Hackers on the Loose
SCOTT MINERD
Chairman, Guggenheim Investments
The No. 1 one risk is the sustainability of the global payment system. And I choose the word sustainability over the word vulnerability, because the real key here is keeping the global payment system running, and we’ve had so many hacks, terrorist attacks, the Colonial Pipeline incident. It would appear that we are extremely vulnerable to having an attack against the payment system of the financial markets—and not just here in the U.S., but in Europe.
What I’m talking about is things like the Fedwire, where the banks’ money clears through. But also something like the DTCC, SWIFT, Euroclear. I mean, I can just keep going on and on and on. And if there was a synchronized attack, we would essentially bring the global financial market to its knees. The first response would probably be that securities prices would crash, and the second is we would probably have to close all the exchanges in the world in order to figure out how to restore the global payments system.
The thing that bothers me about the global payment system is, I don’t think anyone’s focused on it. And this really takes a high degree of international cooperation. It takes a real macro look, meaning there needs to be somebody or some group of people looking at how everything interconnects and where the potential vulnerabilities are.
I would put the probability [of it happening] as very high. Certainly well over 50%. I got accused once when talking about this that I’m actually alerting terrorists and other governments on how to attack us. But the likelihood is they’re already thinking about it.
With the Fed, when I speak to them, they don’t really comment on it. And there’s two interpretations to that: They just don’t think it’s that serious, or they believe it’s so serious that they don’t really want to say anything. Just as we found out with the electric grid, one vulnerability is that the system isn’t hardened enough and we need to harden it for security reasons. The payment system is the same sort of thing. Even though the Fedwire has been modernized over time, it’s still built off an infrastructure that’s extremely old.
We need international cooperation to assess the risk and figure out how we can harden the system that exists in the short run and, in the long run, modernize it. Delivery versus payment, which is the standard way that we’ve delivered securities for 100 years, is in an age like ours, kind of ridiculous. There’s no reason why that just can’t be instantaneous.
But that’s going to take a new generation of technology and whether that’s blockchain or whatever, it needs to be modernized. But in the short run, central banks, exchanges and so forth need to take a hard look at their systems, not just their system, but at the interconnectivity of the system and how secure is that connection that’s being made. Not just from the standpoint of it having being disrupted, but since you’re sending information through the ether, what’s the chance that that can be redirected somewhere.
Certainly, the internet’s vulnerable, right? One of the comments I made to people about cyber cryptocurrency in general is: Why do I need to transact through the internet? Why can’t I just text it to you?
There are other ways to transfer things through the ether, right? So for instance, if you look at crypto as an example, the weak link is the fact that it’s linked to the internet. Even if the blockchain was forever and perfect and hardened and you couldn’t steal from it—which is not true—if you pull the internet down, you’re done.
The U.S. government will play a huge part in [creating a new system] just because we are the financial center of the world. However, to quote Winston Churchill, the U.S. government will always do the right thing after it’s exhausted every other option. So, I don’t think they’re going to go there right away. I think that there’ll be a lot of patches.
—With assistance from Steven Crabill and Danielle Balbi.
This article was provided by Bloomberg News.