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YOUR MONEY

Outsourcing America's Secret; America Under Cyberattack

Aired June 15, 2013 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CHRISTINE ROMANS, HOST: America's deepest secrets are outsourced. Every day, the contractors at dozens of companies, public companies, making billion of dollars.

I'm Christine Romans. This is YOUR MONEY.

Phone records, Internet activity, photos, file transfers -- we know the government is watching -- it's stored in places like this. Here's the National Security Agency's new facility in Utah, it's 1 million square feet, the largest of several across the country.

But the government alone doesn't see those secrets, it's big business. The NSA leak controversy has brought into sharp focus what many Americans may not know, big companies whose only responsibility is to return profit for their shareholders are doing some of the most sensitive work of American national security. 22 percent of all security clearances are held by contractors, workers like Edward Snowden, who made $122,000 working for Booz Allen Hamilton, before he was fired for taking those secrets public.

And guess what? Our government has even outsourced the process of granting all but the highest security clearances.

Ron Brownstein joins me now and "The National Journal" this weekend. His piece is called "So Long Privacy."

Ron, the book "1984" zoomed up on Amazon's movers and shakers chart this week, but Big Brother has become a private public partnership. Booz Allen's competitors include Northrop Grumman, Lockheed Martin, even computer maker Dell, where Snowden works before Booz Allen. Senator Dianne Feinstein wants to rein in this outsourced intelligence industry.

Ron, is that even possible at this point?

RON BROWNSTEIN, THE NATIONAL JOURNAL: Well, you know, there has always been a big defense contracting side of the defense establishment, but it grew exponentially after 9/11, partly because of the sense that we had to really ramp up quickly on a lot of fronts, and partly for an ideological preference in a Republican administration for having the private sector rather than growing government in some terms.

But overall, I think, clearly, there is a lot of debate about what these are going to mean and what the revelations are going to debate on national security versus privacy, I think it's pretty unequivocal, it's going to lead to sharp questioning about the extent to which we are now relying on private companies in the national security bureaucracy.

ROMANS: And let's talk about some of those companies. Booz Allen Hamilton, 99 percent of its revenue comes from the government. It won $4 billion in contract in 2012. That makes $4 billion. That makes it only the 14th largest federal contractor. And the ties run deeper than money.

National Security Agency director, James Clapper, he previously worked for Booz Allen, and the former NSA director, John McConnell, he is now the vice chairman at Booz Allen. Ron, amid all these revelations this week, who do people trust the most?

BROWNSTEIN: Well, it's really interesting. You know, I mean, we are focusing on the national security side of this, understandably, because that's what has been revealed. But we have this new national monitor poll that we do every quarter and it shows there is a lot of anxiety not only about the national security erosions of privacy, but on the commercial side.

You know, we are living out loud. We are living in public now, in this new wired world. And in our poll, there is enormous distrust of government, but also of cell phone and Internet providers, and social media sites, they face a lot of skepticism, the most trusted institutions, tend to be those in terms of guarding your privacy, those that you have a more direct relationship with. Surprisingly, at the top of our list through a series of questions, employers were the most trusted.

ROMANS: I also think there is a lot of willing sharing information, and your financial information rests in hundreds if not thousands of places. And we log in and we give that information every time we go and use our credit card someplace, we are giving our information.

But it's when it's the government, the idea of the government and these public companies watching you, that's when people get upset.

BROWNSTEIN: Well, first of all, I would say the most striking thing of all in our poll was roughly 75 percent or more of the public said just about anything you would want to keep private, your financial records, your health records., your whereabouts, your cell phone records, they believe somebody is accessing them. I think you are right. I mean, there is obviously a special concern about the government, but there is concern about these commercial intrusions into privacy, and in effect, you say the tradeoff we make in getting services in many cases for free, whether it's social media sites or search engines.

But the price we are paying is them acquiring, exiling, and then using for commercial purposes information about us. This is an issue that I think is going to come to more of a head. The NSA raises one side of it, the commercial side is another real side for people, too.

ROMANS: All right. Ron Brownstein, great to see you. Have a nice weekend.

BROWNSTEIN: Thank you.

ROMANS: Coming up, Jay Leno has a suggestion for the NSA.

Plus, could you pass a high-level background check? The secrets behind top secret clearance, next.

(COMMERCIAL BREAK)

ROMANS: We don't know how much the government spends on intelligence, that's not public information, but judging from the profits its contractors make, it's a lot of money. It's big, but is it really that scary.

Jay Leno says there's an easier way.

(BEGIN VIDEO CLIP)

JAY LENO, COMEDIAN: People are really up in arms about the NSA spying thing. You know, if the government really wants to follow our every move, do what everybody else does: stalk us on Facebook. That's how you do it, (INAUDIBLE) Facebook.

(END VIDEO CLIP)

ROMANS: We told you the sales of the book "1984" are surging this week. It's, of course, the story of a society where big brother is watching you, but Robin Williams says times have changed.

(BEGIN VIDEO CLIP)

ROBIN WILLIAMS, COMEDIAN: You see, it's not big brother anymore, it's little snitch.

(END VIDEO CLIP)

ROMANS: Little snitch with cell phones and all that information. All of which brings us back to Edward Snowden. The former Booz Allen Hamilton employee who has rekindled the fear big brother is watching you. Your employer often wants to know plenty about you, are you on drugs, do you have a prison record, you may even be a subject to a credit check.

But imagine if your employer needed to screen you for the likelihood of betrayal and espionage. It's all part of the process with your government outsourcing secrets to big business.

Zain Asher is here to explain.

Hi.

ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Hey, Christine.

Yes, we are talking about the kind of access that Edward Snowden had. The first step would be to be sponsored by a government agency or government contractor, but clearance by itself isn't actually enough to get access to sensitive material. You have to actually prove that a cleared individual absolutely 100 percent needs to know the classified information.

But other than that, we are talking about lengthy background checks, personal interviews and a microscopic evaluation from your personal history.

(BEGIN VIDEO CLIP)

EDWARD SNOWDEN, NSA LEAKER: I am no different from anybody else, and I don't have special skills, just another guy.

ASHER (voice-over): Another guy with access to highly sensitive, classified information.

SNOWDEN: Anybody in the position of access with the capabilities that I had could, you know, suck out secrets and pass them on the open market.

ASHER: But to be in that position, Snowden would first had to have undergone a thorough background investigation before being hired.

DARREN DUPRIEST, VALIDITY SCREENING SOLUTIONS: These are very rigorous processes we go through. The higher up the level we get toward any kind of a security clearance, they get much more intense and in depth.

ASHER (on camera): So this 127-page questionnaire is the first step towards gaining access to all three levels of security clearance -- confidential, secret, and top secret. It asks about your criminal and your employment history. It also asks whether or not you have ever illegally accessed a computer database and about your loyalty to the U.S. government.

At higher levels, investigators may conduct background checks on close family members and examine public records going back a decade.

DUPRIEST: A lot of time it will take a year or sometimes longer, once again, depending on the level.

ASHER: They may also interview old acquaintances and former coworkers.

DUPRIEST: What these investigators jobs are going to do is to reach out to people who you haven't thought of, or reach out to people that you forgot all about.

ASHER: And for top secret clearance, some candidates will also undergo a psychological evaluation to assess trustworthiness.

BEN DATTNER, AUTHOR, THE BLAME GAME: There are things that you can see in their past experience, whether they are more or less likely to be a whistle-blower or to violate organizational norms and regulations. ASHER: The Defense Human Resources Activity, a branch of the Defense Department, has noted seven different personality traits associated with espionage and betrayal, including risk seeking, impulsiveness and narcissism.

DATTNER: People who do display narcissistic tendencies tend to think that they can leave by their own rules, that they don't necessarily have to conform to societal or organizational expectations or rules.

ASHER: But psychological evaluation and background checks are far from failsafe.

DATTNER: The best predictor of future behavior is past behavior. Most careers, individuals come upon situations they have not been in before. And so, therefore, it's very hard to extrapolate from past experience what somebody is going to do in the future.

(END VIDEOTAPE)

ROMANS: So, Zain, in Edward Snowden's case, could he have obtained his security clearance once and taken it to contractor to contractor. We know before Booz Allen, he worked for Dell.

ASHER: Right.

ROMANS: Before that, he worked with the NSA earlier on. One time you get security clearance and it's sort of like a portable passport?

ASHER: Well, in Edward Snowden's case, it's very difficult to know what he himself would have gone through, right? But, generally, yes, you know, if you have a level of clearance, be it secret or top secret, that level of clearance is transferable government agencies.

However, you know, if you are jumping from secret to top secret like a promotion, for example, and then obviously they have to look at you again. Also, I want to mention, if your status is inactive for a long period of time, if it's not active for a long period of time, or if you send a long period of time abroad, they will take another look at you.

ROMANS: All right. Zain Asher, thank you so much, Zain. So interesting.

Your government is watching you, but guess who is watching your government and pretty much everything else going on in the country? Hackers, Chinese hackers. Why the one thing president and President Xi Jinping might be the biggest threat to the U.S. economy right now.

(COMMERCIAL BREAK)

ROMANS: Just about every day, the U.S. is under attack, repeated attack, cyber attack. And hackers in places like China are not just going after our government and military secrets, but U.S. businesses are some of the most valuable and vulnerable targets.

But businesses rarely admit they have been hacked unless they absolutely have to. Why? Well, if they talk about intrusions on company systems, they risk of public's trust. And if they are publicly traded, the stock can sink. One study found, the announcement of a hack can cost shares to drop as much as 5 percent.

Cyber security was the priority for President Obama in his historic meeting with Chinese President Xi Jinping. It happened last week.

The two agreed on climate change in North Korea, but here was no movement on the issue of hacking.

Peter Navarro is a professor of UC-Irvine and the director of the film "Death by China" out in DVD this month.

Joel Brenner is a former inspector general of the NSA and author of the book "America, the Vulnerable."

Joel, let me start with you. Security experts say there are two kinds, those who have been hacked and those who have been hacked but don't know it yet. Is it really as pervasive as that?

JOEL BRENNER, FMR. INSPECTOR GENERAL, NSA: Pretty much. Pretty much. If that's an exaggeration it's not an exaggeration by far. The penetration of western businesses in general is astounding. It's absolutely astounding.

ROMANS: It's so interesting to me, because, Joel, we've got all of the focus right now on the government watching, you know, the surveillance programs, and it's so much in the spotlight, but really what you have every single day are foreign entities and foreign server farms outside of Shanghai, looking to America's biggest corporate secrets and that's something that could be damaging to the American economy.

BRENNER: Well, it can. I mean, we are seeing a dramatic shift of intellectual property from West to East. What people tend not to understand is that businesses and governments create, store and transmit information on the same porous Internet that you and I use in our personal relations. Secrecy and privacy are pretty much the same thing, they are just asserted by different actors. You and I assert a private interest. Your company, your employer and your government assert secrecy interests.

But in both cases, it's someone asserting the right and the ability to keep somebody else from knowing something. And since we are all transmitting and working on these incredibly porous networks where identities are easy to spoof, both privacy and secrecy are heading south rapidly.

ROMANS: Yes, Peter, let me bring in you. I want to look at some of the sectors under attack last year. Manufacturing, top of the list at 24 percent, and government, half that share, and then these are top industries attacked in 2012.

How does this affect the economy in the long run?

PETER NAVARRO, AUTHOR, "DEATH BY CHINA": Let's take something like an auto or pharmaceutical company, they spent 20 to 25 percent of their revenues on research and development. So if a Chinese company can come in and hack and steal that pill or process, basically they saved that amount and it creates a competitive advantage that steals American jobs.

So, that's one example. The second example, and this is one documented with Chinese hackers, they went in and probed the networks of these oil companies to look at the bids for oil so they could undercut the bids.

And another one, Google -- Google goes over to China, and it establishes a very strong presence there and gets something like 70 percent of the market share, and then the Chinese government decides we are not going to let that happen and they go in and hack the source code, and then basically pushed Google back to Hong Kong and out of the country.

ROMANS: Let me ask you, Joe, what do you think the president should do? What do you think the administration should do? Because we've had year after year of these strategic economic dialogues with where there's a lot of talking and you measure success in millimeters when we have miles and miles that we need to go here.

So what should this administration do? What makes the Chinese change?

BRENNER: It's really important to understand that we're not in a war, not even in a cold war with China. We are economically interdependent on China. They are, I hate to say it, our banker, and the idea that we could somehow stop economic relations with China is a dream.

ROMANS: Edward Snowden said this week said the U.S. -- he went on "South China Morning Post" and he said, "The U.S. is hacking China," which played very, very well in China.

By the way, the Chinese officials always -- the foreign ministry always says that they do not hack. There is no cyber espionage. The government does not try to look at our secrets. They don't need our secrets. That's for the record.

But, Joel, you know --

(CROSSTALK)

BRENNER: Yes, hat's foolishness.

Let me make a distinction between the kind of espionage that's been going on since pre-biblical times, political military espionage, that goes on, everybody does it. We do it.

Americans should hope we're good at it, and we are. What we don't do is we don't use our intelligence services in aid of U.S. businesses. Why? Two really good reasons. One is that we really do believe in the international law of protecting international -- protecting intellectual property. We're not going to -- we're not going to follow a different policy than that. Secondly, we're not going to go to China or Russia to steal technology. They don't have that much technology. We're producing it at a rapid rate.

So there's a real difference that the Chinese are trying to obscure between the kind of espionage everybody acknowledges goes on and this use of state intelligence services to attack the other guys' private industry. That's what's really an important distinction, and it's going on and the Chinese are doing it.

ROMANS: Peter, last word to you.

NAVARRO: Well, I think Joel is dead wrong about this issue about war with China. We've been in an undeclared trade war since 2001. They have shut down 50,000 of our factories. We lost 5 million manufacturing jobs and we have 25 million people unemployed for the very simple reason that they do things like manipulate their currency and steal our technology.

I think the problem here is that the White House and Congress have not shown a strong face to China. I mean, for all practical purposes, the president has been a eunuch on this issue.

So China keeps having their way with us. And it's only -- as my good friend Gordon Chang has said, it's the only major country preparing to kill Americans.

And we need to recognize that China is different from Germany and Brazil and Australia and every other country we trade with and we should trade less with them right now until they basically straighten up in terms of their protectionism and stealing our secrets.

ROMANS: We have to leave it there. Certainly, Peter Navarro uses a vocabulary I haven't heard in a long time. Thank you so much. Joel Brenner, nice to see both of you. Obviously, it's a discussion that's going to continue.

Thanks, gentlemen.

The lowest mortgage rates in history are quickly disappearing. How to lock in the best rate now. That's coming up, next.

(COMMERCIAL BREAK)

ROMANS: More evidence of the turnaround in housing. As home prices rise, fewer Americans are under water on their mortgages: 9.7 million people still owe more than their house is worth. But that's down from 10.5 million during the last three months of 2012.

That's great if you've been looking to sell but it's a double whammy for house hunters. Not only are prices rising but now mortgage rates are creeping higher as well. So, if you're buying, three little words, lock it in.

(BEGIN VIDEOTAPE) ROMANS (voice-over): To buy this house just a few weeks ago, you might have locked in a mortgage at 3.5 percent. But rates may never be that low again.

GERRI DETWEILER, DIR. OF CONSUMER EDUCATION, CREDIT.COM: If you are either in the market to buy a house or you've been on the fence about refinancing, I would say do not wait.

ROMANS: Mortgage rates are still historically low, but now a sudden move higher, up more than half a percentage point in six weeks.

BOB MOULTON, PRESIDENT, AMERICAN MORTGAGE GROUP: The rates went up very dramatically. They went up very quickly.

ROMANS: Ironically, an improving economy is to blame.

MOULTON: Unemployment is down. The stock market is doing really well. Medium home prices are up. People are feeling better. They're out there buying again.

So the economy does well, you will see a rising rate environment.

ROMANS: And you will see it in your monthly payment. At 3.5 percent on a $250,000 home with 20 percent down, you pay about $898. The same 30-year fixed mortgage will cost you 954 bucks at 4 percent. That's $56 more a month or $672 a year. Down payment, credit score, and income determine the rate you'll pay.

MOULTON: Borrowers that are getting the best rate are putting 20 percent to 25 percent down. They have income that is documentable, so they're providing w-2s and federal tax returns, and they have an excellent credit score, something over 700 or 720.

ROMANS: A quick closing date also helps.

MOULTON: You get your best rate from a lender if you lock in for 30 days. Standard to lock in for 60 days and the longer you go out, the more expensive it will be.

ROMANS: Ask your lender about a float down provision, so your rate could be adjusted lower if rates do slip again. If you're still looking for the right house, make sure you're pre-approved for a mortgage and pay down your debt while interest rates on auto loans and credit cards are still low.

DETWEILER: This is the time to take advantage of those rates. It means be as aggressive as you can about paying down your debt because once they start to rise, there won't be a stop.

ROMANS: No stop, and the lowest mortgage rates in history may be gone for good.

(END VIDEOTAPE)

To get the best rate on a mortgage, lenders also want to make sure you have plenty of cash in the bank after you close. So, if you're using your last dime to buy the property, that mortgage is going to cost you.

Thanks for joining the conversation this week on YOUR MONEY. I'll be back at 2:00 p.m. Eastern. Home prices are rising. Fewer Americans are filing for unemployment benefits. Consumer confidence is climbing. But is a battered world economy threatening an American comeback? We'll have answers on a brand new YOUR MONEY at 2:00 p.m.

Until then, you can find me on Facebook and on Twitter, my handle is @ChristineRomans.