The Wall Street Journal prints the third installment to its excellent What They Know series, this one on how data companies are pushing ever closer toward identifying individuals, even without their names.
It also raises very interesting questions about how banks and the like are using or could use this trove of information to target consumers for different products.
“If we’ve identified a visitor as a midlife-crisis male,” says Demdex CEO Randy Nicolau, a client, such as an auto retailer, can “give him a different experience than a young mother with a new family.” The guy sees a red convertible, the mom a minivan…
The technology raises the prospect that different visitors to a website could see different prices as well. Price discrimination is generally legal, so long as it’s not based on race, gender or geography, which can be deemed “redlining.”
It profiles a company called, irritatingly enough, [x+1] that creates online profiles of computer users and brags “We never don’t know anything about someone.” It gets very specific about you:
In fact, [x+1]’s assessment of Mr. Burney’s location and Nielsen demographic segment are specific enough that it comes extremely close to identifying him as an individual—that is, “de- anonymizing” him—according to Peter Eckersley, staff scientist at the Electronic Frontier Foundation, a privacy-advocacy group.
Again, this is excellent work bringing this stuff to the fore.
— Nassim Nicholas Taleb has a fascinating column at the Huffington Post on regulation and the revolving door, the decline of shame and ethics, and even Xenophon and Seneca.
He calls out former Federal Reserve official Alan Blinder for gaming the system:
Last year, in Davos, during a private coffee conversation that I thought aimed at saving the world from, among other things, moral hazard, I was interrupted by Alan Blinder, a former Vice Chairman of the Federal Reserve Bank of the United States, who tried to sell me a peculiar investment product. It allowed the high net-worth investor to go around the regulations limiting deposit insurance (at the time, $100,000) and benefit from coverage for near unlimited amounts. The investor would deposit funds in any amount and Prof. Blinder’s company would break it up in smaller accounts and invest in banks, thus escaping the limit; it would look like a single account but would be insured in full. In other words, it would allow the super-rich to scam taxpayers by getting free government sponsored insurance. Yes, scam taxpayers. Legally. With the help of former civil servants who have an insider edge.
I blurted out: “isn’t this unethical?” I was told in response, “We have plenty of former regulators on the staff,” implying that what was legal was ethical.
Excellent. And Taleb leaves us with this intriguing bit of “to be continued”:
P.S. Why is this on the Huffington Post and not the New York Times? This is part of a broader discussion of journalistic ethics to come later.
It’s a must-read post.
— Yves Smith reads Taleb and has some excellent observations herself:
…legalistic regulatory evasion has also become so commonplace as to blunt most people’s sense of where to draw the lines. One of the unacknowledged problems of the crisis is that the financial system has too little equity precisely because banks and their regulator enablers pursued securitization. The effect was to de equitize huge swathes of the credit markets (the growth of the an $8 trillion, give or take a couple of trillion, shadow banking system with pretty much no equity behind it, is the end product of this development). Regulators, financiers, and academics all touted the virtues of securitization, and its cost savings. Bullshit. The process has more moving parts, more parties ripping up front fees out of the deals. So where to the vaunted cost savings come from? De equitization, from reducing risk buffers for lending that had been deemed necessary provisions against losses. The “you’ll be on this bus or under the bus” charts McKinsey would show to clients in the 1980s explaining why securitization was inherently cheaper than on balance sheet lending showed two, and only two, big sources of expense savings: the elimination of bank equity and FDIC insurance costs.
So the “innovation” that regulators, academics, consultants, and banks were all advocating more than 20 years ago was regulatory arbitrage, pure and simple. When you have regulators undermining the rules and depicting it as virtuous, behavior like Blinder’s is simply more of the same.
Fascinating. And she’s dead-on here:
Unfortunately, the Obama administration had the opportunity execute more fundamental reform at the outset. Worse, Obama himself recognized it; he was reading biographies and speeches of FDR as president elect, yet chose to pass on an historical opportunity…
I can’t imagine any senior politician now having the confidence now to defy the will of the banking industry. And it isn’t simply due to the role of corporate funding in campaigning; the roots are deeper. Being in office now is all about winning, about keeping one’s hold on power, so it isn’t surprising that everyone has a price.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.