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Lindley Estes is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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This week’s (6/13) investment column

COULD A CYBER attack have been responsible for the so-called “flash crash” that caused major U.S. stock markets to swoon hundreds of points within minutes on the afternoon of May 6?

Billionaire investor Warren Buffett mentioned that possibility during an interview with CNBC’s Becky Quick earlier this month.

Buffett made the remark in an offhand manner during the 15-minute interview, and Quick didn’t ask any follow-up questions about it, so it’s hard to say how serious the statement was. Buffett also said he wasn’t the slightest bit concerned about the short-term drop.

I haven’t seen any other commentary to suggest cyber malfeasance might have had anything to do with the swift drop in stock prices that afternoon. But having recently finished Richard Clarke’s book “Cyber War,” Buffett’s remark immediately grabbed my attention.

“Cyber War,” which was co-authored by Robert Knake, describes the extent to which computers can be used by nations or terrorist groups to disrupt their enemies. Military and civilian targets can be hit, including financial markets.

The book describes how dependent the world, and particularly the U.S., has become on computer code, which hackers can exploit for their own purposes.

Computer software is used to ensure the smooth operations of banks, stock markets, railroads, airplanes, electrical grids and more. While this has cut down on mistakes and improved efficiencies, it has also made the country more vulnerable to a highly disruptive computer-based attack.

“Cyber War” shows that nations are actively preparing for both offensive and defensive cyber campaigns by hacking into each other’s systems ahead of time. This preparedness has the potential to knock out key military targets and prevent bloodshed, but in the wrong hands it could also have catastrophic effects.

Clarke and Knake paint a picture of a doomsday scenario in which a cyber attack knocks out electricity all over the U.S. for weeks, leading to looting and deaths. Trains and planes crash and fall out of the sky. Financial data go up in smoke, leaving everyone unaware of who owns what and shutting down ATMs.

The scary thing for the U.S., the book makes clear, is that we are more tied to computers than are many rogue countries and groups that might try to attack us. Therefore these enemies have much less to lose in the event of cyber war.

“Cyber War” makes numerous suggestions for how the U.S. can strengthen its cyber defenses and work diplomatically to stave off computer-based attacks.

The book indicates that attacks on financial data have thus far been largely avoided, and most countries realize that this type of assault would be intolerable. Let’s all hope that continues to be the case, and that Buffett was either joking or incorrect in his remark about the possibility of a cyber attack.

Permalink: http://news.fredericksburg.com/businessbrowser/2010/06/13/this-weeks-613-investment-column/