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Wonkbook: A ‘cyber Pearl Harbor’?

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkbook dashboard

RCP Obama vs. Romney: Romney +1.3%; 7-day change: Romney +4.4%.

RCP Obama approval: 49.0%; 7-day change: -0.2%.

Intrade percent chance of Obama win: 61.7%; 7-day change: -5.1%.

Wonkbook's Number(s) of the Day: "According to General Keith Alexander, leader of the U.S. Cyber Command, computer-based intrusions against U.S. infrastructure increased 17-fold between 2009 and 2011, and cyber attacks have led to the theft of about $1 trillion in intellectual property." Bloomberg View.

Top story: A 'cyber Pearl Harbor'?

The Department of Defense is getting worried about national cybersecurity. Should you? "American intelligence officials are increasingly convinced that Iran was the origin of a serious wave of network attacks that crippled computers across the Saudi oil industry and breached financial institutions in the United States, episodes that contributed to a warning last week from Defense Secretary Leon E. Panetta that the United States was at risk of a 'cyber Pearl Harbor.'...After Mr. Panetta’s remarks on Thursday night, American officials described an emerging shadow war of attacks and counterattacks already under way between the United States and Iran in cyberspace." Thom Shanker and David E. Sanger in The New York Times.

Watch: Sec. of Defense Leon Panetta speaking.

@wrmead: It isn't formally declared, but wave of retaliatory Iranian cyber attacks means that US-Iran war has already begun.

Read: The full text of Panetta's speech.

Key excerpts: "A cyber attack perpetrated by nation states or violent extremist groups could be as destructive as the terrorist attack of 9/11. Such a destructive cyber terrorist attack could paralyze the nation...These attacks mark a significant escalation of the cyber threat. And they have renewed concerns about still more destructive scenarios that could unfold...[C]yber threats are every bit as real as more well-known threats like terrorism, nuclear weapons proliferation, and the turmoil in the Middle East...This is a pre-9/11 moment. The attackers are plotting...The collective result of these kinds of attacks could be 'cyber Pearl Harbor': an attack that would cause physical destruction and loss of life, paralyze and shock the nation, and create a profound new sense of vulnerability."

@cyber: Today is the start of Nat’l Cybersecurity Awareness Month. Talk with family, friends & colleagues about online safety.

How the U.S. is building its cyberdefense policy. "United States has taken steps to be ready for a strike on U.S. installations...Panetta said the U.S. military has pumped $3 billion into cyber security efforts that include the recruitment of an army of cyber-warriors to fight off attacks." Luis Ramirez in Voice of America.

@normative: Hype alert: Cyberattacks are a threat; they are not a threat to the "very being" of the United States

Senate Majority Leader Harry Reid wants to pass a cybersecurity bill soon. "Senate Majority Leader Harry Reid (D-Nev.) said he will try and revive stalled cybersecurity legislation on the heels of Defense Secretary Leon Panetta’s warning that the U.S. is at risk of a devastating cyber-attack...Reid, in a statement Saturday, said that when Congress returns in November he will bring back legislation that stalled in August...A bipartisan cybersecurity bill failed to secure the needed 60 votes to advance in early August, an impasse fueled by GOP concerns that the bill would require too much from businesses." Ben German in The Hill.

@Ben_German: Senate leader Reid vows to bring stalled cybersecurity bill back in Nov., says Def. Sec Panetta 'made clear that inaction is not an option'

Check this out: A map of global cyber attacks in real time.

@mikko: Cyberwar. What a strange game. The only winning move is not to play.

BLOOMBERG VIEW: Why you really need to pay attention to cybersecurity policy. "One of the most pressing military threats facing the U.S. today is one we can’t see, and therefore is the most difficult to have a sensible discussion about...There are two prudent ways the government can respond. First, because Congress this year failed to pass the Cybersecurity Act, a bipartisan measure that would have been an important first step, President Barack Obama would be justified in taking the initiative. He could issue an executive order directing regulators to require companies operating critical infrastructure to meet federal cybersecurity standards. The order should follow the spirit of the legislation: Companies should have to meet certain goals, but be given free rein to determine how best to do so. As a partial blueprint, regulators could use the Consensus Audit Guidelines, a set of 20 best- practices developed by government agencies and private-sector cybersecurity experts...Second, Panetta said that the Department of Defense is drawing up new rules of engagement for the age of cyberwarfare. In doing so, it should make clear that the U.S. is prepared to preempt attacks, and to respond with overwhelming force." Bloomberg View Editorial Board.

@drjjoyner: Cyber attacks could, theoretically, take out critical infrastructure such as power grids.

Top op-eds

KLEIN: When did Obama lose "the vision thing"? "The next presidential debate is Tuesday, and the advice President Obama is getting is largely stylistic...That Obama lost the first debate because he didn’t seem sufficiently psyched to be there is probably partially true, but it’s also a form of flattery. It says, in effect, that Obama’s only problem was the superficiality of the format and Mitt Romney’s untruths. Obama was just too deep and too thoughtful and too honest to win...But when I went back and read the transcript -- thus removing appearance and tone and body language from the equation altogether -- it was clear that Obama had lost the debate at least partly because he didn’t know what he wanted to say...[H]is debate performance speaks of a deeper problem. Obama, at the moment, doesn’t have anything particularly inspiring to say...[T]he dulling of the vision has led to the dulling of the candidate." Ezra Klein in The Washington Post.

KRUGMAN: Death by ideology. "Mitt Romney doesn’t see dead people. But that’s only because he doesn’t want to see them; if he did, he’d have to acknowledge the ugly reality of what will happen if he and Paul Ryan get their way on health care...Mr. Romney declared that nobody in America dies because he or she is uninsured...How many deaths are we talking about?...[I]nsurance is indeed a lifesaver, and lack of insurance a killer. For example, states that expand their Medicaid coverage, and hence provide health insurance to more people, consistently show a significant drop in mortality compared with neighboring states that don’t expand coverage...[T]here’s no real question that lack of insurance is responsible for thousands, and probably tens of thousands, of excess deaths of Americans each year." Paul Krugman in The New York Times.

COWEN: A blurry line between makers and takers. "Mitt Romney has apologized for his depiction of 47 percent of America as wealth takers rather than wealth makers. But his blunder touched inadvertently on some discomforting truths about the importance of politics in income distribution in the United States. If Mr. Romney’s points were to be reformulated in a more defensible direction, the outline might look something like this...The problem is that taking, rather than making wealth, appears to be growing in relative influence. Most of us are actually both makers and takers... The question is whether the role of wealth maker has more influence over our politics, at any given time, than does the taker role. Is public policy being adjudicated on grounds of ethics and efficiency, or is the real story about lobbying and the relative power of different interest groups?" Tyler Cowen in The New York Times.

RABKIN AND COOK: Let the MDs cure healthcare costs. "For years the efforts to cure the health-care system's ailments -- including runaway costs, less time physicians can spend with patients, and the rules and reports that consume more time of physicians and hospital staff -- have failed. They've failed because they ignored a basic fact: The delivery of care is shaped largely by the way care is paid for. Fee-for-service, the usual method of payment, is inflationary. Why? Practicing physicians are not accountable for the number and the costs of the resources used in diagnosing and treating a patient. They also aren't accountable for costs generated by specialists to whom they refer a patient, and neither are the specialists." Mitchell T. Rabkin and John S. Cook in The Wall Street Journal.

WARSH AND DAVIS: Globalization in retreat. "[G]lobalization is now showing signs of retreat...Cross-border, private-capital flows continue to be disappointing. Flows to emerging markets, for instance, fell sharply in the summer last year and remain stalled. Investors appear cautious, notwithstanding central bankers' ceaseless efforts to tempt them to buy riskier assets by suppressing yields of government-backed securities. Investors are also demonstrating increasing home-country bias, disproving the theories that emerging economies would be immune to global weakness. Companies are similarly exercising considerable self-restraint in their investment in long-lived assets, such as factories, at home and abroad. The massive provision of public funding cannot mask the shortfall in private investment flows. Many of the world's largest banks are forgoing their global ambitions." Kevin Warsh and Scott Davis in The Wall Street Journal.

JOHNSON: Cut big banks down to size. "Daniel Tarullo, a governor of the Federal Reserve System, spoke for the first time last week about potentially imposing a size cap on the largest U.S. banks...His point was simple and clear. Creditors to very large financial institutions believe they receive downside protection from the government -- primarily through measures that the Fed would put in place in the event of financial distress...These statements mark a significant -- perhaps even dramatic -- shift in thinking at the central bank. Tarullo looks to Congress to decide on potential size caps, but lawmakers rely heavily on the expertise of the Fed in thinking about how to handle such technical matters." Simon Johnson in Bloomberg.

@anatadmati: Tarullo's call to restrict bank size shows the sad state of reform. With all the lobbying, it has become a mess.

PEARLSTEIN: The judicial war against the regulatory state. "A favorite pastime of the business community these days is to complain about how dysfunctional Washington has become. They’re right about the dysfunction, of course, but they have nobody to blame but themselves. After shoveling a billion dollars in campaign cash to elect politicians who pledge never to compromise on anything, business leaders are now shocked — shocked, I tell you — to discover that partisan gridlock once again threatens to send the government off yet another fiscal cliff...The dirty little secret is that dysfunctional government has become the strategic goal of the radical fringe that has taken over the Republican party. After all, a government that can’t accomplish anything is a government that nobody will like, nobody will pay for and nobody will want to work for...Nowhere has this strategy been pursued with more fervor, or more success, than the U.S. Court of Appeals for the District of Columbia Circuit, where a new breed of activist judges are waging a determined and largely successful war on federal regulatory agencies." Steven Pearlstein in The Washington Post.

Top long reads

Dan Barry chronicles the life and times of Elyria, OH in this remarkable 5-part series on "Donna's Diner": "You know this place: It is Elyria’s equivalent to that diner, that coffee shop, that McDonald’s. From the vantage point of these booths and Formica countertops, the past improves with distance, the present keeps piling on, and a promising future is practically willed by the resilient patrons. It is where the recession and other issues of the day are lived as much as discussed. Where expectations for a certain lifestyle have been lowered and hopes for salvation through education and technology have been raised. Where the presidential nominees Barack Obama and Mitt Romney each hope that his plan for a way back will resonate with the Donna Doves, who try to get by in places like Elyria -- where the American dream they talk about can sometimes seem like a tease."

@ebertchicago: Donna's Diner. One of the best feature stories I've read in a long time. Snapshot of our nation with Formica tables.

Richard Sander and Stuart Taylor Jr. discuss the unraveling of affirmative action: "Racial preferences spring from worthy intentions, but they have had unintended consequences—including an academic mismatch in many cases between minority students and the schools to which they are admitted. There's a better way to help the disadvantaged."

@DLeonhardt: Perhaps hardest argument for affirmative-action defenders: Acknowledging race is a factor while saying it's not determinative.

Mark Bowden tells the backstory behind the Abbottabad raid: "President Obama saw it as a '50-50' proposition. Admiral Bill McRaven, mission commander, knew something would go wrong. So how did the raid that killed bin Laden get green-lighted? In an adaptation from his new book, Mark Bowden weaves together accounts from Obama and top decision-makers for the full story behind the daring operation."

Prehistoric interlude: Stone tools with plastic handles.

Got tips, additions, or comments? E-mail me.

Still to come: the global economy; how the health safety net is at risk for the most vulnerable among us; veterans get hand in labor markets; California to launch cap and trade scheme; and Felix Baumgartner, of course.


Where is the global economy going? "A weekend gathering of the world's top finance officials deepened conflicts among some of the largest economies, raising fresh doubts about their ability to find big steps quickly to boost the flagging global recovery. At the annual meetings here of the International Monetary Fund and World Bank, European officials bickered about the damage caused by austerity; this week they head into a major euro-zone summit with no clear rescue plan for Greece. A territorial row between China and Japan, the world's second- and third-largest economies, bled into the conference with no sign of resolution, highlighting a new risk to growth. And many top finance officials pointed fingers at the U.S. for casting a new cloud over global markets by failing to make progress on the budget mess in the world's largest economy."Sudeep Reddy, Brian Blackstone, and Bob Davis in The Wall Street Journal.

@RobinBew: #IMF under fire for being tool of advanced econs. Right to focus on EZ issues as threat to world econ. But EM voting rights important too

Bernanke's "Hello, World": Monetary stimulus is appropriate. "Federal Reserve Chairman Ben Bernanke encouraged policy makers in developing economies to let their currencies appreciate, delivering a strongly worded counterargument to their own critiques of the Fed...Mr. Bernanke, in remarks prepared for a panel discussion at International Monetary Fund meetings in Tokyo, said policy makers in these countries could slow this rush of capital and some of its negative effects by allowing their own currencies to appreciate. Instead, he argued, they were doing just the opposite." Jon Hilsenrath in The Wall Street Journal.

Meet the 'boomerang' homebuyer. "Millions of families lost their homes to foreclosure after the housing crash hit six years ago. Now, some of those families are back in the housing market. Call them the 'boomerang' buyers. It is difficult to quantify the exact number of boomerang buyers, but real-estate agents, mortgage brokers and home builders all say a significant number of new buyers are families and individuals who went through foreclosure as recently as three years ago, the time period that buyers who defaulted on a mortgage must typically wait before becoming eligible for a mortgage backed by the Federal Housing Administration...Using the three-year benchmark it takes to get an FHA-guaranteed loan, in this year's second quarter there were 729,000 households that were foreclosed upon during the bust that are now eligible to apply for an FHA mortgage, up from 285,000 in the second quarter of 2011, according to an analysis of foreclosure data by Moody's Analytics. The company projects that number will grow to 1.5 million by the first quarter of 2014." Conor Dougherty and Dawn Wotapka in The Wall Street Journal.

This week in economic data. "Data to be released include retail sales for September and business inventories for August (Monday); the Consumer Price Index for September and industrial production for September (Tuesday); housing starts for September (Wednesday); weekly jobless claims, the Philadelphia Fed index for October leading economic indicators for September (Thursday); and existing home sales for September (Friday)." The New York Times.

Wonkblog's weekend interview: Peter Diamond on Social Security, privatization proposals and the grand bargain he’d like to see.

Will the American consumer brave the fiscal cliff? "Consumers are hurtling toward the fiscal cliff -- even if they don't realize it yet...Consumer confidence surged in early October to its highest level since before the recession, according to a survey from the University of Michigan on Friday. A separate survey of consumers by RBC Capital Markets earlier this month found that most either weren't following the fiscal cliff or weren't concerned about it. Only 14% said they had changed their spending or investing behavior as a result. For all the attention the fiscal cliff is getting in Washington and on Wall Street, most consumers just aren't paying attention, said Tom Porcelli, RBC's chief U.S. economist." Ben Casselman in The Wall Street Journal.

And here are the other looming economic threats. "Even if Washington somehow finds a way to avoid the fiscal cliff... the economy could suffer a stiff blow next year from other looming changes in public policy. A payroll tax cut benefiting 160 million workers is scheduled to expire at the end of the year, as are unemployment benefits for millions of people. Also on tap are new taxes on the wealthy and cuts in tens of billions of dollars in domestic and defense spending that will occur regardless of the fiscal cliff. With the government putting less money into the economy and taking more out of people’s wallets, many economists estimate that these changes could reduce growth by at least one percentage point." Zachary A. Goldfarb in The Washington Post.

@Goldfarb: What happens if we DO stop sequestration and expiry of Bush tax cuts? Bad stuff.

Daredevil interlude: Felix Baumgartner's jump tape.

Health Care

In hospitals, tearing away the safety net. "For more than 20 years, hospitals have relied on subsidies provided by the federal government to help defray costs [from uncompensated care]. But that funding is set to decline starting in 2014 with the full implementation of the federal health law. The assistance is known as DSH payments, for disproportionate share hospital...The federal health care law won't eliminate DSH payments altogether, but it cuts them by half over five years. The reductions begin in 2014, the same year the law requires most Americans to obtain health insurance or pay a penalty. The theory is that hospitals will need fewer DSH subsidies because they'll be treating a reduced number of patients who lack insurance." Elizabeth Stawicki in National Public Radio and Kaiser Health News.

U.S. ties hospital payments to making patients happy. "Nearly $1 billion in payments to hospitals over the next year will be based in part on patient satisfaction, determined by a 27-question government survey administered to patients. Hospitals with high scores will get a bonus payment. Those with low ones will lose money. The program is part of a much broader pay-for-performance system built into President Barack Obama's health-care overhaul...Many medical professionals have balked at the questionnaires, saying they are unfair. Older hospitals in inner cities, or facilities that tend to accept patients through cramped and busy emergency rooms, say their scores automatically suffer through no fault of their own...Hospitals must complete at least 100 patient surveys over a year, though bigger hospitals will do far more. The survey isn't restricted to Medicare beneficiaries. Hospitals are audited to ensure they don't cherry-pick respondents. The new payment rate combines hospitals' patient-satisfaction scores with a measure of whether hospitals follow a dozen procedural metrics for treating such things as heart ailments and pneumonia." Janet Adamy in The Wall Street Journal.

Amid meningitis outbreak, the realization that pharmacies fought regulation. "How these firms escaped closer regulation shows how little happens in Washington absent an emergency. Top lawmakers and federal officials tried for years to increase regulation. A countereffort by the industry and a series of court decisions helped beat that back. Federal agencies debated about who should crack down on the industry. Lawmakers eventually abandoned their push after deciding the issue wasn't important enough...It isn't known whether tighter regulations would have stopped the outbreak tied to the New England Compounding Center." Thomas M. Burton, James V. Grimaldi, and Timothy W. Martin in The Wall Street Journal.

Domestic Policy

Regulators face new problems in reverse mortgages. "Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes and not pay it back until they move out or die, have long been fraught with problems. But federal and state regulators are documenting new instances of abuse as smaller mortgage brokers, including former subprime lenders, flood the market after the recent exit of big banks and as defaults on the loans hit record rates...Now, as the vast baby boomer generation heads for retirement and more seniors grapple with dwindling savings, the newly minted Consumer Financial Protection Bureau is working on new rules that could mean better disclosure for consumers and stricter supervision of lenders. More than 775,000 of such loans are outstanding, according to the federal government." Jessica Silver Greenberg in The New York Times.

A new push to hire veterans. "The unemployment rate among younger U.S. military veterans, long a source of worry, is declining as companies step up efforts to hire them...[T]he U.S. Chamber of Commerce over the past 18 months has been organizing Hiring Our Heroes job fairs around the country. So far, the chamber says, it has held about 300 fairs, at which more than 10,000 veterans and their spouses have found jobs...The unemployment rate for those who have served since September 2001 stood at 9.7% in September, down from 11.7% a year earlier...A flood of new veterans is heading for the generally weak U.S. job market. The White House projected last year that one million people would return to civilian life over the next five years, partly because of the withdrawal of U.S. troops from Afghanistan." James R. Hagerty in The Wall Street Journal.

Cartography interlude: Mapping the meningitis outbreak.


CA's grand experiment to rein in climate change. "On Jan. 1, it will become the first state in the nation to charge industries across the economy for the greenhouse gases they emit. Under the system, known as 'cap and trade,' the state will set an overall ceiling on those emissions and assign allowable emission amounts for individual polluters. A portion of these so-called allowances will be allocated to utilities, manufacturers and others; the remainder will be auctioned off. Over time, the number of allowances issued by the state will be reduced, which should force a reduction in emissions." Felicity Barringer in The New York Times.

@Ben_German: Climate change a no-show at Biden-Ryan debate, also absent from first Obama-Romney debate.

The last gasps of the opposition to the Keystone XL pipeline. "eep within the oak and pine forests that blanket this stretch of East Texas, the chug of machinery drones on late into the day, broken only by the sounds of a band of activists who have vowed to stop it. Here, among the woods and farmland, what might be one of the last pitched battles over the Keystone XL oil pipeline has been unfolding for weeks now, since construction of the controversial project’s southern leg began in August." Dan Frosch in The New York Times.

An oil boom, but prices at the pump are staying high. "U.S. crude production is expected to rise 12% this year and 8% in 2013, when it will hit the highest level since 1993, according to government figures. The price of West Texas crude, the U.S. benchmark, has fallen 7% this year, held down by rising supplies from new drilling methods. Yet gasoline prices currently average nearly $4 per gallon nationwide. Rising U.S. crude production may seem like an attractive antidote, but it is proving ineffective on its own at a time when the world's appetite for energy remains voracious and Middle East tension is a reminder that supplies could be disrupted." Liam Pleven and Gregory Zuckerman in The Wall Street Journal.

Wonkbook is produced with help from Michelle Williams.



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