Uncle Sam Is Protecting Economic Data: A Fallacy?

Hardly a day goes by without another piece of mind numbing news regarding the assault on the integrity of our markets.

With the folks in Washington and their friends in the media having jumped in bed with those who truly run our financial markets, news that may have shocked the public prior to our economic crisis now comes and goes with barely a ripple.

Make no mistake, though, the corrosive waves of corruption that emanate from the incestuous relationship between the financial industry and those charged with protecting the public interest comes with a very heavy cost.

The fact that the steady drumbeat of news exposing corrosive elements no longer shocks us does not mean that we should resign ourselves to accepting this reality. Having long maintained that information and the access to it means everything on Wall Street, we witness the next iteration of this assault on the public interest in news highlighted this morning by The Wall Street Journal,

The Federal Bureau of Investigation has discovered vulnerabilities in the government’s system for preventing market-moving economic reports from leaking to traders before public release.

Law-enforcement officials found “a number of operational vulnerabilities” involving “black boxes” used by several departments to control the release of sensitive economic data such as the monthly unemployment rate, according to a report by the inspector general at the Commerce Department.

The report said it was possible to subvert the system, which was designed to prevent media companies from sending economic data to traders early.

The report, which was reviewed by The Wall Street Journal, is part of a broad law-enforcement inquiry into whether media firms or any of their employees are sending government data to traders before the agreed-upon embargoes expire, which could violate insider-trading laws.

The FBI has long been concerned about what investigators view as suspicious trading activity that occurs just before some government releases of sensitive economic data, according to people familiar with the investigation. Federal agents have spent years trying to determine if that activity is due to misconduct during the formal release period, which is known as a lockup.

The black boxes are key to the government’s control of the data. Media firms in the business of reporting economic data are required to connect their computers to the black boxes, which operate like a trapdoor, releasing articles and data streams when the embargoes lift. In theory, all the data should be released at the same time.

The FBI’s testing led it to discover other methods to get around the black boxes in ways that could “adversely impact the timed release of sensitive economic data,” according to the report.

For one, media firms, if unobserved, could simply turn off the power on the black boxes, the FBI cautioned. Data also could be surreptitiously routed around the black boxes using concealed wireless devices or even a phone line or cable.

Such “concealed IT devices may still be in use” in lockup rooms across the government, according to a summary of the investigative report.

The fact that these devices could be “concealed to intentionally disguise their presence…should be made known to the proper personnel,” the FBI said, according to the report.

Situations such as these develop when the potential revenue generated dwarfs the cost of the systems needed and the penalty that might be imposed for engaging in illegal conduct.

I guess this less than shocking news is now how we have come to define capitalism to an ever greater extent circa 2013.