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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.
First transaction
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.
Shocking. To think they'd use the INTERNET instead of analog phone lines!
what makes you think "using the internet" equates to "having a server completely open to the public with no backup processes"? in the UK you can do your taxes online, I guess if they get DDOS'd no one will have to pay?
I have to believe that -- if strong accounting controls are built in -- the proposal would be a step in the right direction. A DOS attack slows transfers, which pretty much puts us back to where we are now. The bigger risk is someone illegally diverting funds to an account -- and spending the money before they are caught. Preventing that from happening is the point of maintaining strict access standards and a clear audit trail.
I'm more worried about another slammer-type attack that floods the Internet.
:)
Besides, encryption and such are fine, but just keeping everyone else off your network (the old method) makes the security model much simpler.
The more access there is, the more possible attacks there are. Which means that more attention has to be spent testing and checking these systems.
Which means more jobs! So it isn't all bad.
"You've got money!"
"He who throws mud, loses ground." - proverb
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
Wonder how long it will be until they see:
Transaction complete.
Confirmation: All your bank accounts belong to us!
nos laetus epulor qui would domito nos
Well, they have DOS systems connected to a private network.
The weird thing is that they're looking at moving to the Internet to get away from the limitations of their DOS system.
Why don't they keep the current, private network and just upgrade the machines and the software on that? Why do the upgrade AND move to a less secure network?
Slashdot "libertarians": Small government for me, big government for those I disagree with. -1, I disagree with you
(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.
Why is "Laura Hughes, vice president of national marketing" in charge instead of computer experts?
Some people die at 25 and aren't buried until 75. -Benjamin Franklin
(Formerly known as PayPal)
Just as an example, the computer that the data is being sent to has to be connected to the Internet. How secure is this computer from attacks? If someone breaks into that computer, can they get to the unencrypted data?
Dlugar
Computer Go: Writing Software to Play the Ancient Game of Go
The main job of the Fed is to adjust interest rates as the governing board deems necessary to keep the economy stable.
You mean that they adjust the interest rates to ensure that the US Gov't will never be able to pay back the debt that they owe to the Fed, thus keeping all of us normal citizens forever enslaved to pay back a loan that we never even asked for.
It's convenient for the people closest to the top of the pyramid...
+++ATHZ 99:5:80
Do not try to transfer the money online. That's impossible. Instead only try to realize the truth. There is no money online. Then you'll see that it is not the money you transfer online, it is only yourself.
Let's not forget that one can hate his government, but love his country.
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.
Would you prefer gold, some other metal dug out of the ground or rare sea shells?
A lot of people do... Putting money in gold and other precious metals has been the hallmark of "un-patriotic" money management for years.
Basically your choices are:
a) put faith in a completely made up system run by "the authorities".
b) put faith in continued scarcity of certain once-precious resources.
Neither is really all that appealing. Personally I put faith in my ability to make computers do stupid tricks. Other than that, I figure ride the tides of fortune that come your way.
Close, but no cigar. What gives money its value is our collective agreement to accept it in payment. When you come down to it, we're really bartering, but instead of having to have goods to swap, we swap something easy to carry and of a known (if artificial) value. Money is just an abstract representation of goods that simplifies commerce.
Good, inexpensive web hosting
Much has been made of the evil of monopolies on Slashdot (from Microsoft dominating the desktop to Apple regulating music formats).
The Federal Reserve is a private corporation operated and owned by private banks and given special monopoly existence by congress back on Christmas Eve in 1913. This is a very scary monopoly that has (perhaps unconstitutionally) usurped Congress's power to coin, issue, and regulate the American money supply.
While I won't attempt to proffer all of the observations (probably labeled as "tinfoil hat theories" because neither political party wants to call them into question) I will point out a very human readable web page that highlights some of these issues in a phone call to the Federal Reserve Bank of San Francisco.
I realize that the Internet is a public network and that the Fed has every right to switch its internals over to using it. But it will likely cause two bits of controversy.
First, they are a private corporation so if the receive a private set of Class A IP addresses or other special treats it will expose some flaws in the public vs. private issues of control of the internet. (This is probably of more interest to slashdotters.)
Second, The Fed may be exposing tremendous auditability and accounting problems that don't exist on the private network. While their books and procedures are publicly audited, they have simply "lost" money (both physical and transactional). The paranoid would suspect that perhaps they've been inspired by the Diebold voting systems which can apparently cause votes to simply come and go in an unaccountable manner. The less paranoid should still see that this change will need a great deal more publicly auditable security to keep robber barrons from simply coming up with a new means of screwing over those of us who rely on cash & credit.
I can understand the need to migrate from old proprietary technolgies to new ones, but this migration should be watched VERY closely and where possible should be opened up for further audit and regulation.
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.
Might a DDOS attack on the Fed's computers bring down the entire banking system?"
7--Core Principle VII:
The system should have a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.
Let me quoth for those who don't read the articles:
Fedwire Data Centers
Three data processing centers support the Fedwire services. One site supports the primary processing environment with on-site backup. A second site serves as an active, "hot" backup facility with on-site backup. A third site serves as a "warm" backup facility. The three data processing centers are located a considerable distance from each other (i.e., hundreds of miles) in order to mitigate the effects of natural disasters, power and telecommunication outages, and other wide-scale, regional disruptions. In addition, all three data centers have appropriate security and include various contingency features, such as redundant power feeds, environmental and emergency control systems, dual computer and network operations centers, and dual customer service centers.
Take a read through it, and its a really dry read by the way, it looks like they've got it pretty much figured out. Good luck finding those servers and then trying to DDOS them out of existance. Then again, if someone almost got the worldwide DNS root servers offline, then this could be just a drop in the bucket...
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.
The early (DarpaNet) Internet was designed by the US Government as a cold war computing network. It was to remain intact in the event of one or more portions of the network being obliterated in a nuclear attack. Multiple point to point connections that could re-route to reach a destination.
Today's Internet is much more dependent on large pipelines and due to increased traffic is more vulnerable. Worms like Code Red and others effectively shutdown the Internet making it essentially useless. This lasted for days and weeks as new viruses spun off from the older viruses.
The question would be not so much the security of the Fed's connectivity but the reliability of that connectivity. Say you have another worm outbreak due to some flaw in WinXP SP2 that causes the Internet to literally flood with massive amounts of traffic that ends up consuming 90% of the bandwidth and ends up bottlenecking and strangling the connections in highly populated areas. The Internet as it exists today needs a serious upgrade in the next few years in regards to bandwidth, encryption, and protocols.
Just look at what happened in NYC to both the cell phone networks and the landline's when 911 happened. They were so overwhelmed by the network traffic that many people could not make a phone call. Millions of people in NYC picked up the phone and Millions more outside NYC tried to call family and friends in NYC.
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
"This is the system that has evolved, it works better than the alternatives, and it isn't going to go away."
Actually, the founding fathers of the US thought that central banking was a bad idea, and Madison even said that central banking was more of a cause for the war than taxes.
Thomas Jefferson:
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs."
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."
James Madison:
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance."
Henry Ford:
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Alan Greenspan:
"[The] abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holdings illegal, as was done in the case of gold.... The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.... [This] is the shabby secret of the welfare statist's tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."
Engineering and the Ultimate
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.