Rigging of Foreign Exchange Market Makes Felons of Top Banks

Attorney General Loretta E. Lynch said that four of the world’s largest banks would pay more than $2.5 billion after pleading guilty to manipulating foreign exchange rate markets. By Associated Press on Publish Date May 20, 2015. Photo by Gabriella Demczuk for The New York Times.

By MICHAEL CORKERY and BEN PROTESS - MAY 20, 2015

The New York Times

For the world’s biggest banks, what seemed like the perfect business turned out to be the perfect breeding ground for crime.

The trading of foreign currencies promised substantial revenues and relatively low risk. It was the kind of activity that banks were supposed to expand after the 2008 financial crisis.

But like so many other seemingly good ideas on Wall Street, the foreign exchange business was vulnerable to manipulation, so much so that traders created online chat rooms called “the cartel” and “the mafia.”

No one government agency is responsible for policing the currency market, leaving it up to committees, some run by the banks themselves, to set guidelines. And even when federal authorities adopted rules to rein in Wall Street a few years ago, they exempted certain foreign exchange transactions, a little-noticed concession to banks.

Now, the regulatory void has spawned another round of criminal accusations and multibillion-dollar penalties — enough to wipe out nearly all the revenue that major investment banks generated from their foreign exchange businesses last year.

On Wednesday, four large global banks — Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland — pleaded guilty to a series of federal crimes over a scheme to manipulate the value of the world’s currencies. The Justice Department accused the banks of collusion in one of the largest and yet least regulated markets, noting that at one bank one trader remarked “the less competition the better.”

That lack of oversight, coupled with the pressure to squeeze profits from a relatively middling business, set the stage for this scandal, one that unfolded nearly every day for five years. The crimes described on Wednesday also painted the portrait of something more systemic: a Wall Street culture that enabled many big banks to break the law even after years of regulatory black marks after the crisis.

“If you aint cheating, you aint trying,” one trader at Barclays wrote in an online chat room where prosecutors say the price-fixing scheme was hatched.

In announcing the cases, the Justice Department emphasized that the banks’ parent companies entered the guilty pleas rather than a subsidiary, representing a new frontier in efforts to punish Wall Street misdeeds. At a news conference, Loretta E. Lynch showed that she had taken on the mantle as top Wall Street cop, less than a month after she was confirmed to replace Eric H. Holder Jr. as attorney general.

“Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes,” Ms. Lynch said on Wednesday.

For the banks, though, life as a felon is likely to carry more symbolic shame than practical problems. Although they could be barred by American regulators from certain activities, the banks scrambled behind the scenes to persuade those regulators to grant exemptions. That process, which delayed the Justice Department’s announcement by a week, already led to the Securities and Exchange Commission providing a number of waivers that allow the banks to conduct business as usual.

And at least for now, the Justice Department did not indict any employees whose errant instant messages underpin the cases against the banks. The banks long ago dismissed most of the employees suspected of wrongdoing, though New York State’s financial regulator, Benjamin M. Lawsky, forced Barclays to dismiss eight additional employees.

A fifth bank, UBS, was also accused of foreign currency manipulation. Although it was not criminally charged for that misconduct, the accusations cost the bank an earlier nonprosecution agreement related to the manipulation of another financial benchmark, the London Interbank Offered Rate, or Libor, which underpins the cost of trillions of dollars in credit cards and other loans. The Justice Department voided that nonprosecution agreement, prompting UBS to plead guilty to Libor manipulation, a rare stand against corporate recidivism.

In private negotiations, lawyers for UBS argued that the punishment was “unfair,” and had the bank’s chief executive make an in-person entreaty to prosecutors. But even after appealing to the deputy attorney general, their request was denied, a person briefed on the negotiations said.

“UBS has a ‘rap sheet’ that cannot be ignored,” said Leslie Caldwell, head of the Justice Department’s criminal division.

The five banks — which also struck civil settlements with the Federal Reserve, the Commodity Futures Trading Commission, a British regulator and Mr. Lawsky — agreed to pay about $5.6 billion in penalties. That comes in addition to the $4.25 billion that some of these banks agreed to pay in November to many regulators.

“There is very little that is more damaging to the public’s faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely used benchmark in furtherance of their own narrow interests,” said Aitan Goelman, the trading commission’s head of enforcement.

The foreign exchange business may have been particularly susceptible to manipulation, analysts say, because it can be less profitable than other forms of trading. That dynamic may have increased the incentives for the traders to break the rules.

And unlike the stock market, where regulators can monitor every trade, federal regulators lack a formal mandate to watch the currency market. In fact, in the aftermath of the financial crisis, Congress opened the door to regulating the market, but the Treasury Department exempted portions of it from certain new rules.

That regulatory gap has started to narrow. Banking regulators, which have the authority to root out unsafe practices, are increasingly scrutinizing currency trading desks in light of the scandal.

“It has come under even higher levels of scrutiny than certain other fixed businesses went through after 2008 financial crisis,” said George Kuznetsov, head of research and analytics at Coalition, a financial analytics provider.

Facing that scrutiny, the trading desks have lost some of their swagger. Some senior traders now spend less time trading and more time retraining their teams and meeting with clients to reassure them that their business practices are sound, people close to the business say. Many banks have reined in chat rooms, which were at the heart of the fixing scheme but were also a home for trading desk banter and camaraderie. And even those not implicated in the scheme bowed out in the last year, with Citigroup and Goldman Sachs traders leaving for hedge funds.

The recent turmoil surrounding the foreign exchange business reflects broader struggles over the role of Wall Street’s trading operations.

Regulatory headaches and unpredictable trading results in currencies, commodities and interest rates have prompted many banks to evaluate whether some of these businesses are more trouble than they are worth.

“The behavior that resulted in the settlements was an embarrassment to our firm,” Citigroup’s chief executive, Michael L. Corbat, said in a memo to employees on Wednesday. As part of its plea deal, Citigroup will pay a record $925 million antitrust penalty, the largest single fine ever imposed for a violation of the Sherman Act.

Foreign exchange revenue totaled $11.6 billion at 10 of the world’s largest banks last year, according to Coalition analysis. That revenue had declined nearly every year since 2008, when it reached an estimated $21.7 billion.

The decline came as central banks around the globe worked to keep interest rates low, and the value of some world currencies remained relatively steady. Investors tend to place fewer trades when prices are moving largely in one direction.

The foreign exchange market did brighten a bit in the first quarter, as the banks said their results were buoyed by diverging monetary policies around the world and increased volatility.

Despite the headaches, most large banks remain committed to foreign exchange because valuable clients like hedge funds and big companies demand it. For banks desperate to advise big companies on mergers and acquisitions, they see foreign exchange as a “gateway” toward attracting their more profitable business.

“Foreign exchange is not a complete loss leader for the banks,” said Fred Cannon, a banking analyst with the investment bank Keefe Bruyette & Woods. “But it is not a profitable stand-alone business either.”

Because so many buyers and sellers flood the foreign exchange market — more than $5 trillion changes hands every day — the money banks can charge for brokering trades tends to be lower than for products like derivatives.

To get an edge, prosecutors say, traders at the five banks colluded to pad their returns from at least 2007 and 2013. To carry out the scheme, one trader would typically build a huge position in a currency, then unload it at a crucial moment, hoping to move prices. Traders at the other banks would play along, coordinating their actions in online chat rooms.

The banks also misled their clients about the price of currencies, the federal and state authorities said, imposing “hard markups,” which one Barclays employee described as the “worst price I can put on this where the customer’s decision to trade with me or give me future business doesn’t change.”

In the invitation-only chat room known as “the cartel,” the stakes were high. “Mess this up,” one newcomer was warned, “and sleep with one eye open.”

What exactly is an entrepreneur?

By The Economist 02/16/2014

Entrepreneurs are everybody’s favourite heroes. Politicians want to clone them. Popular television programmes such as “The Apprentice” and “Dragons’ Den” lionise them. School textbooks praise them. When the author of this blog was at Oxford “entrepreneur” was a dirty word. Today the Entrepreneur’s Society is one of the university’s most popular social clubs.

But what exactly is an entrepreneur? Here the warm glow of enthusiasm dissolves into intellectual confusion. There are two distinctive views. The first is the popular view: that entrepreneurs are people who run their own companies, the self-employed or small-business people. The second is Joseph Schumpeter’s view that entrepreneurs are innovators: people who come up with ideas and embody those ideas in high-growth companies.

Schumpeterians distinguish between “replicative” entrepreneurs (who set up small businesses much like other small businesses) and “innovative” entrepreneurs (who upset and disorganise the existing way of doing things). They also distinguish between “small businesses” and “high-growth businesses” (most small businesses stay small). Both sorts have an important role in a successful economy. But they are nevertheless very different sorts of organisations.

Most people who try to measure how entrepreneurial a society is try to measure the first type of entrepreneurship. They measure the number of small businesses or the number of people who are self-employed or the number of startups. But this produces perverse results. Egypt regularly comes out as more “entrepreneurial” than the United States. It also produces a highly distorted picture of entrepreneurial activity within advanced economies.

In America most self-employed people do grunt-work in highly conservative industries: construction, landscaping, car-repair, restaurant and truck driving for men and cooking, cleaning and beauty salons for women. Most small companies are Mom-and-Pop stores that will always stay in the family. Three-quarters of people who start companies say that they want to keep their companies small enough to manage themselves.

In a new paper Magnus Henrekson and Tino Sanandaji argue that the number of self-made billionaires a country produces provides a much better measure of its entrepreneurial vigour than the number of small businesses. The authors studiedForbes’s annual list of billionaires over the past 20 years and produced a list of 996 self-made billionaires (ie, people who had made their own money by founding innovative companies as opposed to people who inherited money or who had extracted it from the state). They demonstrated that “entrepreneur density” correlates with many things that we intuitively associate with economic dynamism, such as the number of patents per head or the flow of venture capital.

They also demonstrated it correlating negatively with rates of small-business owners, self-employment and startups—in other words that many traditional measures are about as misleading as you can get.

Countries with a lot of small companies are often stagnant. People start their own businesses because there are no other opportunities. Those businesses stay small because they are doing exactly what other small businesses do. The same is true of industries. In America industries that produce more entrepreneur billionaires tend to have a lower share of employees working in firms with less than 20 employees.

This makes sense: successful entrepreneurs inevitably destroy their smaller rivals as they take their companies to scale. Walmart became the world’s largest retailer by replacing thousands of Mom-and-Pop shops. Amazon became a bookselling giant by driving thousands of booksellers out of business. By sponsoring new ways of doing things entrepreneurs create new organisations that employ thousands of people including people who might otherwise have been self-employed. In other words, they simultaneously boost the economy’s overall productivity and reduce its level of self-employment.

Who are the Schumpeterian entrepreneurs who dominate the modern economy? And how do you create more of them? Messrs Henrekson and Sanandaji argue that the majority of the world’s wealthy entrepreneurs acquired their riches by starting a business: 65% in America, 42% in Europe and 52% overall. The list of entrepreneurial hot spots contains a cross-section of countries (see chart), some in the West such as America (ranked at number 3) and Switzerland (4) but also some Asian dragons such as Hong Kong (number one by some way), Singapore (5) and Taiwan (8). Israel (2) is the only country from the Middle East.

Entrepreneurs tend to be highly educated: 45% of American self-made entrepreneurs have advanced degrees, a sharp contrast with the early 20th century, when men like Henry Ford dropped out of school to become tinkerers. They also tend to focus on high-tech and finance. The bulk of American entrepreneurs come from just three clusters: Boston, New York and Silicon Valley. The millionaires may live next door to the average American, as a bestselling book once argued, but billionaires live in their own little enclaves.

The authors are less informative about the second question. They warn that high taxes can encourage replicative entrepreneurship rather than innovative entrepreneurship. The self-employed face lower tax rates than the employed (and can evade taxes more easily). They also face a lower chance of being audited. This encourages companies to stay small and encourages workers to sell their labour to small companies rather than big companies. The same is also true of heavy regulation. They warn that conceptual confusion over the nature of entrepreneurship can also create policy confusion: attempts to boost the number of small businesses can reduce the likelihood that one of those small businesses will outcompete all the others.

Schumpeterian entrepreneurship is all about innovation and ambition to turn small businesses into big ones. Small business entrepreneurship is all about flexible employment and poor opportunities. But the authors have little to say about how to create the network of institutions that they think helps to create entrepreneurship: high-powered universities and dense clusters of activity of the sort that flourish in Boston and Silicon Valley.

Still, if Henrekson and Sanandaji do not provide us with the key to the secret kingdom, they at least make sure that we are trying to get through the right door.

5 Personality Traits of an Entrepreneur

By John Rampton - Forbes

What does it take to be a successful entrepreneur? Is it being born a prodigy? Is it having a Type-A personality? Is it being an extrovert who spends all their time tinkering around on projects?

While some entrepreneurs have those traits, they rarely define the characteristics that make a majority of entrepreneurs. Not everyone is born with an intellect that will change the world. That student who couldn’t make it through college, like Bill Gates, is more likely to succeed than the lifelong overachiever.

So, if you’re not a born genius or overachiever, what personalities actually make-up entrepreneurs? Here are our five common personality traits that entrepreneurs possess.

1. Passion

For those uninitiated, entrepreneurs are not in it for the money. While there have been some icons who have made more cash than most of us we’ll dream of, think Bill Gates or Steve Jobs, the reality is that most entrepreneurs work an insane amount of hours for little or nothing. Why would they put themselves through this? Because they are driven to either solve a problem or make easier.

How passionate are entrepreneurs? According to research conducted by Tony Tjan and co-authors Richard Harrington and Tsun-Yan Hsieh, 65% of founders have been identified as driven by “heart.” Tjan also added that most entrepreneurs are fueled “by an unshakable sense of purpose.”

Throughout all the trials and tribulations, entrepreneurs reward themselves internally by realizing that they’re on a mission for the greater good. No matter how bad it gets, it’s their passion that motivates them between paydays and during all the times when everyone else tells them to quit.

2. Resilience

Sir Winston Churchill once said, “Success is the ability to go from one failure to another with no loss of enthusiasm.” As an entrepreneur, you’re going to fail. That’s just an unfortunate fact. While something that drastic would be too much for most people to handle, an entrepreneur has the uncanny ability to get up and dust themselves off. Instead of giving up, an entrepreneur will learn from their failures. What went wrong? How can I long from my mistakes? How can I succeed next time? These are the type of questions an entrepreneur will ask themselves. An entrepreneur doesn’t stay down when times get rough. They’re resilient and thrive off of the negativity.

If you need proof on the resilience of entrepreneurs, just look into the stories of successful entrepreneurs like Walt Disney, Donald Trump, Steve Jobs, Bill Gates, Henry Food or Thomas Edison. They all experienced setbacks during at some point to only become some of the most well-known and successful entrepreneurs in history.

3. Strong Sense of Self

Any entrepreneur will tell that there are numerous problems to overcome. Whether it be not securing enough funding, proving the naysayers wrong or facing the competition head on, it’s not easy being an entrepreneur. And, being passionate and resilient can only go so far. Which is why entrepreneurs also have an extremely strong sense of self.

For example, being self-confident and self-motivated are also key traits for most entrepreneurs. Entrepreneurs don’t think that their idea could be good. They know it’s good. And, they’re going to be motivated enough to illustrate to others that it’s worth the time and money to go forward. While they also understand that they can’t do everything on their own, they realize that they are the only ones to make their idea a reality.

And, just how confident are entrepreneurs? According toa study by the Ewing Marion Kauffman Foundation on behalf of LegalZoom, “91% of entrepreneurs are confident that their businesses will be more profitable in the next 12 months.”

4. Flexibility

Being able to adapt to changes and challenges is crucial for any business. In fact, most entrepreneurs will inform you that their idea or business plan is drastically different than when it began. An idea may be brilliant, but in reality it isn’t effective. Entrepreneurs are flexible enough to make the adjustments to make that idea feasible. Furthermore, entrepreneurs are prepared and willing to modify their plan when new information arrives and when there are changes in circumstances.

A great example of being flexible would be the recent story behind Hyungsoo Kim and his company Eone, which is short for Everyone. Kim initially develop a wristwatch that featured braille. He quickly discovered that people want to be included and not have attention brought to their disability. So, he trashed the original plan and came up with a watch that would not only be worn by the blind, but even people with sight.

5. Vision

Entrepreneurs see opportunity everywhere. They’re innovators who are always on the lookout to either develop a new idea or improve an existing product or service. And, chances are that’s the main reason why they became an entrepreneur in the first place. At some point in their lives they noticed something that could be better. But, instead of just saying that something could be better wasn’t enough. They actually put a plan in motion. In other words, entrepreneurs have the ability to see the future before it happens.

I always say Entrepreneurs are inspired by things that have never been seen before, things yet to be discovered. You must have the vision that nobody else does. Then the vision to see it through.

Jeff Bezos had a vision to tap into the new-world of electronic retelling in 1994 and become “the world’s most consumer-centric company.” His little virtual bookstore was Amazon, which today is the model for all e-commerce businesses.

Philosophy's influence on technology design-and why it needs to change

Something's not right about how we see communication. Credit: wiertz, CC BY

Philosophy often appears abstract and other-worldly, particularly when compared to the practical technology in our everyday lives. But there is much that technology can learn from philosophy, and vice versa.

Software is typically designed with the effciency of communicating in mind - whether communication within the software, or software that allows communication between people. But communication is much more than the mere exchange of information. Humans talk or write for a variety of reasons, often simply tostay in touch or just because they are friends.

The history of philosophy and psychology is full of attempts to reduce all human motivation to one ultimate principle or drive - be it survival, sex, power, or desire or satisfaction. Similar approaches are taken to communication: the 16th century English philosopher John Locke suggested we communicate in order to obtain information about each other, which in turn helps us to satisfy our desires. 

Locke's view remains prevalent in the way information communication technology is designed today. But we would do better to replace this and other reductivist accounts with a more pluralistic view of why we do the things we do. Perhaps philosophers would do well to pay greater attention to human behaviour.

Don't leave me hanging. Credit: bykst

How we communicate is as important as why

Communication technology has tapped into a very human need to be liked and appreciated. Through social media we like, share, re-tweet, and comment on others - actions that are not predominantly geared towards conveying information. Precious data is given away of course, data which can be mined by advertisers for information, but it's a mistake to equate data with information. When I make a joke, I'm not typically attempting to inform anyone of anything, though I may inadvertently reveal all sorts of things about my sense of humour.

The entire greeting card industry - whatever you might make of it - has been built on the understanding that we often want to express (or be seen to express) good wishes on auspicious days. The linguistic philosopher, Ludwig Wittgenstein, taught us that the public expression of a desire, wish, sentiment or belief is not a description of our mental life. This is why "this app is faulty but I don't believe that it's faulty" may be a true statement of fact, even though it sounds aradoxical.

Why should any of this matter to designers, manufacturers, and users of technology? A narrow view of why we communicate inevitably limits the sorts of communication technologies we build. Interestingly,many of the things we do with technology are byproducts of what they were originally designed for (e.g.the internet emerged as the result of a US Defence project researching possibilities for network packets).Once we drop our preconceived ideas that transmitting information is their only purpose - an assumption that carries with it a shortsighted vision - the possibilities of what we could create are endless.

From communication to understanding

This misconception of communication also applies to our sense of understanding. Neither understanding nor communication can be reduced to simply the acquisition of new facts. There is a difference between understanding the words a speaker has said, and understanding the speaker - understanding the "why" as well as the "what".

Wittgenstein famously said: "If a lion could talk, we could not understand it". Not because of an insurmountable language barrier, but because we wouldn't know what it was aiming to do with its words.Apple's Siri and Microsoft's Cortana, which support voice-activation and interaction, make use of articial intelligence. Such software stems from the hope of creating technology that can understand us, and be understood by us. But there is no point asking whether such machines currently can or ever could understand us without first asking ourselves what we want these machines for. Why should we want to communicate with them in the first place? The answer is unlikely to require that they understand us in anything but the loosest sense. A good hoover doesn't need to understand why I might require more powerful suction in order for it to switch to turbo when I press the appropriate button. The same is true of a web mapping service. If anything, understanding is likely to stand in the way of utility.

We need to free ourselves from approaching communication as something geared towards the transmission of information that either enables understanding between humans and machines, or that requires it. The way we design and use the increasingly ubiquitous technology we use to communicate would benefit from an approach that isn't driven by this unacknowledged assumption.

This article was originally published on The Conversation. Read the original article.

Source: The Conversation
"Philosophy's inßuence on technology designÑand why it needs to change" February 12, 2016http://phys.org/news/2016-02-philosophy-technology-designand.html

One-Third of Innovators in US Are Immigrants

Co-founder and CEO of Whatsapp Jan Koum speaks during a conference at the Mobile World Congress, the world's largest mobile phone trade show in Barcelona, Spain.

By VOA

More than one-third of U.S. innovators are born outside the U.S.

Only 13.5 percent of all U.S. residents are immigrants. But a new report says 35 percent of residents with a doctorate degree, or Ph.D, in science and mathematics are immigrants.

This shows that highly-educated immigrants could be one of the country’s most valuable resources.

The report came from the Information Technology and Innovation Foundation (or ITIF) in February. The ITIF is an organization that studies how technology affects the world.

Adam Nager is an economic policy analyst at the ITIF. He said, "U.S. innovation really depends on individuals born outside of the U.S."

"These are scientists, engineers, people with really, really high education, who’ve made the choice to immigrate to the United States," Nager added.

"[They] often [seek] the kind of research opportunities, the kind of entrepreneurial opportunities that are offered in the United States that might not have been available in their home country…they bring new ideas and new ways of thinking about things that we… need."

Immigration has been a major issue for the campaigns of the 2016 presidential candidates. But the candidates have rarely talked about how high-skilled and low-skilled or illegal immigrants are different.

The ITIF report does not examine the effects of low-skilled or illegal immigrants on the U.S. But Nager said the report does show "the value of bringing in the best and brightest engineers from around the world and the benefits that they bring to the U.S. economy."

"The more of them we can get, the better," he said.

The other two-thirds of American innovators are mostly white men, the reports shows. But that does not mean they are highly intelligent, young men who never finished college, like Facebook’s Mark Zuckerberg.

The ITIF found the average age of these innovators is 47. Also, most of them have at least one advanced degree.

To collect information for the report, the ITIF spoke with almost 1,000 people. All of those people have won national awards for inventions or are working towards international patents on their ideas.

These inventions and ideas are all in the fields of information technology, life or material sciences and advanced technology.

The results of the report are a topic of interest for the White House. The White House has honored 11 immigrant innovators so far.

Additionally, President Barack Obama spoke about the importance of innovation in his final "State of the Union" speech in January.

President Obama also spoke at a conference at SXSW, or South by Southwest, in Austin, Texas earlier in March. The conference was part of an event that mixes live music and displays by several technology companies.

Researchers working on the report expected to find few female and U.S.-born minority innovators. But researchers were surprised at how low those numbers were.

Only 12 percent of U.S. innovators are women. Just 8 percent of innovators are Asians, African-Americans, Hispanics, Native Americans, and other minorities born in the U.S.

In the U.S., 32 percent of the whole population are minorities.

"We have this [large] untapped labor pool in African-Americans, in Hispanics and in women… who really aren’t tapped at all for creating these types of innovative, marketable products," Nager said.

"There's nothing about white males… that would make them [naturally] any better at innovating than any other group, so if we’re looking to grow the pool of innovators in the future, definitely, greater inclusion among women and minorities is the way to get there."

The case for a bright American future, according to billionaire Warren Buffett

Warren Buffett in 2012. (Nati Harnik/AP)

By Niraj Chokshi February 27
The Washington Post

Sourpusses take note: One of the world’s wealthiest and most respected investors thinks you’re dead wrong about the future of the country.

In his annual letter to shareholders, published on Saturday, Berkshire Hathaway Chairman Warren Buffett made a forceful argument that Americans should look to the future with optimism, despite the dour messages broadcast from the presidential campaign trail.

“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start,” he said in the letter. “America’s golden goose of commerce and innovation will continue to lay more and larger eggs.”

[Why Warren Buffett thinks the presidential candidates are ‘dead wrong’]

For 50 years, Buffett has written the annual letters, which are widely read for his pithy and incisive analysis of the past, present and future of the holding company and the economy. This year, he laid out the case for a bright American future, even as he notes some cause for concern.

‘There will be struggles’

An Occupy Wall Street protest in Washington in 2011. (Linda Davidson/The Washington Post)

Even though he said the American economy is growing, Buffett nodded toward growing inequality.

Though the pie to be shared by the next generation will be farlarger than today’s, how it will be divided will remain fiercely contentious. Just as is now the case, there will be struggles for the increased output of goods and services.
…
Congress will be the battlefield; money and votes will be the weapons. Lobbying will remain a growth industry.

But, Buffett argued, there is a silver lining:

“Even members of the ‘losing’ sides will almost certainly enjoy – as they should – far more goods and services in the future than they have in the past,” he said.

The market excels at producing things people don’t know they want, he said. For example, Buffett noted that he never thought as a child that he would someday need a personal computer.

“I now spend ten hours a week playing bridge online,” he said. “And, as I write this letter, ‘search’ is invaluable to me. (I’m not ready for Tinder, however.)”

‘America’s economic magic remains alive and well’

Republican presidential candidate Donald Trump at a December rally in Grand Rapids, Mich. He often decries the state of the U.S. economy, recently saying, “We’re dying. This country is dying.” (Scott Olson/Getty Images)

A history of growth drives Buffett’s argument for optimism, which he framed as a response to the modern politics of fear.

It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do.
That view is dead wrong: The babies being born in America today are the luckiest crop in history.
…
Today’s politicians need not shed tears for tomorrow’s children.

Buffett noted that American economic output, per person, has grown tremendously over his lifetime.

“American GDP per capita is now about $56,000,” he said. “As I mentioned last year that – in real terms – is a staggering six times the amount in 1930, the year I was born, a leap far beyond the wildest dreams of my parents or their contemporaries.”

American efficiency and productivity drove — and will continue to drive — that growth, he argued.

“This all-powerful trend is certain to continue: America’s economic magic remains alive and well.”

America’s ‘secret sauce’

Productivity, Buffett said early in the letter is “the all-important factor in America’s economic growth over the past 240 years” — a fact lost on too many Americans, Buffett lamented.

“That kind of improvement has been the secret sauce of America’s remarkable gains in living standards since the nation’s founding in 1776,” he said. “Unfortunately, the label of ‘secret’ is appropriate: Too few Americans fully grasp the linkage between productivity and prosperity.”

To prove his point, Buffett turned to three industries in which Berkshire has a stake: freight, insurance and utilities. Productivity gains in those and other industries “have delivered awesome benefits to society,” he said.

There are consequences, though: Productivity gains in America and abroad can disrupt lives, Buffett said.

When low-cost competition drove shoe production to Asia, our once-prosperous Dexter operation folded, putting 1,600 employees in a small Maine town out of work. Many were past the point in life at which they could learn another trade. We lost our entire investment, which we could afford, but many workers lost a livelihood they could not replace.

The United States should deal with such disruptions not by regulating the drivers of increased productivity but by ensuring a “variety of safety nets” exist for Americans whose skills don’t match those valued by markets. In particular, he points to the Earned Income Tax Credit, viewed by many as one of the most effective policy tools to help the poor.

Innovation ‘has its dark side’

NSA Director Adm. Michael Rogers testifies on Capitol Hill. An investigation into a December hack that interrupted power for 225,000 Ukrainians has found that the attack was synchronized and coordinated by highly-sophisticated actors in stages. (Alex Brandon/AP)

There are threats, notably cyber, biological, nuclear or chemical attacks on the nation, Buffett said.

The probability of such mass destruction in any given year is likely very small. It’s been more than 70 years since I delivered a Washington Post newspaper headlining the fact that the United States had dropped the first atomic bomb. Subsequently, we’ve had a few close calls but avoided catastrophic destruction. We can thank our government – and luck! – for this result.

Nevertheless, what’s a small probability in a short period approaches certainty in the longer run. (If there is only one chance in thirty of an event occurring in a given year, the likelihood of it occurring at least once in a century is 96.6%.) The added bad news is that there will forever be people and organizations and perhaps even nations that would like to inflict maximum damage on our country. Their means of doing so have increased exponentially during my lifetime. “Innovation” has its dark side.

Such risks are unavoidable, he said. And the consequences will probably be dire.

“No one knows what ‘the day after’ will look like,” Buffett said. “I think, however, that Einstein’s 1949 appraisal remains apt: ‘I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.’ “

The real reason half of America supports the FBI over Apple

Apple CEO Tim Cook talks and takes photos with customers in Washington. (Jabin Botsford/The Washington Post)

By Brian Fung February 23 at 2:17 PM
The Washington Post

Maybe it's just the people who follow me on social media. But a recent finding by the Pew Research Center that half of Americans support the FBI over Apple in an ongoing duel over iPhone security produced a very lopsided response in my Twitter feed. And it looked nothing like the actual poll results.

This is not a major surprise, but it's an opportunity to unpack a crucial dynamic behind the Apple-FBI dispute.

As I said, the discrepancy between Pew's results and the opposite reaction on social media could simply be a result of the kinds of people who follow tech writers on Twitter, a social network whose audience is pretty tech-friendly to begin with. But that isn't an argument for dismissing that reaction. In fact, I want to argue that there's something else at play here, and nothing sums it up better than this tweet: No, Apple is fighting a war most Americans don't understand.

What we're witnessing here is a peculiar artifact of technology polling that you don't get on social issues like abortion or religion, where convictions tend to remain rooted in ideology. Opinions about technology turn out to be very malleable, and in more ways than just how a survey question is phrased or how big the sample is. But how do we evaluate that?

As an example, let's look at the way the public responded to Edward Snowden's leaks about the National Security Agency. Days after the news broke, nearly 60 percent of Americans said they supported the NSA's surveillance programs. This was at a time when most people were still trying to understand what these programs were about and how extensive they were — or if they were even real. But as the nation learned more, discovering how spies were collecting everything from call records to cellphone geolocation data, the tide of opinion slowly began shifting against the intelligence community. By November 2013, five months after Snowden's disclosures, 46 percent of Americans said the NSA had gone too far in its surveillance activities. Two months after that, the country hit a milestone when a Pew Research Center/USA Today survey discovered that the share of Americans disapproving of the NSA's surveillance programs had risen to 53 percent. Although the questions in each poll were slightly different, together they nonetheless paint the picture of a gradually awakening population. The moment we're in right now is a bit like the moment we were in during the initial days of the Snowden reports. Many Americans, journalists included, are still learning new details about the Apple-FBI fight. For instance, on Tuesday Michael Scarcella, editor of the National Law Journal, reported that there are as many as 12 other federal court cases involving data on iPhones running older versions of iOS.

These documents lend support to Apple's claim that its high-profile showdown with the FBI is indeed about more than just one iPhone.

Although Pew's latest survey shows that three out of four Americans have "heard" about the fight involving Apple and the FBI, it's less clear just what they've heard about that dispute. And were they to learn more, Apple's defenders say, it's likely that they would take a different view.

The government says its efforts are not aimed at defeating encryption broadly but are narrowly targeted to the iPhone used by one of the San Bernardino shooters.

“We simply want the chance, with a search warrant, to try to guess the terrorist’s passcode without the phone essentially self-destructing, and without it taking a decade to guess correctly,” FBI chief James Comey said in a message to the public. “We don’t want to break anyone’s encryption.”

But many technologists oppose letting the government break open even a single iPhone — because it really means giving the FBI the tools to crack open every iPhone on the planet, they say. As a tech entrepreneur, Ryan Orbuch, told the Guardian:

“When you do InfoSec and your job is security, your moral view of the world is based on the fact that you can provide security through math, security that’s complete and secure not just because of any social contract but because literally the math works,” Orbuch said. “When someone comes and says I want you to break this for me, it goes against everything we believe in.”

What's more, Apple's advocates say, giving law enforcement a way to break into a secure phone means creating vulnerabilities that hackers and other nations' spies can also exploit. And it is ultimately self-defeating because it will simply encourage terrorists and criminals to communicate through other means that are even harder to detect, according to some pro-encryption lawmakers.

"I don’t think the American people are going to react very well to that kind of policy when people really break this down in the way I’ve described," Sen. Ron Wyden (D-Ore.), a vocal privacy advocate, told the Daily Dot.

Law-abiding citizens may think they have nothing to hide and would never expect to find themselves on the business end of a law enforcement operation. But privacy groups have long argued that with more and more of our personal data winding up in the hands of corporations (if not the public), it has become increasingly easy for others to make even innocent people appear suspicious. A classic example can be found in swatting — a practice where digital pranksters dig up your personal information and then use it to call a SWAT team to your house, under the false pretense that you are about to commit a violent crime. This is a costly and dangerous form of harassment, and it can happen to even the most experienced security researchers.

Greater familiarity with technology, and what it can and can't be used for, can lend a different perspective on a range of issues. On this one in particular, even basic exposure to smartphones can be enough to sway some Americans into viewing the FBI's position more skeptically. By a 41-33 margin, smartphone owners were far more likely to support Apple's position than non-smartphone owners in the Pew study this week.

It took seven months for public opinion to shift on the NSA. Apple may be hoping for a similar outcome on this issue, but the pace at which this saga is playing out suggests the company may not have that kind of time.