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This wasn't just flushed money- it was cut up first.That's not a normal thing to do.

My first thought? Mental illness. Sounds like some of the stories you hear from that government office that helps you reclaim money destroyed by fire, mold, or a dementia patient who starts shredding money they had hidden in the house.
See also: https://www.frbservices.org/op...

My 2nd guess is counterfeit money.

All older bills are valid until they wear out. In other words; this is a pointless exercise unless they set an expiry date for older bills.

More accurately, all bills are valid until the Federal Reserve shreds them.

The more interesting point in a bill's life is when it is deemed no longer fit for further circulation. This happens when a bill lands at a bank and doesn't meet the fitness requirements spelled out at http://www.frbservices.org/files/operations/pdf/FRB_Fitness_guidelines.pdf . Aside from declaring worn bills to be unfit, the fitness requirements also cast all older bills ($20s, $10s, and $5s before the first series of redesigns) into the unfit-for-further-circulation pile.

This strategy isn't perfect. There are many old $20s, $10s and $5s that never made it to a bank. But it is good enough considering it was successful in making those old bills a small fraction of what is currently circulating. Hopefully, the older bills are more likely to be scrutinized as they come through.

This is the "Check Clearing for the 21st Century Act", commonly known as "Check 21". Basically it allows a bank anywhere along the path from where the check is first deposited, to its arrival for payment at your bank, to replace the paper check with a front and back image scan. The law provides that your copy of this substituted check must be treated like an original check for the purpose of things like using it as a receipt to show you paid. For example, if your landlord failed to record the fact that you paid the rent, but deposited your check anyway, the law requires this substitute check image (printed back to you by your bank) be accepted as proof the check was deposited just as the original would be.

Banks are not required to do the image scan of checks, but they are allowed to do so. Banks are required to accept the image scan in place of those checks when the image scan gets done. If PayPal is allowing you to write checks against your account (but they would BE a bank if this happens, I'd think), they would have to update their software by October 28 to comply. More likely, if "Check 21" is an issue here, is that they may be adding some software to allow them to image scan checks made as payment to them. But the more they do like this, the closer they become to being a real bank.

When an image scan is done, the check can be processed much faster because it can now be sent to the account holder bank electronically. This is where the "float" many people depend on can start to disappear. OTOH, your bank may be able to get funds into your account for checks paid to you that you deposit equally faster. There is a possibility that PayPal was doing things that depend on the "float". Many business and people have been doing that for years. Practices will now have to change.

For more information:

• http://www.federalreserve.gov/paymentsystems/trunc ation/default.htm
• http://www.nclc.org/initiatives/check21.shtml
• http://news.findlaw.com/prnewswire/20041004/04oct2 004153239.html
• http://www.frbservices.org/Retail/check21About.htm l
• http://reged.com/Check21/About21.html
• http://www.fnbonline.com/site/check21faq.html

If you have a truly secure system, obscurity may increase the security somewhat.

If the system is totally secure, additional obscurity will not increase security as it is already totally secure.

Obscurity requires one to trust the architects of the protocol and the software. Downloading the software without any means to verify its integrity, requiring one of the most insecure browsers or recommending an out-dated version of Sun's JRE does not help me to trust them.

If you have a truly secure system, obscurity may increase the security somewhat.

If the system is totally secure, additional obscurity will not increase security as it is already totally secure.

Obscurity requires one to trust the architects of the protocol and the software. Downloading the software without any means to verify its integrity, requiring one of the most insecure browsers or recommending an out-dated version of Sun's JRE does not help me to trust them.

It's obvious you have never had to integrate large-scale money transfer systems. First off, what is the max transfer rate?? 56KB?? Modern EFT transfers don't just send dollars, they send information. Ever notice all that description data that shows up in your bank statement when you do an EFT payment?

Transfer of just dollars can have over 500,000 transfers in them, and at 96 bytes/rec. With all the extra overhead records this creates a file over 50MB. Doing the math, that seems like over 2 1/2 hours using a 56KB modem(50MB/5600bytes/sec approx throughput), provided you don't lose the line. Phone transfers longer than 20 minutes are not reliable. Trying to meet a Federal Reserve deadline for transfers only to have your phone disconnect after 45 minutes is not good for business.

The truth of the matter is that many of these large transfers already take place using encryption over frame relay lines. Over the last few years, companies such as Clareon (now part of Fleet Bank) started to provide mechanisms for businesses to move hundreds of millions of dollars using the Internet.

Moving to the Internet is just the next logical step to cut costs. Go to the Federal Reserve Financial Services site for way too much information on the services offered.

I used to work at the FRB Boston on the staff of the Financial Service Policy Committee, the body that sets policy for the services that the Fed provides to US banks.

This article is totally misleading. The Fed is not going to be transferring money over the Internet. Clearing and settlement will continue to take place over dedicated, leased, secured IP lines or in data centers with military-level security.

The change being made is how individual commercial banks interface with the computers at the Fed in order in initiate wire transfers and transmit data for bulk transaction processing. FedLine for the Web is a great improvement over the MS-DOS-based systems that are currently in use for small and medium-sized banks. Through these systems, banks do a variety of things, including initiate wire transfers, check intraday overdraft balances, submit batch files for overnight ACH payments processing, and many others. More info here on what the Fedline is and the various ways of accessing it. The Fed had been developing FedLine for Windows, but abandoned that in the late 90's. Doing this over the web is no more risky than online banking for the consumer, except that the sums are greater -- but so are the benefits -- as long as precautions are taken, such as one-time-use TANs (transaction authorization numbers), certificates, etc.