Charlie Rose:  
And so when you look at where we are going, there seems to be two issues that are apparent to me at least, risk and leverage.  We just lost sight of risk and leverage of what was appropriate?

Warren Buffett:  
Yeah.  Again, because it pays off for a while.  You know, you can lose leverage, and it's the only way a smart guy can go broke.  If you owe money, you can't pay them out.  You just pay for everything, you do smart things, you eventually get very rich.  If you do smart things and use leverage and do one wrong thing along the way, it could wipe you out, because anything times zero is zero.  But it's reinforcing when the people around you are doing it successfully, you're doing it successfully, and it's a lot like Cinderella at the ball.  I mean you know at midnight everything is going to turn to pumpkins and mice; right?  But if the evening goes along, I mean, you know, the guys look better all the time, the music sounds better, it's more and more fun, you think why the hell should I leave at quarter of 12.  I'll leave at two minutes to 12.  But the trouble is, there are no clocks on the wall.  And everybody thinks they're going to leave at two minutes to 12.

Charlie Rose:  
And should wise people have known better?

Warren Buffett:  
People should always know better.

Charlie Rose:  
Yeah.

Warren Buffett:  
I mean people -- people don't get -- they don't get smarter about things that get as basic as greed and you can't stand to see your neighbor getting rich.  You know you're smarter than he is, and he's doing these things, you know, and he's getting rich, and your spouse is getting unhappy with you because you aren't doing -- pretty soon you start doing it.  And so you get what I call the natural progression, the three Is.  The innovators, the imitators, and the idiots.  And that's what happens.  Everybody just kind of goes along.  And you look kind of silly if you disagree.  I mean, you know, you could have these crazy Internet valuations in the late 1990s, but they prove themselves out in the market.  The next day they were selling for more than they were the day before, and people said, you know, you're crazy if you don't get in on this.  So it's very human.  Now, with housing it's something even more dramatic than that, because most people aspire to own their own home.  And if you really think that houses prices are going to go up next year and the year after, you feel if I don't buy it this year, I'm going to have to buy it next year.  That's not true of an Internet stock.  But it's true of a home.  And when somebody makes it very easy for you to do it by saying you don't really have to put up my money, you can lie about your income a little, or we'll give you 100 percent mortgage, you're going to do it, because everybody that's done it has been proven right.  You have what they call social tools, and, you know, you're going to feel like an idiot if you didn't do it, because the house cost more.

Warren Buffett:  
Oh, I think confidence will come back.  I will tell you this.  This country is going -- be living better ten years from now than it is now.  It will be living better in 20 years from now than ten years from now.  The ingredients that made this country, you know, the miracle of the world -- I mean we had a seven for one improvement in the average American standard of living in the 20th century.  Now, we had the great depression, we had two world wars, we had the flu epidemic.  You know, we had oil shock.  You know, we had all these terrible things happen.  But something about the American system unleashed more and of a potential to human beings over that hundred years so that we had a seven for one improvement in -- there's never been any -- I mean, you have centuries where if you've got a 1 percent improvement, then it's something.  So we've got a great system.  And we've got more productive capacity now than we ever have.  The American worker is more productive than he's ever been.  We've got more people to do it.  We've got all the ingredients for a sensational future.  It's just that right now the athlete's on the floor.  But we -- this is a super athlete.

I’m sure you already know about the other “network management” – where ISPs and carriers get their hands publicly slapped for limiting bandwidth to high-traffic offenders. But when is this kind of “network management” a good thing? At a panel sponsored by the FCC in DC, reps from carriers and ISPs discussed what steps they’ve been taking to prepare for a pandemic or other major global crisis – that would force workers to stay at home or work from more remote locations to limit exposure.

Are people paying attention to ICANN? They’re saying that IPv4 will be fully allocated in the next two or three years. Does anyone care? In their bid to make people care, ICANN talks about the state of IPv6 adoption and touts Africa as the most rapid adopter.

SOA soon part of the ‘cloud’? No, please no.

Microsoft – The Silver Lining in Every Cloud. Joe Wilcox over at eWeek’s Microsoft Watch, has been following Steve Ballmer around and collecting some nice quotes on how the company is transitioning. “For many years, we had kind of what I would call the all-encompassing mission, vision and scorecard statement: a computer on every desk and in every home. …Well, our footprint and portfolio is broader than that. “ [In every hand and of course, in every cloud…] “So, as a vision statement we talk about creating seamless experiences that combine the magic of software, the power of the Internet across a world of devices.” The magic of software – something I haven’t thought about for a while. And:

“You need a real platform in the cloud. When we wanted to go after the PC, we built an operating system. When we wanted to go after the phone, we built an operating system. When we wanted to go after the enterprise, we built an operating system. We’ll announce a new operating system, one that runs in the cloud and has a wide variety of capabilities.”

Because then you get a Maginot Line problem. [After World War I, the French erected concrete fortifications to prevent Germany from invading again -- a response to the previous war, which proved ineffective for the next one.] You know, they make sure they solve that particular problem, the Germans will not invade from here. The thing you have to be aware of most obviously is scenario planning, because typically if you talk about scenarios, you'll overestimate the probability of these scenarios. If you examine them at the expense of those you don't examine, sometimes it has left a lot of people worse off, so scenario planning can be bad. I'll just take my track record. Those who did scenario planning have not fared better than those who did not do scenario planning. A lot of people have done some kind of "make-sense" type measures, and that has made them more vulnerable because they give the illusion of having done your job. This is the problem with risk management. I always come back to a classical question. Don't give a fool the illusion of risk management. Don't ask someone to guess the number of dentists in Manhattan after asking him the last four digits of his Social Security number. The numbers will always be correlated. I actually did some work on risk management, to show how stupid we are when it comes to risk.

The announcement is of course Good News — because once the PCeU is up and running next Spring, it should plug (to the limited extent that £2 million a year can plug) the “level 2″ eCrime gap that I’ve written about before. viz: that SOCA tackles “serious and organised crime” (level 3), your local police force tackles local villains (level 1), but if criminals operate outside their force’s area — and on the Internet this is more likely than not — yet they don’t meet SOCA’s threshold, then who is there to deal with them?

In particular, the PCeU is envisaged to be the unit that deals with the intelligence packages coming from the City of London Fraud Squad’s new online Fraud Reporting website (once intended to launch in November 2008, now scheduled for Summer 2009).

Of course everyone expects the website to generate more reports of eCrime than could ever be dealt with (even with much more money), so the effectiveness of the PCeU in dealing with eCriminality will depend upon their prioritisation criteria, and how carefully they select the cases they tackle.

Nevertheless, although the news this week shows that the Home Office have finally understood the need to fund more ePolicing, I don’t think that they are thinking about the problem in a sufficiently global context.

A little history lesson might be in order to explain why.

Back in 1930’s, Bonnie and Clyde and other US bank robbers were using the new-fangled automobile to flee across state lines — creating jurisdictional problems as a result. The US solution was to make bank robbery (along with auto-theft and other related offences) into federal offences rather keeping them as state-specific infractions. In particular this meant that the FBI could provide federal level policing (tracking down and killing John Dillinger for example).

We have the same jurisdictional issues dealing with cyberspace, with criminals in one country fleecing consumers in another while using systems hosted in a third. The Convention on Cybercrime addresses part of the problem by trying to ensure international consistency where eLaws are specifically needed (which of course is only the case for small parts of eCriminality, fraud is fraud whether eEnabled or not). However, there is limited inter-jurisdictional co-ordination for eCrime investigations — for example Interpol (often incorrectly perceived to be international police force) merely keeps a large database and passes faxes from one place to another.

In practice, most cross-border investigations are done as “joint operations” and the jointness is usually very limited — one force does all the legwork and a liaison officer in the other country deals with local paperwork. There’s usually a quid pro quo element to these joint operations, for budgeting reasons if no other.

What isn’t happening, or at least only in a handful of very specialised areas, is any international co-operation in setting priorities or selecting cases to pursue. Every country is doing its own thing about eCrime, and there’s a widespread impression that any criminal who can operate from “across the state line” is essentially immune from serious investigation.

We identified this problem last year when we (Ross Anderson, Rainer Böhme, Tyler Moore and myself) wrote a report on Security Economics and the Internal Market for ENISA. It’s not an easy one to fix whilst politicians (and populaces) are unwilling to see “foreign” police officers operating in their country, and the establishment of a truly international “cyber police force” seems equally unlikely.

Our policy proposal to tackle the issue harks back to WWII’s SHAEF, which has morphed into similar arrangements within NATO. In essence liaison officers from multiple forces would sit around a single table, working with a central coordinator, to set policy and decide which investigations to pursue. They would then communicate back to their own countries, who have specifically budgeted to provide appropriate assistance. So it’s very like “joint operations”, but the scheme is multi-laterial, and has a true command and control function in the centre — who will quickly learn to shy away from politically sensitive topics and make a real impact on eCriminality.

To summarise then, a welcome to the Home Office for finally finding a small amount of funding for some country-wide ePolicing; but it’s well past time to be working on world-wide initiatives.

We read many stories on the net where folks claim that the current financial crisis could have been avoided with more or better use of technology.     This is expected, as software companies and IT professionals will often try to piggy-backtheir business development strategy on the “crisis of the day” to sell more goods and services.    Honestly, in this current situation, the main technology that we needed was simple, accurate financial models.

For example, in the chart above, the US economy was doing quite well with US federal funds rates low.   Housing prices in the US were skyrocketing and there was a concern about inflation.    There was an understandable concern the sustainability of that economy.

So, in perhaps one the most ill-advised Federal Reserve actions of many decades, the folks at the helm of the Fed decided to raise their lending rates around 500 percent over a two year period.

As we all know, primarily because of the action by the Fed, the world faces perhaps the worst economic disaster in modern times, while the US Executive Branch and the Congress fight over how to spend $700 Billion taxpayer dollars to inject liquidity into the markets to try to head off a global financial disaster.

It is amazing to me that the US Federal Government, or their advisors, does not have simple financial models with cause-and-effect analysis such as:

• Homeowners with adjustable rate mortuages will not be able to make payments;and
• Housing prices will fall dramatically; then
• Homeowners will default on loans where the collateral is much less than the asset value, and
• Banks will suffer great losses, and
• Lending will come to a halt, then
• Banks will collapse, then
• Wall Street will exit the markets in panic
• … and more trouble….. !!

There are and continue to be a lot of discussion and opinions about how risk management needs improvement. and I agree.   We will also read folks talk about how technology can be used to help solve this problem, including CEP/EP and related software (see also Capital Market CEP Fantasy Land). However, as much I would be pleased to see more CEP/EP applications and use cases, I do not believe that event processing technology is really very useful to solve the core problem of the current financial crisis.

The core problem is, seemingly, that our “financial experts” do not even have simple models that will illustrate what will or could happen when you raise the fed lending rates 500 percent in two years in an economy pregnant with adjustable rate mortgages.

To me, this does not appear to be rocket science.  The negligence by the US Federal Reserve and their advisors is astonishing.

• Network Level Monitoring and Management,
  
• Cyber Security: Network Intrusion Detection,
  
• Enterprise Monitoring and Management,
• Modeling and Simulation of Collaborative Business Processes,
• Business Policy Monitoring, and
• Analysis and Debugging of Distributed Systems.

In each of the CEP application examples above, the amount of event information available to software developers can be staggering; however, despite all the available information, the capability to sense-and-respond to threats and opportunities is crude, at best.

Folks who work in network and security management, for example, are bombarded with event information.  However, this deluge of event information is, for the most part, “noise” that is difficult to understand.   In network management one of the most difficult things to accomplish is to find the root cause of an outage or performance problem.   This is why researchers at Stanford were funded to focused on research topics such as (above), the Analysis and Debugging of Distributed Systems.

These are the classes of asymmetric event processing problems that define complex event processing, or CEP.   Processing events by mediating events, routing events, or running a rule-set against events and making a processing decision are all perfectly valid event processing applications.   However, the core reason to have “complex event processing” is to solve event processing problems where there exists a significant asymmetry between the deluge of “event noise”  (Professor Luckham called this phenomena the “event cloud”) and detecting business-relevant, actionable complex events in an climate of uncertainty and noise.

In my next post on this topic I will briefly the review motivation behind my 1999 ACM paper, Intrusion Detection Systems and Multisensor Data Fusion, where we were working on solving complex distributed security challenges based on real-world experiences with the problems of asymmetric processing capabiilities.  I will discuss why we evolved from an early rule-based expert system model to a more advanced inference model that was not dependent solely on rule-based thinking.   I will also explain why other researchers and developers experienced in complex event detection applications have come to the same conclusion.

So, here is my next monthly "Security Warrior" blog round-up of top 5 popular posts and topics.

1. Shockingly, AGAIN this month, the "Top 11 Reasons to Secure and Protect Your Logs" came up as #1 most popular post (maybe driven by my poll).  BTW, see my other logging polls.
2. Security ROI - and its parent topic "security metrics"/"measuring security" - is definitely an ongoing HOT debate. Indeed, the old post "Security ROI Pile-Up!" takes the #2 spot this month, possibly propelled by a more recent post "Second ROI War."
3. Some say that "short blog posts rule", but, in reality, good, fun content is the best. Here is an example:  "Dumb Luck IS a Strategy!" post makes the top list. In it, I try to explore why people still ignore security concerns even if stare people in the face...
4. Discussion on what you can do to soften the impact of "getting 0wned" ( "What CAN You Do?") made the top list. Good!
5. As before, my post "11 Signs That Your SIEM Is A Dog or "Raffy, You Killed SIM!"". It is both humorous and sadly true (and backed up by other sources)
6. Still burning hot is a post with my irreverent comments on a Terry Childs saga. Namely, "On Doomsaying (Terry Childs case)", "So ... Am I? Maybe I Am!" and "Admins , Good Guys or "I am NOT an Idiot!""

See you in October.

Possibly related posts / past monthly popular blog round-ups:

• Monthly Blog Round-Up - August 2008
• Monthly Blog Round-Up - July 2008
• Monthly Blog Round-Up - June 2008
• Monthly Blog Round-Up - May 2008  
• Monthly Blog Round-Up - April 2008  
• Monthly Blog Round-Up - March 2008  
• Monthly Blog Round-Up - February 2008  
• Monthly Blog Round-Up - January 2008  
• Monthly Blog Round-Up - December 2007  
• Monthly Blog Round-Up - November 2007  
• Monthly Blog Round-Up - October 2007  
• Monthly Blog Round-Up - September 2007
• Monthly Blog Round-Up - August 2007