Wednesday, November 11, 2009

MoveOn vs the Progressives?

I just received this e-mail from MoveOn:

I wonder if they are going to target Dennis Kucinich...

Dear MoveOn member,
We won a big victory on health care on Saturday when the House of Representatives passed a bill that includes a public health insurance option.

But dozens of conservative Democrats sided with Big Insurance to vote against it.

We've got to show that voters will make them pay a political price for standing in the way of health care reform—and send a message to any Democrats in the Senate who are considering doing the same.

So we're rushing to launch a major new TV ad campaign in the home districts of the Democrats who voted against the bill—spending more than ever before on ads to hold Democrats accountable.

We've got to start airing these ads before the Senate takes up health care, and that means we need [donations] today. Can you chip in $200?

This is a defining moment for the Obama era, because fence-sitting Democrats in Congress are watching carefully to see what happens to those who oppose real change.
If they see that there are no negative consequences for those who voted "no" in the House, it'll become much harder to win a final victory on health care—or on any of the other issues we care so much about.

So we've got to act quickly and forcefully to demonstrate that any politician who sides with corporate special interests will suffer for it back home.

And the best way to do that is to go up on the air immediately with this new ad campaign targeting House Democrats who voted against the health care bill. Can you chip in $200?

The bill that passed in the House was far from perfect, and we'll keep fighting together to fix it.

But after fighting for decades, we're finally on the path to winning meaningful health care reform. And those in Washington who are standing with Big Insurance to oppose it have to be held accountable.

Thanks for all you do.

–Nita, Kat, Ilyse, Peter, and the rest of the team

I wonder, 'cause Kucinich voted no:

Why I Voted NO
by Dennis Kucinich

Wednesday, June 10, 2009

Facebook, Google, and the Police State

When it was introduced, Facebook's newsfeed caused an uproar over privacy concerns. Users were initially unable to control what appeared on the newsfeed, and cried foul. A few, though, defended Facebook, claiming the anger overblown because there was no change in information privacy, just a change in information publicity.

How people could believe a thing could be made more public without being any less private was beyond me, but I didn't much care; the issue didn't seem all that important. But when a Wisconsin appeals court used the same argument to justify Government tracking of every citizen's vehicle, via GPS, without warrants, it no longer seemed so trivial.

The arguments defending the newsfeed went along these lines:

In Defense of Facebook Feeds - Jared W. Smith
It’s not an invasion of privacy if the information is already public knowledge to your networks. A privacy invasion would be Facebook broadcasting transactions that the privacy settings specifically mask, and that’s not happening.

In defense of Facebook's facelift - Eric Hansen
The good news is that this does nothing to actually reduce the privacy of your Facebook information, only the publicity.

These arguments assume that if someone can potentially obtain a piece of information then, for all intents and purposes, they already have it. But that's not the case. It's the effort needed to acquire information that largely determines how private it is. The harder it is to get at a piece of information, the fewer there will be that actually end up with it. By reducing the effort required to access information (i.e. making it more accessible), you ensure that more interested parties will acquire it.

To clarify the point, let's examine some of the controversy surrounding Google Maps' "Street View" feature. Google Maps' Street View provides users a 360 degree street-level view of any location that one of Google's camera vans have driven through. Since Google's vans are only supposed to traverse (and photograph) public roads, all images available on Street view are images that anyone could have, potentially, captured. Nevertheless, like Facebook's newsfeed, Google Maps' Street View has been accused of privacy infringement.

For example, last year, one of Google's camera vans obtained permission to drive through and photograph the Ft. Sam Houston Army base in San Antonio, Tex. When the Pentagon got wind of this, they issued a directive banning Google teams from documenting street-level views of U.S. Military Bases.

Michael Kucharek, spokesman for U.S. Northern Command, told The Associated Press on Thursday that the decision was made after crews were allowed access to at least one base. He said military officials were concerned that allowing the 360-degree, street-level video could provide sensitive information to potential adversaries and endanger base personnel.

The street view images of the base were promptly removed. But what was the big deal? Patrick Lyons on the New York Times blog points out,

Not that very much about the lay of the land at Ft. Sam Houston is secret; the base is cheek by jowl with a large city, it gets many civilian visitors, its web site includes a map as detailed as your average college-campus plan, and the Pentagon doesn’t mind that the whole place is clearly shown in the satellite photos that are a few clicks away on Google Maps and elsewhere.

but concludes,

Still, you can learn a lot about a building from panoramic street-level images that just doesn’t show in satellite photos, so it’s not too hard to understand the sensitivity in the Pentagon.

This notion that "street-level views" can constitute a security threat is the same reason why Google has voluntarily removed photos of women's shelters from street view.

Google removed photos of women's shelters before launching the feature, said Cindy Southworth, director of technology at the Washington, D.C.-based National Network to End Domestic Violence, which is the umbrella group for state shelters.

"We don't want to call attention to the shelters," Southworth said. "We would rather it look like a choppy horizon line as you pan by. Our hope is that other companies will do a similar thing and reach out to us in advance."

Removing the shelters from the map greatly diminishes the privacy threat to battered women, said Ashley Tan, volunteer coordinator at Woman Inc., a San Francisco-based 24-hour domestic violence crisis line.

Anyone can look up and photograph locations of women's shelters. And it wouldn't be all that more difficult to photograph locations within Ft. Sam Houston, given all the civilian traffic that passes through. But the effort required to fully document these locations is significantly higher if they are not already documented in a publicly accessible database like Google Maps. Tools like Google Maps make this information much more accessible (i.e. more public). By definition, if a piece of information is made "more public", it must also then be "less private".

As I wrote above, all this seemed of little consequence, as Google and Facebook have both added features to help maintain some of the privacy that their tools encroach upon. But then I read this:

Wisconsin police can attach GPS to cars to secretly track anybody’s movements without obtaining search warrants, an appeals court ruled Thursday.


As the law currently stands, the court said police can mount GPS on cars to track people without violating their constitutional rights – even if the drivers aren’t suspects.

Officers do not need to get warrants beforehand because GPS tracking does not involve a search or a seizure, Judge Paul Lundsten wrote for the unanimous three-judge panel based in Madison.

That means “police are seemingly free to secretly track anyone’s public movements with a GPS device,” he wrote.

Creepy. This was the result of a 2003 case involving Michael Sveum, who was under investigation for stalking. Police obtained a warrant to secretly attach a GPS device onto his car so as to track his whereabouts. The information from the device led to his arrest and conviction. Sveum challenged the conviction, arguing the tracking violated his Fourth Amendment protection against unreasonable search and seizure because the device followed him into areas out of public view, such as his garage.

The court disagreed,

The tracking did not violate constitutional protections because the device only gave police information that could have been obtained through visual surveillance, Lundsten wrote.


“We discern no privacy interest protected by the Fourth Amendment that is invaded when police attach a device to the outside of a vehicle, as long as the information obtained is the same as could be gained by the use of other techniques that do not require a warrant,” he wrote.

Although police obtained a warrant in this case, it wasn’t needed, he added.

That last line is a jaw dropper. It would have been perfectly reasonable for the appeals court to uphold the warrant obtained to track Sveum, based on the case's merits. But to further conclude that a warrant wasn't needed because there was no breech in privacy is outrageous. As reported, this implies the Government can legally attach GPS devices to the vehicles of every citizen without a warrant.

Their reasoning is no less flawed than Smith's and Hansen's. There may be no change in who could potentially access user information on Facebook, street level photographs around the country, or the public whereabouts of Wisconsin citizens, but by expanding the accessibility of this information, they are making it more public and less private..

All this, just to conclude that "warrantless surveillance of citizens" infringes on their privacy. I used to believe that was common sense...

Sunday, January 25, 2009

A primer on the Federal Reserve

As much as Ben Bernanke and the Federal Reserve have been mentioned in the news as of late, most people still don't have the slightest idea of how the Fed conducts it's monetary policy. I figured it'd be useful to write up a primer on the topic, so here it is.

Nearly all of this information in the rest of this post comes straight from the Federal Reserve's educational website:


There are some interactive tutorials there worth checking out.


The Federal Reserve is wholly responsible for controlling the nation's money supply, and manipulates it in an attempt to achieve whatever economic goals they have are currently pursuing. According to them:

The goals of monetary policy include the promotion of sustainable economic growth, full employment, and stable prices. Through monetary policy, the Fed is most able to maintain stable prices, thereby promoting economic growth and maximum employment.

A simplified explanation of the dollar expansion/contraction process:

The Fed manages the banking system and controls the expansion and contraction of the money supply through the banking system.

When dollars are added to the money supply, they are deposited at member banks. When dollars removed from the money supply, they are removed from member banks.

These dollars, added and removed, count toward the member banks' reserves. Reserves are primarily made up of demand deposits (checking accounts that citizens and businesses hold at banks). These reserves are the money that a bank uses to make loans.

(Aside: "Demand deposits" are deposits in which bank customers, at anytime, may choose to withdraw. Because banks use the dollars from these deposits to make loans, they never have, in reserve, all of the dollars that they have guaranteed their customers access to. They only hold a fraction of what they owe to their customers. This is why this system of banking is called "fractional-reserve banking". They can get away with this because, at any given moment, their customers will only withdraw a portion of what is supposed to be in the banks' reserves. If every customer at a given bank chose to withdraw their money at once, the bank would not be able to honor all of these requests, and would be bankrupt. This situation of everyone trying to withdraw at once is called a "bank run".)

The Fed involves banks in the dollar creation process as well. The Fed mandates a "reserve requirement" for banks, which is usually 10% of the dollar amount in loans issued by a given bank. So if a bank has loaned out $100,000, it must hold $10,000 in its reserves. If a bank drops below this reserve minimum, it's bankrupt.

(Aside: In practice, dollars are not the only thing banks can count towards their reserves. Certain assets/investments can count towards their reserve requirement. The rise and fall in value of these assets affect what the bank can say it has in reserve. The housing crisis turned into a banking crisis in large part because banks were counting mortgage-backed securities as part of their reserves. When they were suddenly forced to value these assets as worthless, all of a sudden they were at great risk of dropping under their reserve minimum and, consequently, going bankrupt)

So the dollar creation process as we now understand it is:

- The Fed decides to expand the money supply. It deposits $10,000 into a member bank's reserves. Having $10,000 extra in reserves, this bank is now allowed to loan an extra $100,000 to the public. Hence, $100,000 has just been created.

- The Fed decides to contract the money supply. It withdraws $10,000 from a member bank's reserves. Losing that $10,000, that bank must reduce the amount of money it has lent out by $100,000. Hence, $100,000 has been eliminated from the money supply.

The dollar expansion/contraction process in more detail:

Member banks all hold most of their reserves in accounts at the Federal Reserve. (They keep a portion of their reserves with them for day to day customer transactions such as: withdrawals from tellers, ATMs, etc.) When the Fed wants to expand or contract the money supply, it doesn't actually deposit or withdraw directly from the reserve accounts of member banks. Instead, it acts through financial institutions designated as primary dealers.

Say, as in the above example, the Fed wants to expand the money supply by $100,000. It informs all of its primary dealers that it wishes to purchase a financial instrument of some sort (usually securities issued by the U.S. Treasury, Federal agencies and government-sponsored ). After a bidding process, the Fed then purchases a security from a primary dealer, using a check for $10,000 redeemable only at the Fed. The primary dealer deposits this check at its bank, which in turn deposits this check into its reserve account at the Fed. The Fed takes this check and credits that bank's reserve account with $10,000. Assuming a reserve requirement of 10%, this bank can now lend out up to $100,000. The money supply has increased by $100,000.

If the Fed wishes to contract the money supply by $100,000, it alerts its primary dealers that it wishes to sell a financial instrument. After a bidding process, the Fed sells a security to a primary dealer for $10,000. The primary dealer withdraws $10,000 from its demand deposit at a given bank; this bank loses $10,000 from its reserves and must reduce the amount of money it has lent out by $100,000. The money supply has decreased by $100,000.

Transactions between the Federal Reserve and its primary dealers are called open market operations.

Here's the current list of Primary Dealers.

The effect of reserves on interest rates

Supplying a bank with more money in its reserves doesn't just increase the amount of money it can lend out, it also affects the interest rate it charges when it lends out money. Under normal circumstances, when banks have more money to lend, they will lower interest rates to attract more borrowers. When banks have less money to lend, they will raise interest rates to take advantage of the decrease in loan supply.

The Federal Reserve is acutely aware of this issue, as interest rates affect the amount of loans issued and the resulting level of economic activity. Low interest rates, they believe, result in more loans, more economic activity, and ultimately more growth.

Inter-bank loans, and the Federal Funds Rate

The money supply is not distributed amongst the banks equally. At any given moment, one bank may be low on reserves (which implies it is uncomfortably close to its reserve minimum ) while another may have an excess of reserves (it has more reserves than it requires for the loans it has issued). In these cases, banks may lend to each other using money from their reserve accounts.

This inter-bank interest rate is called the effective Federal Funds Rate. This is the interest rate that the Federal Reserve primarily concerns itself with and attempts to manipulate. It tries to control the economy through this interest rate. It does so by setting a nominal Federal Funds Rate, which is a target (usually a range) that the Fed wants the effective Federal Funds Rate to reach. When you hear on the news that the Federal Reserve has cut interest rates, they are referring to the nominal Federal Funds rate. It manipulates the rate through the process described above: buying or selling assets from primary dealers to affect the amount of dollars in bank reserves and, consequently, the interest rates that these banks charge each other for loans.

(Aside: Under normal circumstances, interest rates respond to changes in reserves as I described above. We are currently not in a situation that can be considered remotely normal. The Federal Reserve has pumped an unprecedented amount of money into bank reserves over the past year, but still can't get the banks to lend to each other at any rate, let alone the target rate. The banks are terrified at the prospect of loaning to a bank that will go bankrupt before the loan is paid off)

The discount window

This is the last of the Federal Reserves traditional tools to manipulate the money supply. Instead of borrowing from each other, banks have the option of borrowing money directly from the Federal Reserve. Since it is the entity actually issuing the loan, the Fed directly controls the interest rate charged for these loans. Setting a very low interest rate will encourage lending and expand the money supply, as banks will borrow from the Fed and loan the borrowed money to the public at a higher interest rate. (Note: the borrowed money goes straight to their reserve account, so they can loan out 10x more than they borrowed from the discount window, assuming a 10% reserve requirement.) Setting a very high interest rate positions the Fed as the lender of last resort, as banks will not resort borrowing at this rate unless they are desperate to replenish their reserves.

Which money is new money

Just to review:

- When the Fed buys an asset from a primary dealer, the dollars used in that purchase are newly created

- When the Fed sells an asset to a primary dealer, the dollars used in that sale cease to exist.

- When the Fed issues a loan through the Discount Window, the dollars loaned are newly created

- When a loan issued through the Discount Window is repaid, those dollars cease to exist. I believe the dollars paid in interest to the Fed also ceases to exist, but I'm not sure.

- When a bank lends dollars in excess of the reserves it holds, those dollars are newly created

- When a loan is repaid to a bank, those dollars cease to exist. The interest the bank received on the loan is deposited into its reserve account at the Fed.