Author Archives: johnrharris

Why would anyone trust Wickr

I’d not heard of Wickr until yesterday, when I came across FT.com’s hilarious report “US spying fuels popularity of secure messaging app Wickr (free registration required).” According to the report, Wickr is funded by Gilman Louie, former head of the CIA venture capital fund In-Q-Tel, and advised by former CIA employee and U.S. ambassador Joseph DeTrani.

So we’re supposed to believe that we can obstruct the privacy invasions of the police state by using ‘secure’ software backed by two of the state’s leading brownshirts and promoted by one of the state’s media shills? That’s chutzpah.

Exchange Trading of Corporate Bonds Must Wait

Entrepreneurs seeking structural change in the corporate bond market should focus first on creating alternatives to corporate bond mutual funds.

I first learned of a supposed, Dodd-Frank-induced liquidity problem in the corporate bond market about two years ago. A friend from an inter-dealer-brokerage firm who knew of my prior work to bring an exchange to the U.S. Treasury market called to encourage me to train my sights on corporate bonds. I was skeptical, not least because one of my customers dealt in corporate bonds and seemed to have a good business doing so, but decided to at least follow the market more closely. 

Since, Tabb Group and a number of other analysts and market observers have written about the need for alternative execution venues for corporate bonds. They report that because of Dodd-Frank and other regulatory initiatives, dealers have become less willing to commit capital to the corporate bond market. Several of the electronic routing venues do decent volume in odd lots, but according to these reports, the so-called buy side is frustrated and wants someone to come forward with a more general solution. Accounts of what the buy side supposedly wants vary from a peer-to-peer market to a full-fledged exchange. 

This clamor for new corporate-bond-trading systems arises at an unusual time. The primary market is strong and has been for several years. Companies are taking advantage of low interest rates to issue bonds in large volumes. Logically, a healthy secondary market should ensue, and dealers should be more than willing to support their syndicate operations with capital for secondary trading. Issuers once expected such support from their underwriters. 

If the reports of meager capital commitments from dealers are indeed accurate, promoters of new venues should be wary, not encouraged. Dealers are money-motivated. If their capital allocations to corporate bonds are falling relative to their allocations to other endeavors, one possibility is that something other than regulation may be too blame. While I loathe government regulation as much or more than anyone, other markets may simply be more attractive to these dealers than the corporate market is at present. 

Dealers are reluctant to let any customer trades flow elsewhere. The risk is too great that new venues will expand into new markets. All dealers of any substance attempt to estimate what share of a customer’s total available business they receive. As a tactical matter, dealers will even lose money to win greater shares of such business. So I put little stock in the notion that dealers are ready to concede anything in the corporate bond market. 

But let us consider the customer side of the ledger. Are large asset managers so frustrated with dealer commitments to corporate bonds that they would lead a stampede to alternative venues? 

I doubt it. Large asset managers are beholden to large dealers. Almost twenty years into the Internet revolution, I have yet to see one of these large asset management firms step out of line and challenge the prevailing market structure. I have heard several of them say, “Yes, we would love an alternative and would use it.” But when push comes to shove, timidity prevails. The market is littered with the bones of entrepreneurial ventures that relied on promises of large asset managers. Venture capital firms have invested and lost hundreds of millions of dollars on failed corporate bond platforms. Even the largest custody bank that accounts for almost a third of institutional assets has tried and failed to win support for a credible, functional, well-capitalized, alternative platform for corporate bond trading. When time came for its customers to put up, they shut up. 

All markets evolve. The corporate bond market has yet to reach a final state where no further change is desirable or feasible. But large asset managers who are supposedly unhappy with their dealers will not supply the motive force for a new market structure. In fact, these asset managers are the problem, and entrepreneurs should focus their efforts on providing alternatives to them, not to dealers. 

Outside of a handful of names for a brief period of time after issuance, corporate bonds are not (yet) suitable for exchange trading. They trade over the counter because they should trade over the counter. They lack the price continuity that is a prerequisite for exchange trading. If it is ever to develop, this continuity must develop naturally. It cannot be forced or fomented by the sudden appearance of an exchange. 

The juiciest targets for entrepreneurial efforts in the corporate bond market are not the dealers, who actually provide a useful economic function, but the large asset managers, who for the most part do not. The most vulnerable among these are the investment companies operating as corporate bond mutual funds. These funds are demonstrably among the most inefficient investment vehicles ever devised. 

Bringing forward alternatives that will spare consumers and companies the inefficiencies of corporate bond funds will lead in due course to a better secondary market for corporate bonds. Reliance on complaints from large asset managers about the quotes they receive from their dealers is a fool’s errand.

TabbForum first published this essay, under the same heading, on November 6, 2013.

Spiegel Online Comment Nails Grave Threat of NSA Spying

Commenting on the Spiegel Online report “NSA Snoops on 500 Million German Data Connections,” rightsreserved puts NSA’s unlawful surveillance program in proper perspective:

“People dont seem to be getting what this is all really about or the monumental implications of it. This information awareness system is the largest gold mine in human history. Politically-favored corporations/governments/private entities who have access to this can quickly and easily dominate nearly every financial market on the planet, or send it spiraling. Imagine for one second knowing the details of every Report or research paper before it is published, every discovery or disaster before any news report can even be broadcast, every lawsuit or Patent before it is filed, every merger/sale/acquisition/bankruptcy/scandal/hiring/firing/contract/marriage/divorce/retirement etc etc etc before it is announced, and so on and so on. In todays world of high volume micro-trading with sophisticated algorithms running on supercomputers, anyone with even partial access to this could position themselves to extract as much wealth and value out of the markets as they desired. Its the ultimate system of insider information and corporate espionage. It is an economic Doomsday Device, and it is already fully operational… and no one appears to realize or be talking about THAT. It is conspicuously absent from all the debates, even though the Patriot Act and the NDAA are positively littered with cryptic references to financial systems and economies. This thing has been purpose-built for it. None of the so-called “safeguards” address it, there is no Public oversight in that aspect at all, much less any accountability. Obviously, there are many tin-foil-hat-wearing Legitimacy Theorists that still foolishly Trust the federal U.S. government and the multinational corporations & banking interests that run it will never, ever allow anything like that to go on…”

Despicable: LA Times’s Robin Abcarian’s Coverage of Trayvon Martin case

How desperate are some journalists to paint George Zimmerman as a racist murderer of Trayvon Martin, no matter how weak the evidence of Zimmerman’s guilt? Consider the despicable conduct of Los Angeles Times columnist Robin Abcarian.

While musing today whether police are helping Zimmerman’s defense, Abcarian asks her readers this question:

If, on the night he put a bullet through Trayvon Martin’s heart, Zimmerman is heard telling a police operator, “These … always get away,” does that demonstrate the ill will, hatred or spite required for a second-degree murder conviction? [Ellipsis in original.]

What word did Zimmerman use to describe Martin that was so foul as to be unfit for the eyes of Abcarian’s readers?

Guys. That’s right: “guys.” Zimmerman told police officer Doris Singleton “These guys always get away.”

The shameless Abcarian wanted her readers to use their imaginations to fill in the blank with a racial epithet. But unless I am completely out of touch with colloquial speech, “guys” is not a racial epithet, and those who use the word betray no signs of bigotry.

Why it is so important to Abcarian to portray Zimmerman as a racist, I know not. But I do know that this cheap stunt makes Abcarian a…journalist.

U.S. Surveillance Is Not Aimed at Terrorists – Bloomberg

The debate over the U.S. government’s monitoring of digital communications suggests that Americans are willing to allow it as long as it is genuinely targeted at terrorists. What they fail to realize is that the surveillance systems are best suited for gathering information on law-abiding citizens.

U.S. Surveillance Is Not Aimed at Terrorists – Bloomberg.

FBI Concocted Bomb Plot Against NYSE to Mute NSA Surveillance Criticism

Federal Bureau of Investigation Deputy Director Sean M. Joyce mislead the American people last week when he testified before Congress that NSA’s various programs for warrantless surveillance of U.S. citizens had thwarted an Al Qaeda plot to bomb the New York Stock Exchange.

Joyce cited this supposed plot and its interception by NSA as evidence that mass-surveillance programs protect Americans from terrorism. Joyce claimed the NYSE bombing plan was one of fifty terror plots that these programs have interrupted. But in fact, Joyce manufactured the threat against the NYSE.

According to Joyce, NSA surveillance led to the discovery of Khalid Ouazzani of Kansas City, a conspirator helping to plan the NYSE bombing. When a member of Congress asked Joyce whether Ouazzani’s bomb plan posed a serious threat, Joyce – speaking of Ouazzani and his alleged co-conspirators – testified “I think the jury considered it serious since they were all convicted.”

Joyce’s answer was doubly deceptive. Ouazzani never faced a jury. Instead, he entered into a plea agreement [PDF] with the U.S. Department of Justice, in lieu of trial. And neither that plea agreement nor the FBI’s press release contained any reference to bombs, the NYSE, or even New York more broadly. Rather, Ouazzani pled guilty to bank fraud, money laundering, and conspiracy to provide material support to a terrorist organization.

In reality, the FBI has charged no one in connection with this supposed NYSE bomb plot. And, at least according to the FBI’s sentencing memorandum for one of the supposed bombing conspirators, there was no plot. Rather, a mysterious Yemeni codenamed the “Doctor” allegedly asked Sabirhan Hasanoff, former accountant for KPMG and PwC and apparent acquaintance of Ouazzani, to report to the Doctor on security measures surrounding the NYSE and other locations. According to the FBI’s memorandum, Hasanoff disappointed the “career jihadist” Doctor by providing only useless, publicly available information concerning the exchange’s surroundings. Further, the memorandum says nothing about a prospective bombing of the exchange, but instead refers more vaguely to a possible “attack.”

Before trumpeting Joyce’s claims concerning the efficacy of the NSA programs, news organizations could have learned easily that his testimony was dubious. A Google search for “Khalid Ouazzani” would have yielded both his plea agreement and the FBI press release in the first page of results, both dating to 2010. Within minutes and with minimal effort, reporters could have learned that neither the FBI nor the Justice Department had even alleged a link between Ouazzani and any kind of plot against the NYSE or any other target for that matter. At the very least, such due diligence would have given news organizations pause about the truthfulness of Joyce’s testimony.

To date, neither the FBI nor the Justice Department has produced any evidence that anyone planned to bomb the stock exchange. Similarly, neither organization has produced any evidence that NSA’s mass surveillance programs prevented such a crime. But Joyce’s deceptive testimony had a pronounced effect.

Newspapers and television news operations jumped on the NYSE bombing tale. Headlines blared that NSA’s secret spying operation thwarted an attack on the exchange. These reports buttressed government claims that mass-surveillance programs keep the American people safe and countered criticism of the programs from those concerned about violations of individual rights.

Though Joyce’s testimony was deceptive, it pleased NSA Director General Keith B. Alexander, who appeared at Joyce’s side in the same congressional hearing.

When the hearing concluded, an open microphone captured an ebullient Alexander telling Joyce appreciatively, “Tell your boss [FBI Director Robert Mueller] I owe him another friggin’ beer.

The Joyce deception is evidence that the government is terrorizing New Yorkers and Americans more broadly in order to justify its warrantless surveillance program. Whether the purpose of these fanciful claims is to justify social control measures or the enormous budget for “national security” is anyone’s guess. A combination of motives is most likely at work.

From the government’s standpoint, conjuring terror plots in New York – the media capital of the world – makes perverse sense. They alarm those individuals in the best position to amplify the supposed threats. In turn, the news reports induce fear that iconic institutions may be destroyed.

But these false alarms have devastating effects aside from the fear and anxiety they induce. They cause customers of the NYSE, the people of New York, and people everywhere to suffer unnecessary security costs. And they divert enormous resources from other, more productive uses.

While General Alexander and Robert Mueller chortle over their “friggin’ beer,” the rest of us should begin taking government reports of terror plots with a grain of salt. There is strong evidence that many of these are manufactured, usually with the assistance of government informants.

The world has enough problems without creating new ones. And causing people to live in a state of fear only harms their ability to enjoy their lives.

Congress should hold Mr. Joyce to account for his deceptions, and we should all hold the media to account for rushing stories into the public consciousness that simple fact checking would have shown to be suspicious, if not false. The FBI routinely denies employment applications on grounds of apparent deceptiveness. A fair question is whether Mr. Joyce can be credible as the chief operating officer for the FBI when he has been deceptive himself. He has a history of holding agents he commands to account for their shortcomings. Certainly he deserves to be held to the same standards.

Finally, if the Yemini “Doctor” the FBI memorandum describes was indeed a “career jihadist,” the NSA should have had no difficulty obtaining a legitimate search warrant and authorization to monitor his communications. Lawful means alone would have led to those communicating with him about any plots. It would not have been necessary for the personal information of hundreds of millions of innocent people to stolen in the process.