I started this series back in May with my first post on this topic. Given the whole summer has already gone by, let me repeat my introduction:

“The time for a national discussion of our right to privacy and what that really means is long overdue. I will try to contribute to that discussion in a series of posts on digital privacy. Particular points I will discuss include the following:

  • That the right to privacy has already been established as a constitutional right;
  • That technology assisted statistics has already made protecting and hiding your personal identity and personal identification information impossible;
  • That the data that is collected on you in database warehouses around the globe is and ought to be yours and yours alone to surrender, no matter how it was collected;
  • That the economic size and scale of companies such as Google renders “opting out” impractical and our laws ought to recognize that reality;
  • That therefore the burden of maintaining privacy and security of identification should be on the organizations and corporations that provide services, not the individual; and
  • That these principles must be established not just on the federal level but on the international level.”

That post continued by addressing the first bullet in the above list as I outlined how our constitutional right to privacy came to be recognized in the Constitution and through two key Supreme Court decisions.

This second article will explore the idea that “technology assisted statistics has already made protecting and hiding your personal identity and personal identification information impossible.”

To understand why that is true requires an understanding of two things. First, personal identifying information does not have to be the pieces of data normally associated with that phrase – social security number, name and address. Any combination of data that can collectively determine who you are will do. Second, statistical analysis and technology capable of making that connection exists today.

1. Personal Identification Does Not Require Your Tax ID

The very concept of privacy is that others should not know what you have done and what you are doing, who you associate with, what your plans are for the future, your personal letters, or what you said in a private conversation on the phone without your willing permission of the force of a subpoena or duly executed warrant. The “you” in that concept means YOU, the person you are at your address. The combination of your name and Tax ID/Social Security Number as “personal identifying information” is applicable to privacy in a narrower sense – your financial and medical data and identity. However, if someone circulates in a social network system that “Mary Smith and her husband had an argument at home last night” that would be a violation of the Smiths’ personal privacy in that the recipients of this information can be reasonably certain which of the thousands of Mary Smiths in the world was involved. That is what I mean when I say that “You” can be uniquely identified without a Tax ID being compromised.

2. Statistical Analysis and Technology are Capable of Identifying Unique Information About You Without Your Tax ID

Let us assume that you are a woman and you have just found out that you are pregnant. You are excited and happy by the possibility, but haven’t had a chance to tell your family yet. You stop at a store on the way home. A few days later you receive a mailer from that store offering special deals on baby products. A coincidence? A mass mailing? No, it isn’t. The store that is capable of doing that is named Target and their ability to pinpoint the unique “You” who is pregnant was reviewed in an article in the New York Times earlier this year.

Target does this using a combination of statistical analysis of buying patterns captured by modern computers that have the speed and storage capacity necessary to identify, store and track every purchase in every store. They have a variety of means of identifying the specific customers. There is also a company in Arkansas that helps retailers with the specific person identification problem. It’s name is Acxiom and it too was featured in the New York Times.

Personal identifying information in the traditional sense (Name, Address and Tax ID) can be readily derived from there via the store’s name brand card, for example. However, smart companies have taken huge strides to protect that data from their own employees and the outside world, and the store systems that link your swiped credit card to the Visa/Mastercard computers are now specifically designed to prevent retaining the full card information for the retailer. There are also data security standards covering the transmission of that information back and forth. But as the Target story illustrates, one can still ascertain that you are the Mary Smith who lives at a specific residence.

Isn’t that enough?


Money Laundering for Iran

It’s late August. Even the financial news takes a vacation. So of course it was a quiet couple of weeks with little news on Libor, the JPMorgan Chase hedge unit, News of the World or even Chesapeake. Government investigations likely continue their steady grind behind the curtain. Meanwhile both Tampa and New Orleans braced themselves for Isaac.

But wait, there was one new story of note: Laundries. Our own family has two laundries. One isn’t that great but it does a decent job with the standard business shirt for a reasonable price. The other is where we take our nicer outfits to be dry cleaned. It appears that Iran might have copied that model as several banks stand accused of laundering Iranian money on its way to and from the U.S. That would be illegal, due to the current international sanctions against Iran.

Standard Chartered

The story was just breaking in our last post when UK’s Standard Chartered was accused by the New York State Department of Financial Services with allegedly laundering $250 BILLION for Iran through its New York branch. The next week, Standard Chartered was reported working on a $340 Million deal with New York State allowing it to continue to operate in New York. The deal was completed, but only after their CEO left his vacation early (bummer!) to head directly to the US to negotiate.  Standard Chartered still has to face several US Federal agencies.

Standard Chartered was also sued by the estates of military personnel killed in Lebanon in 1983 on the basis that the bank had concealed its Iranian money at the time the plaintiffs won a suit against Iran in connection with the tragedy.

Deutsche Bank and RBS

Several days later, Deutsche Bank was named as an additional target of Iran money laundering investigators.

Not to be outdone by the Germans, the Royal Bank of Scotland was also cited as a target in the investigation.


While apparently innocent in terms of Iran, Facebook’s iPO debacle continued to spew out more stories. One of its prominent directors dumped a reported $$ Billion-With-a-B in stock as soon as his restrictions in selling had lapsed. And the COO reportedly let out to an investor that the $38/share IPO value had been determined in part based on what it would take to deter Wall Street traders from simply flipping the stock. You mean it had nothing to do with the company’s actual value?? Unbelievable.

John C. Bogle, the 83 year old founder of the Vanguard mutual fund company, was the featured story in the Sunday New York Times Business Section. Anyone who is interested in making our financial markets a more ethical sphere of life, who is interested in a fair and level playing field for all investors and who wants to see a new cultural / behavioral standard in that industry should read this article. It cheered my heart to know that there is someone out there who built a company in that industry which has been a stellar performer while maintaining a customer focused and ethical culture. Thanks so much, Mr. Bogle.


JPMorgan Chase may be facing inquiries from up to eleven different government agencies regarding its role in the Libor rate setting scandal.

The managing director of the U.K.’s Financial Services Authority stated last week that the Libor “is no longer fit for purpose.” He is pushing for it to be replaced with alternative indices. The Reuters article implies that other indices used in commodities and stocks may also be “under scrutiny.” This will surely be grist for the mill in the courthouse where lawsuits are already being filed from plaintiffs who believe their Libor based interest rates were calculated incorrectly. It also raises the question of legitimacy on any existing contract that is Libor based. This one is going to go on for a long time with many interesting and significant repercussions.

Standard Chartered

Standard Chartered is a great name for a UK bank, isn’t it? The name just feels old, stable, conservative…. all the things you would want in a bank. Now the New York State Department of Financial Services has a hotshot young regulator who is threatening to revoke Standard Chartered’s “charter” to operate in New York on the basis that the bank allegedly laundered $250 BILLION-with-a-B for Iran through its New York branch.


Goldman Sachs has escaped prosecution by the Justice Department for its actions related to packaging mortgages and reselling them as collateralized debt. The feds felt they didn’t have enough evidence to win the case. Sigh.


News Corporation announced a $1.6 Billion-with-a-B LOSS for the most recent fiscal quarter, primarily a result of write-downs related to the restructuring of its businesses around the world. That restructuring was announced following the phone hacking scandal at News of the World in London which has resulted in Murdoch’s protege Rebekah Brooks being formally charged in criminal court. However there have also been significant charges related to restructuring initiatives underway in the company’s Australian businesses.

Chesapeake Energy

Chesapeake, the scandal that keeps on giving future case studies, was in the news first for being served subpoenas in a US anti-trust probe and then for facing financial challenges in selling its Michigan properties, which are the subject of said investigation.


The Facebook saga continues as a lower price for its stock is causing the company to face significant challenges. Key personnel have been leaving for new opportunities, a possible sign of loss of faith in the company’s further upside potential. The company faces a $3 BILLION tax bill springing from its extensive employee stock plan. At the same time, shares that had been acquired on the private market pre-IPO will soon be able to be traded on the public market. Welcome to the real world. They obviously didn’t learn any lessons from GE which makes billions in profit without paying a dime in federal taxes. Facebook got it backwards – are they making any profits at all and yet have a billion dollar tax bill? No wonder I need a CPA to put my return together.

Knight Trading

Knight Capital Group Inc. announced that its after-tax losses on its trading glitch could amount to $270 million. Good Night.


The Libor scandal has continued to evolve, with US Federal subpoenas now issued to Bank of America while Deutsche Bank admitted that some of its personnel were involved. Citibank continues to be rumored as a target of investigation. Lloyds of London received legal inquiries from the UK government.

Lawsuits are starting to be filed, as Libor was a benchmark rate for numerous types of financial instruments. Among possible plaintiffs are city, state and county governments, mortgage holders, pension funds and brokerage services. In almost all cases, plaintiffs will allege they lost money by paying higher rates than they should have. Yet in spite of the wide-ranging impact of this scandal, its potential to further tarnish the investment banking industry and its direct and indirect impact on everyday citizens, the amount of coverage by the major media networks‘ nightly news hours has evidently been dismal.

Meanwhile, Barclays apologized for its role in the Libor scandal while simultaneously announcing a $6.6 Billion profit. No mention of refunds to those injured by the rigging of this “free market” rate.


A former UBS mortgage securities strategist has claimed that he was pressured into filing “misleading reports.” In another case, a trio of ex-UBS personnel have been accused of rigging the bid process for certain municipal bonds. And in yet one more UBS item, the bank reported losing $350 million largely due to the results of Nasdaq’s glitch in the Facebook IPO. Nasdaq is offering up only $62 million so watch for a lawsuit there.


Speaking of Facebook, their shares dropped another 4% on Thursday (August 2nd) as more of their top executives departed. Recall that there are ethical issues related to their IPO as potentially negative financial information was released to a select group of investors but not the general public just prior to the IPO.

News Corp.
Rebekah Brooks, formerly Editor of News of the World and a Rupert Murdoch protege, was formally charged with “unlawfully intercepting voice-mail messages.”
But Wait, There Is One Good Guy Left
On the other hand, in Japan the CEO of Nomura, one of that nation’s largest banks, resigned because some of his employees were involved in an insider trading scandal. If only all of the bank executives were Japanese.

Libor is the London Interbank Offering Rate. It is an interest rate that is used between banks as they lend each other funds. It is a “free market” rate that has been used as a starting point for variable rate mortgages (based on Libor plus some number), rates for borrowings by municipalities and over $360 TRILLION-with-a-T in financial and derivative contracts. (Hmmm, isn’t that more than the combined GDP of all the world’s countries? Would that bring us down?)

Libor is calculated using estimates from the banks and it is those estimates that were, how shall we say this, allegedly fudged.

Last week a growing global gasp could be heard as we have learned that London’s Barclays has settled an accusation of having manipulated that rate, paying a fine of $450 Million. We then learned that potentially a dozen other large banks in North America and Europe may be under investigation. Banks may include Citigroup, Inc., Royal Bank of Scotland and Deutsche Bank. The manipulation of this rate apparently was going on before and just prior to the near global financial melt-down of 2008.

The story continued with word that Secretary of the Treasury Tim Geitner, who was head of the NY Fed during that timeframe, was potentially aware of issues with the setting of Libor and advised the British on what to do to get the situation under control. In the UK, the scandal has included allegations that the Bank of England’s deputy governor may have known but not taken action.

Ethical Analysis

The Law was broken. That’s not my personal opinion, it’s obviously the conclusion of more three-letter government enforcement agencies in the US, UK and elsewhere than can be listed here. They undoubtedly set Barclays up with a plea deal so that they can go on from there to the other banks that may have been involved. Congressional representatives are already calling for anyone involved to be prosecuted. Over the weekend the New York Times reported that the US is considering criminal charges against some banks and their employees.

Contracts and agreements were not honored. That IS my opinion and the supporting evidence is only just starting to come forth. Several municipalities are considering suing because the interest payments on their loans may have been higher than justified. They argue that they have been forced to cut their budgets to support those rates.

The community expectation of fair play was violated. When the investing public, would be mortgage holders, municipalities in need of lines of credit and other financing all have an expectation that the Libor rate is a free market rate, then manipulation of that rate by the investment banking industry which is often on the other side of the loans is clearly a violation of the standard of fair play.

Professional standards were ignored. We had expected that everyone in the investment banking industry upheld a minimum of professional ethical conduct standards. Financial advisors should be giving their clients objective analytical based recommendations. Institutions whom we entrust with our money should safeguard it from recklessness and be prudent in its management. Investment banks we might invest in as shareholders should be transparent about their business and its risks. The Libor scandal is just one of a series of continued ethical breaches by this entire industry. It is long past time to call them out.

Moral and spiritual values have been disregarded.

The true ethical issue is this: the banks believe the money is theirs, the traders think the money is theirs, and the individuals making trades think that the level of risk they successfully take with the money that is not theirs to begin with is a game to play that enables them to personally be rewarded, satisfy their ego and prove they are the biggest Whale in the sea.

The money is NOT theirs. It belongs to shareholders, depositors, pension funds and retirees. As the source of accumulated capital that drives the world economy it is a tool that can be used to the benefit of all and a hammer that can be used to dash the lives of many.

The banking industry still does not get this, as I pointed out when I tweeted this quote from one Lloyd Blankfein of Goldman Sachs: “If you put too much penalty on risk judgment, what kind of world are you going to have?”  We already know the kind of world we do have – one in which too much risk judgment takes place without, up till now, much in penalties. Perhaps we need to take fewer risks while in the process of “risk management.”

Yet to be determined is the potential impact this alleged rate fixing among the banks may have had on the overall global economy. If the rates were lower than market reality leading up to the crash, which is where the facts seem to be pointed, then a bank could lend more money than it otherwise would have been able, thereby contributing to the bubble.

Bottom Line:

The banking industry’s imprudence with the money entrusted to it, the resultant hardship and harm that has been inflicted on so many around the world and the inability of industry personnel to recognize the culpability of their firms and themselves in the global recession, coupled with their lack of regard for those who have been hurt is at odds with any true spiritual principle I am aware of.

Other Assessments: Two other interesting opinions on the ethics of the investment banking industry are

“Wall Street Ethics Codes Make Me Want to Inhale” by Susan Antilla of Bloomberg News

“The Market Has Spoken, and It Is Rigged” by Simon Johnson, Professor of Entrepreneurship, M.I.T. Sloan School

Fourth of July:  I took a break the week of July 4th and enjoyed family, friends and the traditions of America.

Then we all got back to work and it appears that some of that work was once again of an unethical nature.

GlaxoSmithKline paid a record $3 Billion-with-a-B in civil and criminal penalties for marketing several drugs for unapproved purposes, which is sometimes referred to as “off prescription.” The conduct was characterized in the media as “fraudulent.”

In the on-going Chesapeake Energy saga, news sources revealed that Chesapeake and Encana may have colluded on setting prices for land deals in Michigan. In other words, the people who owned the land did not receive competitive bids from the two companies.

JPMorgan Chase restated a prior quarter’s results, due to the losses in its London hedging unit. When this story first broke, CEO Jamie Dimon said the losses were $2 Billion. That number has progressively been increased ever since. Now they are restating Q1 results to cover a $4.4 Billion loss and are recognizing that the total may exceed $7 Billion. My bet is we aren’t done yet.

Penn State dealt with the Freeh report which portrayed legendary coach Joe Paterno as part of the cover-up of Sandusky’s actions.

But all of those, significant as each may be, were totally eclipsed by one single word: Libor.

More on that in the next post.

Chesapeake Energy:

Chesapeake’s Board of Directors named Archie Dunham, former CEO of Conoco, as their new Chairman, removing co-founder Aubrey McClendon from that role. Soon after, Dunham made it clear that Chesapeake needs to continue to sell off assets thereby raising cash. In the meantime, news surfaced that CEO McClendon may have violated anti-trust laws by allegedly sending emails related to bid prices on land for future drilling.

JPMorgan Chase:

Remember a previous post titled “Black Holes?” As predicted then, the hedge unit’s loss at JPMorgan continues to grow. Now reportedly at $ 9 BILLION-with-a-B dollars. Slightly more than the original $ 2 Billion.

News Corp:

Rupert Murdoch is apparently considering splitting News Corp. in two. The split would separate the entertainment business from the publishing business thereby cushioning shareholders who are primarily investing in the entertainment businesses from suffering the effects of the scandal going on in the publishing business. That scandal involves cell phone hacking allegations against the News of the World organization in London.  The company’s board quickly approved of Rupert’s wish. Hmmm.

Goldman Sachs:

No action against them, but the SEC is reportedly filing a civil law suit against a hedge fund manager for allegedly giving favorable treatment to some investors. Goldman was one of the names that allegedly received special treatment. The hedge fund is Harbinger Capital Partners LLC of Wall Street.

Facebook’s IPO:

The SEC opened an investigation into the NASDAQ stock exchange which was unable to effectively process the large number of trades on the stock’s opening day.

And Finally…..Madoff:

Remember Bernie? His brother Peter was planning to plead guilty while at the same time insisting that he did not know about his brother’s massive fraud. ….. sure.

Remember 2008? Sure you do. That was the year Lehman Brothers went down and we all started hearing about something called “Libor.” No, that’s not a typo for LABOR. It’s LIBOR. It’s the London interbank offer rate, the very short term interest rate that banks use when lending money to each other overnight. And when the Libor became too high there was too much friction in the system. Money stopped flowing from bank to bank. The world economy was in grave danger. Bush and Paulson moved quickly to prevent collapse and the term bailout was suddenly on everyone’s lips.

Libor. How soon we forget. Until this past weekend as the news from London is that the world renowned Barclays has been the target of a multi-year investigation on both sides of the Atlantic, accused of manipulating the Libor during a critical period in the financial melt-down, allegedly to improve its own profits.

According to Reuters, “Barclays has admitted that some of its traders attempted to manipulate the setting of the London interbank offered rate (Libor)….”  “Barclays has admitted it submitted artificially low estimates of its borrowing costs from late 2007 to May 2009…” per Reuters. News over the weekend is that Barclays Chairman will announce his resignation today and, also per Reuters, the bank has agreed to pay a fine of over $450 million.

Acxiom takes off your digital clothes. If you missed this weekend’s Sunday New York Times Business section, follow this link and you will learn about a company near Little Rock that analyzes your every move, on and off the web. While the search engines and big online retailers may track your data, Acxiom combines that data together with your in-store buying habits to determine your demographic, income level and whether or not you are worth getting special offers. Have you ever had someone at the checkout ask for your zip code? That’s a key piece of data that validates the matchup of virtual and real shopping and other interests.

You’ll learn more about this in my upcoming second post on the Right to Privacy and why technology and powerful statistical modeling have all but eliminated the need for a retina scan to identify Y-O-U.