( MENAFN - Asia Times) China's Economy is having major problems. Despite the country's dominance of global manufacturing, its living standards are starting to stagnate at a level far below that of developed countries. China's growth has slowed down dramatically, from around 6.5% before the pandemic to 4.6% now, and there are credible signs that even that number is seriously overstated . See this , this , this and this on the theme. I think everyone cited here is broadly in agreement. But in the background, China has another problem that's weighing on its people's prosperity and also making it harder to respond to the macroeconomic crisis. This is the problem of chronically low productivity growth. I don't quite believe the official numbers that say China's total factor productivity (TFP) has fallen over the past decade and a half, but it's undeniable that it has grown much more slowly than in previous periods. Why? Paul Krugman points to a sectoral shift toward real estate - an industry with slow productivity growth - after the global financial crisis of 2008. I think that's definitely a part of the story, but probably not all of it. Back in 2022, I wrote a post thinking through various possible reasons why China's productivity growth declined long before it reached rich-world living standards . So in light of China's current struggles, which have only gotten worse in the intervening 2.5 years, I thought it might be helpful to repost it now. I think what I wrote holds up pretty well. It's always an interesting experience to read books about China's economy from before 2018 or so. So many world-shaking events have changed the story since then - Trump's trade war, Covid, Xi's industrial crackdowns, the real estate bust, lockdowns, Russia's invasion of Ukraine. Reading predictions of China's evolution from before these events occurred is a little like reading sci-fi from 1962. When I started China's Economy: What Everyone Needs to Know® , by the veteran economic consultant Arthur Kroeber, I was prepared for this surreal effect. After all, it was published in April 2016 - not the most opportune timing. So I was pleasantly surprised by how relevant the book still felt. Most of the book's explanations of aspects of the Chinese economy - fiscal federalism, urbanization and real estate construction, corruption, Chinese firms' position within the supply chain, etc. - are either still highly relevant, or provide important explanations of what Xi's policies were reacting against. Dan Wang was not wrong to recommend that I read it. But China's Economy is still a book from 2016, and through it all runs a strain of stubborn optimism that seems a lot less justifiable six years later. Most crucially, while Kroeber acknowledged many of China's economic challenges - an unsustainable pace of real estate construction, low efficiency of capital, an imbalance between investment and consumption, and so on - he argued that China would eventually overcome these challenges by shifting from an extensive growth model based on resource mobilization to one based on greater efficiency and productivity improvements. This was despite his acknowledgement of the fact that productivity growth had already slowed well before 2016, and that Xi's policies so far didn't seem up to the challenge of reviving it. In many ways, productivity growth is the thread that ties together the entire story of the Chinese economy since 2008. Basic economic theory says that eventually the growth benefits of capital accumulation hit a wall, and you have to improve technology and/or efficiency to keep growth going. Some countries, like Japan, South Korea, Singapore, and Taiwan, have done this successfully and are now rich; others, like Thailand, failed to do it and are now languishing at the middle-income level. For several decades, Chinese productivity growth looked like Japan's or Korea's did. But slightly before Xi came to power, it downshifted to look a bit more like Thailand. Here's a graph from a Lowy Institute report : In fact, the Lowy Institute's numbers are more optimistic than some other sources. The Penn World Tables has China's total factor productivity growth at around 0 or negative since 2011: And the Conference Board agrees . Personally, I suspect these sources probably underestimate TFP growth (for all countries, not just for China). But even Lowy's more reasonable numbers show a huge deceleration in the 2010s. If this productivity slump persists, it will be very difficult for China to grow itself out of its problems - such as its giant mountain of debt - in the next two decades. The question then becomes: Why has Chinese productivity growth slowed to a crawl? There are several main candidate explanations, and they have important implications for whether Xi will turn things around. The first reason, of course, is that China had several tailwinds that were helping them become more productive, and these are mostly gone now. One thing helping Chinese productivity growth was simply their distance from the technological frontier. When you don't even know how to do fairly simply industrial processes, it's pretty easy to learn these quickly. China imported basic foreign technology by insisting that foreign companies set up local joint ventures when they invest in China, by sending students overseas to learn in rich countries, by reverse-engineering developed-country products, by acquiring foreign companies, etc. Also by industrial espionage, of course, but there are lots of above-board ways to absorb foreign technology too. The problem is, this has limits. As you reach the frontier, the remaining technologies you need to absorb to keep growing productivity quickly become more and more complicated - not the kind of thing you can easily learn from looking at blueprints or taking a class. Companies guard these higher-level secret-sauce technologies much more carefully. A case in point is that China has had trouble building its own fighter jets , because the metallurgy to build the specialized jet engines that make modern top-of-the-line fighters possible is only known to a few companies in a few countries. So over time, the ability to absorb foreign technology peters out and it becomes necessary to start inventing your own stuff. A second tailwind was demographics. Everyone (including Kroeber) talks about China's unusually large demographic dividend in terms of labor input - when you have a ton of young people with few elders or kids to take care of, they can go work a lot - but it's also probably a factor in productivity. Maestas, Mullen & Powell (2016) shows a negative relationship between population age and productivity at the US state level, while Ozimek, DeAntonio & Zandi (2018) find that the same is true at the firm level. The mechanism is unknown, but the pattern is pretty robust. In any case, China began to age rapidly right around 2010, when its working-age population peaked as a percentage of the total (and peaked in absolute terms shortly afterward): A third tailwind for productivity was rapid urbanization. As Arthur Lewis famously noted , simply moving people from low-productivity agricultural work to high-productivity urban manufacturing work raises productivity a lot. Agglomeration economies are another force by which urbanization raises productivity. And economists find that China hit its“Lewis turning point” - i.e. ran out of surplus agricultural laborers to move to the cities - right around 2010 . Of course, China also limited urbanization unnecessarily by using its hukou (household registration) system to keep migrant laborers from settling permanently in cities. But in any case, this tailwind also appears to be over. So in the last decade, three big tailwinds that were driving Chinese productivity growth probably dried up. And there's not really anything that Xi Jinping or any leader can do about that. But there are probably other factors dragging down China's productivity growth as well, that might be more amenable to policy fixes. If you can no longer import foreign technology, one thing you can do is to invent your own. In fact, this is a good thing to do even if you do import foreign technology, since companies should create new products and new markets instead of just aping foreign stuff. And indeed, China has been spending a lot more on research and development in recent years. Here's a chart from the blog Bruegel : Unfortunately, research input doesn't always lead to research output. A 2018 study by Zhang, Zhang & Zhao finds that Chinese state-owned companies have much lower R&D productivity than Chinese private companies, which in turn have much lower productivity than foreign-owned companies. And a 2021 paper by König et al. finds that while R&D spending by Chinese companies does appear to raise TFP growth, the effect is quite modest: The authors suggest misallocation of resources as a major culprit in low R&D productivity - in other words, a lot of this spending is being done by state-owned companies that are just throwing money at“research” because the government tells them to, but not really discovering much. They also note that some companies simply reclassify normal investment as“R&D” in order to take advantage of tax breaks (note that companies do this everywhere). What about university research? This is an extremely important part of how the US keeps its technological edge. And China has indeed been throwing huge amounts of money at university research, such that its expenditure now nearly rivals that of the US China recently passed the US in terms of published scientific papers , including highly cited papers . But the quality of this research has been called into question. Investigations regularly find that despite all this publication activity and all this spending, Chinese universities are not the leaders in most fields of research . Basically, the story is that Chinese scientists are under tremendous pressure to publish a ton of crappy papers, which all cite each other, raising citation counts. In the words of Scientific American, this has led to“the proliferation of research malpractice, including plagiarism, nepotism, misrepresentation and falsification of records, bribery, conspiracy and collusion.” So the low productivity of Chinese R&D may help explain why the country's domestic innovation hasn't risen to take the place of foreign technology absorption. As everyone who reads this blog knows, I'm a big fan of the development theories of Joe Studwell and Ha-Joon Chang. A pillar of the Chang-Studwell model is the idea of“export discipline .” Basically, when companies venture out into global markets, they encounter tougher competition and also ideas for new products, new customers, and new technologies. This raises their incentive (and their ability) to import more foreign technology, and in general makes them more productive and innovative. After the global financial crisis of 2008 and the recession that followed, the US wasn't able to absorb an ever-expanding amount of imports from China. So Chinese exports to the US market slowed in the 2010s , and then Trump's trade war slowed them even more. China's exports to the EU rose a bit , but not that much. Many people (including Kroeber) talk about this as a shift from export-led growth to growth led by domestic investment. And so it is. But if productivity benefits from exporting, then this is also a challenge for long-term growth, because there's less opportunity for export discipline to work its magic. In fact, this might be one reason that it's harder for big countries to grow relative to small countries. It's a lot harder to be an export-led economy when you have 1.4 billion people than when you only have 50 million people (as South Korea does), because the world simply gets saturated with your exports. Which raises the question of why the US manages to be so productive - more productive even than most European and rich East Asian economies. Consumption might have something to do with that. The US is a very large economy that is geographically distant from most other major economies. This explains why the US has a very low amount of trade relative to GDP - just 23%, compared to 81% for Germany and 69% for South Korea. But the US is also a highly productive economy, more productive than all but a few small rich nations. Exports certainly helped the US grow, but to a large extent it simply sold stuff to itself. As the chart above shows, China increasingly does the same. But unlike the US, China's domestic economy is heavily weighted towards investment in capital goods - apartment buildings, highways, trains, and so on. China's final consumption is only 54% of GDP , compared to over 80% in the US. And private household consumption accounts for only 39% of China's GDP , compared with 67% in the US. Of course, China is still at an earlier stage of development, but as Kroeber notes in his book, even countries like Japan and South Korea had significantly higher consumption shares at equivalent stages of their own growth stories. Usually this gets discussed in the context of“imbalances.” But what if it also affects productivity? Consumers have a preference for differentiated goods that spurs companies to develop new products, increase quality, offer new features, and so on. The strategy professor Michael Porter argues that when companies compete by differentiating their products instead of simply competing on costs, it results in higher value-added - in other words, it makes them more productive. Over the past decade, China has been building a lot of buildings and a lot of infrastructure. But it hasn't been developing a lot of innovative and high-quality cutting-edge consumer products. Various government policies that funnel resources toward domestic investment rather than domestic consumption may inadvertently be holding back Chinese productivity. And the biggest such policy might be macroeconomic stabilization. It's important to stabilize the economy. Recessions throw people out of work and create tons of suffering, and probably also lead to underinvestment by companies. They can damage the cohesion of entire societies. The US rediscovered this lesson the hard way in 2008-11 when our insufficient fiscal stimulus resulted in a recession that was longer and more painful than it had to be. But there may be such a thing as too much stabilization. As I explained in a post last September , China avoided going into recession both in 2008-11 and again in 2015-16 (after a big stock market crash) by pumping money into real estate, via lending by state-controlled banks , often to SOEs and to local governments . This likely saved the Chinese economy from experiencing recessions in 2008-11 and 2015-16. But it had a big negative effect on productivity growth, for three reasons. First, SOEs simply aren't very productive compared to other Chinese companies. Second, the money was shoveled out the door very quickly, meaning that there wasn't much time or incentive to figure out which projects were worth investing in. And third, real estate and construction are sectors of the economy with notoriously low rates of productivity growth. This last is probably the scariest, as it led China's economy to be more dependent on real estate than any other in recent memory: Anyone who has followed the saga of China's Covid lockdowns will sense a familiar pattern here. The Chinese government, eager to preserve the appearance of invincibility, often goes overboard in unleashing the tools of control. But while recessions are not healthy things, the lengths to which Chinese policymakers went to make absolutely 100% sure they never had even the slightest recession may have left their economy with a huge hangover of low-productivity industry. So there are plenty of reasons why China's productivity growth crashed to a low level in the 2010s and 2020s. But speeding it back up again - which every analyst, including Kroeber, seems to recommend - will be no easy task. The tailwinds driving productivity higher are gone. And China's misallocation of resources toward low-quality research and low-quality real estate industries will not be easy to reverse; these systems have a way of getting entrenched. Xi Jinping, of course, is going to try. Part of his effort consists of industrial policy - the Made in China 2025 initiative and the big push for a domestic semiconductor industry . It remains to be seen whether those will bear fruit. But in the last three years, Xi has undertaken a second, more destructive effort to reshape China's industrial landscape. Instead of simply boosting the industries he wants, he has attacked the industries he doesn't want. He has cracked down on consumer internet companies, finance companies, video games and entertainment. And he has attempted to curtail the size of the real estate industry , resulting in a slow-motion crash that's still ongoing . Essentially, Xi is trying to crush industries he doesn't like, in the hopes that resources - talent and capital - flow to the industries he does like. This is a new kind of industrial policy - instead of“picking winners”, Xi is stomping losers. One of the saddest things about optimistic 2016-era analyses like Kroeber's is how much hope they place in internet companies like Alibaba, Tencent, and Baidu as heralds of a new, more innovative China. Xi has declared that these companies are not, in fact, the future. But it's far from clear that an economy works like a tube of toothpaste, where smashing one end will send resources squirting out the other end. If you're a budding entrepreneur, do you really think that starting a semiconductor company instead of an internet company will win you Emperor Xi's favor? What if next week he decides that he doesn't need more chip companies and that your company isn't one of his preferred champions? What if after you get rich and successful, Xi decides you're a potential rival and appropriates your fortune? An economy where the leader is always smashing companies and industries he doesn't like is inherently an economy full of risk. Yes, Chinese engineers and managers will obey Xi's will and go into the industries he wants them to go into. But the loss of entrepreneurship and initiative might make this a pyrrhic victory. In other words, escaping China's low-productivity-growth trap is going to be tough, and Xi's strategy doesn't fill me with a ton of confidence so far. This article was first published on Noah Smith's Noahpinion Substack and is republished with kind permission. Become a Noahopinion subscriber here. Thank you for registering! An account was already registered with this email. Please check your inbox for an authentication link. MENAFN30122024000159011032ID1109040388 Legal Disclaimer: MENAFN provides the information “as is” without warranty of any kind. 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ATLANTA (AP) — President Joe Biden's administration announced Tuesday that the U.S. Department of Energy will make a $6.6 billion loan to Rivian Automotive to build a factory in Georgia that had stalled as the startup electric vehicle maker struggled to become profitable. It's unclear whether the administration can complete the loan before Donald Trump becomes president again in less than two months, or whether the Trump administration might try to claw the money back. Trump previously vowed to end federal electric vehicle tax credits , which are worth up to $7,500 for new zero-emission vehicles and $4,000 for used ones. Rivian made a splash when it went public and began producing large electric R1 SUVs, pickup trucks and delivery vans at a former Mitsubishi factory in Normal, Illinois, in 2021. Months later, the California-based company announced it would build a second, larger, $5 billion plant about 40 miles (64 kilometers) east of Atlanta, near the town of Social Circle. The R1 vehicles cost $70,000 or more. The company plans to produce R2 vehicles, a smaller SUV, in Georgia with lower price tags aimed at a mass market. The first phase of Rivian’s Georgia factory is projected to make 200,000 vehicles a year, with a second phase capable of another 200,000 a year. Eventually, the plant is projected to employ 7,500 workers. But Rivian was unable to meet production and sales targets and rapidly burned through cash. In March, the company said it would pause construction of the Georgia plant. The company said it would begin assembling its R2 SUV in Illinois instead. CEO RJ Scaringe said the move would allow Rivian to start selling the R2 sooner and save $2.25 billion in capital spending. Since then, German automaker Volkswagen AG said in June it would invest $5 billion in Rivian in a joint venture in which Rivian would share software and electrical technology with Volkswagen. The money eased Rivian's cash crunch. Tuesday's announcement throws a lifeline to Rivian's grander plans. The company said its plans to make the R2 and the smaller R3 in Georgia are back on and that production will begin in 2028. “This loan would enable Rivian to more aggressively scale our U.S. manufacturing footprint for our competitively priced R2 and R3 vehicles that emphasize both capability and affordability,” Scaringe said in a statement. The Energy Department said the loan would substantially boost electric vehicles made in the United States and support Biden’s goal of having zero-emission vehicles make up half of all new U.S. sales by 2030. “As one of a few American EV startups with light duty vehicles already on the road, Rivian’s Georgia facility will allow the company to reach production volumes that make its products more cost competitive and accelerate access to international markets,” the department said in a statement. The loan includes $6 billion, plus $600 million in interest that will be rolled into the principal. The money would come from the Advanced Technology Vehicles Manufacturing Loan Program, which provides low-interest loans to make fuel-efficient vehicles and components. The program has focused mostly on loans to new battery factories for electric vehicles under Biden, but earlier helped finance initial production of the Tesla Model S and Nissan Leaf, two pioneering electric vehicles. Story continues below video The loan program, created in 2007, requires a "reasonable prospect of repayment" of the loan. Under Biden, the program has announced deals totaling $33.3 billion, including $9.2 billion for massive battery plants in Tennessee and Kentucky for Ford’s electric vehicles. Democratic U.S. Sen. Jon Ossoff , who has been a vocal supporter of electric vehicle and solar manufacturing in Georgia, hailed Tuesday's announcement as “yet another historic federal investment in Georgia electric vehicle manufacturing.” Ossoff had asked Energy Secretary Jennifer Granholm to support the loan in July. “Our federal manufacturing incentives are driving economic development across the state of Georgia,” Ossoff said in a statement. Georgia Gov. Brian Kemp says his goal is to make Georgia a center of the electric vehicle industry. But the Republican has had a strained relationship with the Biden administration over its industrial policy, even as some studies have found Georgia has netted more electric vehicle investment than any other state. Kemp has long claimed that manufacturers were picking Georgia before Biden's signature climate law, the Inflation Reduction Act, was passed. Efforts to bring Rivian to Georgia predated the Biden administration and "our shared vision to bring opportunity to Georgia will remain no matter who resides in the White House or what party controls Congress,” Kemp spokesperson Garrison Douglas said Tuesday. The loan to Rivian could rescue one of the Kemp administration's signature economic development projects even as Biden leaves office. That could put Rivian and Kemp in the position of defending the loan if Trump tries to quash it. State and local governments offered Rivian an incentive package worth an estimated $1.5 billion in 2022. Neighbors opposed to development of the Georgia site mounted legal challenges. State and local governments spent around $125 million to buy and prepare the nearly 2,000-acre (810-hectare) site. The state also has completed most of $50 million in roadwork that it pledged. The pause at Rivian contrasts with rapid construction at Hyundai Motor Group’s $7.6 billion electric vehicle and battery complex near Savannah. The Korean automaker said in October that it had begun production in Ellabell, where it plans to eventually employ 8,500. Associated Press writer Matthew Daly in Washington contributed to this story.
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Demolition of former Marion County Jail could begin by year’s endGLENDALE, Ariz. – Penn State’s James Franklin has never been one to ignore the big picture, whether that’s strictly with his Nittany Lions program or the sport of college football, in general. PSU is in a great spot at the moment, preparing to face Boise State in the Fiesta Bowl on Tuesday. PSU-Boise State is one of the playoff quarterfinal games. But Franklin is not thrilled with the overall health of his sport. There are issues with the transfer portal and NIL, among other things. PSU recently lost talented backup quarterback Beau Pribula to another program, right around the time it became official that Drew Allar was returning to PSU in 2025. One thing Franklin wants to see a commissioner of college football, someone who has the best in interests of the sport in mind. And Franklin has a candidate in mind. Alabama coach Nick Saban and Penn State coach Joe Paterno meet after the Crimson Tide beat the Nittnay Lions, 24-3 on Sept. 11, 2010.Joe Hermitt | jhermitt@pennlive.com PennLive “I think one of the most important things that we can do is, let’s get a commissioner of college football that is waking up every single morning and going to bed every single night, making decisions that’s in the best interest of college football,” Franklin said Sunday during Penn State’s Fiesta Bowl media session. “I think Nick Saban would be the obvious choice,” Franklin continued, referring to the former Alabama head coach. “I think if we made that decision Nick will probably call me tonight and say, ‘Don’t do this’. But I think he’s the obvious choice, right? I think there’s some other really good candidates out there. “But that would be a very, very important step moving forward to come up with some solutions and do what’s best for our sport.” · BETTING: Check out our guide to the best PA sportsbooks , where our team of sports betting experts has reviewed the experience, payout speed, parlay options and quality of odds for multiple sportsbooks. · Sign up for the PennLive’s Penn State newsletters, the daily Penn State Today and the subscriber-exclusive Penn State Insider
Earlier in December, a company presenting itself as the energy company Enron announced its return with a new website and public presence, including billboards in the Houston area. The company also announced its new CEO, 28-year-old Connor Gaydos, known for co-creating the satirical 'Birds Aren't Real' conspiracy theory. Joining him in leadership are Magan Redino as president and COO, Daniel Wong as chief technology officer, and Rich Sybert as general counsel. In a video posted on Monday, Gaydos acknowledged Enron’s controversial past while hinting at "ground-breaking" plans for the future. The relaunch, however, comes with an unconventional twist. A review of Enron’s website reveals a disclaimer in the terms and conditions stating it is "First Amendment protected parody" and serves as "performance art" meant for entertainment purposes. This aligns with Gaydos’ history of satire, as he also co-owns 'The College Company,' the Arkansas-based entity holding the Enron logo’s trademark rights. Also read: 'Enron CEO' Hit With A Pie In The Face In New York | VIDEO Who Is Connor Gaydos? Gaydos became popular as one of the co-founders of the 'Birds Aren't Real' movement, a satirical conspiracy that humorously claims birds are government surveillance drones. The movement, created to mock misinformation and conspiracy theories, has grown into a cultural phenomenon with official college chapters and an engaged online community. Gaydos and collaborator Peter McIndoe fabricated evidence, documents and a fake history to support their parody claims, using social media and creative cosplay. In 2020, 'The College Company' purchased the Enron name for $275. Since the Enron 'relaunch,' social media accounts under the name 'Enron' have surfaced, promoting the relaunch. Notably, the company has retained the original Enron logo and featured it in a full-page ad in the Houston Chronicle with the tagline, "We're back. Can we talk? (TM)." Get Latest News Live on Times Now along with Breaking News and Top Headlines from US News, World and around the world.South Korean authorities seek warrant to detain impeached president
Interview Now that criminals have realized there's no need to train their own LLMs for any nefarious purposes - it's much cheaper and easier to steal credentials and then jailbreak existing ones - the threat of a large-scale supply chain attack using generative AI becomes more real. No, we're not talking about a fully AI-generated attack from the initial access to the business operations shutdown. Technologically, the criminals aren't there yet. But one thing LLMs are getting very good at is assisting in social engineering campaigns. And this is why Crystal Morin, former intelligence analyst for the US Air Force and cybersecurity strategist at Sysdig, anticipates seeing highly successful supply chain attacks in 2025 that originated with an LLM-generated spear phish. When it comes to using LLMs, "threat actors are learning and understanding and gaining the lay of the land just the same as we are," Morin told The Register . "We're in a footrace right now. It's machine against machine." Sysdig, along with other researchers, in 2024 documented an uptick in criminals using stolen cloud credentials to access LLMs. In May, the container security firm documented attackers targeting Anthropic's Claude LLM model . While they could have exploited this access to extract LLM training data, their primary goal in this type of attack appeared to be selling access to other criminals. This left the cloud account owner footing the bill — at the hefty price of $46,000 per day related to LLM consumption costs. Digging deeper, the researchers discovered that the broader script used in the attack could check credentials for 10 different AI services: AI21 Labs, Anthropic, AWS Bedrock, Azure, ElevenLabs, MakerSuite, Mistral, OpenAI, OpenRouter, and GCP Vertex AI. We're in a footrace right now. It's machine against machine Later in the year, Sysdig spotted attackers attempting to use stolen credentials to enable LLMs. The threat research team calls any attempt to illegally obtain access to a model "LLMjacking," and in September reported that these types of attacks were "on the rise, with a 10x increase in LLM requests during the month of July and 2x the amount of unique IP addresses engaging in these attacks over the first half of 2024." Not only does this cost victims a significant amount of money, according to Sysdig, but this can run more than $100,000 per day when the victim org is using newer models like Claude 3 Opus. Plus, victims are forced to pay for people and technology to stop these attacks. There's also a risk of enterprise LLMs being weaponized, leading to further potential costs. In 2025, "the greatest concern is with spear phishing and social engineering," Morin said. "There's endless ways to get access to an LLM, and they can use this GenAI to craft unique, tailored messages to the individuals that they're targeting based on who your employer is, your shopping preferences, the bank that you use, the region that you live in, restaurants and things like that in the area." In addition to helping attackers overcome language barriers, this can make messages sent via email or social media messaging apps appear even more convincing because they are expressly crafted for the individual victims. "They're going to send you a message from this restaurant that's right down the street, or popular in your town, hoping that you'll click on it," Morin added. "So that will enable their success quite a bit. That's how a lot of successful breaches happen. It's just the person-on-person initial access." She pointed to the Change Healthcare ransomware attack - for which, we should make very clear, there is no evidence suggesting it was assisted by an LLM - as an example of one of 2024's hugely damaging breaches. In this case, a ransomware crew locked up Change Healthcare's systems, disrupting thousands of pharmacies and hospitals across the US and accessing private data belonging to around 100 million people . It took the healthcare payments giant nine months to restore its clearinghouse services following the attack. It will be a very small, simple portion of the attack chain with potentially massive impact "Going back to spear phishing: imagine an employee of Change Healthcare receiving an email and clicking on a link," Morin said. "Now the attacker has access to their credentials, or access to that environment, and the attacker can get in and move laterally." When and if we see this type of GenAI assist, "it will be a very small, simple portion of the attack chain with potentially massive impact," she added. While startups and existing companies are releasing security tools and that also use AI to detect and prevent email phishes, there are some really simple steps that everyone can take to avoid falling for any type of phishing attempt. "Just be careful what you click," Morin advised. Also: pay close attention to the email sender. "It doesn't matter how good the body of the email might be. Did you look at the email address and it's some crazy string of characters or some weird address like name@gmail but it says it's coming from Verizon? That doesn't make sense," she added. LLMs can also help criminals craft a domain with different alphanumerics based on legitimate, well-known company names, and they can use various prompts to make the sender look more believable. Even voice-call phishing will likely become harder to distinguish because of AI used for voice cloning, Morin believes. "I get, like, five spam calls a day from all over the country and I just ignore them because my phone tells me it's spam," she noted. "But they use voice cloning now, too," Morin continued. "And most of the time when people answer your phone, especially if you're driving or something, you're not actively listening, or you're multitasking, and you might not catch that this is a voice clone - especially if it sounds like someone that's familiar, or what they're saying is believable, and they really do sound like they're from your bank." We saw a preview of this during the run-up to the 2024 US presidential election, when AI-generated robocalls impersonating President Biden urged voters not to participate in the state's presidential primary election. Since then, the FTC issued a $25,000 reward to solicit ideas on the best ways to combat AI voice cloning and the FCC declared AI-generated robocalls to be illegal. Morin doesn't expect this to be a deterrent to criminals. "If there's a will, there's a way," she opined. "If it costs money, then they'll figure out a way to get it for free." ®
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