doubt that the recent scandals have had their effect as have the rise in polarization, but the underlying driver is still cycle. There are emerging signs of a return to a less divisive center. Note the "recent rise to prominence of Hagel and McCain" and the "recent rapprochements between Rice and [Brent] Scowcroft, and Rice and [James] Baker.

It can't come soon enough.

Gordon Housworth

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Leaching away of inside-the-beltway economic expertise


Sound economic guidance is essential for government to insure that it can fund the domestic and international policies that it considers essential, thus my eye was caught by the comment that "much of Washington's expert economic team has disappeared." Vacant or soon to be vacant are two Federal Reserve Board seats formerly filled by academic economists, assistant secretary of the Treasury for tax policy, the chair of Council of Economic Advisers (CEA) and the director's chair at the Congressional Budget Office (CBO).

Said to be facing a "shallow bench" in terms of seasoned talent, a Republican administration and congress do not seem to have an identifiable process to fill the slots. This should be of concern regardless of which side of the aisle one sits as vacancy, inexperience, and lack of government service conspire to rob government of guidance to shape the financial underpinnings of those domestic and international policies.

Clearly I'd not been paying attention as the problem was not recent as evidenced by the outgoing CEA chair, appointed in 2003, had "condemned supporters of some Reagan-era tax cuts as "charlatans and cranks" [and] suggested replacing part of the income tax with higher taxes on gasoline. It is not a good sign when an administration cannot get the talent that respects its precepts and economic policies.

While I agree that Republicans generally have more difficulty that Democrats in filling macroeconomic positions (Republicans favor microeconomic and regulatory billets), I see the problem as a dissolution of the center resulting in polarization and an adversarial relationship between the parties as well as between government and academia:

  • Low reputation of POTUS in the academic community
  • Partisan politics (adversarial working environment and "name taking" of those who disagree)
  • Centralized policy decision-making (appointees not listened to)
  • Seminal issues, e.g., deficits, spending and Iraq
  • Loss of prestige in assuming a federal position
  • Inability to support administration positions (or to be able to return to academia after having done so)
  • Policy push-downs that obviate professional practice, e.g., health, science and environment
  • Proliferation of political appointees over legitimate credentials
  • Working environment that demands "heavy sacrifices and large commitments of time" in the best of years
  • Family separations (spouses often unwilling to relocate)

These are nothing short of disease symptoms in terms of attracting the 'best and the brightest' in economics. I cannot remember such unremitting gulfs between so many parties in and out of government.

As one old enough to remember the weekly Republican Leadership press conferences first known as the "Ev and Charlie Show" after Senate leader Everett Dirksen and House leader Charlie Halleck, and later the "Ev and Jerry Show," after Dirksen and the House Minority Leader Gerald Ford, I recall a congressional give-and-take that is positively avuncular by today's standards.

It is worth reaching back to the Oral History Interviews of Lawrence F. O'Brien, Special Assistant to Presidents John F. Kennedy and Lyndon B. Johnson, and National Chairman of the Democratic Party for his opinion of Dirksen and Halleck:

On the House side, Charlie Halleck, the minority leader during my first years of involvement and intensely partisan, held no animosity. Charlie Halleck wasn't going to deviate from his established position. The one deviation we discussed in the civil rights legislation, where he was extremely helpful. What are you going to do with a guy who is pleasant personally and his opposition is total--he'll do everything he can to block you, but there is no venom? You meet, you have a drink, which I did on occasions.

Little incidents would crop up from time to time, but overall, whether it was Ev Dirksen--my recollections of Ev Dirksen are all pleasant and really I enjoyed his company, it was a pleasant experience--there were occasions here and there when Ev Dirksen was willing to be helpful. Jerry Ford replaced Halleck as we launched into the Eighty-Ninth Congress. I have no recollection of Jerry being nasty or mean in waging the legislative battles. I recall Ford, Les Arends, and others on the House side and other Republicans in addition to Dirksen, George Aiken, as fine human beings. They had their very strong views, which didn't coincide with our views. But it was never personalized, and I think that is a factor which existed to the degree it did in our years because of the progress that was made in person-to-person, individual contacts, social contacts. You weren't strangers to each other and there was mutual respect and understanding.

As it is difficult to discuss the contribution of the White House to this current air of divisiveness without immediately gaining a partisan label or drawing a partisan attack, I recommend Karen Hult's The Bush White House in Comparative Perspective as she offers a sound underpinning of comparison to previous White Houses as she looks at three primary tasks of contemporary White Houses:

  • Coordination and supervision of the activities and people that comprise the modern presidency
  • Policy formulation and deliberation or "policy processing"
  • Outreach to external interests and the general public

Hult goes on to describe how the Bush43 White House responded to each, drawing similarities and differences with previous administrations. Worthwhile to get a sound basis for comparison as opposed to polemics from either the left or right.

Beyond that, there is personality which can shape performance of the administration and the White House. One could move to NYT Ron Suskind's Without a Doubt. After that, one could look for underpinnings of those actions in Justin Frank's Bush on the Couch, an unauthorized applied psychoanalysis of the president which created a tiff when released. The profile is not attractive and a new edition contains an "expanded epilogue that reviews the 2004 election and the start of Bush's second term" in which Frank concludes that the 2004 election "may have only made things worse." Frank is not easy to dismiss as two other unrelated profiles offer a similar analysis. The WP's Dan Froomkin held a public Q&A with Frank that is interesting.

Few former White House staffers or SES civilian appointees speak at length about White House politics or personalities, which makes Treasury Secretary Paul O'Neill's observations so interesting. As Hult delicately observed in speaking of the December 2002 dismissals of O’Neill and National Economic Council director Lawrence Lindsey, "both were faulted for their weak presentations of administration policy." (Lindsey was a believer but made some embarrassing admissions of fact.) Today, it would appear that they had presented fact which did not fit political precept and so were removed.

While it may be too much to ask the reader to put aside a red or blue lens in traversing this material, I submit that the current environment is hardly a recommendation for a strong, skilled economic candidate to join the administration.

See Redirect comments to this note

Help Wanted: Academic Economists, Pro-Bush
New York Times
November 27, 2005

Without a Doubt
New York Times
October 17, 2004

The inner W.
By Laura Miller
June 16, 2004

White House Talk
Dan Froomkin with Justin Frank
White House Briefing Columnist
Washington Post
June 16, 2004; 1:00 PM

Bush on the Couch: Inside the Mind of the President
Justin A. Frank
Regan Books
June 2004

Conservatives Restive About Bush Policies
Fresh Initiatives Sought On Iraq, Domestic Issues
By Dana Milbank and Jonathan Weisman
Washington Post
May 10, 2004

US Treasury to probe O'Neill book
BBC News
Last Updated: Tuesday, 13 January, 2004, 04:55 GMT

The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill
by Ron Suskind
ISBN 0743255453
Simon & Schuster
January 13, 2004
Snippets from documents

Karen M. Hult
Virginia Polytechnic Institute & State University
Included in
Princeton University
April 25 - 26, 2003
Other papers in this
series are useful

Interview by Jim Lehrer
Online NewsHour
February 6, 2002

Transcript, Lawrence F. O'Brien Oral History Interview XI
7/24/86, by Michael L. Gillette, Internet Copy, LBJ Library

Gordon Housworth

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Underestimating the gravity of bombing al Jazeera (2004) and bombing the USSR (1984)


Most US nationals underestimate the impact of the reality in Arab eyes that Bush43 was intent on bombing al Jazeera's Doha headquarters in 2004 just as they underestimated the impact of Ronald Reagan's quip about commencing the bombing of the USSR in 1984. Both are serious yet US nationals for the most part are oblivious.

The 1984 event drew us back towards nuclear war that was nearly avoided in 1983:

During a microphone test for his weekly radio address of 11 August, 1984, unaware that the microphone was live, Ronald Reagan's wit emerged:

My fellow Americans, I‘m pleased to tell you today that I‘ve signed legislation that will outlaw Russia forever. We begin bombing in five minutes.

[Note that Reagan's quip is variously misquoted in print, thus audio wav files of the original mike test recording are here and here.]

Reagan's "indiscretion was not broadcast, but news of it filtered out and drew a strong rebuke from Moscow."  That is the understatement of the quarter century as Reagan's quip was coming on the heels of an extraordinarily close Soviet preemptive nuclear strike against the west as Moscow, still raw from being surprised in 1941 by the Germans in Operation BARBAROSSA - "the worst military disaster in Russian history," was under the growing impression that the US was itself moving to preemption.

Consider these snippets from Martin Walker's The Cold War: A History:

In May 1981, in response to President Reagan's aggressive talk about nuclear war, the Soviet Union instituted the [Operation] RYAN [raketno-yadernoye napadenie] (Nuclear-Rocket Attack) program, which created a "heightened state of intelligence alert, instructing all foreign stations to conduct a constant watch for tell-tale signs of the buildup to a Western nuclear strike."

In 1983 the RYAN program and Soviet paranoia over an American nuclear attack reached a new peak with the Soviet shooting-down of a Korean airliner that strayed into Soviet airspace over a top-secret missile warning installation in early September 1983. The shooting down of this commercial airliner was in part caused by increasing Soviet anxiety over what they considered an "imminent American nuclear attack." The Soviets believed that the November 1983 NATO exercise, Able Archer 83, designed to practice "command coordination" for a NATO nuclear attack, was in fact not an exercise at all but an actual Western nuclear strike against the Soviet Union. During this NATO exercise in November, the Soviets put their military forces on alert and prepared for a Western attack. Few Americans at the time realized how President Reagan's loose talk about fighting and winning nuclear war had frightened the Soviets and pushed the world toward the brink of nuclear war.

To grasp the gravity of this situation, readers should look to the short War games but, better yet, the very readable CIA monograph A Cold War Conundrum. US PSYOPs (psychological warfare operations) involving air and naval probes buttressed by political commentary, Reagan's rhetoric included, had succeeded far beyond expectations. It fell to Margaret Thatcher to call for Reagan to "moderate his rhetoric and actions [in the belief] that US policy toward the USSR had become risky and counterproductive by threatening to undermine NATO's consensus on deployment of US intermediate-range missiles."

Get that far and the smile of Reagan's quip will slip off your face.

The 2004 event may yet bring us into some form of war, declared or otherwise:

Even before the uproar over bombing what the majority of Arab and many Muslims believe to be the gold standard of reality reporting, al Jazeera, the task facing US Undersecretary of State for Public Affairs Karen Hughes was Herculean (also here), but I would point readers to the Asia Times' A US ear in the Muslim world to get a bracing view from offshore. It seems nearly forgotten that the US bungled its opportunity in 2004 to produce a viable counter to al Jazeera. The US sponsored TV channel, Al Hurra (The Free One), was almost immediately seen as yet one more state sponsored station "failing to report news of critical interest to listeners at the same level of priority coverage." I admit to some astonishment that we can continue a collective public relations mechanism that is so counterproductive.

For whatever reasons, the British government has moved to the uncommon point of invoking a gag order under the Official Secrets Act against the Daily Mirror who first broke the story that a "five-page memo - stamped "Top Secret" - records a threat by Bush to unleash "military action" against the TV station, which America accuses of being a mouthpiece for anti-US sentiments."

According to a source quoted in the Daily Mail, Blair told Bush that bombing al-Jazeera "would cause a big problem." The source was also quoted as saying: "There's no doubt what Bush wanted to do -- and no doubt Blair didn't want him to do it."

While the WP reports that a "former senior U.S. intelligence official said that it was clear the White House saw al-Jazeera as a problem, but that although the CIA's clandestine service came up with plans to counteract it, such as planting people on its staff, it never received permission to proceed. "Bombing in Qatar was never contemplated,"" al Jazeera's listeners track a different time line:

In 2003, during the invasion of Iraq, a U.S. missile hit the network's office in Baghdad, killing a correspondent. U.S. officials called the incident an accident. In 2001, American bombs exploded in its bureau in Kabul, Afghanistan. Washington said the targeting officers did not know that the site was an office of the television service, believing instead that it was used by al Qaeda.

The WP's Jefferson Morley does a nice round-up of the goings on here and here while Blair Watch tracks the mechanics of two memos, not one, here and here.

While it remains to be seen if the Bush43 comment was jest or reality, the damage is done in Arab eyes; another anti-US feeling confirmed, the humor of Don't Bomb Us - A blog by Al Jazeera Staffers not withstanding.

I find a link between 1984 and 2004 in that US actions, many unintentional, drove the Soviets to a fever pitch such that every US action was seen through the lens of looming nuclear preemption; no comment could be interpreted as good or cooperative. White House spokesman Scott McClellan now labels al Jazeera's claims as "outlandish and inconceivable." Virtually none of al Jazeera's listeners believe him. Every US action is seen through the lens of US hegemony and subjugation of Arabs; no comment can be interpreted as good or cooperative. 

Two men in UK court over "Jazeera bombing" leak
By Gideon Long
Source: Reuters
29 Nov 2005 15:07:58 GMT

Two British Men in Court Over Leak
November 29, 2005 12:31 pm

Pair charged in UK bomb memo leak
29 November 2005, 18:56 Makka Time, 15:56 GMT

Blair denies bombing plot knowledge
29 November 2005, 3:39 Makka Time, 0:39 GMT

Aljazeera demands answers from Blair
26 November 2005, 14:15 Makka Time, 11:15 GMT

Don't Bomb Us - A blog by Al Jazeera Staffers

Paper Says Bush Talked of Bombing Arab TV Network
By Kevin Sullivan and Walter Pincus
Washington Post
November 23, 2005

By Kevin Maguire
23 November 2005

U.K.: Media Gag Order Over Leaked Memo
Jefferson Morley
Washington Post
November 23, 2005

Bush, Blair, Bombs and al-Jazeera
Jefferson Morley
Washington Post
November 22, 2005

A US ear in the Muslim world
By Ioannis Gatsiounis
Asia Times
Nov 2, 2005

War games
Soviets, fearing Western attack, prepared for worst in '83
By Bruce Kennedy
CNN Interactive

A Cold War Conundrum
By Benjamin B. Fischer
Center for the Study of Intelligence
Central Intelligence Agency

Context: Soviet Cold War Setbacks
The Soviet Intelligence Alert and Operation RYAN
Why an Intelligence Alert?
Spooking the Soviets
RYAN, Phase II: A New Sense of Urgency
RYAN and East German Intelligence
The War Scare Goes Public
"Star Wars"
KAL 007
The "Iron Lady" and the "Great Communicator"
War Scare Frenzy in the USSR
The Enduring Trauma of BARBAROSSA
Conclusion: The War Scare Was for Real
Appendix A: RYAN and the Decline of the KGB
Appendix B: The Gordievsky File

The Cold War: A History
Martin Walker
ISBN: 0-8050-3454-4
Henry Holt, 1993

Gordon Housworth

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Malicious marketplace uniting espionage, criminal groups, crackers, terrorism, vulnerable systems, commercial and government targets


The black hat community attacking commercial and military targets is as large as it is diverse and global:

1. State espionage against foreign commercial and military targets

2. Criminal enterprises focused on money over fame or ideology

3. Stateless terrorism and its associated criminal money raising campaigns (phishing for example)

4. "Outsourced" smaller criminal enterprises in low cost, permissive cultures (who can fabricate exploits too labor intensive for more established criminal groups)

5. Cracker groups selling exploits to groups 1, 2, and 3 directly or through brokers

White hats and black hats will produce interacting swarms of rootkits, trojans, worms, adware and spyware spoke, in part, to a deteriorating security environment in which Black hat exploits will combine "unrelated white hat DRM audio, video and text implementations in concert with other secondary weak points" that will likely erase years of armoring by operating systems, ISPs and e-mail systems.

Alan Paller, Director of Research at SANS, notes that "Attackers are now targeting the whole range of applications that users are now installing on their systems… That means we're back to the Stone Age. Everything you worried about five or six years ago" is again a primary concern in which these programs do not have a robust, rapid means to detect, fix and disseminate. Vulnerabilities must meet four criteria to make the SANS Top 20 list:

  • They must affect a large number of users.
  • Most systems must lack patches against them.
  • They must allow remote, unauthorized users to control affected systems.
  • There must be enough information about them on the Internet for attackers to exploit them.

Worse, private and commercial users that have grown accustomed to focusing on installing updates for their operating system and a preferred browser must now attempt to locate and install fixes from a potentially large group of secondary product manufacturers - and who knows how good their patch procedures are. (Were I a funded black hat, I would acquire some of these secondary providers as sleeper sites to launch a trap-doored patch when the opportunity was right, but in the interim, operate within the security process so as to acquire an understanding of national and international defense mechanisms.)

The totality of threat and environment forms what Roger Cummings, the director of the UK's National Infrastructure Security Co-ordination Centre (NISCC) calls a "malicious marketplace." Cummings went on to say that the most significant electronic threats to England's Critical National Infrastructure (CNI), including government agencies as well as firms "in the finance, transportation and telecommunications sectors," are "content-based, targeted, Trojan horse e-mail attacks from the far east, primarily China, South Korea and India.

Noting that "Foreign states are probing the CNI for information," Cummings ranks the threats to CNI from today's malicious marketplace, from highest to lowest:

  • Foreign states targeting information ("most significant")
  • Criminal enterprises acquiring information for resale
  • Hackers of "variable capability" selling capability or exploits to other consumers
  • Terrorists currently possessing "low capability"

This tracks with our experience that 'cyber-collection' far outranks cyberterrorism. Take for example the superb Chinese hacker team Titan Rain that has been raiding US commercial and governmental sites at least from 2003. I recommend Nathan Thornburg's The Invasion of the Chinese Cyberspies (And the Man Who Tried to Stop Them), George Ou's How the undermining of US intelligence continues in cyberspace and Ira Winkler's appalling summary of the blowback against the volunteer US investigator and counter-hacker, Shawn Carpenter, in The case of Shawn Carpenter: A cautionary tale.

As Ou notes, the Titan Rain saga is still ongoing and frames the "alarming ineffectiveness of US cyber intelligence policy" "Titan Rain is thought to rank among the most pervasive cyberespionage threats that U.S. computer networks have ever faced." On the night of 1 November, 2004, Titan Rain breached federal computer systems at the U.S. Army Information Systems Engineering Command (Fort Huachuca, AZ), Defense Information Systems Agency (Arlington, VA), the Naval Ocean Systems Center (San Diego, CA) and the U.S. Army Space and Strategic Defense (Huntsville, AL).

How such a breach was accomplished with such skill and speed is clear from Shawn Carpenter' investigations:

Carpenter had never seen hackers work so quickly, with such a sense of purpose. They would commandeer a hidden section of a hard drive, zip up as many files as possible and immediately transmit the data to way stations in South Korea, Hong Kong or Taiwan before sending them to mainland China. They always made a silent escape, wiping their electronic fingerprints clean and leaving behind an almost undetectable beacon allowing them to re-enter the machine at will. An entire attack took 10 to 30 minutes. "Most hackers, if they actually get into a government network, get excited and make mistakes," says Carpenter. "Not these guys. They never hit a wrong key."

On a voluntary basis on his own time, Carpenter counter-attacked, piercing the Titan Rain organization and placing bugs in their network. Competence and zeal, however, proved no match for bureaucracy. Working first in an unofficial liaison with US Army Intelligence, Carpenter was passed onto the FBI as federal "rules prohibit military-intelligence officers from working with U.S. civilians." For months, Carpenter works in the same unofficial capacity with the bureau where "his work was folded into an existing task force on the attacks."

In a painful reprise of the 1975 Church Committee and the subsequent 1976 Levi Guidelines that, while they addressed excesses, went further so as to effectively geld our intel services in the gray and black HUMINT areas that are so essential today, by law it is illegal for a US national to hack into a foreign computer system. Carpenter's employer, Sandia National Labs, expressly forbid him to share his work, then fired him. The bureau abandoned him to the point that it launched an investigation into the legality of his activities which had occurred with the bureau's knowledge. At some point the bureau moved to protect itself as under current guidelines the US cannot proactively track and shut down a foreign site but must "go through a cumbersome authorization process" that involves the cooperation of the host nation. (The UK endures a similarly delicate and glacial process in China and India.)

Given that "China's State Council Information Office, speaking for the government, told TIME the charges about cyberspying and Titan Rain are "totally groundless, irresponsible and unworthy of refute" one should not expect a speedy resolution, yet Carpenter's research showed that Chinese sites in Guangdong province were the source of Titan Rain attacks and not a zombie botnet controlled from elsewhere:

Titan Rain presents a severe test for the patchwork of agencies digging into the problem. Both the cybercrime and counterintelligence divisions of the FBI are investigating, the law-enforcement source tells TIME. But while the FBI has a solid track record cajoling foreign governments into cooperating in catching garden-variety hackers, the source says that China is not cooperating with the U.S. on Titan Rain. The FBI would need high-level diplomatic and Department of Justice authorization to do what Carpenter did in sneaking into foreign computers. The military would have more flexibility in hacking back against the Chinese, says a former high-ranking Administration official, under a protocol called "preparation of the battlefield." But if any U.S. agency got caught, it could spark an international incident.

The scale, skill and duration of Titan Rain points to state sponsorship but that can be murky in China as state sponsorship, or state tolerance, could included the PLA, a PLA dual-use subsidiary, an outsourced Chinese firm (which the PLA has increasingly used to speed up various activities), or a Triad. David Szady, Assistant Director, FBI Counterintelligence Division, has noted that "the Chinese are more aggressive" than other collectors, adding "If they can steal it and do it in five years, why [take longer] to develop it?"

Readers must not assume this to be China bashing but merely recognition of skill and achievement, better than most, of one among many examples of foreign state probing of commercial and government critical infrastructure. As Ou noted, "The Titan Rain are just doing their jobs as Chinese patriots, but we're not doing our jobs to stop them." (Ou's observations on security, networking and architecture are always recommended. I would also recommend Kabay's series on industrial espionage - links below.)

In the above context, it is easier to understand Bruce Schneier's complaint that cyberterrorism is "over-hyped" (and used in the US as a means for federal and commercial entities to plump their budgets and manpower) while cybercrime is "under-hyped." Schneier supports Cumming's concept of a malicious marketplace and its merger of criminal and hacker assets, while reserving his concern that a monomaniacal focus on cyberterrorism distracts our attention from more immediate threats.

I would broaden cybercrime to 'cyber-collection' by both state and criminal assets as the vastly under-hyped hole which our infrastructure, statues, diplomacy and distraction leaves us increasingly ill-prepared to combat.

Security experts lift lid on Chinese hack attacks
By Tom Espiner, CNET
Published on ZDNet News
November 23, 2005, 11:48 AM PT

Cyberterror 'overhyped,' security guru says
By Tom Espiner, ZDNet (UK)
Published on ZDNet News
November 23, 2005, 7:41 AM PT

Schneier on security
Tom Espiner interview with Bruce Schneier
November 23, 2005, 13:00 GMT

Foreign powers are main cyberthreat, U.K. says
By Tom Espiner, CNET
Published on ZDNet News
November 22, 2005, 12:23 PM PT

The Twenty Most Critical Internet Security Vulnerabilities (Updated) ~ The Experts Consensus
Version 6.0 November 22, 2005
SANS Institute

Guard against Titan Rain hackers
Opinion by Ira Winkler
OCTOBER 20, 2005

Industrial espionage series by M. E. Kabay, Network World:

Industrial espionage, Part 1: Methods
Methods of conducting industrial espionage
Industrial espionage, Part 2: More methods
Even more ways to conduct industrial espionage
Industrial espionage, Part 3: Survey results
Surveys showed rise in industrial espionage in 1990s
Industrial espionage, Part 4: Risk factors and losses
Industrial espionage responsible for huge losses, much of which isn’t reported
Industrial espionage, Part 5: People from many countries targeting U.S.
Reports show long list of countries involved in industrial espionage
Industrial espionage, Part 6: Cases
Cases of industrial espionage
Industrial espionage, Part 7: More cases
More cases of industrial espionage
Industrial espionage, Part 8: China and Titan Rain
‘Titan Rain’ investigation leads to China

The case of Shawn Carpenter: A cautionary tale
By Ira Winkler
22 Sep 2005

How the undermining of US intelligence continues in cyberspace
Posted by George Ou @ 8:35 am
August 29, 2005

The Invasion of the Chinese Cyberspies (And the Man Who Tried to Stop Them)
An exclusive look at how the hackers called TITAN RAIN are stealing U.S. secrets
Posted Monday, Aug. 29, 2005
Scrolled to fee
Mirror, Mirror

Hackers Attack Via Chinese Web Sites
U.S. Agencies' Networks Are Among Targets
By Bradley Graham
Washington Post
August 25, 2005

Web of Crime, PC World 5-part series:

Enter the Professionals
Erik Larkin
August 22, 2005
Zombie PC Armies Designed to Suck Your Wallet Dry
Erik Larkin
August 23, 2005
Web of Crime: Internet Gangs Go Global
Liane Cassavoy
August 24, 2005
Internet Sieges Can Cost Businesses a Bundle
Robert McMillan
August 25, 2005
Who's Catching The Cybercrooks?
Tom Spring
August 26, 2005

Between phishers and the deep blue sea
By Dawn Kawamoto, CNET
Published on ZDNet News
July 18, 2005, 4:00 AM PT

Hacking for dollars
By Joris Evers, CNET
Published on ZDNet News
July 6, 2005, 4:00 AM PT

Asian Trojans attacking U.K., agency warns
By Dan Ilett, ZDNet (UK)
Published on ZDNet News
June 16, 2005, 8:38 AM PT

Security guru slams misuse of 'cyberterrorism'
By Dan Ilett, ZDNet (UK)
Published on ZDNet News
April 26, 2005, 3:24 PM PT

Gordon Housworth

Cybersecurity Public  InfoT Public  Strategic Risk Public  Terrorism Public  


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