Thursday, July 25, 2013

Banks Seek Technological Solutions to Reduce the Hundreds of Billions Lost to Fraud

Last February, the FBI busted a 13 person conspiracy that planned to bilk over $200 million from credit card companies.  It included a network of complicit businesses that would access the money and wire it to one of several Asian or Eastern European countries.

Today, US investigators announced the arrest of four Russians and a Ukranian.  They had hacked databases to retrieve information on over 160 million credit card numbers.  The indictment, according to Russia Today, said that Financial institutions, credit card companies and consumers suffered hundreds of millions in losses, including losses in excess of $300 million by just three of the corporate victims, and immeasurable losses to identity theft victims."

Mexico and the United States experience the highest rates of credit card fraud, according to a Forbes report last fall.   In both nations, over 40 percent of card holders describe having experiencing some type of credit card fraud.  Debit card fraud is more difficult, but the two aforementioned countries are near the top of that list as well.  One out of four or more debit card holders in both countries have been defrauded in some way.

Help may be on the way.

This year, US credit and debit issuing companies will start issuing EMV standard cards.  This stands for Europay, MasterCard, Visa.  These cards will start including an extra layer of security in the form of ID chips. 

The process will take years, however, because of the need to update card readers and ATMs.

Banks lose $190 billion per year to fraud, according to another Forbes report.  Industry observers hope that EMV, among other measures, will roll back the heavy losses. 

Until then, organized criminals with technical prowess will continue to plunder banks and consumers alike.

Wednesday, July 24, 2013

Marijuana, the Conservative Movement, Republican Politics, and the Art of Thoughtful Reconsideration

Almost ten years ago, William F. Buckley penned a powerful column that reflected on a key issue of the time and the conservative movement in general.

In it, he included a powerful indictment of ossification of thought, saying "intelligent deference to tradition and stability can evolve into intellectual sloth and moral fanaticism, as when conservatives simply decline to look up from dogma because the effort to raise their heads and reconsider is too great."

At the time, he referred to the strong resistance among conservatives and Republicans to loosening the marijuana laws.  Buckley tended to oppose all of them, but most strongly advocated for the use of cannabis  for medical purposes. 

Opponents of loosening the laws on marijuana generally agree with the writer of this CNBC piece from 2010. The laws work.  They reduce consumption while supposedly preventing higher rates of drug impaired driving.  Opponents of marijuana use for medical purposes point out that such a policy could increase the incidence of recreational use.

The state of Missouri, in association with the National Crime Prevention Council, released a PDF at some unknown point that lists points of "damage" associated with use. These include lowered testosterone for men, higher testosterone for women, frustration, isolation, increased appetite, paranoia, and "exposure to illegal drug culture."

Cato Institute in 2010 reported on peer reviewed studies on marijuana use and risks.  They found that the scientific community generally concluded that marijuana, while not risk free, brings fewer problems than most other drugs.  Even most of the risk factors disappear when pot is consumed in some other way than smoking. 

Some of the "damage" listed by occasional government warnings appear questionable.  Does marijuana make some people paranoid, frustrated, and socially averse?  Or do paranoid, frustrated, and socially averse people try to self-medicate with marijuana?  It would be impossible to prove that cannabis caused these behaviors unless studies found a large sample of non users, then illegally induced them to use over a long period of time. 

Even the idea that medical users of drugs may be tempted to use them recreationally supports legalization. People will abuse medical drugs after prescribed use, no doubt.  No one argues that marijuana use is nearly as dangerous as narcotic drugs such as Oxy Contin, which have destroyed families and lives at devastating rates.

Some question keeping marijuana illegal even for recreational purposes. Critics of recreational pot use talk about reducing motivation and raise the specter of drugged driving. People foolish enough to drive around while intoxicated won't be stopped by the fact that pot is illegal.  They will just drive drunk.  And while it is definitely true that people high on pot have reduced motivation, this actually argues for its social utility.  Drunk people are more likely to leave the house than high people.

Buckley's point was that doctrinaire conservatives must keep looking at the evidence supporting or disproving principles.  Also, does support of one principle violate a more important one.

If a conservative advocates for states' rights and smaller federal government, how do federal marijuana laws fit into this picture?

If a conservative believes in maximum property rights, how can we justify the outlawing of a plant that God saw fit to put in the ground?

If conservatives define Bloomberg's health crusade and 1920s Prohibition as excesses of Progressivism, what does that say about the costs to taxpayers, society, and freedom of choice in terms of pot laws?

A cost-benefit analysis of marijuana enforcement must include the fact that states spent  $3.6 billion on enforcement in 2010 alone.  This includes the costs of arrest, incarceration, and trial. Can this money spent on mostly non violent offenders be spent in better ways, or sliced entirely from budgets?

Another problem lies in the credibility of law.  If evidence of all kinds shows an illegal substance to be less damaging than many that are legal, the law looks absurd in the eyes of the people.  Overall respect for law drops.

Since Buckley's 2004 piece, Republicans have tended to step back from the legalization debates.  Like gay marriage, the issue has an aura of inevitability.  Unlike gay marriage,  Republicans have no constituency bothered enough by pot use to push them to fervently act to prevent legalization and/or decriminalization.

Old hippies and left-liberal college students find themselves in the odd position of having their favorite cause slapped down hard by the former chief of the choom gang.  It cannot be comfortable for them to agree more with Buckley and George Will than with their idol president. 

Good politics and good policy do not always combine.  Here, the Republican Party can take a stand that can help cut budgets, increase individual liberty, and force the hand of the establishment Democratic Party.

Tuesday, July 23, 2013

A Solution For Detroit

Barack Obama, the President of the United States, waxed rhapsodic about a single criminal case last Friday.  The media swirled about his words like gnats on a summer day.

This week, one of America's storied metropolises filed for bankruptcy.  Not a peep.

Since 1960, the city has imploded.  This report which, no joke, 47 percent of Detroit residents would not be able to read,details many of the problems facing the city.

These include an hour response rate for police, 40 percent of traffic lights now non-functional, 80,000 houses abandoned, many housing drug gangs as squatters.  Over a million people fled Detroit for saner pastures as city government devolved.

Detroit has no choice but to declare bankruptcy, which would free it from significantly onerous pension requirements.  Look out California and Illinois state workers, your turn is coming unless you can hit on a formula for sustainable government. Several other cities have already taken this path.

A county judge tried to halt the bankruptcy proceedings by, among other things, claiming that bankruptcy dishonored the president and violated the state constitution.  A federal court, however, has ultimate jurisdiction.  All the city's creditors will likely take an enormous hit, not just those expecting lavish pensions after making lavish salaries. 

What can save Detroit?  A National Review writer suggested using Hong Kong as a model.  Create a free enterprise zone of limited taxes and regulations.  Incidentally, that was the original purpose of the modern city, as conceived in Central Europe in the Middle Ages.  Nobles controlled most of the lands while kings only directly ruled the roads.  At crossroads, kings established tax free areas where merchants could do business, while the king would derive revenue from tolls and fines.  Of course, such an arrangement would be up to the state, not the federal government, of course.

Normally the drop of land values to nearly zero would attract entrepreneurs.  Detroit's horrific school system, however, has not provided a workforce with even the rudiments of ability.  Widespread drug addiction and the inability to enforce basic rule of law also make serious businessmen hesitant to pull the trigger. Last year, the police union warned out of towners to avoid Detroit.

But there is, possibly, a solution if government can stay out of the way.

Colonization.  In a sense.

With the price of an acre somewhere below a six pack of Schlitz, a manufacturing firm could buy property for next to nothing.  Now the state or city would have to help to remove the squatters without facilitating bizarre legal challenges.

Next, government officials have to stop the green energy foolishness and draconian EPA regulations on power plants.  One of America's few remaining advantages in attracting manufacturing is cheap power.  So get out of the way of drilling and production. 

Manufacturing facilities, for a while anyway, in Detroit would have to look like their Third World counterparts.  Buildings surrounded by walls topped with razor wire, perhaps even containing dormitories where workers could live in safety.  Armed private security would have to patrol the site. Possibly such measures might make such a place too costly. 

The locals will not like it, but much of the workforce would have to come from outside.  Successful firms do not employ drug addicts or illiterate people. 

It goes without saying that Michigan would have to continue its move towards worker rights, despite union protests.

In other words, colonize Detroit with entrepreneurs and hard workers from other parts of the country.  Productivity and profit would attract satellite businesses.  Revenue from a fair tax system wisely used would help to rebuild city services.  This would be colonization in the Roman sense of the term.  Plant communities within a previously settled area to start a long term transformation. Over time, the city grows prosperous, safer, and offers a good quality of life.

It would have to happen without court battles involving environmentalists, community organizers, unions, and every other fool who thinks Detroit is currently just fine.  Business would have to be able to get quick permission to build, as opposed to conducting exhaustive studies. 

Unfortunately, nothing is easy for business in America.  Which is why Detroit and many other places like it are happening in our generation.

Monday, July 22, 2013

Private Sector Versus Pirates?

Should low intensity threats warrant an expensive high intensity response?   Perhaps the private sector can offer flexible and less expensive solutions than nation-states.

Last week, Doublethink magazine interviewed John-Clark Levin the author of Private Anti-Piracy Navies: How Warships for Hire are Changing Maritime Security.  Levin argues that small scale privately run outfits can offer better security at a lower price than national navies.

Piracy, especially in the Indian Ocean, has escaped the front page, but remains a threat to shipping and leisure cruising.  Other reports indicate that threats in other parts of the world have outstripped the danger lurking in the waters off of Somalia.  While 851 suffered attack off the coast of that quasi-country this year, nearly a thousand have been fired upon off of West Africa.

Like any other criminals, pirates take advantage of opportunity.  The worldwide global downturn left many nation-states cash strapped.  International flotillas from the West made the Indian Ocean more perilous for pirates, so they simply follow the advice of Wee Willie Keeler.  "Hit it where they ain't." 

"They ain't" in West Africa and other vulnerable areas, such as the Indonesian archipelago.

The Somali pirates themselves have become more sophisticated in choosing prey.  In the past several months, their attack to boarding ration has increased significantly.

Levin argues that western warships come with huge operational pricetags.  Warships cost hundreds of millions of dollars, using up tons of fuel, patrol sea lanes.  National taxpayers waste too much money on the maritime equivalent of an M1 Abrams patrolling a bad neighborhood.

In contrast, Levin says that a private firm could patrol the same areas and respond more flexibly and effectively for $35,000 or so per day. 

One obstacle to using private firms to police the oceans is international law.  Although this remains murky on the issue, American law is clear.  Congress has constitutional authority to issue "letters of marque and reprisal" under Article I Section 8 Clause 11.  Foreign Policy recently advocated their use against China in cyberspace.  Private anti-piracy forces would harken back to the more traditional sense of the term. 

Another option for Western forces would be to establish a more flexible command with low tech weaponry.  For the cost of deploying a handful of frigates, the Navy could build World War II type PT boats, such as the one commanded by John F. Kennedy in the Pacific.  Armed with several .50 calibre machine guns and torpedoes, they would be less expensive to run, but more numerous and deadly to pirates.  The World War II tactic of hiding small warships inside of dummy freighters to lure attacks would also be effective here.  

Stopping piracy requires executing a simple equation.  Make the cost of "doing business" higher than the rewards of success.  Along the way, American strategists need to also find solutions that are cost-effective, yet still accomplish the mission and keep professional soldiers as safe as possible.