Cyber wars are a bigger threat to humanity than nuclear weapons, the world’s most famous investor Warren Buffett, warned in May 2017.
“I do think that’s the number one problem with mankind,” Warren Buffett warned during Berkshire Hathaway’s annual shareholder meeting on May 6th.
“I’m very pessimistic on weapons of mass destruction generally although I don’t think that nuclear probably is quite as likely as either primarily biological and maybe cyber,” Buffett cheerily told Berkshire Hathaway’s annual shareholders’ meeting.
“I don’t know that much about cyber, but I do think that’s the number one problem with mankind” said Buffett
Last year, Buffett told CNBC — cyber, nuclear, biological and chemical attacks — posed a major threat to the economic well-being of Berkshire shareholders.
Echoing Buffett’s cyber concerns, leading experts on financial warfare, cyber terrorism and cyber war have warned that cyber threats could badly impact financial exchanges and financial markets leading to a sharp selloff in risk assets.
The threat posed by cyber fraud, terrorism and war to our increasingly complicated, technologically dependent and vulnerable financial institutions, markets, banks and indeed deposits becomes clearer by the day.
Here are just a few reminders of the many cyber “events” in recent months and years:
- The New Year and the first week of 2018 brought news of the ‘Spectre’ and ‘Meltdown’ security flaws identified in Intel, ARM and AMD chips, exposing nearly all computers worldwide, including smartphones and other devices, to major security risk
- The personal data of over 140 million American and British people including credit card numbers and their financial data was stolen from Equifax, the consumer credit reporting agency, in one of the biggest hacks in history, uncovered in September 2017
- Cyber fraud in the global Swift payment system resulted in $81 million being stolen from the New York Federal Reserve Bank in February 2016
- JP Morgan Chase were hacked in the summer of 2014 by unknown parties who stole the personal details of 83 million customers
- Yahoo (1 billion accounts), MySpace (360 million names and passwords), eBay (145 million passwords) and several more massive companies have been hacked
- In July of last year Bloomberg reported that malware had been detected in the IT systems of the Nasdaq exchange. Its purpose was unclear but it was believed to have been embedded there by Russian hackers
- EU country Estonia, a technologically advanced nation, experienced a complete internet shutdown in 2007. It is believed that Russian cyber warfare took down the internet
- The number of ‘internet shutdowns’ increased in 2017 as more than 30 countries were hit by internet shutdowns
- In October 2017, it came to light that Deloitte was hacked and clients’ sensitive emails and data compromised
- NatWest, RBS and Ulster Bank all experienced online banking “issues” in November 2017 with clients left without access to funds & experienced failed payments with little to no recourse
This is part of a much larger problem. Alas, barely a week goes by without some company or government agency announcing that one of its systems has been attacked and compromised.
There are many more examples of cyber fraud, hacking, theft and terrorism. There are also many examples of slow and frequently inept responses from hacked companies, banks and governments, cover-up attempts and a lack of responsibility and accountability.
The very frequent cyber-attacks being seen internationally highlight the growing nature of the threat, and the need for much greater security and caution regarding online assets and banking. The events above suggest that we appear to be sleep walking into a global cyber financial crisis.
Many analysts, including geopolitical and monetary expert James Rickards, the bestselling author of ‘Currency Wars’ has warned that cyber-attacks may have already compromised the U.S. national security and could turn a “bad day on Wall Street into a full-blown crash”.
He warned that WikiLeaks’ March, 2017 release of 7,818 web pages, called the ‘Vault 7’, was a major development. This collection amounted to more than several hundred million lines of code, and gave away the entire hacking capacity of the CIA.
It was by far the largest release of CIA intelligence documents in history. The WikiLeaks’ released documents proved that U.S. intelligence agencies have lost control of their hacking tools.
There are other risks that are more relevant to those of us who work in finance and manage client’s wealth. In 2010, the Department of Homeland Security and the FBI found an attack virus in the computer systems of the Nasdaq stock market. They disabled the virus, but there are concerns that others remain.
In August, 2013, the Nasdaq was abruptly shut down for over three hours which prevented investors from buying/selling technology stocks isuch as Facebook, Amazon, Apple, Netflix and Google and other investor favorites.
Military tacticians and planners make use of a fighting doctrine called “force multiplier.” The idea is that any given weapon can be used with greater-than-normal effect when combined with some other state or condition that gives the weapon greater impact.
For example, if say North Korea, Russia or China wanted to disrupt a U.S. stock exchange, they might wait until the market is down over 3%, some 800 points on the Dow Jones Industrial Average, for reasons unrelated to a cyberattack. They then launch an attack on a day and at a moment when the market is already nervous and volatile.
This would “multiply” the impact of the attack and possibly result in a crash comparable in percentage terms to the one-day ‘Black Monday’ drop on Oct. 19, 1987 of 22.6%.
‘Black Monday’ October 1987 (Source: Wikipedia)
These scenarios are real risks to financial markets but there are also risks to online payments and banking systems.
As we have seen our modern digital financial system, banks, institutions and governments are all vulnerable and many have been compromised.
The digital financial system of today and online investment and savings providers including brokerages with their massive dependency on single interface websites, servers and the internet face serious risks that few analysts have yet to appreciate and evaluate.
These also pose risks to online investment providers and brokerages who do not allow clients to interact and trade on the phone and are solely reliant for pricing and liquidity from online portals and online trading platforms.
These real risks highlight the increasing importance of not having all one’s financial eggs in the ‘online financial and banking system’. One way to hedge these risks is to diversify into hard assets and have an allocation to hard assets such as property, land and gold bullion.
Physical assets outside the banking and financial system are less vulnerable potential cyber terrorism, war and contagion.
The hope is that these cyber risks will not impact the global economy and financial markets. Hope is never a strategy. It is prudent to be aware of and take appropriate measures including re-evaluating asset allocations due to these risks.
Author: Mark O’Byrne is the Research Director of gold bullion broker GoldCore. Over 15,000 clients in 140 countries, have transacted over $1 billion in sales with GoldCore and store bullion coins and bars worth over $150 million with GoldCore’s vaulting partners. For more information see GoldCore.com