Tesco Bank, the British retail bank run by the UK’s largest supermarket chain, lost approximately 2.5 million pounds this month after hackers broke into the accounts of more than 9,000 customers. The bank has pledged to reimburse customers who lost money and ultimately decided to suspend online banking for all of its 136,000 customers. Spokespeople claimed that personal data had not been compromised in the hack and that customers do not need to change their passwords, yet the sheer scope of the attack has made security experts uneasy.

The company first caught on to the breach on Saturday, November 5, and immediately began texting customers who had been affected. Many customers saw their money being moved out of Tesco accounts via overseas transactions to Spain and Brazil. Although there was initial concern that the hack was an inside job, aided by a bank employee, it is now being marked up to general human error and a failure to create a truly secure system.

This attack represents a major modern shift in cybercrime, from attacking individual customers to attacking an entire bank in one go. Perhaps the most troubling discovery in the wake of the hack was that Tesco had been warned by the security firms CyberInt and Codified Security about the weaknesses in its system, which the company did not respond to. No company can be expected to track every spam email about cybersecurity that floods its inbox, but in this case, if the reports from Codified Security truly were purposefully ignored, it reveals a dangerously cavalier attitude toward cybersecurity at the Tesco Bank headquarters.

Defenders of the bank have argued that the hack was successful because it took place during the weekend, when the technical staff were not at their desks, responding to customer reports and warning signs like they would during the work week. Regardless of the timing of the attack, the amount of money shifted from customer accounts is disturbing, especially as it is only the latest in a string of high profile hacks this year. Almost two years ago, the Bank of England highlighted cybercrime in the meetings of its financial policy committee, noting that banks were woefully unprepared for large scale attacks on their databases, but that warning came and went with very little impact.

It is not only smaller, less conventional banks like Tesco that have been targeted: in January of this year, HSBC shut down its mobile banking platform after a distributed denial of service attack. Tesco Bank is a relative mom and pop bank compared to the global behemoth that is HSBC, which explains why it did not have the same early warning notifications and success that HSBC did when shutting down the January hack. No bank, either electronic or brick and mortar, is definitively safe but when hundreds of accounts are being attacked, there is a clear issue with security. Tesco Bank will take a major hit in the wake of the attack but rather than lying back and celebrating the decline of a competitor, other UK banks–and banks around the globe–should be rushing to their own cybersecurity teams to repair the weaknesses that could be exploited in the next great hack.

Jillian Sequeira

Jillian Sequeira was a member of the College of William and Mary Class of 2016, with a double major in Government and Italian. When she’s not blogging, she’s photographing graffiti around the world and worshiping at the altar of Elon Musk and all things Tesla. Contact Jillian at Staff@LawStreetMedia.com

The post Startling Holes in Our Cybersecurity Network: The Tesco Bank Hack appeared first on Law Street.

TARP is the Troubled Asset Relief Program, created to help stabilize the financial system during the financial crisis of 2008. This program was the focus of significant debate when it was created. Read on to learn about the program, the different sides of the debate, and how it fares a few years after its inception.

What is TARP?

TARP was authorized by Congress through the Emergency Economic Stabilization Act of 2008 (EESA), and is overseen by the Office of Financial Stability at the U.S. Department of the Treasury. It was essentially a way for the government to address some of the problems of the 2008 subprime mortgage crisis. It allowed the government to buy some stocks from big banks and other financial institutions while those companies were struggling, with the understanding that in a few years they’d be sold back to the companies. The government would profit, and the companies would be able to get back on their feet. This is obviously a simplified explanation — there was much back and forth on what TARP should and could actually do.

Was TARP successful?

Yes and no — we don’t really know yet. The TARP program was instituted just a few years ago, and while the economy certainly appears to be be getting better, long-term effects are mostly unknown. If anything, programs like TARP are more frequently invoked as political talking points rather than economic topics of discussion. There is also some disagreement as to how much TARP actually cost taxpayers — with so many different moving parts, it’s difficult to calculate. What seems most striking however, is the ire that TARP and other “bailout” programs received.

What was the argument for TARP?

Proponents believe that TARP helped prevent a financial Armageddon by directly or indirectly injecting funds into banks that were on the brink of collapse. Even those who didn’t necessarily agree with the way that TARP was enacted agreed that it was essential to keep things afloat during such a turbulent period of American economic conditions. As former GOP Presidential nominee Mitt Romney put it:

The TARP program, while not transparent and not having been used as wisely it should have been, was nevertheless necessary to keep banks from collapsing in a cascade of failures. You cannot have a free economy and free market if there is not a financial system… The TARP program was designed to keep the financial system going, to keep money circulating in the economy, without which the entire economy stops and you would really have an economic collapse.

This reduced the number of lost jobs by approximately 85 million, reduced or displaced the number of housing foreclosures by approximately three million, and increased consumer confidence. It cost taxpayers $50 billion, which is 85 percent less than the Congressional Budget Office’s original estimate. Additionally, banks have returned at least 78 percent of their borrowed TARP funds with interest. Those in favor of TARP also praise its ability to infuse liquidity and flexibility into a struggling economy.

What is the argument against TARP?

Opponents believe that TARP was a rushed, ad hoc policy. Even if it helped prevent a complete financial meltdown, it did not live up to one of its major original goals of supporting struggling homeowners. Its Home Affordable Modification Program (HAMP) prevented less than half of the foreclosures that original estimates projected it would. TARP only helped the big banks grow bigger and did little to help the common man on Main Street. Such programs set a bad precedent and implicitly encourage banks to continue making risky choices.

Opponents also argued that because the United States is a democracy the American people shouldn’t have to support a program, like TARP, that received such intense backlash from the public. The political toxicity made it more dangerous, to the point where some politicians didn’t even want to discuss it. That could have prevented much-needed discussions to help improve the program, and make it even more effective. Even if it did work in some ways, it’s difficult to bill such a despised program as successful. As Anil Kayshyap of the University of Chicago put it:

The TARP was presented by former Treasury Secretary Hank Paulson in a misleading way, because buying toxic assets never made sense. That confusion led to the populist rhetoric that TARP was just a bailout for the banks. “The public’s frustration has led to a general rise in populist political rhetoric and has polluted the policy discussion in many other areas.” Also, it did nothing to forestall foreclosures.

 

Courtesy of CBO.gov. Click here for a bigger version.

Conclusion

TARP was an attempt to fix a huge problem — the monumental financial crisis that the United States was facing. Six years we still see some after-effects of the crisis, and whether or not we’re out of the woods completely is a topic that is still up for debate, but the long-term effects of programs like TARP probably won’t be known for a few years. The arguments will continue, however — look for economic arguments that invoke memories of TARP to be present in both the 2014 and 2016 elections.

Resources

Primary

Federal Reserve: TARP Information

Additional

CBS: Auto and Bank Bailouts Prove Effective

Seeking Alpha: The Five Most Effective Bailouts

The New York Times: Audit Finds TARP Program Effective

Pro Publica: Bailout Tracker

Phys Org: Are Corporate Bailouts Effective?

Congressional Oversight Panel: TARP Provided Critical Support But Distorted Markets and Created Public Stigma

TIME: Bailout Report Card: How Successful Have the Financial-Relief Efforts Been?

The New York Times: Where the Bailout Went Wrong

Reuters: Are Americans Really Benefiting From TARP Repayments?

Politico: Criticism of TARP Persists

Salome Vakharia

Salome Vakharia is a Mumbai native who now calls New York and New Jersey her home. She attended New York School of Law, and she is a founding member of Law Street Media. Contact Salome at staff@LawStreetMedia.com.

The post The Troubled Asset Relief Program (TARP) Six Years Later appeared first on Law Street.

The Class of 2018 is having an exciting summer. They get to figure out which dorms they will live in, which intro classes they will take, and, most importantly, which loans they will take out to pay for the next four years. Meanwhile, the Class of 2014 is experiencing some discomfort as they figure out how exactly to pay for those loans they took out four summers ago. Student loans burden a reported 40 million Americans. Read on to learn all about how these people and their finances are impacted by politics.

What is a student loan?

A student loan is pretty self-explanatory. It is a type of loan specifically meant to pay for university tuition and all other costs associated with going to college. This can include books, computers, and housing. Student loans differ greatly from other types of loans. For example, federal student loans do not have to be paid back until graduation. People obtain student loans by filling out the Free Application for Federal Student Aid (FAFSA), a form that gives students access to all sorts of financial aid, including Pell Grants and Federal Work Study.

Who provides these student loans?

While some students obtain these loans from private banks, many of them obtain loans from the federal government. Federal loans are all backed and funded by the U.S. Department of Education (DOE), which means that the interest rate is often lower than those provided by a private bank.

What are some problems with the student loan system?

The big problem is that so many students need them. Twelve million students each year, 60 percent of all college students, pay some portion of their tuition with student loans. This is partly because college is more expensive than it used to be. Over the last 24 years, the average cost of in-state public college education rose by $5,470. And that’s just in-state public school. Tuition at some private institutions is staggering.

This contrast illustrates it best: the overall consumer price index has risen 115 percent since 1985. How high has the college education inflation rate risen? Nearly 500 percent. It’s no wonder that more Americans than ever have student loan debt. Here’s President Barack Obama decrying skyrocketing tuition:

Interest rates used to be a problem. In previous years, the interest rate on student loans would be set permanently by Congress. However, these rates were set up so that, unless Congress reauthorized them, they would double. There was a fight to keep these rates low in 2012 and 2013. That’s why this weird clip from Late Night With Jimmy Fallon with Obama exists:

Congress quickly realized that going through this battle every year was not good for anyone. That’s why they passed the Bipartisan Student Loan Certainty Act of 2013. This law tied student loans to the 10-year Treasury note and locked in individual rates for life. This means that, while your own rate will never rise, the rates of future students will raise independent of action from Congress.

The bigger problem is that student loans have saddled 37 million graduates with serious debt. It takes years, sometimes decades, to pay off these loans. Worse, these debts have been steadily rising over the past few decades.

Why does it take so long to pay back student loans?

Simply put, graduates just aren’t very good at paying these loans back. Somewhere between a quarter and a third of borrowers are late on their payments. According to the Federal Reserve Bank of New York, 35 percent of American student loan borrowers were delinquent on payments in the third quarter of 2012. This local news broadcast called the situation an “economic crisis.”

Graduating students are also struggling to pay back these loans because they are entering an awful job market. For example, 6.7 percent of students who graduated in 2008 were still unemployed in 2012. How are these young people expected to start paying down this debt when they have little or no income?

Many graduates also do not know how to correctly pay these loans back. This advice column from The New York Times shows just how complicated paying back student loans can be.

If so many graduates cannot quickly pay off their debts, they may be left out of certain opportunities, like buying a house. Student loan debt is a drag on the economy.

PBS NewsHour has more on that issue here:

What assistance is available to those with student loan debt?

Not much. Some politicians are attempting to reform the system to help graduates (we’ll get to that later), but there are only a few ways the government can currently help.

Loan consolidation is one such option. This is when the government lets you combine all of your loans into one. Graduates who are having trouble paying off multiple loans consider this option so that they can only have one manageable monthly payment. There are also some instances in which debt holders can defer their payments on principle and interest. Find out if your student loan payments can be deferred here.

Private companies exist that offer to help lower monthly payments, but these companies have recently come under fire from federal and state regulators for using predatory practices and charging graduates hefty upfront fees for services that the DOE offers for free. Illinois has sued some of these companies and more states are likely to follow.

In the past, those looking for forgiveness of their debt were out luck. Even today, graduates who want an immediate forgiveness of their debts will have trouble doing so. This table shows just how hard it is to get student loan debt forgiven. Even bankruptcy does not always result in a forgiveness of student debt. However, action taken by President Obama made forgiveness a little easier. Read on to the next section to find out how.

How is President Obama trying to fix student loans?

Obama has used his executive power to bypass Congress and expand the Pay As You Earn program. Pay As You Earn is a federal program that allows borrowers to cap their monthly payments at 10 percent of their income and forgives remaining debt after 20 years. This program was previously only available to new students. Obama expanded the program to a majority of loan holders, who can begin to take advantage of it in 2015.

Obama also supports the Bank on Students Emergency Loan Refinancing Act. This bill, introduced this May by Sen. Elizabeth Warren (D-MA), would allow those with outstanding debt to refinance their loans based on newer and lower interest rates.

What does Congress think about these reforms?

As noted in the last section, Democrats are on board with Warren’s plan. Every single Democratic Senator voted for the bill when it was brought to the Senate floor. This is most likely because it is a targeted demographic of the Democratic Party’s base — young adults — and that it is paid for by a tax that that has been a part of their platform for years.

Republicans in Congress are not a fan of Warren’s bill, mainly because it would be funded by the Buffett Rule. The Buffett Rule, proposed by Obama before the 2012 election, is a plan to tax millionaires so that they are not paying a lower share of their wealth in taxes compared to middle-class Americans. Even Senate Republicans, often seen as more moderate than House Republicans, rejected the bill, calling it a “political stunt.” Only three Republicans voted for the bill.

Sen. Marco Rubio (R-FL), a possible 2016 candidate, has introduced a bill that looks nearly identical to the Pay As You Earn program, but applies the same logic to every single student loan. It caps payments as a percentage of income and allows for debt forgiveness. However, while Pay As You Earn forgives all debt after 20 years, Rubio’s bill would only forgive that debt if it were less than $57,500. The debt would be forgiven in 30 years if it were any higher than that figure. Still, there is a lot of common ground between conservatives and Democrats. Common sense would dictate that this bill has a real chance of being passed.

Yet, as those who follow Congress know all too well, common sense rarely impacts Congressional results. The main obstacle for Rubio’s reform bill is that not all conservatives are the same. There are significant divisions in the Republican party on this issue. Many conservatives do not even believe that the federal government should be in the business of paying for young people to go to college. When asked about his vote against Warren’s bill, Senate Majority Leader Mitch McConnell (R-KY) stated that it is not Congress’ job to forgive “obligations that have been voluntarily incurred.” He also said “not everybody needs to go to Yale,” presumably arguing that students who cannot afford college should look for cheaper options instead of depending on the government. There are certainly cheaper options than Yale, such as for-profit college. McConnell believes that students should consider these less-expensive options before depending on the government.

How do Americans feel about student loan reform?

There has not been much polling done on the issue of student loan reform; however, one 2013 Public Policy Polling poll shows that all Americans are unsurprisingly unified on one issue: 83 percent of all Americans want Congress to either keep rates on student loans the way they are or lower them. This poll was taken back when rates could have potentially doubled, so it does not reflect feelings toward current reform packages, but it does show that the American people are in favor of Congress acting to keep interest rates low.

Americans are much more divided when it comes to opinions on the worthiness of their own loans. A poll by the National Foundation for Credit Counseling shows that, by a two-to-one margin, most Americans believe that their own student loan was worth the cost. However, most would not recommend taking out student loans to finance an education and some claimed they would not have taken a loan out if they were aware of how much it would cost them in the long run.

Congress would be wise to spend time on this issue, regardless of which reform plan they support. According to a Harvard University Institute of Politics poll, 57 percent of Millennials believe that student debt is a major problem. That concern is consistent across party lines. This statistic will likely keep the student loan issue on the Congressional agenda for quite some time.

Resources

Primary

U.S. Senate: S 1241 The Bipartisan Student Loan Certainty Act

Additional

U.S. Department of Education: FAFSA

College Board: Average Net Price Over Time for Full-Time Students at Public Four-Year Institutions

Forbes: College Costs Out of Control

Huffington Post: Elizabeth Warren Slams Mitch McConnell: He Wants ‘Students to Dream a Little Smaller’

U.S. News & World Report: Congress Approves Student Loan Deal

Huffington Post: How Millennials and Students Won a Massive Victory on Loan Rates

Huffington Post: Why the Student Loan Deal is Bad News for Students

Vox: 2008 Was a Terrible Year to Graduate College

The New York Times: A Beginner’s Guide to Repaying Student Loans

U.S. News & World Report: Obama Sidesteps Congress to Expand Student Loan Repayment Program

CBS: Senate Republicans Block Consideration of Student Loan Bill

Eric Essagof

Eric Essagof attended The George Washington University majoring in Political Science. He writes about how decisions made in DC impact the rest of the country. He is a Twitter addict, hip-hop fan, and intramural sports referee in his spare time. Contact Eric at staff@LawStreetMedia.com.

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