Dinner with the FBI

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I managed to catch a quick dinner with Robert Mueller as he passed through San Francisco on some bureau business which he couldn’t disclose. Meeting him for the first time, I immediately recognized the kind of no nonsense, ex-Marine, Vietnam Vet that he was, the kind of officer who used to rip your guts out for disobeying a direct order, which in my case was frequently. President Obama thought this was the man you want for your Director of the FBI, which is why Mueller survived as one of the few holdovers from the Bush administration.

Google’s move to drop censorship in China following a serious hacker attack, and risk getting kicked out of the country, focuses a big spotlight on a dirty little secret war, the new millennium’s answer to the cold war. It’s really been going on since 1966, when a 75 cent accounting discrepancy at the University of California at Berkeley led to the smashing of a German industrial espionage ring that was looting computers through the old DARPANET.

Instead of bullets, bombs, and missiles, opponents are deploying bandwidth, Trojan horses, and stealth software downloads. Until recently, this new Cold War was known only to computer and security professionals. So far, the big loser has been the US, which had a “Library of Congress” worth of data cleaned out of mainframes at the Pentagon, the State Department, and Sandia National Labs, where weapons research is carried out. Also gone are hundreds of billions of dollars worth of trade secrets, designs, and other intellectual property owned by US corporations. The administration views the threat so seriously that it has made cyber warfare a top national security priority.

Mueller told me that the Internet is not just a conduit for commerce, but also for crime and terrorism, and the bad guys are checking your doorknobs every day. Information is power, and fiber optic cable is a weapon. Terrorists, in particular, love the new Google Earth application. Only recently, Mueller busted an American-Egyptian phishing ring, arresting 50, which cleaned out $50 million from 5,000 US accounts.

Our own government hackers have discovered a global “GhostNet” of compromised computers around the world in government departments, military facilities, and corporations that funnel terabytes of information back to the Middle Kingdom. Particularly popular are key stroke tracking programs planted on machines in sensitive areas. The source of these programs has been traced back to virtually every ministry in Beijing. But the US can’t file a formal complaint or take legal action without revealing its own resources and capabilities. So it stays under the radar, planning countermeasures to unleash if the war ever heats up from cold to hot.

Mueller argues that we must all take ownership of the cyber security problem through the vigilant use of antivirus software, firewalls, sophisticated passwords, and constant patches. Teenaged kids, like the Canadian who launched the biggest “denial of service” attack against E-Trader and E-Bay, are to be feared. Be careful what you post on your Facebook page because it may kill a job prospect years down the road.

As a former San Francisco federal prosecutor, Mueller would love to point fingers, name names, and kick butt. However his senior position in the administration prevents him from doing so without igniting a diplomatic brouhaha.

But it’s clear from his hints and indirect references that the Chinese are in the game for intelligence, and the Russians for money. Hillary can file all of the harshly written diplomatic notes she wants, but it’s hard to get offending countries to act against miscreants we consider criminals, and they worship as national heroes. China in particular has never been big on honoring intellectual property rights, and the issue of cyber security is just another facet of that shortcoming.

The FBI is now embedding agents in police departments in Eastern Europe, and even has a token representation in China to take the fight global. But Mueller admitted that even he recently fell victim to a phishing attack on his personal bank account. His wife has since banned him from online banking. As I left, Mueller offered me a piece of advice: Don’t answer any e-mails from him, especially if he is asking for money.

When I got home from dinner, I immediately backed up all my files, reset my passwords, and bought my fourth antivirus program. I also installed bars on my windows and set booby traps on the front lawn for good measure.

For more iconoclastic, out of consensus analysis, visit www.madhedgefundtrader.com, where conventional wisdom is drawn and quartered daily. You can also hear me in person weekly by listening to Hedge Fund Radio by clicking here at http://www.madhedgefundtrader.com/Hedge_Fund_Radio.html