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Federal Reserve To Use Internet For Money Transfer
An anonymous reader writes "According to the New York Post, the Federal Reserve (i.e. Alan Greenspan and Co.) is going to change the way that it transfers money between banks so that transfers now take place over the internet instead of via a private banking network. They aren't specifying the types of security measures that will be used (security through obscurity?) Am I the only one who thinks that this is a very bad idea? Might a DDOS attack on the Fed's computers bring down the entire banking system?" The banks have put some thought into security.
VPN and PGP encrypt. That's over the internet, but pretty damn secure - I work in the healthcare industry and PGP is pretty standard, usually over a VPN or secure FTP.
I know that the US Government owns many class A ip ranges, and that some of these they do not route traffic in/out from. Basically, the US Military has a "public" private network. I would image that the same type of measure could me taken here. It would be fairly easy to firewall this at various points if the ip classes are huge.
Great ideas often receive violent opposition from mediocre minds. - Albert Einstein
(I am not an Economist)
The Federal Reserve "creates" (or "destroys") money by regulating how much money a bank is required to keep on hand. If a bank only has to keep 10% of its deposits on hand, then the rest of the money can be loaned out. The person who deposited the money doesn't lose their money and the money that is loaned out is still real so the bank has created money. In reality the bank didn't print up new dollar bills and hand them out, they are just allowing better use of the money that is in circulation. When the federal reserve changes the Reserve Rate (percent of deposits the bank has to hold) they increase or decrease the amount of money in circulation. Changes to the reserve rate are pretty rare and are the Fed's overkill method of controlling the economy.
The Fed also makes overnight loans to banks when they have a shortfall of cash on hand. The rate of these loans is the discount rate that is always talked about in the news. This rate is also used by individual banks to set the rates of their loans. Changing the discount rate has the effect of encouraging banks to keep more or less cash on hand and changes the "cost" of money. Setting interests rates are the prefered method of the Fed to control things like inflation or deflation.
From the deep memory:
Disclaimer: This is OLD stuff and might be different today. But, banks are stodgy and don't like to change things that work.
Most banks don't use the Fed wire for transfers all day long. They use private networks, like SWIFT to conduct their business. c.f Swift money transfer
Back in the days before the internet, SWIFT used to require that you had an office in lower Manhatten (e.g. Wall Street) with a HIGH RANKING bank officer there. If something went wrong (and you stopped processing transfers for some reason), the SWIFT officers could meet and discuss the issue with you. They might float your bank for the day, keeping you from going under if it was something like broken computer equipment and not an insolvency issue.
Computers and networks got much better, and with SWIFT's desire to be truly global, that's no longer required.
So, what happens is that the banks all over the world do millions of transactions all day long on the SWIFT network, and no money really moves, it's just a bunch of credits and debits. Then, at an agreed upon time, they "fess up" and pay their outstanding balance (or get paid) on the Fed wire (or others methods in other countries).
SWIFT also provides the banks with a general message service like sending a TELEX.
Wrongo. The Fed is a warehouse. Each bank has an account. Wire transfers change digits in two accounts. No physical money moves. Unneeded.
I thought the people here were computer and accounting literate.
They just print a lot more money that they would be allowed to print if the system were regulated by just laws. Who or where does all this money goes to? I have no idea.
techniclaly, printing additional money just increases the amount in circulation, increaes inflation and reduces the 'buying power' of the money already out there.
Eg.
The US has exactly 100 dollars in circulation, and a load of bread costs 1 cent. If the government prints another 100 dollars, you now have twice as much money, but.. bread now costs 2 cents, oh, and people will start demanding their pay rise to twice what it was.
In the real world, the extra money that is printed is a tiny amount, so inflation doesn't double, and pay rises are small; also you have complications like interest rates, but that's the basic principle.
There are multiple security risks to keep in mind
a) the systems will be connected to the internet. Even if they are heavily firewalled, they will have to get their information somehow, so some port will be open listening for incoming requests; so watch out for buffer overrun exploits and spoofed packets.
b) targetted denial of service attacks
c) the network simply going down or being slowed; slammer slowed down the internet, not just a few machines. If that means some transactions get delayed, some people will be losing money.
d) the traffic will be intercepted, and, if not decrypted, at least the volume of messages will be interesting information for corporate espionage (though the fact that unencrypted e-mail is used in business all the time makes this less of a priority).
e) targetted BGP spoofing, DNS poisoning attacks and the like resulting in loss of service
That's not to say a private network is always more secure (especially since on private networks less thought is given to authentication and things of that nature), but it does make life complicated.
SCO employee? Check out the bounty
The Federal Reserve System is the US government. It has a single goal...to keep the US economy running as best it can. It is truely independent from political and partisian politics. It makes all its decisions in private, with no input from the Exceutive (President), Legislative (Congress,Senate) and Judicial (Supreme Court) branches. All descision makers are precluded from direct investment in any securities and from being associated with any companies. (They cannot be officers nor sit on any board of directors). In a truely transparent system, (which should be implemented in more aspects of government) any and all meetings, discussions, and decision are recorded, and considered confidential. But are released 90 days later when any actions taken or contemplated are already completed. The individuals in the top positions in the Federal Reserve are truely selfless, devoted people. The Federal Reserve basically controls money, they can print money (dollar bills), they can take money out if the economy (detroy bills), they issue federal debt (via T-Bills), they remove federal debt (buy T-Bills). They dictate how much banks can lend out (credit), and how much interest the bank ultimately must pay to the government. The also regulate the banking system FDIC, credit cards term, check clearing etc.They control all aspects of money so that an economic melt down like the great depression does not ever occur again. They have done a done an excellent job since they can into existence. Please do some research on the internet, it is one of the most powerful yet completely transparent institutions in the world...and they do a great job.
The Federal System is not the US government. The Fed's stock is 100% privately held. The does not pay income, its books are not open to Congress, and attempts to view its books using the freedom of information act are routinely denied (eg: FRB Vice Chairman Alice Rivlin's April 22, 1999 FOIA appeal denial, refusing expedited processing of FOIA request because "there is a substantial question... about whether making information available on the Internet constitutes dissemination of such information within the meaning of the standard").
The Federal Reserve is a system set up by capitalists (banks) for capitalists (banks).
Wrong. The Federal Reserve System was set up by an act of Congress December 23, 1913. The Fed is a public/private organization with a complex structure that makes the Board of Governors Federal employees (like Mr. Greenspan) and the staffs of the regional banks private sector employees. Your questions about what it does will be answered somewhat here.
Instead of giving the money to individuals (which is the way it should be done in a truly free system), they pass it out to their buddies in the banking system who make a profit by leasing the money to individual borrowers.
How is this crap insightful? The Fed makes short-term loans to individual banks. These loans are at low interest rates but must be paid back quickly also. Banks also deposit cash reserves with the Fed. There is no 'giving' of money. Even if there were, that's a silly sentiment. "Let's power the economy by giving away worthless paper currency to everyone." It would be worthless because everyone had it in equal measure without any value being attached.
The Federal Reserve also has a very powerful way of making a shit load of money: inflation. They just print a lot more money that they would be allowed to print if the system were regulated by just laws. Who or where does all this money goes to? I have no idea.
Yes, you don't have any idea. You're completely clueless about our financial system. You probably aren't aware that at any moment, there are a few hundred billion in coin and currency in circulation (600 bil or so in 2003). The US GDP in 2003, for instance, was something on the order of 11 trillion dollars. Search that document, it's there. Please note that we aren't even considering bank deposits, stock ownership or any other securities, like bonds.
An intelligent person might come to the conclusion that most money doesn't exist as currency at all. It's only written on paper or stored in a computer somewhere. You'd be right if you came to that conclusion. Therefore, the Fed printing 100 billion more of $100 bills would have a negligible effect anyway.
There's an even more compelling reason why your statement above is stupid. The Fed doesn't *GIVE OUT* money. The funds are either loaned in the short term, or given out of the member bank's deposits to the Fed. Therefore, there is no inflationary pressure associated with $100 bills going to Bank X since they are paid for one way or another.
So how exactly were they making money off of this? Answer: they aren't. They make most of their money off of check processing and ACH transfers which they act as the middleman for.
Essentially, we have the wolves in charge of the chicken coop. There're making a killing, so to speak, and there's nothing you and I can do about it. Other than complain.
Next time you make a comment about something, how about knowing something...anything about what it is you are commenting about?
Thank you.
HBI's Law: Frequency of calling others Nazis is directly correlated with the likelihood of the accuser being Communist.
Let's see if I can blast through your tin foil hat:
First it is not "a private corporation operated and owned by private banks" Frequently Asked Questions about the Fed
"The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects."
Second, there is no confusion over public / private control over the internet. It is publicly controlled. Congress can revoke ICANN's authority any time it wants.
Further, the Fed is not unconstitutional. I suppose an argument could be mabout the non-delegation doctrine, but that's deader than the 2nd ammendment in Ginsburg's utopia. Further the court has recognized delegation guided by an "intelligible principle", which using monetary policy to maintain macroeconomic stability certainly is.
Finaly it is not evil. It has done an amazing job of executing monetary policy. The two most recent Chairs Greenspan and Volker are amazing men.
The alternative is to have Congress control monetary policy. Bad idea. Can you imagine the confidence that would be inspired if Congressional hacks had control of the money supply? Yikes.
PS The Fed was created on 12/23 not 12/24.
No, he means that they adjust interest rates to ensure that the number of abstract "dollars" roaming around the economy is enough so that there are resources available for investment and a slight upward price pressure (inflation) without so many dollars roaming around that prices inflate rapidly simply because there's more money chasing fewer resources (see, the internet bubble, the so-called housing bubble, blah blah blah).
Deflation is bad because your average person will hold off on making purchases (because disposable/durable goods will become "cheaper" as you wait) and, if possible, get rid of their hard assets (which are devaluing) to build up a stock of ever more valuable cash.
Inflation is bad because your average person will spend cash as rapidly as possible to maximize its value (because disposable/durable goods will become more "expensive" as you wait), and fixed rate debt becomes either impossible to find or a gamble (too low a rate, the lender gets the shaft, too high a rate, the borrower gets the shaft or nobody borrows money to invest because it's not worth the risk).
The job of the Fed is to provide long term price stability, which empirically seems to require an inflation rate of 2-3%. Too see the effects of deflation, look at the Japanese economy over the last 10-15 years. Too see the effects of hyperinflation, look at various South American economies in the mid-70s to late 80s.
Read the truth about the Federal Reserve here:
http://aor.cat4.net/nwo/sfr/index.php
Summary: It is the greatest bank-robbery of the history.
I haven't read the entire FedLine manual, but I don't see anywhere that says this is going to be on the internet -- only that it will use Internet Based Technologies.
If they're running an Encrypted VPN over leased lines on an airgapped network, then this story is nothing but "Fed to update network protocols to TCP/IP, just like everyone else has done."
Sometime between now and new years, the Fed will activate a new business function (based on the Check21 law, passed by Congress in 2003). That will allow banks (who wish to do so) to 'truncate' the paper-passing of physical checks and send an image of the check (along with the MICR scanned data). Those images will be in B/W TIFF files. Now, any bank that handles a sizeable number of checks per day, is going to have quite a bit of data to move in the evening. The fed-cutoff times that have been posted, make it monetarily adventagious to the banks to get the data moved sooner rather than later. And who do you think has the biggest pipes to move some of that data ?
Why the internet of course. google Check21 to see more info on how this in being handled. Oh, and don't expect your checks to take 2-3 days to clear cross country anymore.
Ray
This msg is brought to you by the letter 'W'.. for Worthless Wuss
Carriers are notorious at bad security, particularly on PVC's and other "private" links. You enter this cloud and they claim it's secure.
Going over the Internet is no different than using a modern frame PVC or ATM link, particularly if you're using C&W infrastructure as their GIN architecture *is* the Internet with VPNs over it.
Properly risk assessed, and with appropriate key management, going over the Internet has only one major failing - quality of service. If you can work around that by using multiple providers, there is nothing really wrong with using the Internet as a transaction medium.
Andrew van der Stock
The Fed is regularly audited by the GAO.
If Congress thought there was a problem, they could take control back at any time.
The whole point of the Fed was to depoliticize currency and banking in the US. It makes great fodder for tinfoil hat types/Art Bell listeners to concoct conspiracy theories about, but the Fed is rather transparent and focused on its goal which is embodied in section 2A of the Federal Reserve Act:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
During my time there, I saw two things going on. First, reliable armed guard maintained over large gold and currency reserves. Second, incredible amounts of statistics gathering with the intent of producing a firm picture of current banking and economic trends.
No Star Chambers, no evil men and smoke filled rooms.
Sorry to burst everyone's bubble.
HBI's Law: Frequency of calling others Nazis is directly correlated with the likelihood of the accuser being Communist.
Not any more. Really, most of the money exists just as data in computers. That's a fine method to use. Remember, all that money is is a representation of work that has been done, a method of "storing" value. Rather than bartering for goods and services directly, which doesn't work well (you may have something I want but I don't necessiarly have something you want) we store value in a commonly agreed upon medium.
Orignally it was precious substances, gold and silver being the most common, but salt and others were also used. Then you started seeing paper currencies emerge. The Medicis and the Frugers were largely responsible. You could trade your gold coins at any Medici bank for a paper note, which could then be exchanged back at any other bank (less a small fee). However all the paper currency was just a lightweight proxy for the precious metals.
The US orignally had backed currency like this. Dollars were silver notes, meaning you could exchange the note for equivalant amount of silver. Well as economies grew, this got impractical, so notes became unbacked. You don't actually need anything behind them, just so long as everyone agrees the notes are a common standard of stored value. It's again just a tool for making the economy work.
The next step came with the telegraph. Now you could communicate over long distances and likewise might want to pay someone over those distances. So a system was invented for wiring money. A bank would send offical notice to another bank that such an amount of money was being transfered. IT would then be made available to the person it was transfered to. The origniating bank owuld then get the actual money there later.
Computers made it such that even this was unnecessary. There wasn't any need to have any physical money transfer. So long as the system was secure, trusted, and one all banks agreed upon, electronic representation was fine. To transfer money a bank would just tell another bank the amount of the transfer, and the computers would update the numbers.
That reall is how it works these days. That's not to say there is no currency behind the numbers, or things of value behind the currecny, but most of it exists only in computers. It's an idea that seems strange to most people but really, all that currency is is a facilitator. It just makes the economy work. A means, not an end to itself. Most people see it as an end, though, since that's how you deal with it in everyday life, and thus the logical disjoint.
SWIFT is an irrevocable payment transfer system. It doesn't guarantee liquidity, that is up to the Fed in the US, or whatever is the local Central Bank. For info on international interbank settlement risk, check out Herstatt Risk named after the failure of the Herstatt Bank (German) during a complex international transcation where the interday netting failed due to the differences in time zones between the US and Germany.
See my journal, I write things there