[FYI] Did Encryption Empower These Terrorists?

[Jim Windle]

On Sat, 15 Sep 2001 01:33:36   Eric wrote:
>
>I like the reasoning here; some good arguments are made.  For me, it helps
>to move the debate away from the give-me-liberty-or-give-me-death-type
>reasoning  with which I have been confronted of late.
>
>That being said, as a historical matter, I would be interested as to how the
>financial services industry survived before electronically encrypted
>communication was possible.  What was the norm in, say, the 1950's?  How
>were transactions done?  

I don't have all the data you're interested in at my fingertips but I can give you a few data points.  The crash of '29 was the record for the stoack exchange for volume for many decades, well into the '70's I beleive.  In the crash of '87 the stock exchange volume was just over 600 million shares traded which was many times any previous day's trading volume.  Before Tuesday's events most reasonable active trading days were trading a billion to a billion and a quarter shares.  The NYSE exchange has had an electronic order system for a number of years but originally it was only for very large institutional "block trades".  In the fixed income and foreign exchange markets which in dollar volume are far bigger than the equity markets, as recently as 5 years ago many firms still traded via physical, ie paper, "trade tickets in which an transaction would be written out by had, timestamped and put into a basket which would be collected at the end of the day, taken to the back office and processed.  This has has been converted to electronic trading now.  One of the things that has happened as a result is that the settlement periods have declined becuase processing is easier and faster.  The main settlement systems here in NYC are FedWire and CHIPS wchich settle the vast majority of foreign exchange and fixed income trading in the US, I haven't looked at their data in about a year but they were clearing a combined total of a bit over $3 trillion a day in transactions.  Yes that is trillion with a "t".  If electronic trading and settlement allow transactions to be settled 24 hours faster, and in many cases settlement periods have shortened by 2 days in recent years the amount of money saved is significant.  Assuming a 5% cost of capital the float per day on FedWire and CHIPS settlements if in excess of $400 million.  

Pick a time when electronically encrypted
>communications was not possible: how were the burdens of "insecure"
>transactions borne?  Is it unreasonable to posit the simplistic assertion
>that "if the financial services industry survived before electronically
>encrypted communication was possible, then it can survive now"?

The financial services industry as we know it would not exist without cryptography and electronic settlement it would simply be inpossible to process all the transactions by hand.
>
>Next, the your response here seems to rest the desirability of electronic
>encryption on the desirability of the global economy.  That is, it seems to
>be implied here that electronic encryption is  desirable from a public
>policy standpoint if the global economy and its benefits to our quality of
>life are likewise desirable.  And desirability is not a property *I* can
>currently and definitively ascribe to the global economy.  While I do
>currently enjoy many of the benefits to be had from it, I am fairly
>confident that my overall happiness is no better than that of those who
>lived hundreds of years ago.  I am fairly confident that what makes the
>mental life of a human being "happy" does not depend on the accoutrements of
>a global economy as facilitated by the modern financial services industry.

If your beef is against capitalism then you should be worrying about other things than crypto.
>
>There is no doubt that our ancestors lived, loved, laughed, and cherished.
>These people led satisfying and productive lives without the benefits
>illuminated in your response.  In other words, their positive mental qualia
>(i.e., their happiness) were/was no doubt very similar to ours.  And yet,
>they did not have a 401K, a charitable remainder trust, or a bond portfolio.
>Personally, I do not "require" a successful financial services industry to
>be happy.  Things I "need" are more basic than that.  And inasmuch as those
>things are threatened by terrorism, it is advantageous to stamp it out by
>means acceptable to the majority.

None of it is stricly speaking required but to give it up would mean a lowering of the standard of living, not to mention embracing a Luddite philosophy.
>
>In my mind, the strongest argument with which I have been presented during
>this revival of the encryption policy debate is this: Now that terrorists
>already possess encryption technology, there is no point in further
>restricting its use because terrorists don't obey laws that, if they obeyed,
>would hinder their actions.  I don't know what is the best response to that
>argument.  Apparently, however, some people at the FBI, NSA, and elsewhere
>think their is a strong response.  Otherwise these agencies would not be
>pushing still for much stricter controls on encryption.  I don't know what
>is the learned retort to the objection I just described, but I would very
>much like to hear it.

I think it is very much a balancing act.  Restricting strong crypto, assuming you could make the restrictions effective which I very much doubt, would make the NSA's job easier.  It would also make the jobs of any enemy seeking to gather intelligence on the United States easier.  Clearly there is a benefit to private and commercial communications of US citizens and businesses not being an open book to foreign enemies, or even commercial competitors.  While I would sleep better at night knowing the NSA was on top of all threats I also think it is neither reasonable nor desireable that our telecommunications system be arranged solely for the purpose of making their job easier.  In fact if readily available public key encryption programs were no longer available terrorist or other organmizations are not likely to communicate in the clear as a result.  My guess is they would resort to the logistically more difficult but cryptographically more secure one time pad system.  This might indeed make the NSA's job more difficult rather than less.

Jim Windle
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