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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.
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 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.
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.
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.