A frightening article in today's UK Telegraph suggests that another financial crisis could destroy capitalism as we know it. Let that sink in. Our system is at risk, as it was in 2008. As a reminder, consider this C-SPAN interview with Representative Paul Kanjorski, wherein he described how our entire system almost collapsed. He stated in a very matter of fact way that if the collapse had continued, it would have been the end of our economic system and our political system, again "as we know it."
What is so striking about this interview is how Representative Kanjorski begins by describing it as "an electronic run on the banks" that he shares almost triggered a complete societal collapse in as little as 24 hours. Now, after trillions upon trillions of dollars in bailouts and stimulus, it seems we may in some ways be back where we started. That was the subject of our last blog post "And Why It Could Happen Again (Part 2)," in which we explained many of the parallels between 2008 and now. This, sadly, demonstrates OPPORTUNITY for any who would do us harm.
Now, consider that there are forces on the earth that desire the end of capitalism. These include radical elements in Islam that had celebrated the near-death of capitalism in 2008, hoping to replace it with a Shariah-based system, leftover Cold War elements that may have strongholds in Communist China and Russia, and even North Korea, and radical leftists in this country and around the world once represented by the OCCUPY movement. And, with the rise of Bernie Sanders in the Democrat primary, it seems that there are quite a few Americans who wouldn't mind seeing the death of capitalism. This is MOTIVE.
Now the third part is something we have discussed at great length as well–the MEANS. In our last post, we noted:
The reality is that a House Committee learned that any number of hackers have the capability of taking down America by destroying our stock market. If the machines did cause a market crash, would we ever know for certain whether it was an accident or evil plot?
It is instructive to share some of the specific findings from that House inquiry:
Foreigners theoretically could gain "naked access" to an exchange through the sponsorship of a brokerage firm. This means that the broker would allow a paying customer to co-locate its own servers with the broker's servers in a facility with a direct, high-speed connection to the exchange's servers. This proximity reduces trading "latency." In other words, the shorter the connection, the faster the round trip from trader to exchange.
In light of that, it would seem prudent to keep possibly dangerous foreign elements from being able to access an exchange through the sponsorship of a brokerage firm. That only makes sense, right? So you can imagine the warning bells that should be ringing with the idea that the Chinese are about to buy an actual stock exchange. Excerpts from a February 5, 2016 BLOOMBERG article:
The Chicago Stock Exchange said a Chinese investor group agreed to acquire it, giving the buyer entry into the intensely competitive U.S. equity market.
Chongqing Casin Enterprise Group has signed a definitive agreement to acquire the company, according to a statement Friday. The deal values the Chicago Stock Exchange at less than $100 million, according to a person familiar with the matter, who asked to not be identified because the terms weren't disclosed publicly. The exchange expects the deal to close in the second half of the year, though that will require regulatory approval.
"We're a good fit. Our strategy is something they like and is consistent with theirs," Chicago Stock Exchange Chief Executive Officer John Kerin said in a phone interview. "We provide technology and we're a standalone, full-service exchange that they can grow in a manner that suits their needs."
The acquisition would be the first of a U.S. exchange by a Chinese company. The 134-year-old bourse only handles about 0.5 percent of U.S. stock trading, but a deal gives a buyer a beachhead in the $22 trillion American equity market. There's also the potential for growth given that regulations require trades to be routed to whichever exchange has the best price for a stock at a given moment.
[To CONTINUE Reading at Bloomberg…]
We can hope that regulators will carefully scrutinize this deal to make certain the group involved is legitimate. But there is a legitimate concern that even the private enterprises of China fall under government control. Any Chinese citizen who goes against the government is at risk, even outside China. And as we have shared, Chinese military doctrine includes causing stock market crashes as a weapon. Add to that the idea that the Chinese have accused us of crashing their market. Also, that in the book Unrestricted Warfare, the authors pretty much accused George Soros of being an American financial terrorist, working on behalf of the Federal Reserve. While we may find that laughable, the Chinese authors were serious. Now, they have warned Soros to leave their markets alone.
China is worried that Soros is manipulating their currency. He denies it. What we do know, however, is that currencies can be manipulated as we saw with a 15% move in the ruble. The means? Computer hacking. From a February 8, 2016 story in BLOOMBERG:
Hackers used malware to penetrate the defenses of a Russian regional bank and move the ruble-dollar rate more than 15 percent in minutes, according to a Moscow-based cyber-security firm hired to investigate the attack.
Russian-language hackers deployed a virus known as the Corkow Trojan to infect Kazan-based Energobank and place more than $500 million in orders at non-market rates in February 2015, Group-IB told Bloomberg, without identifying individuals behind the attack. The resulting rate swing prompted a Russian central bank investigation into potential market manipulation.
[To CONTINUE Reading at Bloomberg…]
If the Chinese believe we are attacking their stock market and currency, will they feel justified in attacking ours? They may have the MOTIVE and OPPORTUNITY. And with hacking and even possible ownership of an American exchange, they no doubt will have the MEANS. Everything necessary for a horrifying crime.
We have shared how General Keith Alexander admitted to 60 Minutes that a foreign national could take down our stock market. Now, the warning has been made even more precise by the February 9, 2016 testimony (this is happening in real time folks) of the Director of National Intelligence, General James Clapper:
The increased reliance on AI for autonomous decision making is creating new vulnerabilities to cyberattacks and influence operations. As we have already seen, false data and unanticipated algorithm behaviors have caused significant fluctuations in the stock market because of the reliance on automated trading of financial instruments. Efficiency and performance benefits can be derived from increased reliance on AI systems in both civilian industries and national security, as well as potential gains to cybersecurity from automated computer network defense. However, AI systems are susceptible to a range of disruptive and deceptive tactics that might be difficult to anticipate or quickly understand. Efforts to mislead or compromise automated systems might create or enable further opportunities to disrupt or damage critical infrastructure or national security networks.
Basically, he is saying that the stock market can be hacked. Trading algorithms (like the ones allegedly stolen from Goldman Sachs) can be rigged to trigger a market meltdown. Combining this with the House committee testimony, the closer to an exchange the greater the potential for catastrophe. And, the DNI just admitted that China continues in Cyber Espionage. So again, we ask, WHY WOULD WE ALLOW CHINA TO BUY AN AMERICAN STOCK EXCHANGE?
Given how precarious it may be for Capitalism, should we take this risk? Don't forget that there was a Russian plan in 2008 to take down America via our financial markets. In 2013, the Chinese agreed that the world must be de-Americanized. Never fear, however, because even though our military has ignored the financial terror threat, they are all geared up to address climate change. Too bad their study of economic warfare didn't get as much attention.
It's time we face the reality that our very way of life is under threat from the very real risks of Cyber-Economic Warfare. We outlined a way to address this threat both as a nation and as individuals in Game Plan: How to Protect Yourself from the Coming Cyber-Economic Attack. Hopefully our leaders will start to pay attention.