BY MEGAN MCARDLE
As the Official Blog Spouse and I are between television seasons, we have just begun watching the back episodes of "Mr. Robot," a well-reviewed series from USA that I highly recommend. And as sometimes happens in our household, a long discussion ensued about the plot that is central to the first half of the season. It's at the intersection of economics and bank technology, so how could I resist? (Very mild spoilers following. Nothing that you will not learn in the first episode.)
"Mr. Robot" is about hackers -- and technical folks have given the show kudos for basically sticking to things that are actually possible, and giving some screen time to a technical discussion of how it might be accomplished. There are no twee scenes where someone types for three seconds and -- whee! -- they have instant access to your school records, your bank records, and the last 5,000 e-mails you sent.
But this is not just a show about cybersecurity; it's also a show about business and economics. It's essentially a cross between "Fight Club" and a caper film, and the caper they spend the first five episodes trying to pull off involves attempting to erase the nation's debt by targeting the servers and the backup facility that store records for E Corp., a giant behemoth that you can picture as a cross between Google and Enron, with Satan himself running the org chart. It is supposed to be, as Christian Slater's character puts it, "the single biggest event of wealth redistribution in history."
Would this work? The spouse asked me. No, of course it would not work, I said, and if it did, the results would not be what they intended. Why? Well, let me count the ways:
1. All those records aren't in one place. The idea seems to be that E Corp. runs the credit card interchanges. It also seems to have all the credit card records. This is not how these things work. Visa and MasterCard are interchanges. They process payments. Credit card issuers are financial firms, from Capital One to your tiny community credit union. At those financial firms are servers full of records: records of your loan, records of your payments. Unless your bank's technology people are really, really stupid, and grossly irresponsible, those records are backed up, on site and off site.
And that's just credit cards. Student loans are handled by other, different companies. Car loans. Mortgages. Each market brings new players, who all have their own records you need to wipe.
So you can't take it all out by targeting a single corporation, and you can't take it all out by targeting a single corporation plus its single backup facility. With a very, very elaborate plot -- let's say to hit multiple backup facilities for a major issuer, while also destroying their servers using date-targeted malware that automatically started wiping things the minute you booted up the server after a certain day -- you might be able to seriously annoy a major credit card issuer for a few weeks.
2. Records of debt are also records of payments. Let's say, however, that a big corporation holds all the consumer debt. What that means is that that big corporation owns a ton of banks, and weirdly, runs all their computer systems from a single central system. What happens when you destroy the vulnerable system? Citibank's records are no more. They no longer have any electronic record of your car loan, your credit card, your mortgage. They also have no record of your bank account, of course.
Now, when you got the money for that student loan, that car, that mortgage, you signed a piece of paper. That piece of paper stated that you owed a certain amount of money. You paid that money. Except without your bank records, how do you prove it? Stand by for an exciting game of "prove you own that Camry" with the repo man.
3. Everyone's debt is someone else's saving. But say you managed to actually wipe out the records of all the consumer debt in the country, without touching the bank account database. Even so, you would simultaneously wipe out most of the consumer saving in the country. If you somehow managed to pull it all off, you'd have a nation with almost no debt -- and almost no retirement.
There is almost $12 trillion worth of household debt in this country, far more than the FDIC could possibly insure, and approaching the total GDP of the nation. Not all of it is owed directly to banks, of course. Much of it is securitized (though banks own some of those securities). You know who also buys a lot of debt securities? Institutions: insurers, pension funds, the folks managing the bond funds in your 401(k).
The fun doesn't stop there, because a lot of people hold a lot of their net worth in big assets -- cars, houses. Need to sell those assets? What do you think is the going price for a nice split-level when all the banks just died and mortgage-bond investors are all bankrupt? I guess it's what people can scrape out of their banks accounts, except oops, no one has one, because no banks.
Fundamentally, debt means you get money now by promising to pay later. Savings means you pay money now in exchange for a promise to get money later. Financial institutions are brokers between the folks who want money now, and the folks who want money later. These transactions are at least as much about smoothing consumption between young and old as they are about transferring wealth between rich and poor.
You cannot wipe out one side of the transaction, or the financial institution, without also destroying people who are expecting something to live on in retirement. And there is no way to just target the debt which is held by big rich people -- if for no other reason than that many of those big rich people have also promised to pay someone in the future, and that someone might be you.
4. Guess who's on the hook for a whole lot of those loans if they go poof? Student loans are guaranteed by the government (and now usually made directly by the government). Bank accounts are guaranteed the government. Various sorts of mortgages are guaranteed by the government. Guess who guarantees the government? That's right, you, Joe Taxpayer. And no, it's not all coming out of the pockets of the rich, because you just made them poor, remember? Congratulations, your student loan just evaporated, and your tax bill just doubled.
Does any of this naysaying mean you shouldn't watch "Mr. Robot"? Not at all! I'm enjoying it very much, though I would have liked to see some character point out the fundamental connections of the banking system that make it difficult to help the little guy without hurting some different, equally little guy. But hey, it's a caper. I also don't believe in giant tunneling machines triggering earthquakes on demand, but that didn't stop me from (spoiler alert!) enjoying "Ocean's Thirteen."
Outside of the fun, imaginary world of television, it's important for people to understand those connections. The fact that we usually don't drives a lot of stupid talk about policy. Everyone hates debt, but everyone wants money in the bank. Everyone hates big corporations, but everyone wants the pension funds and 401(k)s that hold their corporate stock to deliver us tidy checks when we're too old to work. Which is to say that everyone wants to go to heaven, but nobody wants to die. And if you try to engineer the transition without understanding the other side of the equation, you may just end up in hell.