Sunday, August 25, 2013

As NSA Internet Security Issues Continue

Last week, a report by John D. Bates, Chief Judge of the U.S. Foreign Intelligence Surveillance Court from Oct. 2011 was declassified and said “for the first time, the government has now advised the court that the volume and nature of the information it has been collecting is fundamentally different from what the court had been led to believe” and “the court is troubled that the government’s revelations regarding NSA’s acquisition of Internet transactions mark the third instance in less than three years in which the government has disclosed a substantial misrepresentation regarding the scope of a major collection program.”

While the continuing issues at the NSA are unfortunate, the fact that these issues are becoming known is somewhat reassuring. In the post-Edward Snowden world, the phrase popularized by Ronald Reagan “Trust, but Verify” seems applicable to the oversight of the intelligence community as well. As organization such as the Internet Engineering Task Force seek standards for better data encryption, the demand for protection of digital content continues to increase.

Thoughts on On-Line Education: Georgia Tech, Udacity, etc.

The Georgia Institute of Technology announced a partnership with Udacity, a 15-month-old Silicon Valley firm, to offer an online Masters Degree in Computer Science for $7,000 (this is 80% less than the $40,000 cost for its on-campus program). The partners will split the revenue from the on-line program, 60% - George Tech and 40% - Udacity.

Separately, when U.S. President Obama announced a plan to link college financial aid to student performance, he also said, “universities like Carnegie Mellon, Arizona State, they’re starting to show that online learning can help students master the same material in less time and often at lower cost. Georgia Tech, which is a national leader in computer science, just announced it will begin offering an online master’s degree in computer science at a fraction of the cost of a traditional class, but it’s just as rigorous and it’s producing engineers who are just as good.”


With educational costs increasingly unmanageable for many students, on-line solutions may provide an attractive alternative. While some early results have been mixed, this market is still at an early stage of development. While some one-size fits approaches may be successful, it is likely that as the needs and expectations of schools, faculty and student are better understood, a broad diversity of more localized and hybrid solutions may emerge.

Sunday, August 18, 2013

Several Business Leaders are Concerned about the Economy

As companies continue to report their quarterly financial results and discuss their business opportunities, the following observations from the retail sector, are worth considering:
  • Wal-Mart International ‘s CEO C. Douglas McMillon said “We’ve seen customers both in mature and emerging markets curb their spending “and “we believe that environment is going to remain through the end of the year”
  • Wal-Mart’s chief financial officer Charles M. Holley Jr., said there is “a general reluctance of customers to spend on discretionary items right now”,
  • Macy’s chief financial officer Karen Hoguet said, “We believe that much of our weakness is due to the health of the consumer” and
  • Nordstrom’s CEO Blake Nordstrom said, “overall, our sales trends in the second quarter and throughout the first half of the year weren't as strong as we expected.“
Also, John Chambers, CEO of networking equipment provider Cisco Systems (a firm considered to be an economic bell weather), said” we delivered the strong performance in what continues to be a challenging and inconsistent global macroeconomic environment…with economic challenges impacting several of our top five emerging markets” and “this recovery is more mixed and inconsistent than others I've seen.”

While significant attention on “better than expected” data has supported the economic recovery, it seems that too much of the focus may be on the quantity rather than the quality of results.
  • For example, while unemployment rates are declining, this has often been driven by low-paying jobs in retail, temporary employment and health care.
  • In housing, as prices have risen, the participation of first time home buyers remains muted, with many sales pursued by a mix of speculators and institutional investors.
  • With stocks, as prices have risen is some markets, the primary drivers have been stimulus efforts by central bankers and cost cutting by business managers.
It remains to be seem if the much discussed “wealth effect” can translate into fundamental economic growth.

Sunday, August 11, 2013

A Summer Spy Thriller Continues

Although intelligence leaker Edward Snowden has secured asylum within Russia, the controversy about U.S. National Security Agency (NSA) surveillance actions continue. Last week, NSA spokesperson Judith Emmel said, "in carrying out its signals intelligence mission, NSA collects only what it is explicitly authorized to collect. ... Moreover, the agency's activities are deployed only in response to requirements for information to protect the country and its interests”.

In addition, a White House report defended the NSA’s actions citing the U.S. Patriot Act, which provides “enhanced law enforcement investigatory tools” and permits “an order requiring the production of any tangible things (including books, records, papers, documents, and other items) for an investigation to protect against international terrorism or clandestine intelligence. “ NOTE: this act remains controversial because the U.S. Constitution’s Fourth Amendment provides “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated”.

Adam Curtis, a popular blogger at the UK’s BBC provides another perspective: “The recent revelations by the whistleblower Edward Snowden were fascinating. But they - and all the reactions to them - had one enormous assumption at their heart - That the spies know what they are doing. It doesn't matter whether you hate the spies and believe they are corroding democracy, or if you think they are the noble guardians of the state….the assumption is that the secret agents know more than we do. But the strange fact is that often when you look into the history of spies what you discover is something very different. It is not the story of men and women who have a better and deeper understanding of the world than we do. In fact in many cases it is the story of weirdos who have created a completely mad version of the world that they then impose on the rest of us.”

Had Snowden not released the NSA documents, it is likely that the business of surveillance at the agency today would be “business as usual”. Within the whirlwind of constitutional issues, security is big business. As acres of computing and communication technology support social media, search, cloud computing and Internet commerce services, there is a broad set of services and technologies used in the surveillance business, both in accessing, mining and analyzing data, as well as attempting to protect against intrusion and security breaches. After the congressional reviews of the NSA actions have concluded, it is likely that the demand for high performance security offerings will remain robust.

Sunday, August 4, 2013

Richmond, CA: A Landmark Clash between Wall Street and Main Street

Last week, the City of Richmond, CA, in an effort to deal with 624 homes with “underwater” mortgages, notified loan service providers and trustees that the city wants to 1) buy the homes at today’s depressed value and,2) if needed, pursue an eminent domain legal strategy to stop home foreclosures. While eminent domain is generally used by governments to force homeowners to sell their property in order to pursue new developments such as highways, railroads and parks, Richmond could become the first U.S. city to apply this approach for the benefit of homeowners.
  • Richmond Mayor Gayle McLaughlin said her residents "have been suffering for years thanks to the housing crisis Wall Street created and which Wall Street refuses to fix."
  • David Stevens, President/CEO of the Mortgage Bankers Association said, “The program is a short-term solution for a few underwater borrowers that will have severe negative long-term costs for every homeowner in the city….the program is ill-advised and likely unconstitutional and will add to Richmond’s problems rather than solve them.”
NOTE: the broader issue is how a positive outcome for Richmond would affect the +$13 trillion U.S. mortgage market.

Background on Richmond, CA and its legal strategy: 1) about half of the city’s homeowners are “underwater”, 2) it is located on the San Francisco Bay, 3) its unemployment rate is 17%, 4) its 106,500 residents are mostly black or Hispanic and 5) the city’s largest employer is Chevron Corp. with 1,900 workers. Richmond legal strategy is based on the U.S. Supreme Court Ruling in 2005, Kelo v. City of New London (Connecticut), which said the city could seize private property if its future use would have a positive economic impact on the community. The city of New London wanted to condemn Kelo’s land and give it the Pfizer Corporation, which would build a research and development facility as part of an economic development project. Note: ironically, Kelo’s home was condemned, but the research facility was never built.


While Richmond and its supporters hope their strategy will favor David rather than Goliath, some loan providers and investors are concerned that if this strategy gains momentum, it could have a negative impact on the U.S. mortgage and housing markets. As both Wall Street and Main Street watch Richmond’s efforts, other cities are considering similar eminent domain action.  Because of the potential impact on investors, homeowners and government entities, Richmond’s process will likely encounter several legal and legislative challenges..