Tag: Republish

Debt Ceiling Crisis Versus Partisan Politics

Posted on by phoffman@channelchek.com
Image Credit: The White House

Can Biden and McCarthy Avert a Calamitous Debt Default? Three Evidence-Backed Leadership Strategies that Might Help

The U.S. is teetering toward an unprecedented debt default that could come as soon as June 1, 2023.

In order for the U.S. to borrow more money, Congress needs to raise the debt ceiling – currently $31.4 trillion. President Joe Biden has refused to negotiate with House Republicans over spending, demanding instead that Congress pass a stand-alone bill to increase the debt limit. House Speaker Kevin McCarthy won a small victory on April 26 by narrowly passing a more complex bill with GOP support that would raise the debt ceiling but also slash spending and roll back Biden’s policy agenda.

Biden recently invited congressional leaders, including GOP leader McCarthy, to the White House on May 9 to discuss the situation but insisted he isn’t willing to negotiate.

Rather than leading the nation, Biden and McCarthy seem to be waging a partisan political war. Biden likely doesn’t want to be seen as giving in to Repubicans’ demands and diminishing legislative wins for his liberal constituency. McCarthy, with his slim majority in the House, needs to appease even the most hard-line members of his party.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Wendy K. Smith, Professor of Business and Leadership, University of Delaware.

Having studied leadership for over 25 years, I would suggest that their leadership styles are polarized, oppositional, short-term and highly ineffective. Such combative leadership risks a debt default that could send the U.S. into recession and potentially lead to a global economic and financial crisis.

While it may seem almost impossible in the current political climate, Biden and McCarthy have an opportunity to turn around this crisis and leave a positive and lasting legacy of courageous leadership. To do so, they need to put aside partisanship and adopt a different approach. Here are a few evidence-backed strategies to get them started.

Moving From a Zero-Sum Game to a More Holistic Approach

Political leaders often risk being hijacked by members of their own party. McCarthy faces a direct threat by hard-line conservative members of his coalition.

For example, back in January, McCarthy agreed to let a single lawmaker force a vote for his ouster to win enough votes from ultraconservative lawmakers to become speaker. That and other concessions give the most extreme members of his party a lot of control over his agenda and limit McCarthy’s ability to make a compromise deal with the president.

Biden, who just announced he’s running for reelection in 2024, is betting his first-term accomplishments – such as unprecedented climate investments and student loan forgiveness – will help him keep the White House. Negotiating any of that away could cost him the support of key parts of his base.

My research partner Marianne W. Lewis and I label this kind of short-term, one-sided leadership as “either/or” thinking. That is, this approach assumes that leadership decisions are a zero-sum game – every inch you give is a loss to your side. We argue that this kind of leadership is limited at best and detrimental at worst.

Instead, we find that great leadership involves what we call “both/and” thinking, which involves seeking integration and unity across opposing perspectives. History offers examples of how this more holistic leadership style has achieved substantial achievements.

President Lyndon B. Johnson and fellow Democrats were struggling to get a Senate vote on the Civil Rights Act of 1964 and needed Republican support. Despite his initial opposition, Republican Sen. Everett McKinley Dirksen – then the minority leader and a staunch conservative – led colleagues in crossing party lines and joining Democrats to pass the historic legislation.

Another example came in 1990, when South Africa’s then-President Frederik Willem de Klerk freed opponent Nelson Mandela from prison. The two erstwhile political enemies agreed to a deal that ended apartheid and paved the way for a democratic government – which won them both the Nobel Peace Prize. Mandela became president four years later.

This integrative leadership approach starts with a shift of mindset that moves away from seeing opposing sides as conflicting and instead values them as generative of new possibilities. So in the case of the debt ceiling situation, holistic leadership means, at the least, Biden would not simply put up his hands and refuse to negotiate over spending. He could acknowledge that Republicans have a point about the nation’s soaring debt load. McCarthy and his party might recognize they cannot just slash spending. Together they could achieve greater success by developing an integrative plan that cuts costs, increases taxes and raises the debt ceiling.

Champion a Long-Term Vision Over Short-Term Goals

What we call “short-termism” plagues America’s politics. Leaders face pressure to demonstrate immediate results to voters. Biden and McCarthy both have strong incentives to focus on a short-term victory for their side with the presidential and congressional elections coming soon. Instead, long-term thinking can help leaders with competing agendas.

In a 2015 study, Natalie Slawinski and Pratima Bansal studied executives at five Canadian oil companies who were dealing with tensions between keeping costs low in the short term while making investments that could mitigate their industry’s environmental impact over the long run. The two scholars found that those who focused on the short term struggled to reconcile the two competing forces, while long-term thinkers managed to find more creative solutions that kept costs down but also allowed them to do more to fight climate change.

Likewise, if Biden and McCarthy want to avert a financial crisis and leave a lasting legacy, they would benefit from focusing on the long term. Finding points of connection in this shared long-term goal, rather than stressing their significant differences about how to get there, can help shift away from their standoff and toward a solution.

Be Adaptive, Not Assured

Voters often praise political leaders who act swiftly and with confidence and self-assurance, particularly at a moment of economic uncertainty.

Yet finding a creative solution to America’s greatest challenges often requires leaders to put aside the swagger and adapt, meaning they take small steps to listen to one another, experiment with solutions, evaluate these outcomes and adjust their approach as needed.

In a study of business decisions at a Fortune 500 technology company, I spent a year following the senior management teams in charge of six units – each of which had revenues of over $1 billion. I found that the team leaders who were most innovative tended to be good at adaptation. They constantly explored whether they had made the right investment and made changes if needed.

Small steps are also necessary to build unlikely relationships with political foes. In his 2017 book, “Collaborating With the Enemy,” organizational consultant Adam Kahane describes how he facilitated workshops to help former enemies take small steps toward reconciliation, such as in South Africa at the end of apartheid and in Colombia amid the drug wars. Such efforts helped South Africa become a successful multiracial democracy and Colombia end decades of war with a guerrilla insurgency.

This kind of leadership requires small steps toward connection rather than large political leaps. It also requires that both sides let go of their positions and consider where they are willing to compromise.

Biden and McCarthy could learn from two former Tennessee governors, Democrat Phil Bredesen and Republican Bill Haslam. Though they oppose each other on almost every political issue, including gun control, the two former leaders have built a constructive relationship over the years. Rather than tackle the big divisive issues, they started with identifying the small points where they agreed with each other. Doing so led them to build greater trust and continue to look for connections.

So when a gunman killed six people at a school in Nashville recently, the two former governors were able to move beyond political finger-pointing and focus on how their respective parties could work together on meaningful gun reform.

Of course, it’s easier to do this once you’re out of office and the pressure from voters and parties goes away. And although current Tennessee Gov. Bill Lee agreed on the need for gun reform, his fellow Republicans in the state Legislature balked.

A Long Shot, But …

And that’s why I know this is a long shot. The two main political parties are as polarized as ever. The odds of a breakthrough that leads to anything more than a last-second deal that kicks the debt ceiling can down the road remain pretty low – and even that seems in doubt.

But this is about more than the debt ceiling. The U.S. faces a long list of problems big and small, from high inflation and a banking crisis to the war in Ukraine and climate change.

Americans need and deserve leaders who will tackle these issues by working together toward a more creative outcomes.

Which Other Banks Could Wipeout?

Posted on by phoffman@channelchek.com
Image Credit: Hellinahandbasket (Flickr)

Well Known Banks that May be Secretly Insolvent

The taming of monetary policy necessary to slow price inflation has triggered a corrective trend in the valuation of financial instruments. Many big banks in the United States have substantially increased their use of an accounting technique that allows them to avoid marking certain assets at their current market value, instead using the face value in their balance sheet calculations. This accounting technique consists of announcing that they intend to hold such assets to maturity.

As of the end of 2022, the bank with the largest amount of assets marked as “held to maturity” relative to capital was Charles Schwab. Apart from being structured as a bank, Charles Schwab is a prominent stockbroker and owns TD Ameritrade, another prominent stockbroker. Charles Schwab had over $173 billion in assets marked as “held to maturity.” Its capital (assets minus liabilities) stood at under $37 billion. At that time, the difference between the market value and face value of assets held to maturity was over $14 billion.

If the accounting technique had not been used the capital would have stood at around $23 billion. This amount is under half the $56 billion Charles Schwab had in capital at the end of 2021. This is also under 15 percent of the amount of assets held to maturity, under 10 percent of securities, and under 5 percent of total assets. An asset ten years from maturity is reduced in present value by 15 percent with a 3 percent increase in the interest rate. An asset twenty years from maturity is reduced in present value by 15 percent with a 1.5 percent increase in the interest rate.

The interest rates for long-term financial instruments have remained relatively stable throughout the first quarter of 2023, but this may be subject to change as many of the long-term assets of recently failed Silicon Valley Bank and Signature Bank must be sold off for the Federal Deposit Insurance Corporation to replenish its liquidity. The long-term interest rate is also heavily dependent on inflation expectations, as with higher inflation a higher nominal rate is necessary to obtain the same real rate. It is also important to remember that the US Congress has persisted in not raising the debt ceiling for the government, which is currently projected to not be able to meet all its obligations by August. This could impact the value of treasuries held by the banks.

Other banks that may be close to an effective insolvency include the Bank of Hawaii and the Banco Popular de Puerto Rico (BPPR). The Bank of Hawaii’s hypothetical shortfall as of the end of 2022 already exceeded 60 percent of its capital. The BPPR has over double its capital in assets held to maturity. All three banks—Bank of Hawaii, BPPR, and Charles Schwab—have lost between one-third and one-half of their market capitalization over the last month.

It is difficult to say with certainty whether they are indeed secretly close to insolvency as they may have some form of insurance that could absorb some of the impact from a loss of value in their assets, but if this were the case it is not clear why they would need to employ this questionable accounting technique so heavily. The risk of insolvency is currently the highest it’s been in over a decade.

Central banks can solve liquidity problems while continuing to raise interest rates and fight price inflation, but they cannot solve solvency problems without pivoting monetary policy or through blatant bailouts, which could increase inflation expectations, exacerbating the problem of decreasing valuations of long-term assets. In the end, the Federal Reserve might find that the most effective way to preserve the entire system is to let the weakest fail.

The Coming War Between AI Generated Spam and Junk Mail Filters

Posted on by phoffman@channelchek.com
Image Credit: This is Engineering (Pexels)

AI-Generated Spam May Soon Be Flooding Your Inbox – It Will Be Personalized to Be Especially Persuasive

Each day, messages from Nigerian princes, peddlers of wonder drugs and promoters of can’t-miss investments choke email inboxes. Improvements to spam filters only seem to inspire new techniques to break through the protections.

Now, the arms race between spam blockers and spam senders is about to escalate with the emergence of a new weapon: generative artificial intelligence. With recent advances in AI made famous by ChatGPT, spammers could have new tools to evade filters, grab people’s attention and convince them to click, buy or give up personal information.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of John Licato, Assistant Professor of Computer Science and Director of AMHR Lab, University of South Florida.

As director of the Advancing Human and Machine Reasoning lab at the University of South Florida, I research the intersection of artificial intelligence, natural language processing and human reasoning. I have studied how AI can learn the individual preferences, beliefs and personality quirks of people.

This can be used to better understand how to interact with people, help them learn or provide them with helpful suggestions. But this also means you should brace for smarter spam that knows your weak spots – and can use them against you.

Spam, Spam, Spam

So, what is spam?

Spam is defined as unsolicited commercial emails sent by an unknown entity. The term is sometimes extended to text messages, direct messages on social media and fake reviews on products. Spammers want to nudge you toward action: buying something, clicking on phishing links, installing malware or changing views.

Spam is profitable. One email blast can make US$1,000 in only a few hours, costing spammers only a few dollars – excluding initial setup. An online pharmaceutical spam campaign might generate around $7,000 per day.

Legitimate advertisers also want to nudge you to action – buying their products, taking their surveys, signing up for newsletters – but whereas a marketer email may link to an established company website and contain an unsubscribe option in accordance with federal regulations, a spam email may not.

Spammers also lack access to mailing lists that users signed up for. Instead, spammers utilize counter-intuitive strategies such as the “Nigerian prince” scam, in which a Nigerian prince claims to need your help to unlock an absurd amount of money, promising to reward you nicely. Savvy digital natives immediately dismiss such pleas, but the absurdity of the request may actually select for naïveté or advanced age, filtering for those most likely to fall for the scams.

Advances in AI, however, mean spammers might not have to rely on such hit-or-miss approaches. AI could allow them to target individuals and make their messages more persuasive based on easily accessible information, such as social media posts.

Future of Spam

Chances are you’ve heard about the advances in generative large language models like ChatGPT. The task these generative LLMs perform is deceptively simple: given a text sequence, predict which token – think of this as a part of a word – comes next. Then, predict which token comes after that. And so on, over and over.

Somehow, training on that task alone, when done with enough text on a large enough LLM, seems to be enough to imbue these models with the ability to perform surprisingly well on a lot of other tasks.

Multiple ways to use the technology have already emerged, showcasing the technology’s ability to quickly adapt to, and learn about, individuals. For example, LLMs can write full emails in your writing style, given only a few examples of how you write. And there’s the classic example – now over a decade old – of Target figuring out a customer was pregnant before her father knew.

Spammers and marketers alike would benefit from being able to predict more about individuals with less data. Given your LinkedIn page, a few posts and a profile image or two, LLM-armed spammers might make reasonably accurate guesses about your political leanings, marital status or life priorities.

Our research showed that LLMs could be used to predict which word an individual will say next with a degree of accuracy far surpassing other AI approaches, in a word-generation task called the semantic fluency task. We also showed that LLMs can take certain types of questions from tests of reasoning abilities and predict how people will respond to that question. This suggests that LLMs already have some knowledge of what typical human reasoning ability looks like.

If spammers make it past initial filters and get you to read an email, click a link or even engage in conversation, their ability to apply customized persuasion increases dramatically. Here again, LLMs can change the game. Early results suggest that LLMs can be used to argue persuasively on topics ranging from politics to public health policy.

Good for the Gander

AI, however, doesn’t favor one side or the other. Spam filters also should benefit from advances in AI, allowing them to erect new barriers to unwanted emails.

Spammers often try to trick filters with special characters, misspelled words or hidden text, relying on the human propensity to forgive small text anomalies – for example, “c1îck h.ere n0w.” But as AI gets better at understanding spam messages, filters could get better at identifying and blocking unwanted spam – and maybe even letting through wanted spam, such as marketing email you’ve explicitly signed up for. Imagine a filter that predicts whether you’d want to read an email before you even read it.

Despite growing concerns about AI – as evidenced by Tesla, SpaceX and Twitter CEO Elon Musk, Apple founder Steve Wozniak and other tech leaders calling for a pause in AI development – a lot of good could come from advances in the technology. AI can help us understand how weaknesses in human reasoning might be exploited by bad actors and come up with ways to counter malevolent activities.

All new technologies can result in both wonder and danger. The difference lies in who creates and controls the tools, and how they are used.

Artificial Intelligence, Speculation, and ‘Technical Debt’

Posted on by aweinsoff@channelchek.com
Image Credit: Focal Foto (Flickr)

AI Has Social Consequences, But Who Pays the Price?

As public concern about the ethical and social implications of artificial intelligence keeps growing, it might seem like it’s time to slow down. But inside tech companies themselves, the sentiment is quite the opposite. As Big Tech’s AI race heats up, it would be an “absolutely fatal error in this moment to worry about things that can be fixed later,” a Microsoft executive wrote in an internal email about generative AI, as The New York Times reported.

In other words, it’s time to “move fast and break things,” to quote Mark Zuckerberg’s old motto. Of course, when you break things, you might have to fix them later – at a cost.

In software development, the term “technical debt” refers to the implied cost of making future fixes as a consequence of choosing faster, less careful solutions now. Rushing to market can mean releasing software that isn’t ready, knowing that once it does hit the market, you’ll find out what the bugs are and can hopefully fix them then.

However, negative news stories about generative AI tend not to be about these kinds of bugs. Instead, much of the concern is about AI systems amplifying harmful biases and stereotypes and students using AI deceptively. We hear about privacy concerns, people being fooled by misinformation, labor exploitation and fears about how quickly human jobs may be replaced, to name a few. These problems are not software glitches. Realizing that a technology reinforces oppression or bias is very different from learning that a button on a website doesn’t work.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Casey Fiesler, Associate Professor of Information Science, University of Colorado Boulder.

As a technology ethics educator and researcher, I have thought a lot about these kinds of “bugs.” What’s accruing here is not just technical debt, but ethical debt. Just as technical debt can result from limited testing during the development process, ethical debt results from not considering possible negative consequences or societal harms. And with ethical debt in particular, the people who incur it are rarely the people who pay for it in the end.

Off to the Races

As soon as OpenAI’s ChatGPT was released in November 2022, the starter pistol for today’s AI race, I imagined the debt ledger starting to fill.

Within months, Google and Microsoft released their own generative AI programs, which seemed rushed to market in an effort to keep up. Google’s stock prices fell when its chatbot Bard confidently supplied a wrong answer during the company’s own demo. One might expect Microsoft to be particularly cautious when it comes to chatbots, considering Tay, its Twitter-based bot that was almost immediately shut down in 2016 after spouting misogynist and white supremacist talking points. Yet early conversations with the AI-powered Bing left some users unsettled, and it has repeated known misinformation.

When the social debt of these rushed releases comes due, I expect that we will hear mention of unintended or unanticipated consequences. After all, even with ethical guidelines in place, it’s not as if OpenAI, Microsoft or Google can see the future. How can someone know what societal problems might emerge before the technology is even fully developed?

The root of this dilemma is uncertainty, which is a common side effect of many technological revolutions, but magnified in the case of artificial intelligence. After all, part of the point of AI is that its actions are not known in advance. AI may not be designed to produce negative consequences, but it is designed to produce the unforeseen.

However, it is disingenuous to suggest that technologists cannot accurately speculate about what many of these consequences might be. By now, there have been countless examples of how AI can reproduce bias and exacerbate social inequities, but these problems are rarely publicly identified by tech companies themselves. It was external researchers who found racial bias in widely used commercial facial analysis systems, for example, and in a medical risk prediction algorithm that was being applied to around 200 million Americans. Academics and advocacy or research organizations like the Algorithmic Justice League and the Distributed AI Research Institute are doing much of this work: identifying harms after the fact. And this pattern doesn’t seem likely to change if companies keep firing ethicists.

Speculating – Responsibly

I sometimes describe myself as a technology optimist who thinks and prepares like a pessimist. The only way to decrease ethical debt is to take the time to think ahead about things that might go wrong – but this is not something that technologists are necessarily taught to do.

Scientist and iconic science fiction writer Isaac Asimov once said that sci-fi authors “foresee the inevitable, and although problems and catastrophes may be inevitable, solutions are not.” Of course, science fiction writers do not tend to be tasked with developing these solutions – but right now, the technologists developing AI are.

So how can AI designers learn to think more like science fiction writers? One of my current research projects focuses on developing ways to support this process of ethical speculation. I don’t mean designing with far-off robot wars in mind; I mean the ability to consider future consequences at all, including in the very near future.

This is a topic I’ve been exploring in my teaching for some time, encouraging students to think through the ethical implications of sci-fi technology in order to prepare them to do the same with technology they might create. One exercise I developed is called the Black Mirror Writers Room, where students speculate about possible negative consequences of technology like social media algorithms and self-driving cars. Often these discussions are based on patterns from the past or the potential for bad actors.

Ph.D. candidate Shamika Klassen and I evaluated this teaching exercise in a research study and found that there are pedagogical benefits to encouraging computing students to imagine what might go wrong in the future – and then brainstorm about how we might avoid that future in the first place.

However, the purpose isn’t to prepare students for those far-flung futures; it is to teach speculation as a skill that can be applied immediately. This skill is especially important for helping students imagine harm to other people, since technological harms often disproportionately impact marginalized groups that are underrepresented in computing professions. The next steps for my research are to translate these ethical speculation strategies for real-world technology design teams.

Time to Hit Pause?

In March 2023, an open letter with thousands of signatures advocated for pausing training AI systems more powerful than GPT-4. Unchecked, AI development “might eventually outnumber, outsmart, obsolete and replace us,” or even cause a “loss of control of our civilization,” its writers warned.

As critiques of the letter point out, this focus on hypothetical risks ignores actual harms happening today. Nevertheless, I think there is little disagreement among AI ethicists that AI development needs to slow down – that developers throwing up their hands and citing “unintended consequences” is not going to cut it.

We are only a few months into the “AI race” picking up significant speed, and I think it’s already clear that ethical considerations are being left in the dust. But the debt will come due eventually – and history suggests that Big Tech executives and investors may not be the ones paying for it.

Higher Metals Prices May Escalate Mining M&A Activity

Posted on by phoffman@channelchek.com

Is This The Start Of A New Golden Age Of Gold Mining Deals?

We may be about to enter a new golden age of gold mining deals as explorers and producers seek to capitalize on higher metal prices and gain exposure to other key minerals, including copper, at a time when consolidation in the gold industry vastly trails that of other metals.

Last week, major U.S. gold producer Newmont raised its bid for Australian rival Newcrest Mining to $19.5 billion after its earlier bid of $17 billion was rejected. Due diligence is expected to take around four weeks, and if Newcrest’s board and shareholders accept the offer, the acquisition would represent one of the top 10 biggest metal deals ever and the single biggest gold mining takeover, nearly twice the value of last year’s merger between Kirkland Lake and Agnico Eagle.

(A note about the chart above: Just today, Teck Resources rejected Glencore’s $23 billion takeover bid, calling it “opportunistic and unrealistic.” Vancouver-based Teck says it will proceed with plans to spin off its steelmaking coal business, creating two new companies: Teck Metals and Elk Valley Resources. This separation “creates a significantly greater spectrum of opportunities to maximize value for Teck shareholders” compared to an acquisition by Glencore, says Teck’s Board of Directors Chair Sheila Murray.)

This article was republished with permission from Frank Talk, a CEO Blog by Frank Holmes

of U.S. Global Investors (GROW).

Time will tell if Newcrest approves of Newmont’s offer, but I believe this could be the start of a much-needed consolidation cycle in the gold industry, one that could potentially benefit shareholders.

Gold Is One Of The Most Fragmented Gold Mining Industries

Back in 2019, many analysts and market participants—myself included—heralded Newmont and Goldcorp’s $9.3 billion merger as the beginning of a new era of gold consolidation, and I believe the Newmont-Newcrest deal could serve as a (delayed) continuation of the trend.

The truth is that, compared to other important metals, gold is sorely in need of consolidation. The chart below, courtesy of metals and mining consultancy firm CRU Group, shows the global share of output from each metal’s top 10 producers. Gold is at the bottom, with its top 10 producers responsible for only 28% of global output. By comparison, the top 10 iron ore producers generate nearly 70% of the world’s supply.

Higher gold prices in recent years have not resulted in significantly increased exploration spending. In lieu of that, companies can expand and create shareholder value through mergers and acquisitions (M&A), which allow miners to “increase their production share, replenish depleting gold reserves and… lower production costs through relatively less risk,” writes CRU analysts.

Copper To Face Ongoing Supply Deficits

M&A can also result in metal diversification—one of Newmont’s stated goals in acquiring Newcrest. Copper currently accounts for roughly 25% of Newcrest’s total net revenue, and the company hopes to increase it to 50% of revenue by the end of the decade. As one of the key minerals in the global transition to renewable energy, copper is poised to surge in price in the coming years as demand far outpaces supply.

In fact, copper mining deals exceeded gold mining deals in total value last year, according to a new report by S&P Global. M&A work among copper companies in 2022 totaled more than $14 billion in value, a 103% jump over the previous year, while the combined value of gold deals stood at $9.8 billion, a 48% decrease from 2021.

US Global Investors Disclaimer

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE. Effective 8/31/2018, Frank Holmes serves as the interim executive chairman of HIVE.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/2021): Torex Gold Resources Inc., Centerra Gold Inc., Gran Colombia Gold Corp., Dundee Precious Metals Inc., Pretium Resources Inc., Endeavour Mining PLC, Barrick Gold Corp., Eldorado Gold Corp., SSR Mining Inc., Silver Lake Resources Ltd., Karora Resources Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

 Will the Binance Legal Action Crown the CFTC as the Crypto-Police

Posted on by phoffman@channelchek.com
Image Credit: CoinDesk (Flickr)

What Binance’s US Lawsuit Says About the Future for Cryptocurrency Regulation

The world’s largest cryptocurrency exchange, Binance, has been hit with a lawsuit by US regulator the Commodity Futures Trading Commission (CFTC). This is not the first time a cryptocurrency exchange has been charged by a regulator. But this particular case involves a regulator that does not directly oversee cryptocurrencies. This indicates how regulators – particularly those in the US – hope to clamp down on the cryptocurrency industry.

The CFTC’s lawsuit alleges that Binance violated US derivatives laws by offering its derivative trading services to US customers without registering with the right market regulators. It says Binance has prioritised commercial success over regulatory compliance.

The CFTC has also levied charges against Binance’s founder and CEO, Changpeng Zhao (known as CZ) and former chief compliance officer Samuel Lim. They are charged with taking steps to violate US laws, including directing US-based “VIP customers” to open Binance accounts under the name of shell companies. The regulator has pointed to chat messages as evidence of CZ and Sim’s knowledge of various criminal groups using the exchange.

People visit Binance nearly 15 million times a week to trade on the over 300 cryptocurrencies it offers in more than 1,600 different markets. CZ is an outspoken advocate for cryptocurrencies and regularly tweets about the industry and his company. He even tweeted a link to his initial response to the recent CFTC charges, which he called “unexpected and disappointing”. Promising full responses in due time, he said:

Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint.

Last year CZ’s tweets arguably contributed to the collapse of FTX, one of his company’s main rivals. Binance saw its market share grow following FTX’s collapse.

So, this charge – against not only a crypto giant but also the company of an outspoken industry advocate – has created further upheaval in a market that has already suffered multiple crises in the last year. Investors withdrew a reported US$1.6 billion (£1.3 billion) from Binance within days of the CFTC’s announcement of its charges. These outflows could continue if US regulators tighten their squeeze on crypto companies further, causing major players like Binance to shift focus to other jurisdictions.

Creeping Oversight

The CFTC aims to “protect the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets”. Previous actions by this regulator in 2021 against Tether and Bitfinex resulted in major fines and a loss of credibility for the crypto industry.

But a statement published at the time by one of the CFTC’s five commissioners, Dawn Stump, pointed out that the CFTC doesn’t actually have responsibility for regulating cryptocurrencies. She warned that these fines might “cause confusion about the CFTC’s role in this area”. She said the action was based on defining stablecoins (a type of cryptocurrency) as a commodity, but: “we should seek to ensure the public understands that we do not regulate stablecoins and we do not have daily insight into the businesses of those who issue such”.

These latest charges against Binance focus on its activities in derivatives – financial contracts that are linked to the value of an asset such as oil or, in this case, cryptocurrencies. This is a market the CFTC does regulate.

Another US financial regulator, the Securities and Exchange Commission (SEC), has also been ramping up its crypto oversight activities. As well as focusing on the Initial Coin Offering market, it saw a 50% increase in enforcement actions against digital asset companies last year compared to 2021.

Crypto Market Changes

So, Binance is up against two powerful US financial regulators. Some experts have warned that “significant regulatory action could prompt Binance to increasingly shift its business operations beyond the United States”. Certainly, the fact that Binance held a 92% share of the crypto market at the end of 2022 means it facilitates many transactions and offers a lot of liquidity to traders around the world, including in the US.

A trader’s capacity to find competitive prices when buying and selling, as well as sources of liquidity (or other people to trade with) would be affected by the loss of or pull back of one of the world’s top ten crypto exchanges. This would be bad news for retail and institutional investors who could be confronted with a smaller and potentially more expensive market as a result.

And even if the complaints and investigations by the CFTC and SEC take a while to conclude, as is likely, the US legislature may step in before that. A report published by the Financial Times days after the CFTC announcement alleges that Binance has hidden links to China for many years. A statement issued by the the exchange to the FT said this is not “an accurate picture of Binance’s operations” and that the paper’s sources were “citing ancient history (in crypto terms)”.

But recent actions against Chinese tech company Huawei and social media platform Tiktok indicate political leaders are keen to crack down on Chinese companies’ access to US technology systems and customer data. So any similar concerns could lead US politicians to start acting in this area as well.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Andrew Urquhart, Professor of Finance & Financial Technology, ICMA Centre, Henley Business School, University of Reading and Hossein Jahanshahloo, Assistant Professor in Finance, Cardiff University.

New Nanoparticles Can Perform Gene Editing in the Lungs

Posted on by phoffman@channelchek.com

Inhalation of Messenger RNA to Treat Lung Diseases

Anne Trafton | MIT News Office

Engineers at MIT and the University of Massachusetts Medical School have designed a new type of nanoparticle that can be administered to the lungs, where it can deliver messenger RNA encoding useful proteins.

With further development, these particles could offer an inhalable treatment for cystic fibrosis and other diseases of the lung, the researchers say.

“This is the first demonstration of highly efficient delivery of RNA to the lungs in mice. We are hopeful that it can be used to treat or repair a range of genetic diseases, including cystic fibrosis,” says Daniel Anderson, a professor in MIT’s Department of Chemical Engineering and a member of MIT’s Koch Institute for Integrative Cancer Research and Institute for Medical Engineering and Science (IMES).

In a study of mice, Anderson and his colleagues used the particles to deliver mRNA encoding the machinery needed for CRISPR/Cas9 gene editing. That could open the door to designing therapeutic nanoparticles that can snip out and replace disease-causing genes.

The senior authors of the study, which appears today in Nature Biotechnology, are Anderson; Robert Langer, the David H. Koch Institute Professor at MIT; and Wen Xue, an associate professor at the UMass Medical School RNA Therapeutics Institute. Bowen Li, a former MIT postdoc who is now an assistant professor at the University of Toronto; Rajith Singh Manan, an MIT postdoc; and Shun-Qing Liang, a postdoc at UMass Medical School, are paper’s lead authors.

Targeting the Lungs

Messenger RNA holds great potential as a therapeutic for treating a variety of diseases caused by faulty genes. One obstacle to its deployment thus far has been difficulty in delivering it to the right part of the body, without off-target effects. Injected nanoparticles often accumulate in the liver, so several clinical trials evaluating potential mRNA treatments for diseases of the liver are now underway. RNA-based Covid-19 vaccines, which are injected directly into muscle tissue, have also proven effective. In many of those cases, mRNA is encapsulated in a lipid nanoparticle — a fatty sphere that protects mRNA from being broken down prematurely and helps it enter target cells.

Several years ago, Anderson’s lab set out to design particles that would be better able to transfect the epithelial cells that make up most of the lining of the lungs. In 2019, his lab created nanoparticles that could deliver mRNA encoding a bioluminescent protein to lung cells. Those particles were made from polymers instead of lipids, which made them easier to aerosolize for inhalation into the lungs. However, more work is needed on those particles to increase their potency and maximize their usefulness.

In their new study, the researchers set out to develop lipid nanoparticles that could target the lungs. The particles are made up of molecules that contain two parts: a positively charged headgroup and a long lipid tail. The positive charge of the headgroup helps the particles to interact with negatively charged mRNA, and it also help mRNA to escape from the cellular structures that engulf the particles once they enter cells.

The lipid tail structure, meanwhile, helps the particles to pass through the cell membrane. The researchers came up with 10 different chemical structures for the lipid tails, along with 72 different headgroups. By screening different combinations of these structures in mice, the researchers were able to identify those that were most likely to reach the lungs.

Efficient Delivery

In further tests in mice, the researchers showed that they could use the particles to deliver mRNA encoding CRISPR/Cas9 components designed to cut out a stop signal that was genetically encoded into the animals’ lung cells. When that stop signal is removed, a gene for a fluorescent protein turns on. Measuring this fluorescent signal allows the researchers to determine what percentage of the cells successfully expressed the mRNA.

After one dose of mRNA, about 40 percent of lung epithelial cells were transfected, the researchers found. Two doses brought the level to more than 50 percent, and three doses up to 60 percent. The most important targets for treating lung disease are two types of epithelial cells called club cells and ciliated cells, and each of these was transfected at about 15 percent.

“This means that the cells we were able to edit are really the cells of interest for lung disease,” Li says. “This lipid can enable us to deliver mRNA to the lung much more efficiently than any other delivery system that has been reported so far.”

The new particles also break down quickly, allowing them to be cleared from the lung within a few days and reducing the risk of inflammation. The particles could also be delivered multiple times to the same patient if repeat doses are needed. This gives them an advantage over another approach to delivering mRNA, which uses a modified version of harmless adenoviruses. Those viruses are very effective at delivering RNA but can’t be given repeatedly because they induce an immune response in the host.

“This achievement paves the way for promising therapeutic lung gene delivery applications for various lung diseases,” says Dan Peer, director of the Laboratory of Precision NanoMedicine at Tel Aviv University, who was not involved in the study. “This platform holds several advantages compared to conventional vaccines and therapies, including that it’s cell-free, enables rapid manufacturing, and has high versatility and a favorable safety profile.”

To deliver the particles in this study, the researchers used a method called intratracheal instillation, which is often used as a way to model delivery of medication to the lungs. They are now working on making their nanoparticles more stable, so they could be aerosolized and inhaled using a nebulizer.

The researchers also plan to test the particles to deliver mRNA that could correct the genetic mutation found in the gene that causes cystic fibrosis, in a mouse model of the disease. They also hope to develop treatments for other lung diseases, such as idiopathic pulmonary fibrosis, as well as mRNA vaccines that could be delivered directly to the lungs.

The research was funded by Translate Bio, the National Institutes of Health, the Leslie Dan Faculty of Pharmacy startup fund, a PRiME Postdoctoral Fellowship from the University of Toronto, the American Cancer Society, and the Cystic Fibrosis Foundation.

Reprinted with permission from MIT News ( http://news.mit.edu/ )

Gold in the Face of a Multipolar World Order

Posted on by phoffman@channelchek.com

Petrodollar Dusk, Petroyuan Dawn: What Investors Need To Know

While most investors were trying to gauge the Federal Reserve’s next moves in light of recent bank failures last week, something interesting happened in Moscow.

During a three-day state visit, Chinese President Xi Jinping held friendly talks with Russian President Vladimir Putin in a show of unity, as both countries increasingly seek to position themselves as leaders of what they call a “multipolar world order,” one that challenges U.S.-centric alliances and agreements.

Among those agreements is the petrodollar, which has been in place for over 50 years. 

In case you’re wondering, “petrodollars” are not a real currency. They’re simply dollars being used to trade oil. Early in the 1970s, the U.S. government provided economic aid to Saudi Arabia, its chief oil-producing rival, in exchange for assurances that Riyadh would price its crude exports exclusively in the U.S. dollar. In 1975, other members of the Organization of Petroleum Exporting Countries (OPEC) followed suit, and the petrodollar was born.

This had the immediate effect of strengthening the U.S. dollar. Since countries around the world had to have dollars on hand in order to buy oil (and other key commodities such as gold, also priced in dollars), the greenback became the world’s reserve currency, a status formerly enjoyed by the British pound, French franc and Dutch guilder.

All things must come to an end, however. We may be witnessing the end of the petrodollar as more and more countries, including China and Russia, are agreeing to make settlements in currencies other than the U.S. dollar. This could have wide-ranging implications on not just a macro scale but also investment portfolios.

This article was republished with permission from Frank Talk, a CEO Blog by Frank Holmes of U.S. Global Investors (GROW). Find more of Frank’s articles here – Originally published March 27, 2023

Dawn For The Petroyuan?

Putin couldn’t have been more explicit. During Xi’s state visit, he named the Chinese yuan as his favored currency to conduct trade in. Ever since Western sanctions were levied on the Eastern European country for its invasion of Ukraine early last year, Russia has increasingly depended on its southern neighbor to buy the oil other countries won’t touch. 

In just the first two months of 2023, China’s imports from Russia totaled $9.3 billion, exceeding full-year 2022 imports in dollar terms. In February alone, China imported over 2 million barrels of Russian crude, a new record high.

Except that now, the yuan is presumably being used to make these settlements.

As Zoltar Pozsar, New York-based economist and investment research director at Credit Suisse, put it recently: “That’s dusk for the petrodollar… and dawn for the petroyuan.”

U.S. Dollar Still The World’s Reserve Currency, But Its Dominance Is Slipping

Before you dismiss Pozsar’s comment as an exaggeration, consider that other major OPEC nations and BRICS members (Brazil, Russia, India, China and South Africa) are either accepting yuan already or strongly considering it. Russia, Iran and Venezuela account for about 40% of the world’s proven oilfields, and the three sell their oil in exchange for yuan. Turkey, Argentina, Indonesia and heavyweight oil producer Saudi Arabia have all applied for admittance into BRICS, while Egypt became a new member this week.

What this suggests is that the yuan’s role as a reserve currency will continue to strengthen, signifying a broader shift in the global power balance and potentially giving China a bigger hand with which to shape economic policies that affect us all.

To be clear, the U.S. dollar remains the world’s top reserve currency for now, though its share of global central banks’ official holdings has slipped in the past 20 years, from 72% in 2001 to just under 60% today. By contrast, the yuan’s share of official holdings has more than doubled since 2016. The Chinese currency accounted for about 2.8% of reserves as of September 2022. 

Russia Diversifying Away From The Dollar By Loading Up On Gold

It’s not all about the yuan, of course. Gold has also increased as a foreign reserve, especially among emerging economies that seek to diversify away from the dollar.

Last week, Russia announced that its bullion holdings jumped by approximately 1 million ounces over the past 12 months as its central bank loaded up on gold in the face of Western sanctions. The bank reported having nearly 75 million ounces at the end of February 2023, up from about 74 million a year earlier.

Long-Term Implications For Investors

The implications of the dollar potentially losing its status as the global reserve are numerous. Obviously, there may be currency risks, and a decrease in demand for U.S. Treasury bonds could result in rising interest rates. I would expect to see massive swings in commodity prices, especially oil prices, which could be an opportunity if you can stomach the volatility.

Gold would look exceptionally attractive, I think. A significant decrease in the relative value of the dollar would be supportive of the gold price, and I would be surprised not to see new highs. It’s for reasons like these that I always recommend a 10% weighting in gold, with 5% in physical bullion and the other 5% in high-quality gold mining equities. Be sure to rebalance at least on an annual basis.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Silicon Valley Technology Added to SVB’s Quick Demise

Posted on by phoffman@channelchek.com

SVB’s Newfangled Failure Fits a Century-Old Pattern of Bank Runs, With a Social Media Twist

The history of bank failures all have a familiar pattern. Based on past history, problems may still bubble up over the coming months. The internet and the ability for online withdrawals could elevate risks to banks. Rodney Ramcharan a Professor of Finance and Business Economics, University of Southern California, points out the similarities, the new challenges and provides his thoughts in his article that has been reprinted with permission from The Conversation.

The failure of Silicon Valley Bank on March 10, 2023, came as a shock to most Americans. Even people like myself, a scholar of the U.S. banking system who has worked at the Federal Reserve, didn’t expect SVB’s collapse.

Usually banks, like all companies, fail after a prolonged period of lackluster performance. But SVB, the nation’s 16th-largest bank, had been stable and highly profitable just a few months before, having earned about US$1.5 billion in profits in the last quarter of 2022.

However, financial history is filled with examples of seemingly stable and profitable banks that unexpectedly failed.

The demise of Lehman Brothers and Bear Stearns, two prominent investment banks, and Countrywide Financial Corp., a subprime mortgage lender, during the 2008-2009 financial crisis; the Savings and Loan banking crisis in the 1980s; and the complete collapse of the U.S. banking system during the Great Depression didn’t unfold in exactly the same way. But they had something in common: An unexpected change in economic conditions created an initial bank failure or two, followed by general panic and then large-scale economic distress.

The main difference this time, in my view, is that modern innovations may have hastened SVB’s demise.

Great Depression

The Great Depression, which lasted from 1929 to 1941, epitomized the public harm that bank runs and financial panic can cause.

Following a rapid expansion of the “Roaring Twenties,” the U.S. economy began to slow in early 1929. The stock market crashed on Oct. 24, 1929 – a date known as “Black Tuesday.”

The massive losses investors suffered weakened the economy and led to distress at some banks. Fearing that they would lose all their money, customers began to withdraw their funds from the weaker banks. Those banks, in turn, began to rapidly sell their loans and other assets to pay their depositors. These rapid sales pushed prices down further.

As this financial crisis spread, depositors with accounts at nearby banks also began queuing up to withdraw all their money, in a quintessential bank run, culminating in the failure of thousands of banks by early 1933. Soon after President Franklin D. Roosevelt’s first inauguration, the federal government resorted to shutting all banks in the country for a whole week.

These failures meant that banks could no longer lend money, which led to more and more problems. The unemployment rate spiked to around 25%, and the economy shrank until the outbreak of World War II.

Determined to avoid a repeat of this debacle, the government tightened banking regulations with the Glass-Steagall Act of 1933. It prohibited commercial banks, which serve consumers and small and medium-size businesses, from engaging in investment banking and created the Federal Deposit Insurance Corporation, which insured deposits up to a certain threshold. That limit has risen sharply over the past 90 years, from $2,500 in 1933 to $250,000 in 2010 – the same limit in place today.

S&L Crisis

The nation’s new and improved banking regulations ushered in a period of relative stability in the banking system that lasted about 50 years.

But in the 1980s, hundreds of the small banks known as savings and loan associations failed. Savings and loans, also called “thrifts,” were generally small local banks that mainly made mortgage loans to households and collected deposits from their local communities.

Beginning in 1979, the Federal Reserve began to hike interest rates very aggressively to fight the high inflation rates that had become entrenched.

By the early 1980s, Congress began allowing banks to pay market interest rates on depositers’ accounts. As a result, the interest rate S&Ls had to pay their customers was much higher than the interest income they were earning on the loans they had made in prior years. That imbalance caused many of them to lose money.

Even though about 1 in 3 S&Ls failed from around 1986 through 1992 – somewhere around 750 banks – most depositors at small S&Ls were protected by the FDIC’s then-$100,000 insurance limit. Ultimately, resolving that crisis cost taxpayers the equivalent of about $250 billion in today’s dollars.

Because the savings and loans industry was not directly connected to the big banks of that era, their collapse did not cause runs at the bigger institutions. Nevertheless, the S&L collapse and the government’s regulatory response did reduce the supply of credit to the economy.

As a result, the U.S. economy underwent a mild recession in the latter half of 1990 and first quarter of 1991. But the banking system escaped further distress for nearly two decades.

Great Recession

Against this backdrop of relative stability, Congress repealed most of Glass-Steagall in 1999 – eliminating Depression-era regulations that restricted the scope of businesses that banks could engage in.

Those changes contributed to what happened when, at the start of a recession that began in December 2007, the entire financial sector suffered a panic.

At that time, large banks, freed from the Depression-era restrictions on securities trading, as well as investment banks, hedge funds and other institutions outside the traditional banking system, had heavily invested in mortgage-backed securities, a kind of bond backed by pooled mortgage payments from lots of homeowners. These bonds were highly profitable amid the housing boom of that era, and they helped many financial institutions reap record profits.

But the Federal Reserve had been increasing interest rates since 2004 to slow the economy. By 2007, many households with adjustable-rate mortgages could no longer afford to make their larger-than-expected home loan payments. That led investors to fear a rash of mortgage defaults, and the values of securities backed by mortgages plunged.

It wasn’t possible to know which investment banks owned a lot of these vulnerable securities. Rather than wait to find out and risk not getting paid, most of the depositors rushed to get their money out by late 2007. This stampede led to cascading failures in 2008 and 2009, and the federal government responded with a series of big bailouts.

The government even bailed out General Motors and Chrysler, two of the country’s three largest automakers, in December 2008 to keep the industry from going bankrupt. That happened because the major car companies relied on the financial system to provide potential car buyers with credit to purchase or lease new cars. But when the financial system collapsed, buyers could no longer obtain credit to finance or lease new vehicles.

The Great Recession lasted until June 2009. Stock prices plummeted by more than 50%, and unemployment peaked at around 10% – the highest rate since the early 1980s.

As with the Great Depression, the government responded to this financial crisis with significant new regulations, including a new law known as the Dodd-Frank Act of 2010. It imposed stringent new requirements on banks with assets above $50 billion.

Close-Knit Customers

Congress rolled back some of Dodd-Frank’s most significant changes only eight years after lawmakers approved the measure.

Notably, the most stringent requirements were now reserved for banks with more than $250 billion in assets, up from $50 billion. That change, which Congress passed in 2018, paved the way for regional banks like SVB to rapidly expand with much less regulatory oversight.

But still, how could SVB collapse so suddenly and without any warning?

Banks take deposits to make loans. But a loan is a long-term contract. Mortgages, for example, can last for 30 years. And deposits can be withdrawn at any time. To reduce their risks, banks can invest in bonds and other securities that they can quickly sell in case they need funds for their customers.

In the case of SVB, the bank invested heavily in U.S. Treasury bonds. Those bonds do not have any default risk, as they are debt issued by the federal government. But their value declines when interest rates rise, as newer bonds pay higher rates compared with the older bonds.

SVB bought a lot of Treasury bonds it had on hand when interest rates were close to zero, but the Fed has been steadily raising interest rates since March 2022, and the yields available for new Treasurys sharply increased over the next 12 months. Some depositors became concerned that SVB might not be able to sell these bonds at a high enough price to repay all its customers.

Unfortunately for SVB, these depositors were very close-knit, with most in the tech sector or startups. They turned to social media, group text messages and other modern forms of rapid communication to share their fears – which quickly went viral.

Many large depositors all rushed at the same time to get their funds out. Unlike what happened nearly a century earlier during the Great Depression, they generally tried to withdraw their money online – without forming chaotic lines at bank branches.

Will More Shoes Drop?

The government allowed SVB, which is being sold to First Citizens Bank, and Signature Bank, a smaller financial institution, to fail. But it agreed to repay all depositors – including those with deposits above the $250,000 limit.

While the authorities have not explicitly guaranteed all deposits in the banking system, I see the bailout of all SVB depositors as a clear signal that the government is prepared to take extraordinary steps to protect deposits in the banking system and prevent an overall panic.

I believe that it is too soon to say whether these measures will work, especially as the Fed is still fighting inflation and raising interest rates. But at this point, major U.S. banks appear safe, though there are growing risks among the smaller regional banks.

Deep Fakes and the Risk of Abuse

Posted on by phoffman@channelchek.com
Image Credit: Steve Juvetson (Flickr)

Watermarking ChatGPT and Other Generative AIs Could Help Protect Against Fraud and Misinformation

Shortly after rumors leaked of former President Donald Trump’s impending indictment, images purporting to show his arrest appeared online. These images looked like news photos, but they were fake. They were created by a generative artificial intelligence system.

Generative AI, in the form of image generators like DALL-E, Midjourney and Stable Diffusion, and text generators like Bard, ChatGPT, Chinchilla and LLaMA, has exploded in the public sphere. By combining clever machine-learning algorithms with billions of pieces of human-generated content, these systems can do anything from create an eerily realistic image from a caption, synthesize a speech in President Joe Biden’s voice, replace one person’s likeness with another in a video, or write a coherent 800-word op-ed from a title prompt.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Hany Farid, Professor of Computer Science, University of California, Berkeley.

Even in these early days, generative AI is capable of creating highly realistic content. My colleague Sophie Nightingale and I found that the average person is unable to reliably distinguish an image of a real person from an AI-generated person. Although audio and video have not yet fully passed through the uncanny valley – images or models of people that are unsettling because they are close to but not quite realistic – they are likely to soon. When this happens, and it is all but guaranteed to, it will become increasingly easier to distort reality.

In this new world, it will be a snap to generate a video of a CEO saying her company’s profits are down 20%, which could lead to billions in market-share loss, or to generate a video of a world leader threatening military action, which could trigger a geopolitical crisis, or to insert the likeness of anyone into a sexually explicit video.

Advances in generative AI will soon mean that fake but visually convincing content will proliferate online, leading to an even messier information ecosystem. A secondary consequence is that detractors will be able to easily dismiss as fake actual video evidence of everything from police violence and human rights violations to a world leader burning top-secret documents.

As society stares down the barrel of what is almost certainly just the beginning of these advances in generative AI, there are reasonable and technologically feasible interventions that can be used to help mitigate these abuses. As a computer scientist who specializes in image forensics, I believe that a key method is watermarking.

Watermarks

There is a long history of marking documents and other items to prove their authenticity, indicate ownership and counter counterfeiting. Today, Getty Images, a massive image archive, adds a visible watermark to all digital images in their catalog. This allows customers to freely browse images while protecting Getty’s assets.

Imperceptible digital watermarks are also used for digital rights management. A watermark can be added to a digital image by, for example, tweaking every 10th image pixel so that its color (typically a number in the range 0 to 255) is even-valued. Because this pixel tweaking is so minor, the watermark is imperceptible. And, because this periodic pattern is unlikely to occur naturally, and can easily be verified, it can be used to verify an image’s provenance.

Even medium-resolution images contain millions of pixels, which means that additional information can be embedded into the watermark, including a unique identifier that encodes the generating software and a unique user ID. This same type of imperceptible watermark can be applied to audio and video.

The ideal watermark is one that is imperceptible and also resilient to simple manipulations like cropping, resizing, color adjustment and converting digital formats. Although the pixel color watermark example is not resilient because the color values can be changed, many watermarking strategies have been proposed that are robust – though not impervious – to attempts to remove them.

Watermarking and AI

These watermarks can be baked into the generative AI systems by watermarking all the training data, after which the generated content will contain the same watermark. This baked-in watermark is attractive because it means that generative AI tools can be open-sourced – as the image generator Stable Diffusion is – without concerns that a watermarking process could be removed from the image generator’s software. Stable Diffusion has a watermarking function, but because it’s open source, anyone can simply remove that part of the code.

OpenAI is experimenting with a system to watermark ChatGPT’s creations. Characters in a paragraph cannot, of course, be tweaked like a pixel value, so text watermarking takes on a different form.

Text-based generative AI is based on producing the next most-reasonable word in a sentence. For example, starting with the sentence fragment “an AI system can…,” ChatGPT will predict that the next word should be “learn,” “predict” or “understand.” Associated with each of these words is a probability corresponding to the likelihood of each word appearing next in the sentence. ChatGPT learned these probabilities from the large body of text it was trained on.

Generated text can be watermarked by secretly tagging a subset of words and then biasing the selection of a word to be a synonymous tagged word. For example, the tagged word “comprehend” can be used instead of “understand.” By periodically biasing word selection in this way, a body of text is watermarked based on a particular distribution of tagged words. This approach won’t work for short tweets but is generally effective with text of 800 or more words depending on the specific watermark details.

Generative AI systems can, and I believe should, watermark all their content, allowing for easier downstream identification and, if necessary, intervention. If the industry won’t do this voluntarily, lawmakers could pass regulation to enforce this rule. Unscrupulous people will, of course, not comply with these standards. But, if the major online gatekeepers – Apple and Google app stores, Amazon, Google, Microsoft cloud services and GitHub – enforce these rules by banning noncompliant software, the harm will be significantly reduced.

Signing Authentic Content

Tackling the problem from the other end, a similar approach could be adopted to authenticate original audiovisual recordings at the point of capture. A specialized camera app could cryptographically sign the recorded content as it’s recorded. There is no way to tamper with this signature without leaving evidence of the attempt. The signature is then stored on a centralized list of trusted signatures.

Although not applicable to text, audiovisual content can then be verified as human-generated. The Coalition for Content Provenance and Authentication (C2PA), a collaborative effort to create a standard for authenticating media, recently released an open specification to support this approach. With major institutions including Adobe, Microsoft, Intel, BBC and many others joining this effort, the C2PA is well positioned to produce effective and widely deployed authentication technology.

The combined signing and watermarking of human-generated and AI-generated content will not prevent all forms of abuse, but it will provide some measure of protection. Any safeguards will have to be continually adapted and refined as adversaries find novel ways to weaponize the latest technologies.

In the same way that society has been fighting a decadeslong battle against other cyber threats like spam, malware and phishing, we should prepare ourselves for an equally protracted battle to defend against various forms of abuse perpetrated using generative AI.

Real Risks to TikTok Users

Posted on by phoffman@channelchek.com
Image: Congressional Hearings with Byte Dance (TikTok) CEO, C-SPAN (YouTube)

Should the US Ban TikTok? Can It? A Cybersecurity Expert Explains the Risks the App Poses

TikTok CEO Shou Zi Chew testified before the House Energy and Commerce Committee on March 23, 2023, amid a chorus of calls from members of Congress for the federal government to ban the Chinese-owned video social media app and reports that the Biden administration is pushing for the company’s sale.

The federal government, along with many state and foreign governments and some companies, has banned TikTok on work-provided phones. This type of ban can be effective for protecting data related to government work.

But a full ban of the app is another matter, which raises a number of questions: What data privacy risk does TikTok pose? What could the Chinese government do with data collected by the app? Is its content recommendation algorithm dangerous? And is it even possible to ban an app?

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Doug Jacobson, Professor of Electrical and Computer Engineering, Iowa State University.

Vacuuming Up Data

As a cybersecurity researcher, I’ve noted that every few years a new mobile app that becomes popular raises issues of security, privacy and data access.

Apps collect data for several reasons. Sometimes the data is used to improve the app for users. However, most apps collect data that the companies use in part to fund their operations. This revenue typically comes from targeting users with ads based on the data they collect. The questions this use of data raises are: Does the app need all this data? What does it do with the data? And how does it protect the data from others?

So what makes TikTok different from the likes of Pokemon-GO, Facebook or even your phone itself? TikTok’s privacy policy, which few people read, is a good place to start. Overall, the company is not particularly transparent about its practices. The document is too long to list here all the data it collects, which should be a warning.

There are a few items of interest in TikTok’s privacy policy besides the information you give them when you create an account – name, age, username, password, language, email, phone number, social media account information and profile image – that are concerning. This information includes location data, data from your clipboard, contact information, website tracking, plus all data you post and messages you send through the app. The company claims that current versions of the app do not collect GPS information from U.S. users. There has been speculation that TikTok is collecting other information, but that is hard to prove.

If most apps collect data, why is the U.S. government worried about TikTok? First, they worry about the Chinese government accessing data from its 150 million users in the U.S. There is also a concern about the algorithms used by TikTok to show content.

Data in the Chinese Government’s Hands

If the data does end up in the hands of the Chinese government, the question is how could it use the data to its benefit. The government could share it with other companies in China to help them profit, which is no different than U.S. companies sharing marketing data. The Chinese government is known for playing the long game, and data is power, so if it is collecting data, it could take years to learn how it benefits China.

One potential threat is the Chinese government using the data to spy on people, particularly people who have access to valuable information. The Justice Department is investigating TikTok’s parent company, ByteDance, for using the app to monitor U.S. journalists. The Chinese government has an extensive history of hacking U.S. government agencies and corporations, and much of that hacking has been facilitated by social engineering – the practice of using data about people to trick them into revealing more information.

The second issue that the U.S. government has raised is algorithm bias or algorithm manipulation. TikTok and most social media apps have algorithms designed to learn a user’s interests and then try to adjust the content so the user will continue to use the app. TikTok has not shared its algorithm, so it’s not clear how the app chooses a user’s content.

The algorithm could be biased in a way that influences a population to believe certain things. There are numerous allegations that TiKTok’s algorithm is biased and can reinforce negative thoughts among younger users, and be used to affect public opinion. It could be that the algorithm’s manipulative behavior is unintentional, but there is concern that the Chinese government has been using or could use the algorithm to influence people.

Meet the Management Information

Can the Government Ban an App?

If the federal government comes to the conclusion that TikTok should be banned, is it even possible to ban it for all of its 150 million existing users? Any such ban would likely start with blocking the distribution of the app through Apple’s and Google’s app stores. This might keep many users off the platform, but there are other ways to download and install apps for people who are determined to use them.

A more drastic method would be to force Apple and Google to change their phones to prevent TikTok from running. While I’m not a lawyer, I think this effort would fail due to legal challenges, which include First Amendment concerns. The bottom line is that an absolute ban will be tough to enforce.

There are also questions about how effective a ban would be even if it were possible. By some estimates, the Chinese government has already collected personal information on at least 80% of the U.S. population via various means. So a ban might limit the damage going forward to some degree, but the Chinese government has already collected a significant amount of data. The Chinese government also has access – along with anyone else with money – to the large market for personal data, which fuels calls for stronger data privacy rules.

Are You at Risk?

So as an average user, should you worry? Again, it is unclear what data ByteDance is collecting and if it can harm an individual. I believe the most significant risks are to people in power, whether it is political power or within a company. Their data and information could be used to gain access to other data or potentially compromise the organizations they are associated with.

The aspect of TikTok I find most concerning is the algorithm that decides what videos users see and how it can affect vulnerable groups, particularly young people. Independent of a ban, families should have conversions about TikTok and other social media platforms and how they can be detrimental to mental health. These conversations should focus on how to determine if the app is leading you down an unhealthy path.

The Central Banks High Wire Act

Posted on by phoffman@channelchek.com
Image Credit: Federal Reserve

Worst Bank Turmoil Since 2008 – Fed is Damned if it Does and Damned if it Doesn’t in Decision Over Interest Rates

The Federal Reserve faces a pivotal decision on March 22, 2023: whether to continue its aggressive fight against inflation or put it on hold.

Making another big interest rate hike would risk exacerbating the global banking turmoil sparked by Silicon Valley Bank’s failure on March 10. Raising rates too little, or not at all as some are calling for, could not only lead to a resurgence in inflation, but it could cause investors to worry that the Fed believes the situation is even worse than they thought – resulting in more panic.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Alexander Kurov, Professor of Finance and Fred T. Tattersall Research Chair in Finance, West Virginia University.

What’s a Central Banker to Do?

As a finance scholar, I have studied the close link between Fed policy and financial markets. Let me just say I would not want to be a Fed policymaker right now.

Break It, You Bought It

When the Fed starts hiking rates, it typically keeps at it until something breaks.

The U.S. central bank began its rate-hiking campaign early last year as inflation began to surge. After initially mistakenly calling inflation “transitory,” the Fed kicked into high gear and raised rates eight times from just 0.25% in early 2022 to 4.75% in February 2023. This is the fastest pace of rate increases since the early 1980s – and the Fed is not done yet.

Consumer prices were up 6% in February from a year earlier. While that’s down from a peak annual rate of 9% in June 2022, it’s still significantly above the Fed’s 2% inflation target.

But then something broke. Seemingly out of nowhere, Silicon Valley Bank, followed by Signature Bank, collapsed virtually overnight. They had over US$300 billion in assets between them and became the second- and third-largest banks to fail in U.S. history.

Panic quickly spread to other regional lenders, such as First Republic, and upset markets globally, raising the prospect of even bigger and more widespread bank failures. Even a $30 billion rescue of First Republic by its much larger peers, including JPMorgan Chase and Bank of America, failed to stem the growing unease.

If the Fed lifts interest rates more than markets expect – currently a 0.25 percentage point increase – it could prompt further anxiety. My research shows that interest rate changes have a much bigger effect on the stock market in bear markets – when there’s a prolonged decline in stock prices, as the U.S. is experiencing now – than in good times.

Making the SVB Problem Worse

What’s more, the Fed could make the problem that led to Silicon Valley Bank’s troubles even worse for other banks. That’s because the Fed is at least indirectly responsible for what happened.

Banks finance themselves mainly by taking in deposits. They then use those essentially short-term deposits to lend or make investments for longer terms at higher rates. But investing short-term deposits in longer-term securities – even ultra-safe U.S. Treasurys – creates what is known as interest rate risk.

That is, when interest rates go up, as they did throughout 2022, the values of existing bonds drop. SVB was forced to sell $21 billion worth of securities that lost value because of the Fed’s rate hikes at a loss of $1.8 billion, sparking its crisis. When SVB’s depositors got the wind of it and tried to withdraw $42 billion on March 9 alone – a classic bank run – it was over. The bank simply couldn’t meet the demands.

But the entire banking sector is sitting on hundreds of billions of dollars’ worth of unrealized losses – $620 billion as of Dec. 31, 2022. And if rates continue to go up, the value of these bonds will keep going down, which fundamentally weakens banks’ financial situation.

The Fed has been aggressively raising rates to stem the rapid increase in prices for items such as food.

Risks of Slowing Down

While that may suggest it’s a no-brainer to put the rate hikes on hold, it’s not so simple.

Inflation has been a major problem plaguing the U.S. economy since 2021 as prices for homes, cars, food, energy and so much else jump for consumers. The last time consumer prices soared this much, in the early 1980s, the Fed had to raise rates so high that it sent the U.S. economy into recession – twice.

High inflation quickly cuts into how much stuff your money can buy. It also makes saving money more difficult because it eats at the value of your savings. When high inflation sticks around for a long time, it gets entrenched in expectations, making it very hard to control.

This is why the Fed jacked up rates so fast. And it’s unlikely it’s done enough to bring rates down to its 2% target, so a pause in lifting rates would mean inflation may stay higher for longer.

Moreover, stepping back from its one-year-old inflation campaign may send the wrong signal to investors. If central bankers show they are really concerned about a possible banking crisis, the market may think the Fed knows the financial system is in serious trouble and things are more dire than previously thought.

So What’s a Fed to Do

At the very least, the complex global financial system is showing some cracks.

Three U.S. banks collapsed in a matter of days. Credit Suisse, a 166-year-old storied Swiss lender, was teetering on the edge until the government orchestrated a bargain sale to rival USB. A $30 billion rescue of regional U.S. lender First Republic was unable to arrest the drop in its shares. U.S. banks are requesting loans from the Fed like it’s 2008, when the financial system all but collapsed. And liquidity in the Treasury market – basically the blood that keeps financial markets pumping – is drying up.

Before Silicon Valley Bank’s collapse, interest rate futures were putting the odds of an increase in rates – either 0.25 or 0.5 percentage point – on March 22 at 100%. The odds of no increase at all have shot up to as high as 45% on March 15 before falling to 30% early on March 20, with the balance of probability on a 0.25 percentage point hike.

Increasing rates at a moment like this would mean putting more pressure on a structure that’s already under a lot of stress. And if things take a turn for the worse, the Fed would likely have to do a quick U-turn, which would seriously damage the Fed’s credibility and ability to do its job.

Fed officials are right to worry about fighting inflation, but they also don’t want to light the fuse of a financial crisis, which could send the U.S. into a recession. And I doubt it would be a mild one, like the kind economists have been worried the Fed’s inflation fight could cause. Recessions sparked by financial crises tend to be deep and long – putting many millions out of work.

What would normally be a routine Fed meeting is shaping up to be a high-wire balancing act.

Arctic Drilling Approval – More than Meets the Eye

Posted on by phoffman@channelchek.com
Image Credit: Bureau of Land Management

Three Reasons the Willow Arctic Oil Drilling Project Was Approved

For more than six decades, Alaska’s North Slope has been a focus of intense controversy over oil development and wilderness protection, with no end in sight. Willow field, a 600-million-barrel, US$8 billion oil project recently approved by the Biden administration – to the outrage of environmental and climate activists – is the latest chapter in that long saga.

To understand why President Joe Biden allowed the project, despite vowing “no more drilling on federal lands, period” during his campaign for president, some historical background is necessary, along with a closer look at the ways domestic and international fears are complicating any decision for or against future oil development on the North Slope.

More Than Just Willow

The Willow project lies within a vast, 23 million-acre area known as the National Petroleum Reserve-Alaska, or NPR-A. This was one of four such reserves set aside in the early 1900s to guarantee a supply of oil for the U.S. military. Though no production existed at the time in NPR-A, geologic information and surface seeps of oil suggested large resources across the North Slope.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Scott L. Montgomery, Lecturer, Jackson School of International Studies, University of Washington.

Proof came with the 1968 discovery of the supergiant Prudhoe Bay field, which began producing oil in 1977. Exploratory programs in the NPR-A, however, found only small oil accumulations worthy of local uses.

Then, in the 2000s, new geologic understanding and advanced exploration technology led companies to lease portions of the reserve, and they soon made large fossil fuel discoveries. Because NPR-A is federal land, government approval is required for any development. To date, most have been approved. Willow is the latest.

Caribou in the National Petroleum Reserve-Alaska are important for Native groups. However, Native communities have also been split over support for drilling, which can bring income. Bob Wick/Bureau of Land Management

Caribou in the National Petroleum Reserve-Alaska are important for Native groups. However, Native communities have also been split over support for drilling, which can bring income. Bob Wick/Bureau of Land Management

Opposition to North Slope drilling from conservationists, environmental organizations and some Native communities, mainly in support of wilderness preservation, has been fierce since the opening of Prudhoe Bay and the construction of the Trans-Alaska Pipeline in the 1970s. In the wake of 1970s oil crises, opponents failed to stop development.

During the next four decades, controversy shifted east to the Arctic National Wildlife Refuge. Republican presidents and congressional leaders repeatedly attempted to open the refuge to drilling but were consistently stifled – until 2017. That year, the Trump administration opened it to leasing. Ironically, no companies were interested. Oil prices had fallen, risk was high and the reputational cost was large.

To the west of the refuge, however, a series of new discoveries in NPR-A and adjacent state lands were drawing attention as a major new oil play with multibillion-barrel potential. Oil prices had risen, and though they fell again in 2020, they have been mostly above $70 per barrel – high enough to encourage significant new development.

ConocoPhillips’ Willow project is in the northeast corner of the National Petroleum Reserve-Alaska. USGS, Department of Interior

Opposition, with Little Success

Opposition to the new Willow project has been driven by concerns about the effects of drilling on wildlife and of increasing fossil fuel use on the climate. Willow’s oil is estimated to be capable of releasing 287 million metric tons of carbon dioxide if refined into fuels and consumed.

In particular, opponents have focused on a planned pipeline that will extend the existing infrastructure further westward, deeper into NPR-A, and likely encourage further exploratory drilling.

So far, that resistance has had little success.

Twenty miles to the south of Willow is the Peregrine discovery area, estimated to hold around 1.6 billion barrels of oil. Its development was approved by the Biden administration in late 2022. To the east lies the Pikka-Horseshoe discovery area, with around 2 billion barrels. It’s also likely to gain approval. Still other NPR-A drilling has occurred to the southwest (Harpoon prospect), northeast (Cassin), and southeast (Stirrup).

Young protesters in Washington in 2022 urged Biden to reject the Willow project. Jemal Countess/Getty Images for Sunrise AU

Questions of Legality

One reason the Biden administration approved the Willow project involves legality: ConocoPhillips holds the leases and has a legal right to drill. Canceling its leases would bring a court case that, if lost, would set a precedent, cost the government millions of dollars in fees and do nothing to stop oil drilling.

Instead, the government made a deal with ConocoPhillips that shrank the total surface area to be developed at Willow by 60%, including removing a sensitive wildlife area known as Teshekpuk Lake. The Biden administration also announced that it was putting 13 million acres of the NPR-A and all federal waters of the Arctic Ocean off limits to new leases.

That has done little to stem anger over approval of the project, however. Two groups have already sued over the approval.

Taking Future Risks into Account

To further understand Biden’s approval of the Willow project, one has to look into the future, too.

Discoveries in the northeastern NPR-A suggest this will become a major new oil production area for the U.S. While actual oil production is not expected there for several years, its timing will coincide with a forecast plateau or decline in total U.S. production later this decade, because of what one shale company CEO described as the end of shale oil’s aggressive growth.

Historically, declines in domestic supply have brought higher fuel prices and imports. High gasoline and diesel prices, with their inflationary impacts, can weaken the political party in power. While current prices and inflation haven’t damaged Biden and the Democrats too much, nothing guarantees this will remain the case.

Geopolitical Concerns, Particularly Europe

The Biden administration also faces geopolitical pressure right now due to Russia’s war on Ukraine.

U.S. companies ramped up exports of oil and natural gas over the past year to become a lifeline for Europe as the European Union uses sanctions and bans on Russian fossil fuel imports to try to weaken the Kremlin’s ability to finance its war on Ukraine. U.S. imports have been able to replace a major portion of Russian supply that Europe once counted on.

Europe’s energy crisis has also led to the return of energy security as a top concern of national leaders worldwide. Without a doubt, the crisis has clarified that oil and gas are still critical to the global economy. The Biden administration is taking the position that reducing the supply by a significant amount – necessary as it is to avoid damaging climate change – cannot be done by prohibition alone. Halting new drilling worldwide would drive fuel prices sky high, weakening economies and the ability to deal with the climate problem.

Energy transitions depend on changes in demand, not just supply. As an energy scholar, I believe advancing the affordability of electric vehicles and the infrastructure they need would do much more for reducing oil use than drilling bans. Though it may seem counterintuitive, by aiding European economic stability, U.S. exports of fossil fuels may also help the EU plan to accelerate noncarbon energy use in the years ahead.