Chapter 7. March of the Kaiju
It's out of conflict that new political structures emerge, for politics is essentially about organizing disparate groups and factions to win power through some kind of conflict, and then keeping these groups in balance to prevent further conflict.
In this chapter, I'm going to look at how that network of agencies I've termed the Spider is consolidating its grip over the world both digital and "real." I'll cover a lot of different areas in this chapter. There have been so many clashes and fights that it is difficult to choose a few to turn into a story. And like any reporter, my choices will expose my own interests as much as anything.
The Death of Politics
When I look at modern politics, I see a surprising thing, a sign that our world has fundamentally changed, and the old rules of politics have been replaced by a new, unspoken set.
I'm no fan of the old left/right divide, which was like being asked to choose between two equally repugnant churches. Nonetheless, one of the memorable features of politics of the past used to be the existential conflict between political parties, which drove real debate, and legislative change. A party either represented its views, or it died.
This is mostly gone. In countries with proportional representation, and many smaller parties, politicians work by consensus, which leads to stagnant, cold-blooded entrenchment of old structures. Much of Europe suffers this. Gerrymandered America suffers the same, though it masks the back room collusions with politics as circus.
In the UK and US, birthplaces of parliamentary politics, real debate died after 2001, as evidenced by the decision of these two countries to invade, with lies and propaganda instead of formal declarations of war, first Afghanistan, and then Iraq. Political debate in both the UK and US has become a form of reality show, drama for the viewer, without substance or meaning.
The lack of real debate is astonishing, because you would normally expect politicians to take every opportunity to attack each other on policy, to secure their own power. Conflict between factions of politicians is one essential balance of power. If this goes away, we have to ask how that happened.
Let me list a few of the issues where I'd have expected there to be real, angry, excited argument and conflict in Washington and Westminster, instead of passive statements of outrage followed by inaction:
- The financial crisis, and the criminal role of the financial industry in this.
- The war of aggression in Afghanistan and Iraq, with their bogus rationales, serious loss of life, and immense cost.
- The explosion of the security apparatus, with its intrusion on private life, and cost.
- The War on Drugs, with its disastrous effects on many countries hosting the drug trade.
- The revelations about the NSA's snooping on the private communications of pretty much everyone.
- The ongoing detentions in Guantanamo Bay of individuals convicted of no crimes.
- The renditions, tortures, murders, drones, and other violences of the War on Terror.
- The lack of prosecutions for the financial fraud leading up to the 2009 crash.
- The increasing gap between the very rich, and everyone else.
And so on. These issues float around the media, sometimes making headlines, and politicians make vague gestures of concern, yet with little or no real passion. Only outliers seem to take these seriously, and these outliers get no airspace, no visibility except in the underground alternative media. It is as if the political establishment, along with the mainstream media, has come to undivided silent agreement that none of these issues matter. On the contrary, to the majority of people, that is those nominally electing those politicians, these issues are absolutely vital.
It's not just the lack of fighting inside Congress and the Houses of Parliament that is historically atypical. It's the total suspension of normal political opportunism. When President Clinton was caught with his pants down, the response from the Republican party was ferocious and unrelenting. Yes, absurd, yet that is why we elect psychopaths to power. They are the only people we can count on to stick the knife into the other psychopaths when they see the chance.
And yet, after eight years of arguably the most criminal US regime so far, the Democrats under Barack Obama stuck to empty debate on safe topics, engaged in dramatic theater over budgets and health-care, and then continued much the same policies.
The only thing that will get hundreds of politicians to agree, for years, is a larger bully. As I explained in “Eyes of the Spider”, the threat of Global Terrorism is a bogeyman, blown up to a multi-Trillion dollar industry. So-called "international terrorists" are, as I'll explain in “The Reveal”, mostly recruited and organized by the Spider itself.
There are no alien invasions. And Washington and London certainly do not yet see the digital revolution as an existential threat. So what is going on? Why the decade-long suspension of the democratic process? Why are the politicians not fighting?
I see two plausible answers. One, the US and UK turned mysteriously into socialist Scandinavian heavens of consensus politics. Two, the herds of politicians are being bullied by a larger, nastier predator. I think we can rule out the first option. The predator is, of course, the Spider, built-up by the Para-state as its Praetorian Guard, and like all imperial guards, itchy for the power it sees wielded so poorly every day.
A common response to hypotheses of large-scale plots is "Bah, conspiracy theories! Someone would talk." In fact there have been many whistle blowers who have talked, about large-scale plots of all colors. There is no lack of people who are willing to talk, and often provide very specific, detailed knowledge of crimes committed behind the curtains. The common factor with the whistle blowers is that the mainstream media ignores them unless their stories are pushed through alternative platforms so dramatically that they cannot be ignored. Chelsea née Bradley Manning disclosing crimes through WikiLeaks provides a well-known instance of this.
One of the first significant NSA whistle blowers was Russ Tice. He told us in December 2005 that the NSA and DIA (another three-letter agency I'll come back to in the last chapter were spying on US citizens, something that was, and still is, illegal. The NSA then fired him, and rebuffed his claims. Today, we have corroboration of what he said, from Snowden and indeed from the NSA themselves. On June twentieth 2013, on the Boiling Frogs podcast, Tice went much further, saying:
[The NSA] went after high ranking military officers. They went after members of congress. The Senate and the House -- especially on the intelligence committees, and on the armed services committees and judicial. But they went after other ones too. They went after lawyers and law firms. Heaps of lawyers and law firms. They went after judges. One of the judges is now sitting on the supreme court that I had his wiretap information in my hand. Two are former FISA court judges. They went after state department officials. They went after people in the executive service that were part of the White House -- their own people! They went after anti-war groups. They went after US companies that do international business around the world. They went after US banking firms and financial firms that do international business. They went after NGOs like the Red Cross and people like that that go overseas and do humanitarian work. They went after a few anti-war civil rights groups... This thing is incredible what the NSA has done. They've basically turned themselves -- in my opinion -- into a rogue agency that has J. Edgar Hoover capabilities on a monstrous scale on steroids.
Structure defends itself. To be honest I'm surprised Russ Tice still lives. The alphabet agencies defend themselves, and their greatest threat is a cut to their funding, or oversight from politicians. Thus, their absolute first priority, before stopping any terror attacks, must be building up files on any individual with power. The Spider's "persons of interest" are not Chechen rebels, Somali militants, or Syrian fighters. I think the consistent failure to stop real attacks shows that. Their persons of interest are, as Tice says, members of congress, generals, judges, lawyers, journalists.
Tice continued, "One of the papers that I held in my hand was to wiretap a bunch of numbers associated with a 40-something year old wanna-be Senator from Illinois," referring to the future President Barack Obama. Hence the reference to J. Edgar Hoover. As Wikipedia says:
According to President Harry S. Truman, Hoover transformed the FBI into his private secret police force; Truman stated that "we want no Gestapo or secret police. FBI is tending in that direction. They are dabbling in sex-life scandals and plain blackmail. J. Edgar Hoover would give his right eye to take over, and all congressmen and senators are afraid of him."
The focus on politicians seems to reach globally. In June 2013 the Guardian reported that,
When G20 finance ministers met in London in September, GCHQ again took advantage of the occasion to spy on delegates, identifying the Turkish finance minister, Mehmet Simsek, as a target and listing 15 other junior ministers and officials in his delegation as "possible targets." As with the other G20 spying, there is no suggestion that Simsek and his party were involved in any kind of criminal offence. The document explicitly records a political objective -- "to establish Turkey's position on agreements from the April London summit" and their "willingness (or not) to co-operate with the rest of the G20 nations."
Such spying was for explicitly political objectives, as opposed to terrorism, the standard bogeyman. As we've seen before, the Spider cannot work alone. It needs the help of technology firms of all kinds, to supply the hardware and software, and to provide access to networks and servers. The role of technology firms isn't a secret. Also in June 2013, Bloomberg reported that "Thousands of technology, finance and manufacturing companies are working closely with U.S. national security agencies, providing sensitive information and in return receiving benefits that include access to classified intelligence, four people familiar with the process said."
And as Bush granted retroactive immunity to the telcos for helping with the NSA's warrantless wiretapping program, Politico.com reported that General Keith Alexander, head of the NSA, "has petitioned Capitol Hill for months to give Internet service providers and other firms new cover from lawsuits when they rely on government data to thwart emerging cyberthreats." One wonders why firms would need immunity, if they are not breaking any laws.
If the Spider did execute a silent coup against democracy, it started a long time ago. In 1975, following the Watergate scandal, there was enormous pressure from the public, and from congress, on the CIA for more transparency and accountability. The director of the CIA, William Colby seemed open to reforms.
Then, in the so-called "Halloween Massacre" of November 4th, 1975, President Ford fired Colby, as well as many moderate members of his cabinet, and replaced them with hardliners. Three names stand out: George H. W. Bush, who took over as director of the CIA, Donald Rumsfeld, the previous Chief of Staff, who took over as Secretary of Defense, and Dick Cheney, who became Chief of Staff. Bush, Rumsfeld, and Cheney all did well out of that, as did the CIA.
The Insecurity Business
It was strange to picture General Alexander "petitioning" lawmakers like a cheap lobbyist. More than likely, he wasn't really in charge. After all, this was the man who turned his war room into the helm of Captain Kirk's Star Ship Enterprise. One wonders how secure such a person actually felt. We can surmise that although the NSA has the files on every person of interest, it perhaps does not have the real power. I see the NSA as the geeks of the Spider, the CIA and DOD its bullies.
And indeed, after I'd written this, General Alexander resigned "to spend more time with his family." Another nine top generals -- Major General Michael Carey, Navy Vice Admiral Tim Giardina, Major General C.M.M. Gurganus, Major General Gregg A. Sturdevant, Brigadier General Bryan Roberts, Major General Ralph Baker, Rear Admiral Charles Gaouette, Lieutenant General David Holmes Huntoon, and General Carter F. Ham -- all resigned or were dismissed around the same time, during the government shutdown of 2013. Coup or counter-coup, or just spring cleaning, the media did not report, nor speculate.
One wonders how secure the G20 leaders felt, when they learned they were being bugged. "Oh, so now you want our support on Syria? Really? Didn't you hear it last week when I told my cabinet we'd rather be buggered by rabid wolves than cooperate with you?"
We say "security" to mean the protection of our secrets, as they fly across the Internet, as well as the warm fuzzy feeling that gives us. The Spider has worked hard to strip away that protection. I'll explain something of that protection and how it broke. We'll look at three kinds of security, and I am going to use some dirty language, so if you don't like that kind of thing, please skip a few pages:
One person, keeping secrets for themselves (private files). This means encrypting the data with a symmetric key, which is a key that both locks and unlocks the secrets.
Two people, talking to each other (phone, email, chat). This means authenticating both parties, to be sure who is speaking, and using asymmetric keys to encrypt and decrypt the data. That is, one key locks, and another key unlocks.
One person, talking anonymously to a crowd (whistle blowers, bloggers), or accessing a website anonymously. This means anonymizing the origin of data sent to the Internet, i.e. removing all details about the IP address used on the original sender computer, while still making it possible for replies to go back to that original computer.
A symmetric key is usually a string of words ("The R4in F4lls M4inly In Sp4in") that is hashed into a long number, used as the key. It is easy to crack any symmetric key. You just take a person who knows it, and threaten them, or beat them. This is called the "rubber hosepipe attack." When you carry encrypted data into the US, for instance, you pass a no-man's land where agents of the Customs and Border Protection (CBP) can stop you, seize your equipment, and ask you nicely for the keys. If you don't cooperate, you will be charged as a criminal. The UK has the same system.
Asymmetric keys are more fun. These make use of weird maths where two very long numbers work together; one to turn data into gibberish, and one to turn that gibberish back into data. It's like turning cement powder into concrete by adding water, and then turning concrete back into cement powder by applying heat. So I can tell people, "use heat" and give them cement blocks. I keep "water" secret. When I get two magic numbers that work together, A and B, and tell people about B, then I can encrypt my data with A and share it. Anyone who has B can decrypt it, and they know it came from me.
This gives us secrecy, thanks to the encryption, and also "authentication," which is the knowledge that the data really came from me, and not an impostor. There is little point in encryption if we can't be sure of the sender. There's a small catch: you also need to be sure that B is really my key, and was not switched by some "man in the middle," or MIM.
For asymmetric keys to work at all well, those encryption keys must be exchanged securely, which creates an interesting Catch-22 that attackers exploit. The keys must also, and this is very important, be really random and unguessable. If you can guess the keys, the whole encryption exercise is for naught. Even if your guesses are very vague, it can make the difference between trying different keys for an hour, or for 50 years. When we use random number generators that have some predictability, we're vulnerable to anyone who knows those weaknesses. When done on purpose, this creates a "backdoor" into an otherwise secure system.
So random number generators are more than a mathematical curiosity. They can make the difference between secrecy and exposure, and in extreme cases, life and death. A high-profile argument in 2011 over an Intel-provided patch to the Linux random number generator led to maintainers quitting the project and accusations of backdoors, and some concern when the NSA's backdoor strategy became public in 2013. Linux at least benefits from open discussion and massive visibility. If someone tries to sneak in a backdoor, it cannot survive long.
This isn't the case with closed, commercial products, where backdoors can survive for many years. One of the world leaders in asymmetric security products is EMC Corporation, which owns RSA Security. It makes SecurID tokens, which are widely used to protect access to corporate networks, and a commercial library, BSAFE, widely used in products.
Since at least 2006, these products used a random number generator called Dual_EC. This algorithm was chosen by the National Institute for Standards and Technology (NIST), despite its being extremely slow. Some cryptographers suggested at the time that it had weaknesses -- in other words, you could predict the keys it would generate. Nonetheless, NIST standardized it, and that standard went through the International Standards Organization (ISO) in Geneva, becoming a government-approved standard worldwide. EMC shipped its products and these went into widespread business and official use.
Then in September 2013, the New York Times wrote that, "an algorithm for generating random numbers, which was adopted in 2006 by the National Institute of Standards and Technology (NIST), contains a backdoor for the NSA." Not only had the NIST accepted the NSA's recommendations of a weak, slow algorithm. They had effectively given the NSA sole authorship of the standard.
Given that most cryptographers -- by nature, a skeptical lot -- stayed away from Dual_EC, it is significant that the NIST (supposedly the experts in this field) didn't speak up. Much the same observation goes for RSA Security, who are most definitely the presumed experts in this field. They patented asymmetric cryptography, after all.
Today, NIST is largely discredited as a trustworthy authority on security. The most careful people also stay away from any security technologies that are not independently designed, and fully verifiable. Hence the emotional discussions on the Linux lists about that random number generator patch. In 2013, any security product that isn't open source isn't credible.
We're still not secure, however. Let's say we can generate really strong keys that no-one could ever guess, immune from rubber-hose attacks, and hard enough to crack that it would take a zillion years to try all combinations. It's still trivial to break such security, if I can do a man in the middle attack.
A MIM attack takes advantage of the fact that even if we can create secure keys, we need some way to exchange them. It's like me sending the key to my house in the mail to a person coming to stay. An attacker can open the mail, take out my key, substitute his, with a letter containing an impostor address. The poor visitor will come to the wrong house, enter, and know nothing. Meanwhile the attacker can enter my house, pretending to be the visitor.
The industry's answer to MIM attacks is something called "public key infrastructure" or PKI, which means we give our keys to someone we can trust to hold them. There are about 50 such trusted "certificate authorities," or CAs, and their public keys are embedded in our web browsers.
When the browser trusts a certificate authority's key, it can trust the key of a server that was "signed" by the CA. The whole thing works, more or less, yet has two big problems. One, it's expensive, since CAs have a soft cartel which they can exploit by charging hundreds of dollars for a few seconds of CPU time. Two, it's not really secure after all. Eggs in baskets attract foxes, and CAs are a juicy target for the Spider.
In 2011, the Dutch CA DigiNotar was found to be issuing fraudulent certificates following a hack. Two years later we discovered that hack was, probably, the work of the NSA. Who would have guessed it. If you can take over a CA, or start your own CA, you can run MIM attacks on anyone who buys certificates from you. And a little later, security researcher Bruce Schneier reported that the NSA "covertly redirected targeted Google traffic using a fake security certificate so it could intercept the information in unencrypted format."
PKI, like any centralized infrastructure, is vulnerable to intrusions, and simple brute force. While it may be hard to convince a Dutch CA to cooperate with US military intelligence, it's doubtful that US certificate authorities have the same freedom to say "no." We've seen what happens to firms that try to fight the Spider.
There are in fact ways to make that secure phone call. For example I spent much of 2013 building such security into ZeroMQ, so that it became much easier to build highly secure communications systems. However, as long as we connect over our domestic or office Internet connections, we're vulnerable to "metadata capture." Perhaps the Spider can't read what I'm typing, yet it sees who I'm sending it to, and it sees when that person replies. And the Spider of course collects metadata without even apologizing. As the NSA explains to an indifferent Congress and a lazy media, that is not even real data, and does not count as surveillance.
The metadata on who we talk to, and when, and for how long, is of course enough to create a rich file. In the story of the Spider using its surveillance to blackmail politicians and competitors, metadata is more than powerful enough. General David Petraeus was a 4-star general with 37 years of experience, in charge of coalition forces in Iraq. In June 2011 he took over as director of the CIA, in a 94-to-0 unanimous vote. And a year and a half later, he quit, in a sex scandal uncovered by the FBI through an email trail.
I'd say the FBI was just doing their job, except that investigations against powerful people for serious crimes seem never to happen. Infidelity... well, if that was reason for politicians to step down, there would be few leaders left. Whether Petraeus was pushed, jumped, or was just honestly embarrassed, the contents of those emails didn't matter as much as their very existence.
Peeling the Onions
The more paranoid and devious citizens of the digital world know, of course, that metadata is precious, and have worked for years to build anonymity networks, above all one called Tor). Tor was originally a US Navy and DARPA project. The funding for the Tor Project still comes in large part from the US State Department, which sees it as a vital tool for foreign policy.
Tor uses layers of encryption to hide the origin of packets sent to the Internet. It gives journalists, activists, and whistle blowers a way to publish without being tracked and punished. Privacy isn't a luxury when simply writing about a sensitive topic like religion can result in corporal punishment and imprisonment.
Tor creates a network of "onion sites," also called the "Deep Web," accessible only via a Tor browser. The name "onion comes from the way the security works, layer by layer. The Deep websites are invisible to normal Web users, you cannot open them in a browser. The most famous such site was the Silk Road) marketplace, mainly used for selling drugs by some accounts, guns and worse by other accounts.
The Tor network also lets its users connect onwards to real websites, through so-called "exit nodes." An exit node acts as a bridge between the Tor network on one side, and the open Internet on the other side. These exit nodes range from small hobbyist servers handling a handful of connections at once, to massive servers handling thousands.
Tor has a number of weaknesses. Technically, it can be secure, if you are an expert user, and you stick to Deep websites. You must run Tor from a separate virtual machine, and wipe that after each use. For instance, having a Silk Road alias on your computer would be incriminating evidence. Most users will however simply run it from their normal machine, and will access normal websites. This makes it possible to track them.
The second technical weakness is the reliance on exit nodes for outgoing access. There are perhaps 1,000 exit nodes worldwide, a quite small number. Controlling a fraction of these would let the Spider get the real Internet addresses of tens of thousands of Tor users. The NSA can either hack into a Tor exit node and take it over, or they can (and one assumes, do) set-up their own Tor exit nodes. It costs relatively little. The bigger the budget, the more traffic one can tap.
As Dan Egerstad, a Swedish security consultant, notes, "If you actually look in to where these Tor nodes are hosted and how big they are, some of these nodes cost thousands of dollars each month just to host because they're using lots of bandwidth, they're heavy-duty servers and so on. Who would pay for this and be anonymous?"
The other half of taking control of the exit node network is to deter honest operators. It's a fairly simple exercise. If a Tor user distributes child porn via an exit node, the exit node operator can be held responsible. Tor is practically designed to plant evidence on exit nodes.
The third weakness with Tor is that it attracts criminals, which makes any Tor infrastructure a standing target for the authorities. As Wikipedia notes: "Tor can also be used for anonymous defamation, unauthorized leaks of sensitive information, and copyright infringement, the distribution of illegal sexual content, the selling of controlled substances, money laundering, credit card fraud and identity theft."
From pedophiles to anyone using anonymous networks, the net only gets larger, never smaller. The leaking of an NSA address in such a carefully-orchestrated exercise does not seem accidental. It would be so trivial to hide. More likely, it's meant to send the message, "We are watching."
People speculated at the time that this attack on Freedom Hosting was the prelude to an attack on Silk Road. It made sense, since Silk Road was a major attraction for newcomers to Tor. As long as it existed, people would trust and invest in Tor, and work around any tactics the authorities invent. Taking down Silk Road would hurt Tor's growth and future badly. In theory, a Deep website like Silk Road cannot be found and shut down by the authorities. However in October 2013, the FBI arrested its operator, Ross Ulbricht, aka "Dread Pirate Roberts", and seized the Silk Road servers.
The first death of Silk Road -- for I'm sure it will be resurrected -- and subsequent worldwide prosecution of dealers who used it puts a large question mark over Tor. The FBI's explanations of how they tracked Ulbricht through his clumsy on-line activity smells of "parallel construction", aka "intelligence laundering," and the NSA's handy set of Internet spy tools.
More encryption is not the answer, though. It just makes things harder for ordinary users. In the end, any community that depends on centralized infrastructure, no matter how encrypted, is vulnerable. The problem is that those centralized servers are a single point of failure. Arrest one man, and you take down half the Deep Web. And, that we still have to connect to the Internet somehow. That means our IP addresses can be tracked, and our activity logged, by our broadband provider.
The Dangerous Young Men
Realistically, things will have to get rather worse before the mass market and business will invest seriously in a safer alternative to today's Web. Until then, it will be the idealists, privacy freaks, cryptographers, political performance artists and busybodies like myself who build such things. I've spent the last years investing in ZeroMQ, a core technology for secure decentralized communications.
It will take a lot of work to rebuild the web, no matter what technology we use. One thing the Internet has in large numbers, however, is capable young men with a rebellious streak. The chemistry of change just requires that these Dangerous Young Men focus their attention on the challenge of the decentralized Internet. Once it's seen as a plausible direction, there is no stopping the reaction.
Indeed, when the Greedy Old Men try flatly to stop the reaction of change, it just makes it run faster. It's a recurring pattern of conflict between the old men and the young ones. Indeed, an ancient one that is universal in myth and history, and embedded in the fiber of our species. There are not many old revolutionaries, nor young reactionaries. Nor is this a women's game until it hits wider society. There is something disposable about the young human male which makes it profitable for him to take greater risks.
The story starts with a couple of young upstarts who hack together something that challenges the old order. In history it was perhaps a political party, a forum, or a business. These days it's more likely to be a website or a piece of software. For a while nothing happens, and that's mostly how it stays. Yet just now and then, that little seed of a challenge takes root, and grows. It brings in more young men, and suddenly people are talking about it, and the old men -- not good listeners at the best of times -- get to their feet and start to ask questions.
Hogwash, say the old men, as they listen. That'll never fly. And then it does. As Nicholas Klein said in an address to Amalgamated Clothing Workers of America, in May 1918, "First they ignore you. Then they ridicule you. And then they attack you and want to burn you." So the old men move to attack the upstarts, calling in favors, so security comes to beat up and arrest the ringleaders, and the press paints them as degenerates. Klein added, "And then they build monuments to you," though that was arguably just to warm up the crowd.
You'd think that would be the end of it, yet rather than quash the dissent, this police action has a perverse effect. Suddenly there are martyrs, and a tenfold increase in dangerous young men looking for action. What was a sideshow becomes the main attraction and before they know what hit them, the old men are running for their lives, their villas burnt, their families scattered. Conflict can attract, rather than repel.
A classic example of such a conflict on the Internet was the music and movie's long fight to stop sharing of their commercial products on the Internet. This so-called "War on Piracy" was perhaps the first real battle between old industrial businesses, and the new digital world. Incidentally, "piracy" is an old insult against copyright and patent violators, dating back to at least 1850. In those days, lobbyists used it to describe Dutch and Swiss firms who copied industrial processes from the Americans and French.
In “Wealth of Nations”, I explained how all property is based on some level of coercion. We tolerate the State because it's the only plausible way to get balanced, symmetric coercion. The music industry has turned asymmetric coercion into a core business strategy. It pushes young artists into signing deals, and uses "collecting societies" to suppress an independent music industry. These collecting societies take fees from radio stations, clubs and cafés, concert promoters, and so on, and pass these onto their members, who are the established music businesses.
You are either in the system, and you play by the rules, or you are outside, in the cold. Some musician friends, invariably poor like every musician I ever met, explained that they had to pay collection society fees when they played a concert of their own original music. They could otherwise have stayed off the radar, signed no contracts, sold no CDs in the high street shops, played no concerts in the big venues.
The music industry made, and still largely makes, its profits by controlling the whole business process from raw artist to final user experience, allowing no real competition at any point along this chain. They gouge the artists so badly you would think by now no artist would even talk to them. Yet, there are always more young eager faces waiting in line. Artists seem to scramble over each other to be exploited. Just as the diamond industry keeps its prices high by stockpiling rough stones that it never sells, the music industry signs artists simply so they cannot play on the free market.
When digital society realized they could bypass the music industry's antiquated and painful distribution process, there was a kind of ecstatic explosion of joy. I remember looking at my CD collection in 1995, wondering why I could not store and play all that digital music on my computer. Apart, that was, from the small detail that one hard drive could hold about two-and-a-half CDs.
The old men of the music industry confronted the upstarts somewhat like the Titanic confronting the iceberg. You can see the innocent arrogance of power hitting the raw uncaring brutality of nature, and sinking, slowly yet surely, into the icy water. Unlike the Titanic, though, the sinking of the music industry is still ongoing after two decades.
Here are the headlines of the sinking. It all starts when Sony and Phillips release the audio CD format, which is a digital audio disc, and a little later, CD-ROM, which is a format for data. An enterprising Taiwanese CR-ROM maker, whose name I forget, realizes they can make the audio data available to applications with a trivial pin-out. Connect a little cable to your sound card, and suddenly you can read the CD data on your computer! 650 megabytes of raw audio data, larger than most hard drives at the time.
Then all hell breaks loose, in a slow, shambolic kind of way. We saw the Fraunhofer Society's release of MP3 encoders in July 1994. We saw the rapid birth and death of Napster (June 1999-July 2001), MP3.com (July 1999-May 2001), Gnutella, FastTrack, WinMX, AudioGalaxy, and AllofMP3, to name a few, finally landing us with BitTorrent as the uncaring iceberg.
Over a decade, copyright law shifts gradually, country by country, from a civil offense, to a criminal one. The powers of the State gradually come into play. The police seize servers, arrest operators, bring down websites. While the State seems to enjoy its role as cartel enforcer, the criminalization of file sharing does nothing to stop the sinking of the music industry. The arrests and court cases continue, yet for every torrent site taken down, ten more spring up.
Slowly, the industry accepts an "all you can eat" model and by 2008, Spotify starts a legal commercial streaming service. As always, it is the studios who get the profits, not the artists. In 2012, after a long battle, a Minnesota woman agrees to pay the RIAA $220,000 for downloading 24 songs. The recording industry vaguely realizes the insanity of its lawsuits, yet cannot resist one last dawn raid, sending a Finnish police squad to seize the laptop of a 9-year old girl. Her father had refused to pay a EUR 600 fine, and sign a non-disclosure agreement for downloading one song from the Pirate Bay.
Has the music industry survived? That is debatable. Downloading music is easier than ever, and by extorting punitive damages against women and children, the music industry has shot itself in both feet, reloaded and shot again. It will never recover public trust and support. YouTube has given up policing music, and indeed, has replaced MTV (remember that?) as the place for music videos. The RIAA has switched from suing its users to mass takedown notices against firms like Google, also a failing strategy.
It was never about stealing, it was about convenience and fairness. Digital content should be easy, and it should be plentiful, and it should be priced for mass consumption. People happily pay Spotify for unlimited streaming on all our devices, which is anyone ever wanted in the first place. My Spotify account costs me less than 1% of my old CD collection, per year.
After spending 15 years lobbying at the highest levels to have a majority of Internet users criminalized, the music, movie, and TV industry is starting to realize that the so-called pirates are really not the problem. The real problem is that in a world filled with free and interesting material, their commercial content, like newspapers, is becoming old-fashioned, and irrelevant.
The realization is strongest in the television industry, particularly businesses like HBO, that sell highly-addictive series to subscribers. HBO's most popular show as I write this is Game of Thrones, a cracking swords-and-dragons political epic. It is also the most pirated TV show ever.
Speaking of this, the CEO of Time Warner (owner of HBO), said, "Our experience is, it all leads to more penetration, more paying subs, more health for HBO, less reliance on having to do paid advertising -- we don't do a whole lot of paid advertising on HBO, we let the programming and the views talk for us -- it seems to be working." So piracy is not hurting sales of TV shows, and instead emerges as the cheapest and most effective way to increase them. Of course we always knew this. However, it's nicer when the CEO of a TV company says it out loud.
For the music industry, the same logic is starting to apply. I explained in “Wealth of Nations” how the smart record labels are using YouTube to promote their hits by encouraging remixes. Perhaps the music industry will design addictive music products as the TV industry is doing, and sell these to subscribers.
For the movie industry, it seems clear that without the Internet to promote their new movies, YouTube for the trailers and reviews, and IMDB for the discussions, theaters would be getting empty. And without Pirate Bay to keep old movies available, the movie industry would slowly fade from our minds.
However the realization that the upstarts and their aggressive deconstruction of the past are essential for the future takes a long time to percolate through the stone minds of the old men. Indeed, the time scales suggest that the old men never learn, they are instead slowly replaced by younger men who "get it" and find ways to turn the "dangerous" platforms and technologies into profitable and acceptable businesses.
The pattern of hostility between dangerous young men and old reactionaries has played out over and over. My apologies to my female readers. This caricature of revolution (technological or other) as a mainly male game is what we see. There are many women, dangerous or not, in technology, however it seems to be mostly the men who stick their heads up, and get them chopped off.
The crushing of the Silk Road is following the classic plot line. As it did with in the Napster case, smashing a popular underground platform is unleashing a many-headed monster. Brute force isn't a deterrent to the dangerous young men, it is an irresistible challenge. A harsh response from the authorities is a badge of success. And indeed a few weeks after the FBI took down the original Silk Road, its users prepared to launch a new set of platforms.
One commentator, who worked for a short-lived Silk Road competitor called Atlantis, wrote, "What's striking to me as an outside observer is there seems to be no shortage of well educated American males in their late 20′s (Manning/Snowden and now Ulbricht) willing to sacrifice bright futures and their own personal liberty to highlight the draconian laws and downright totalitarianism being inflicted by their government on the populous." And then, more dramatically, "I believe I am now witnessing a full revolution in progress and I for one will be sticking around to document it."
The Fires of Change
Sometimes the reaction of change burns hot, engulfs broader society, and presents a hotter challenge to the authority of the State. When this happens, the State can react murderously. 45 years ago the Mexican government, faced with ongoing protests in the Tlatelolco area of the capital, shot large numbers of students, organizers, and bystanders in one night, killing several hundreds, and arresting over a thousand, many of who still languish, a lifetime later, in the Mexican gulag system. According to unofficial reports, the firestorm was set off by government snipers shooting at nervous soldiers, who responded by firing at protesters and bystanders.
States do this kind of thing when they don't see a way to keep a lid on dissent. One would hope that it happens less and less over time, yet we're seeing a broad and deep militarization of civilian law enforcement in the US. That is either a vast boondoggle for the defense industry, addicted to selling weaponry on a planet that has less and less need of it, or something rather more sinister.
I rather like the boondoggle theory because it fits with the usual habits of men, to steer every exercise towards private profit. It's much more plausible to assume that cities are buying loads of expensive rifles, ammunition, and armored vehicles because someone is getting a 10% or 15% kickback, than because there are evil lizard overlords plotting our ruin.
Having said that, it is reckless not to plan at least for the worst, even if we hope for and assume the best. It is the same reason we must build surveillance-proof networks. I don't expect a car crash every time I leave the driveway. Still, I lock my seatbelt every time I close the car door. Prudence is cheap. Kinetic energy dispersing in organic tissue is costly. So even if we don't really believe that story of the Para-state and its Spider, let's just imagine that out there, somewhere, an old man reads "a full revolution in progress," and reaches for his sidearm.
When faced with a revolution, you don't go out and shoot or arrest peasants. Peasants are the stumbling dead of the apocalypse. They look strange, and smell, and possibly drop bits of rotting flesh as they pass. However, they're basically harmless so long as you don't let them touch you, or overwhelm you with sheer numbers. What you have to watch our for are the infected crazies, who "furiously and relentlessly pursue non-infected persons demonstrating notable speed and agility combined with complete disregard for self preservation." And while the world is filled with people infected with crazy ideas like Freedom, the worst of all are the spoiled, over-educated, reckless youngsters we call "students."
It's literally step #1 of "How to Control Your Revolting Population in Five Easy Steps," the popular teach-yourself manual for aspiring dictators. You locate the students, you provoke them into action with a few arrests, shootings, and bans, and you then bring in the army to shoot them en-masse and bury, sorry, arrest the survivors. It works every time, partly because fast-moving metal projectiles always beat flesh, and partly because the mass of people fundamentally don't like students and can ignore a lot of violence against them. Students are loud, they smoke pot, they have long hair, they don't work (Horror shock probe!), and unforgivably, they have more sex than normal people do.
While universities are often the scene of protests, the out-and-out shooting of protesting students is thankfully rare. Googling, I found Tlatelolco, Kent State, Thammasat, Tiananmen Square, Nasarawa, Abeokuta. Not a very long list for decades of student discontent. However I recall vividly, a short time before the Rwandan genocide of 1994, watching a TV report of arrests made in Kigali of Tutsi "sympathizers." As the camera panned across the jail floor, I saw a close friend sitting there, recognizable despite his shaved head. A musician, he'd lived with us in Antwerp just a few months earlier, returning to Rwanda to help his family there. We never saw him again. His crime: to be an intellectual, a voice, a focus of dissent.
Most repression is invisible unless you are close by. Despite the caricatured apathy towards students that I drew, it is the educated 20-somethings that are the brains of any revolution, and the main targets of selection repression. The Para-state is expert at luring them out and crushing them in elegant mazes of confusion. The Para-state may be incompetent when it comes to science, maths, ecology, or even basic humanity. However, one thing that they are truly experts at is holding onto power.
The Egyptian revolution of 2011 was a classic example. We saw non-violent protests by the middle class, during the Arab Spring, turning into a soft revolution against a corrupt leadership. We saw these protests, the first wave, encouraged by the West and tolerated by the military. We saw the dictator Mubarak deposed and placed into house arrest. Then there were elections that, tragically, transfered power to the extremist Muslim Brotherhood.
The MB used their new power to tear up the constitution and enact intolerable laws. What a catastrophe! The army, with regret, stepped in. The extremists fought back. We saw violence, deaths, arrests. We got bored. Yet still, we applauded as the MB was dismantled in a river of blood. No-one wants Islamic extremists in power! Fifty dead in a day. A hundred. Who kept count? The only good terrorist is a dead one anyhow. Few of us however, in the chaos and the confusion, saw what happened to the leadership of the first wave. They just disappeared.
There was no real revolution in Egypt, no real change of State. What we saw were, I believe, useful idiots and egomaniacs being given rope, and then hung by it. And, more usefully, the real targets -- the young leaders of the first wave -- being disposed of while no-one was watching. I assume the MB was encouraged by agents provocateurs and slush funds, that the elections were rigged, and that the real goal was always the continuity of the dictatorship, and the real targets were those dangerous 20-somethings.
There is, in late 2013, at least the visible start of a move against the dangerous young men of the Internet. How deep and wide that move is, we don't know. I believe the Spider moves slowly yet very deliberately. Small moves in a new direction presage large events. One of those directions is the creation of an Internet with two sets of laws, one for the rich and one for everyone else.
The Protected Computer
Over Thanksgiving weekend in 2011, the Senate passed the National Defense Authorization Act (NDAA). Senator Lindsey Graham, one of the bill's sponsors, said about it on the Senate floor, "the statement of authority to detain, does apply to American citizens and it designates the world as the battlefield, including the homeland."
As Amber Lyon reports, "The NDAA gives the federal government the power to behave like dictators and arrest any American citizen, or anyone for that matter, without warrant and indefinitely detain them in offshore prisons without charge and keep them there until “the end of hostilities.”" Award winning investigative correspondent Amber Lyon infamously revealed how CNN took money to decide what stories to report.
She continues about the NDAA, how Barack Obama "lied to the public and said he would veto the NDAA’s indefinite detention clauses. Instead, he surreptitiously signed the NDAA into law on Dec. 31, 2011 while most Americans were distracted celebrating New Years Eve." The NDAA was clearly a discrete declaration of war... and aimed at who exactly?
Let's go back to one of the first attempts by lawmakers to control the new digital world. The 1986 Computer Fraud and Abuse Act (CFAA, 18 USC § 1030), makes it a federal crime to use a computer "without authorization or exceeding authorized access," and then steal or modify information. This sounds fair enough. The law looks reasonable, and reads like an honest, if somewhat outdated, attempt to stop people doing Bad Things on other peoples' computers.
However, like all laws, the game is in the spirit, not the words. Who defines what "authorized access" is? Who defines the value of information? There is a lot of focus on "protected computers", a term the law defines thus:
2) the term “protected computer” means a computer -- (A) exclusively for the use of a financial institution or the United States Government, or, in the case of a computer not exclusively for such use, used by or for a financial institution or the United States Government and the conduct constituting the offense affects that use by or for the financial institution or the Government; or (B) which is used in or affecting interstate or foreign commerce or communication, including a computer located outside the United States that is used in a manner that affects interstate or foreign commerce or communication of the United States;
It is an extremely broad claim of authority: touch any network switch, router, WiFi access point, server, or cloud service anywhere in the world in a way that affects any US business, especially the financial sector, or the US government, and we will treat you as a criminal.
Further, it is the actual use of the computer that is the crime. Let me explain that. What you actually do on the computer may also be a crime, or may not. That's beside the point. Only in 2013, more than 25 years after the law was passed, was section (a)(1) used for the first time, in the prosecution of Chelsea née Bradley Manning.
It is a bad sign when prosecutors start pulling on unused old laws to chase down new threats. To start with, it shows the old law was wrongly designed. The perceived threat in 1986 was teenagers hacking into defense systems and starting a nuclear war. Clearly in a quarter century, that never happened, outside of the movie theater. Do lawmakers believe that Hollywood makes documentaries? And then, it's bad because prosecutors start to push at the limits of language and meaning to get the convictions they want. It is a classic lawyer's game: you define a term, and then I will make it mean precisely the opposite, with the fewest court cases possible. It is bad science to gather data to support a hypothesis, and it is bad justice to twist a law to support a prosecution.
In April 2013, Cory Doctorow wrote, of the US Department of Justice (DoJ)'s persecution of the young activist Aaron Swartz, the archetype of a Dangerous Young Man:
When my friend Aaron Swartz committed suicide in January, he'd been the subject of a DoJ press-release stating that the Federal prosecutors who had indicted him were planning on imprisoning him for 25 years for violating the terms of service of a site that hosted academic journals. Aaron had downloaded millions of articles from that website, but that wasn't the problem.
He was licensed to read all the articles they hosted. The problem was, the way he downloaded the articles violated the terms and conditions of the service. And bizarrely -- even though the website didn't want to press the matter -- the DoJ decided that this was an imprisonable felony, under the Computer Fraud and Abuse Act, which makes it a crime to "exceed your authorization" on any on-line service.
The CFAA would make a young girl a criminal, if she was in the US, for lying about her age on her Facebook profile, and thus receiving information she is not entitled to. Children are an unlikely targets of prosecution though, I hope. The real focus of the CFAA are the "nihilists, anarchists, activists, Lulzsec, Anonymous, twenty-somethings who haven't talked to the opposite sex in five or six years," using the words of Michael Hayden, former director of the NSA and the CIA. Hayden ran the NSA when it switched from foreign military intelligence to domestic spying. Hayden is, dare I say it, a Spider man.
Ironically, for a long time, the NSA was seen as one of the best places to work, if you were a smart technology-oriented nerd with particular talents. For years, the agency cultivated its image as the quiet force for good, the honest policemen of the Internet. It proposed "stronger" (hah!) security standards and pushed them through US and international standards organizations. Young men like Aaron Swartz were the best possible talent the agency could ask for, to keep the Internet safe for Honest Citizens.
Glyn Moody writes, "as the NSA is now finding out, those same hackers are increasingly angry with the legal assault on both them and their basic freedoms."
In his "nihilists and anarchists" speech, Hayden made it clear that he considered the "twenty-somethings" to be the next terrorists:
Mr Snowden has created quite a stir among those folks who are very committed to global transparency and the global web, kind of ungoverned and free. I'm just trying to illustrate that you've got a group of people out there who make demands, whose demands may not be satisfiable, may not be rational, may not be the kinds of things that government can accommodate. They may want to come after the US government, but frankly, you know, the dot-mil stuff is about the hardest target in the United States. So if they can't create great harm to [military websites], who are they going after? Who for them are the World Trade Centers? The World Trade Centers, as they were for al-Qaida.
In December 2010, PayPal, Visa, and Mastercard (among other firms) froze WikiLeaks' account, cutting off donations to that site. In retaliation, Anonymous organized "Operation Payback," a "distributed denial of service" attack on those firms' web servers. Thousands of people around the world ran scripts on their PCs that sent request after request to PayPal's servers, overloading them, until no-one could use them. Under the CFAA, this gave the FBI a mandate to arrest them and prosecute them, which started about three years later, in October 2013.
Operation Payback was very significant. It was ostensibly a non-violent protest against the banks and payments processors who had tried to strangle WikiLeaks. However, what it really signified was the escalation of the war between the Spider and Para-state, and the digital revolution.
Anonymous, worthy of a book in themselves, had sharpened its teeth on Scientology, no easy target. In 2008 there were maybe half a million Scientologists in the world (claims varied from 100,000 to an unlikely 20 million). Then in February, over 9,000 protestors came out onto the streets and confronted this organization. By 2013, the largest pro-Scientology events -- such as in Clearwater, FL in November 2013 -- had no more than 2,000 or 3,000 people.
And this demolition of Scientology, one of the most powerful and feared cults, cost nothing, no private investigators, no weapons, no violence, and indeed very little confrontation. Without implicit popular support, Scientology discoved that all their money was worth nothing.
So Anonymous -- an idea, not an organization -- now attacked the financial system, and by implication, the US Government. The arrest of young male protesters -- including a 16-year old Dutch boy -- and indictment for high crimes against the State is a classic old men versus dangerous young men story line.
We've seen that Bank of America conspired with private companies to, in their own words, "Commit cyber attacks against the infrastructure" of wikileaks.org. This, we see, is perfectly acceptable. However, to conduct the equivalent of a non-violent street protest against PayPal's Internet headquarters is a federal crime leading to arrest and prosecution. There is not even the pretense of impartiality.
Knowing in 2010 that the Spider was watching every click, those young men would have been rather more careful. Since it took over two years to pounce, we can assume there are more international "cyberterrorism" warrants in the pipeline. The result will be like pouring water on a kitchen grease fire. The coming arrests -- like that of Jeremy Hammond, taunted and guided by FBI assets into the hack on HBGary Federal -- will create martyrs and inflame the dangerous young men who think of themselves as Anonymous.
The Golden Rule
The criminalization of on-line activists may seem new. However, the principle of "you are either our friend, or our enemy" is an old staple of every conflict, as any child of divorce knows. The one area where the Spider sees a particularly sharp difference between its friends and its enemies is the financial industry. Before 2008 we perhaps didn't see how profoundly the Para-state depended on its banking sector, how far it would go to protect the banks from their own greed, and from the laws of the land.
He who controls the gold makes the rules, and anyone who wonders what might happen to new virtual currencies like BitCoin would be wise to read history. The independent banking sector, cash economy, and virtual currencies are not friends to the Spider, thus are its enemies. If this was not clear before September 11th, it certainly became clear after that. However, we'll start our money story a few years before 9/11, in the last years of the twentieth century, as governments of the West started to crack down on cash transactions and banking secrecy.
It used to be that you could walk into almost any bank in Europe a check, or cash, and open an account under an assumed name, without ID. "Can I open an account?" "Yes, certainly. Do you have identification?" "No, though I do have this check." "That'll do nicely, sir."
This was a cross-border specialty. For decades, Germans seeking to avoid the high taxes of their country could hop over the border to Austria, open an anonymous numbered account, and put undeclared cash income there. High taxes and old laws left Europe littered with convenient little tax havens: Andorra, Monaco, Luxembourg, Jersey, Malta, Liechtenstein. Even Belgium welcomed tax refugees from the Netherlands, as did Germany from Austria, and Switzerland from anywhere in the world and especially from corrupt foreign dictatorships.
Anti-money laundering (AML) regulations ended such liberties. Ostensibly, the purpose was to catch drug traffickers, by requiring identification for any transaction, and justification for any transfer over $10,000. The real goals were more likely to break the cash economy, stop tax evasion, and allow authorities to correlate banking information across Europe. The real payoff for the banks was increased cash flow.
Arguably though, a single currency and the single European market makes money laundering easier, not harder. Drug money of course didn't stop flowing in the 1990's, and it doesn't take a genius to see how to get around the AML controls.
Say a street dealer sell drugs -- sugar-coated croissants, perhaps -- in Paris for EUR 1 million in undeclared cash. He drives with this dirty cash in a bag to Vienna, then hops across the border to Bratislava, the capital of Slovakia, famous for its investor-friendly business climate. There he starts a new small high-cash business on paper, say a fashion shop or nightclub. He rings up lots of transactions and creates EUR 1.00 million in new profit. He pays taxes on that, at the flat rate of 19%, after a deductible of EUR 500,000 investment bonus (which cost him only EUR 2,500 in a large envelope).
He now has around EUR 900,000 of clean money, which he wires to his holding company in France, as an "Indefinite business loan." His French company invests that money in real estate on the Riviera. He does this for a couple of years, then closes his Slovak operation, and starts again in the Czech Republic.
I'm not an expert in international finance, and this is a simple scheme. Slovakia, incidentally, ended its flat tax rate in 2013, and is most definitely not run by crooks. A more elaborate model would use management service fees, patent and trademark licenses, not-for-profit holdings with an educational mission, multiple entities in different jurisdictions and so on. With a little care one could make a net loss every year on gross profits of billions of laundered money. Note clearly that I am not suggesting you do this. It is a theoretical exercise.
My point is to show that stopping the cash economy does nothing to reduce large-scale criminality and tax evasion. It just ensures the big banks will keep more of the cash flows involved. When the banks do get caught breaking those AML rules on real drug money, they are slapped on the wrist for getting caught, and told to behave. In 2011, "Wachovia, accused of laundering about $378 billion from Mexico and facing U.S. criminal charges, got off by paying a $160 million fine," reported the El Paso Times.
Built for Terrorism
The September 11th attacks and the PATRIOT Act gave the Spider the tools to crack down on independent bankers. The first targets were the Hawala networks, a traditional Muslim system of money transfer based on trusted brokers. The Hawala networks transfer cash from US and Europe to conflict areas like Somalia, which was considered a hot bed of Islamic fundamentalism after the 1998 attacks on the American embassy in Nairobi, and Pakistan.
The correlation of the Hawala networks with conflict zones was enough to justify action against them. In 2001, after 9/11, the US came down hard on the al-Barakat group, calling them "the quartermasters of terror." TIME magazine shouted, "A Banking System Built for Terrorism".
In 1991, Somalia saw the exodus of its dictator, the collapse of its formal economy, and a long civil war driven by clan rivalry and inflamed by interference from its larger neighbors Kenya and Ethiopia. The country suffered massive emigration, like Lebanon before it. The stuttering economy depended on groups like al-Barakat for banking and telecommunications and above all, Hawala money transfer. Even into 2013, $2 billion, more than a third of the country's GDP came as remittances from diaspora communities around the world.
Claiming that al-Barakat financed the attacks on the twin towers and Pentagon, the Spider smashed the company, and hunted down its executives, worldwide. As Wikipedia relates, "several of the captives held in extrajudicial detention in the Guantanamo Bay detainment camps in Cuba are held because Joint Task Force Guantanamo (JTF-GTMO) intelligence analysts asserted they had some kind of connection to al-Barakat."
After long investigation however, it turned out that al-Barakat was innocent of funding any kind of terrorism. The 9/11 Commission found no evidence of the claims against Al-Barakat. In August 2006, Al-Barakat was removed from the terror watchlist. It took until 2009 to free two Somalis, held for their ties to Al-Barakat, from Guantanamo Bay, and only in early 2012 was the case closed by the UN Security Council.
Millions of Somalis are still waiting for their frozen money back. As far as I know there was never an apology for this, or any kind of change of policy. The Hawala networks are still considered a "threat" in official language, and the UK government implemented the European Union Payment Services Directive (a Europe-wide law) in 2013, forcing Hawala networks to register, or cease operations. Barclays Bank, the last bank to allow accounts to be used for Hawala work, closed them in October 2013.
Attack of the Regulators
Hunting down small independent bankers on trumped-up "financing terrorism" charges lost its charm when Guantanamo Bay got full. It's not clear there is any constitutional argument against creating virtual currencies, nor against accepting money from one person to hand over to another. Indeed, this has never been cited as an offense.
Rather, the offense is framed as "operating without a money transmitter's license." It is on this basis that the UK government is still cracking down on Hawala networks. The first major use of this tactic against a virtual currency was in 2009, against e-gold. In March 2013, the US Treasury Department's FinCEN (Financial Crimes Enforcement Network), issued these guidelines:
FinCEN's regulations define currency (also referred to as "real" currency) as "the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance." In contrast to real currency, "virtual" currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.
And, in that same document, FinCEN stated explicitly that: "administrators and exchangers of convertible virtual currencies are money transmitters."
Later in 2013, the government turned its attention to Liberty Reserve, a digital currency business based in Costa Rica. The Guardian reported said, "Liberty Reserve appears to have played an important role in laundering the proceeds from the recent theft of some $45 million from two Middle Eastern banks. The complaint against one of the Dominican Republic gang members allegedly involved in the theft states that thousands of dollars' worth of stolen cash was deposited into two Liberty Reserve accounts via currency centres based in Siberia and Singapore."
As Wikipedia reports, "the indictment charges the seven principal employees, as well as Liberty Reserve itself, with money laundering and operating an unlicensed money transmitting business, and seeks $25 million in damages. The charges were leveled using a provision of the Patriot Act, since Liberty Reserve was not an American company."
Perhaps I'm just numbed, yet the theft of $45 million seems small peanuts when shutting down a network with a million users, handling over $6 billion since 2006. And the story of Dominican Republic gang members flying to Siberia and Singapore to deposit literally thousands (yes, thousands) of stolen dollars seems straight out of a poor Hollywood script. Way too much precise yet irrelevant detail. Not to mention extraditing foreign citizens for breaking US laws outside of the US. Has the world accepted the role of the US as global policeman, enforcing its own laws anywhere it choses?
Liberty Reserve allowed anyone to create an account without identifying themselves, hence the money laundering accusation. They held funds on behalf of others, hence the "money transmitting without a license" charges. However, I suspect the real reason they were taken down was simply because they refused to give the Spider access to their servers.
Does the Spider ask operators of underground virtual currency exchanges to cooperate? We won't know for sure unless there is a leak, though we do know that the owner of Lavabit, an encrypted email provider, shut down his service in August 2013 rather than "become complicit in crimes against the American people." It turned out the FBI had been demanding secret keys from him, with a gag order to stop him talking about it. So it seems fair to assume that the Spider puts pressure on many firms, including US-based BitCoin exchanges.
FinCEN has stated that anyone buying or selling BitCoins for profit (even in tiny amounts) will need a license. This includes BitCoin miners, who are key to the BitCoin network, since they process transactions. In May 2013, the largest BitCoin exchange, Mt. Gox, a Japanese business, had its US accounts seized by the Department of Homeland Security, another of the Spider's many arms, for operating without a money transmitter's license.
Getting the proper licenses in the US is complex. As Faisal Khan writes, "By varying estimates it will cost an organisation almost US$75 Million in security deposits/bonds and about a 18-24 month process before you are granted a license for each state." As well as state licenses (covering the whole country), you may also need a federal license.
Despite the cost and the uncertainty, several BitCoin exchanges are starting to get licenses. BitInstant claims to be licensed in 30 US states. In Europe, Bitcoin-Central is licensed in France, allowing it to operate across the European Union.
How will the Spider deal with BitCoin? It's a question that many who have invested in BitCoin think about, at 4 A.M. when they wish they were sleeping. Clearly the digital currency presents some real headaches to the Para-state. If it does emerge as a viable decentralized currency with sufficient mass, the whole fight against e-gold, Hawala networks, Liberty Reserve, and such, was for nothing. Yet if the currency is crushed too soon, we'll see the Dangerous Young Men effect. Cut down one Napster, and a dozen spring up in its place.
Better, the Spider calculates, to buy time and find a way to control BitCoin, and make a profit from it. BitCoin is a surprisingly strong model in some ways, yet it still has several vulnerabilities. It will depend on exchanges for converting BitCoin to other currencies until it gains (if it ever does) a sufficient internal market. BitCoin transactions -- the blockchain -- are essentially public, and it's been shown that you can tie transactions back to individual identities.
Lastly, and most importantly, the whole system depends on a distributed network of "miners," who recalculate transactions, and in the process generate new BitCoin. BitCoin depends on its miners to remain honest. If an attacker controls 51% or more of the miners, they can generate bogus transactions and crash the currency.
The cost of a so-called 51-percent attack is estimated at about $500 million, as I write this, the military budget of Slovenia or Cyprus. It's still well within reach of the Spider and even if the dangerous young men rallied in huge numbers, they might not be able to save BitCoin from a serious attack. I'd rate the chances of a 51-percent attack as "fairly likely" within the next 3-5 years. However it would probably be possible to counter such an attack by blacklisting offending machines.
What we will see instead is, I think, increasing persecution of BitCoin users, miners, and exchanges in the US, with the message that "BitCoin is favored by cybercriminals and money launderers." Perhaps some arrests to underscore the seriousness of the accusations. Then, tolerance of a few exchanges, allowing one or two to dominate the market and create a cartel. These will be the ones providing data live to the Spider, as the phone companies and large Web businesses do today. Finally, a series of attacks, from mild to shocking, on the currency when the critical number of black hat miners is reached.
If the BitCoin network survives the different attacks that seem inevitable -- and I give it a 50-50 chance of surviving -- the crypto currency will get a natural monopoly for on-line commerce. At a certain point buying or selling BitCoin for dollars or Euros will not be so important: people will simply hold and spend BitCoin. If the network does not survive the attack, the currency will die, and other crypto-currencies will take its place. Either way, the Spider will lose this particular fight, and the Para-state will eventually (it may take decades) find itself facing a truly independent financial system.
Licensed to Make a Killing
When I see sustained, multilateral action against systems as organic and valuable as Hawala and BitCoin, my first response is to slice up the official story and look for the lies. The second step is to look for the truth, outside the official tales. And it's almost always about money, profit, someone's private benefit.
While the independent money transfer industry was being closed down, other firms grew very large and profitable. One in particular has become a global leader. You will see the yellow and black "Western Union Money Transfer" signs in hundreds of locations in most cities. Western Union is an old firm, familiar with monopoly power. In 1987, having lost its monopoly over telecommunications, it entered a twenty-year restructuring that ended with a new Western Union emerging in 2006, focused on consumer-to-consumer money transfers.
It is simple to see the difference between a monopoly and a cartel in any given market. First, you look at prices. Second, you look for competitors. If the prices are higher than they should be, and there are competitors, you see a cartel. If the prices are higher than they should be, and there are no competitors, you see a monopoly.
Let's look at the cost of sending money using Western Union. Ask.com tells us, "The cost of sending money from New York to London in UK cost 13.32 pounds for every 100 pounds." When you send money to a developing country, the cost is higher. You also pay in expensive "0% commission!" currency conversions, so the real cost can be as much as 20%. This is extraordinary, given that no money is actually being sent anywhere. It's just electronic messages. The biggest cost is probably the paper form one has to fill in, and the front office that types it in, and takes a copy of your ID "for security purposes."
Now let's look at competitors. The largest competitor to Western Union is MoneyGram International, one tenth the size. There is a mathematical "power law" called Zipf's Law that models the distribution in natural systems such as free markets, earthquakes, cities in a country, and words in a language. Yes, all these follow the same rules of distribution. Normally, you'd expect the largest firm to be twice the size of its next competitor, three times the size of the one after, and so on.
The data shows that Western Union, too large and too costly, has a monopoly over the money transfer market. In 2011 alone, Western Union added 7,500 points of sale by buying the Angelo Costa group for $200 million. It then bought Travelex's payments division for $976 million in cash, giving it another 950 stores and 450 ATMs in Europe. Then it bought Finint, giving it 10,000 locations across Europe. Western Union did not say how much they spent on this acquisition.
And MoneyGram, though it appears to be a competitor to Western Union, is according to Wikipedia in fact operated by Western Union since 2006. I could find no other reference for this so it may be more or less accurate.
Usually it's the job of the government to stop firms getting monopoly positions or creating cartels. They do this by blocking the merger or acquisition of competitors by the market leader. However when a government does nothing, monopolies can form quite rapidly and smoothly. The market sees nothing except the suspension of cost gravity.
One wonders why and how Western Union was given a blank check to gobble up its competitors and create a global monopoly. One might also wonder if the heavy handed crackdowns on informal -- and cheap -- money transfer systems is connected to WU's growth. According to the American Bar Association, the 2000-08 Bush administration filed the lowest number of anti-trust cases per year of any administration since 1948 (their earliest figures).
However, WU's rise to power seems more crispy, more tasty. It smells interesting, and not just because it's essentially all about money. Remember that part about copying your ID every time you send money? I think what WU is building is something akin to a Facebook for the Undocumented.
The money transfer business is a global map of every brown or black-skinned diaspora migrant who has money and sends it home. A map of who they talk to, who they trust, overseas. A database of senders and receivers of lucre, heads of families, chiefs of villages, people of influence of many colors. This is, I suspect, what Western Union is compiling, because it's possible, and it's part of the Spider's "know everything about everyone" obsession.
Is it accurate and prudent to suggest that Western Union is working hand-in-hairy-leg with the Spider? This is something I'd have to ask my lawyers. However, in his book "The One Percent Doctrine: Deep Inside America's Pursuit of Its Enemies Since 9/11," Ron Suskind writes about a meeting between the FBI, CIA, and Western Union at CIA headquarters:
[FBI official] Lormel talked about what a good friend Western Union has been since 9/11. Nervous Phil [a CIA pseudonym] talked a bit about what might be done going forward. Western Union had twelve thousand offices across the globe, thirteen hundred in Pakistan alone. There was no country more important in battling the terrorists.
Everyone nodded, a show of consensus, until one of the Western Union executives had something to say. He looked at Tenet. "Here's my concern," he said. "If it seems that Western Union is a global front for the CIA, we'll go out of business." Tenet leaned forward in his chair and dropped his ace. "I know we're asking a lot," he said. "But this country is in a fight for its survival. What I'm asking is that you and your company be patriots." After that, it was all about logistics.
The War on the Middle
The devastation of the US middle class, and indeed the global middle class, isn't a failure of the system. Rather, it is one of the Para-state's great successes. I explained in “Faceless Societies” how the Bandits don't just compete with the Bakers, they actively attack them.
Extraction economies, such as the ones that runs mineral exporters like Congo-Kinshasa, Australia, the Gulf States, Nigeria, Equatorial Guinea, Russia, and increasingly, the US, don't just dislike representative government with its rules and social structures and costs. They deliberately tear it down, and replace it with compliant sockpuppets to rubber-stamp the mining and oil concessions.
In some countries this war on the middle takes the most vicious, violent form. It is my contention that the worst wars in Africa -- such as Sierra Leone, Congo-Kinshasa, Angola, Sudan -- were not ethnic or religious in nature, they are purely political. Worse, they were not about factions fighting for control. They were in most cases funded and launched with the express purpose of destruction, war for its own sake. It is the principle of "poverty on purpose," taken to its extreme conclusion. Bandits intent on stealing minerals by the truckload can make much higher profits when there are wars and slave labor and no export controls, taxes, or paperwork.
Extraction economies are one case. More broadly, the Para-state faces the persistent threat of a general revolt against the extreme concentration of power and money. One of its core priorities is to make sure this does not happen.
Take for instance the French Revolution. Like every revolution, it wasn't planned, financed, and executed by angry mobs of laborers. It was pushed by the wealthy urban middle classes, who were denied a say in the running of the country. They allied themselves with the peasants to decapitate the royalty and create a republic. No middle class, no revolution. The poor do not revolt. They have too much to lose.
I think the attacks on the US middle class are blatant. We already discussed "mad mob" narratives such the reduction of politics to tribal grandstanding; the hype of emotional issues like marriage equality and abortion; the tight focus of the media on stories that do not matter, with silence on real issues. These all conspire to make society collectively stupider. It is the theory of cults, applied nationwide.
However, there are also deeper shifts in society that will take decades to recover from. The war on drugs is perhaps the worst case.
The War of Drugs
In the name of public health, drug policy has allowed mass incarceration of the poorest men, pumped up the prison system into a new form of slavery, funded the militarization of the police forces, corrupted law enforcement, and turned recreational drug users into criminals on demand, living in constant fear of arrest. The damage on US society is broad and deep, and it is damage done by bad laws, not damage done by drugs as such.
And in Central and South America, the drug war is burning democracy alive, just as the continent is recovering from decades of genocidal right-wing dictatorships installed, funded, and aided by the US. It is a classic, tragic war on the middle classes by an extraction economy.
One might claim that the demand for drugs is so strong that the flow cannot be stopped. However the price of drugs "has dropped relentlessly over the past two decades," according to the Economist. That is a sign of strong supply, not strong demand.
The drug cartels are more powerful and destructive than ever, yet the Spider does not attack them. Drug money slushes around our financial system, yet the FBI does not arrest those accepting it. US drones can strike fear around the world, yet not haciendas across the border.
The US State Department documents the eradication of opium production under the Taliban, down to 8,000 hectares in 2001 from 91,000 hectares in 1999. And then, the explosive rise to 165,000 hectares by 2006, after the US-led invasion ended the Taliban's prohibition.
The Spider clearly does not consider drug lords as dangerous as hackers. It seems implausible that if it can track Tor websites like Silk Road, it cannot track billions of dollars of money flowing through the world's bank accounts. After all, the Spider is so close to the world's financial system that it treats an attack on www.paypal.com like an attack on www.cia.gov.
It seems credulous to accept that we're losing the war on drugs by accident. We sent armies around the world to hunt down a few men in a cave, after 3,000 people died on September 11th. Overdoses from dangerous drugs like cocaine were the leading cause of death in the US in 2010, killing 38,329 people. Drugs are as dangerous as they are profitable.
The Afghan opium trade reached $70 billion by 2013. The street value of that heroin is orders of magnitude higher. Afghanistan is only one of many zones of drug production. The volume of money that the drug trade represents is truly astounding.
I'm sure we'll see action by the DEA, aided by NSA wiretaps, against drug dealers, just as we do see action by the FBI against money transmitters. However the simplest explanation for the situation is that the Para-state sees illegal drugs as one of its main business lines, and a useful tool to keep social resistance low. And the Spider loves those billions of Dollars of untraceable money that it can use to fund its most secret operations.
The War on Health
The other drugs trade is, of course, the health care system, which is also highly lucrative, and yet brings the US between Bahrain and Cuba in terms of life expectancy. The failure of the US to build a working health care system isn't due to lack of examples elsewhere. Aging populations are putting a strain on Europe's "socialist" models, yet despite that, they work.
Expensive, substandard health care is compounded by cheap, substandard food. Sugar mixed with white fat and white flour is not food. It is rather closer to an addictive drug, and it has a lifelong impact on health. The "Fat Americans" caricature becomes macabre when you realize that sugar obesity is a form of physical and psychological restraint.
The War on Wealth
Credit cards, reverse mortgages, predatory lending, student loans... the financial industry has made and is still making a killing by asset-stripping the US middle classes. An impoverished middle class is no threat to, and indeed, becomes fertile ground for, authoritarian extremism. I think the lack of resistance to the growth of the US police state is directly due to the evisceration of the middle classes' wealth.
One doesn't need to invoke a deliberate strategy here: it's just convenient, and very profitable to at the same time prey on the middle classes while keeping them weak. Political conflict, even when it has consistent long term outcomes, does not require conspiracy of thought, just conspiracy of interests.
In this chapter I described some of the battles in a war of occupation by the Spider on digital society, and by extension, on broader society. Whereas digital society sees the Internet as its native territory, the Spider sees it as a principle tool for global social control. Who controls the medium controls the message.
I've not spent enough time on OWS, police budgets, financial crimes, or Anonymous. There are too many stories to tell. Search for them, and you will find them in masses. What we are witnessing is, I believe, an alignment of force to prevent, at all costs, the digital revolution from sparking off a real global revolt against the Para-state. What happens next is anyone's guess. In the next and final chapter of this book, I'll tell you mine.