Musk and Treasury's Payment Systems (He Punched the Bursar...)

Updated Feb. 6, 2025:  Elon Musk and his DOGE team are seeking (and apparently gaining) access to Treasury’s computer systems for managing payments.  Unfortunately, a lot of the media coverage has done a poor job of explaining the particular concerns, in part because there isn't very good understanding of exactly what Treasury does. Let met try to add some clarity here, recognizing that there's still a lot we don't know about what is motivating Musk.

 

Payment systems are the plumbing of the economy:  they are how funds flow from one party to another. The federal government is the single largest payor (and payee) in the economy, and Treasury operates a very complex set of government accounts payable systems. The Treasury Department is the government's bursar. It is disbursing funds to investors in Treasury securities, to government entitlement holders (Social Security—both OASDI and SSI), to contractors and vendors, and federal employees. Treasury disbursed nearly 1.3 billion payments last year for something like $5.4 trillion.  100% of payments were made on time. There is no payor in the world like it.  

 

The fiscal operations side of Treasury gets virtually no public attention, but it’s really an amazing operation, and something for which the federal government does not get nearly enough credit. We take it for granted that our payments from the federal government will be made without a hitch. And they nearly always are. But it doesn’t just happen. It requires an incredible infrastructure that runs very, very smoothly. Put another way, one thing the federal government does extraordinarily well is disbursing funds. Think about that the next time you hear someone complain about government inefficiency.  

 

Treasury does not operate actual payment systems. Instead, it is a giant bursar's office that uses other payment systems for disbursing funds. Treasury’s disbursement systems are a combination of electronic and paper payment systems. Many of the payments are via ACH (e.g., Direct Deposit of Social Security benefits or payments to vendors who invoice via IPP), some are via prepaid debit cards (e.g., Treasury Direct Express benefits payments to unbanked individuals or EagleCash/Navy Cash/EZPay, which are used by the armed forces), some are wire transfers (e.g., TreasuryDirect payments on Treasury bonds), and some are paper (e.g., legacy paper payments for Social Security recipients who have not gone electronic or perhaps even a tax refund check). 

 

To make these payments work, Treasury needs a fair amount of personally identifiable information about its payees including generally name, address, Social Security number, and basis for payment. In addition, if it is making an ACH or wire transfer payment, it knows the recipient’s bank account number.  There’s a bunch of privacy concerns wrapped up in that information:  the amount of benefits people receive, the nature of the benefit payments (e.g., SSI indicates that the recipient is either disabled or very low income and resources).  Additionally, although Social Security numbers are not “private,” they are often used an identifier for opening accounts, and a bank account number can be used for fraudulent ACH draws.  Not surprisingly, Treasury keeps a close lid on all of this information, just as a private financial institution would.

 

So what’s the problem with Musk poking around? Apparently Musk believes that there are payments being made to “known fraudulent or terrorist groups.” Call me skeptical. Treasury has a pretty robust system Do Not Pay system for detecting improper payments, running payees through several different databases, including the OFAC lists that should identify any payee who is considered a terrorist by the US government.  This doesn’t mean that some improper payments do not get made, but there’s a whole office in Treasury that identifies and recovers improper payments, and if the problem is a contractor overcharging the Navy for a toilet seat, well, that's not something that can be identified on the Treasury end of things.

 

Maybe Musk is hoping to optimize the Office of Payment Integrity, but no one has previously identified its operations as a particular area of concern; indeed, how many people had even heard of the office previously? In any event, this is an incredibly in-the-weeds sort of thing to do, and not where I would have expected him to make a showing. And it’s the sheer implausibility of the claim that Musk is actually concerned about Treasury making too many improper payments that raises the question of what else might be motivating his interest. 

 

I do not know exactly what is motivating Musk. Maybe it was just a function of asking for everything as a matter of course and then getting his hackles up when he was told no. But maybe he actually does have a particular interest in Treasury's payment systems. Three troubling possibilities come to mind as to why he might. 

 

1. Payment Disbursement as a Policy Lever. First, Musk might be interested in the potential for using control of the payment disbursement system as a policy lever.  All sorts of activities depend on access to funding, and that requires the ability to receive and make payments, which in turn requires access to the banking system. Over the past decade or so we have seen a broader phenomenon of payment system access being dragooned to achieve policy ends with either limited or no connection to the operation of payment systems.  First there was Operation Choke Point, which was an anti-consumer fraud operation of the DOJ aimed at banks that ignored red flags of fraud in the payment system. The fraud concerns stemmed from a sort of off-shoot of on-line payday lending (the sale of consumer loan application data on unpurchased leads), but that at least had some limited payments operations connection, as the banks had chargeback liability to the extent that the fraudster absconded or was insolvent.  (That’s also why it was quite reasonable for bank regulators to be concerned about banks providing payment processing services for crypto exchanges—payments involve credit risk to merchants’ banks because of the chargeback possibility.)  But we also started to see things like Sheriff Dart of Cook County pursuing MasterCard and Visa as a way to get at human trafficking on BackPage or more recently the litigation against Visa over human trafficking on MindGeek.  Likewise, interest groups seeking to limit firearm sales or abortion both explored using the payment systems as a pressure point, if not a choke point.  And this is just domestic stuff; our whole sanctions regime, going back to the WWI Trading with the Enemy Act, has been in the first instance about limiting payment system access.  (If you haven’t guessed, I have a draft paper about the broader phenomenon, but it’s not quite ready to share publicly…)  

 

What does this have to do with Musk?  Well, Treasury could be used as a choke point for control over government policy of even independent agencies, denying payment to contractors who work on those disfavored projects or to recipients of federal funding approved under the Biden administration.  Instead of having to gain control over federal agencies one at a time and worry about being undercut by recalcitrant civil servants, if Musk/Trump can control payments disbursements by Treasury, they can exercise a substantial override over agency policies they do not like, at least to the extent that those policies involve payments. 

 

The latest reporting is that Musk's crew sought to freeze payments made by USAID. The Trump administration has already made substantial moves to shut down USAID's activities, but cutting off disbursements might be even more effective than telling USAID employees pencils down.

 

The ability to control disbursements can be used not just to target whole agency's activities, though. It can also be used more surgically to target particular agency activities that Musk or the White House do not like. For example, imagine someone who was engaged by the SEC to work as an expert witness in an SEC investigation of Tesla.  The White House cannot directly control the SEC, but if it has its hands on the payments spigot, it can make it very difficult for the expert witness--just a government contractor—to get paid.  It doesn’t really matter if the contractor could bring suit in the Court of Federal Claims and ultimately prevail after a number of years. Who wants that sort of tsuris for an expert witness gig?  

 

Or imagine a contract approved under the Biden administration to facilitate scientific research with periodic disbursements to be made by the federal government. The Trump administration cannot cancel the contract, but if it fails to make payments, it gets to a similar enough result because the research program will collapse if the promised funding is not there—it won’t have the money needed to meet its own expenses. Again, it really doesn’t matter that the aggrieved payee can bring suit in the Court of Federal Claims and ultimately prevail after a number of years. The damage will already be done.  A continuous five-year stream of funding is not equivalent to a two-year stream and then a three-year stream with three years in the interim. 

 

What’s more, targeting specific payees can also chill the ability of the federal government to contract in general. Once it gets out that Treasury is stiffing some payees, who is going to agree to contract with it?  (I’ve had this concern when working with some state governments…) At best, contractors will be raising their prices or demanding different payment terms, cutting off the float that benefits the federal government.  Messing with the full faith and credit of the United States government threatens to undo the enormous work that Hamilton did 250 years ago. Put another way, Musk's actions have introduced a quantum of credit risk—because of unwillingness to pay—into US government obligations. That is incredibly value-destructive to the United States. Don't punch the Bursar.

 

2. Competitive Conflicts of Interest. A second possible motivation is that Musk is in the process of trying to transform X into a payments platform, as part of an effort to make it an everything app akin to WeChat (and to a lesser extent AliPay), which are dominant in China. (Good luck with that when you have alienated half the country….) X, like many other large tech platform, already has state money transmitter licenses. Musk isn’t exactly looking to compete with Treasury, but potentially he has a commercial use case for some of the personally identifiable data that an average person would not.  I have trouble seeing this as his motivation, but who really knows?

 

3. Punishing political opponents. The payee information data Musk has can be cross-referenced against other databases, such as lists of Democratic donors. Once that's done, Musk has the ability to delay or cut off payments to political opponents. Indeed, just the threat of doing so is a potent weapon. Do you really want to worry that your Social Security payments might get cut off because you gave money to the Dems or because you signed a political petition? There's an implicit threat to the freedoms of association and speech lurking here. It's always been a theoretical possibility, but having a political actor like Musk sticking his fingers around in the accounts payable systems makes this a real concern. 

 

I love teaching payment systems because modern payment systems, including Treasuries, are an infrastructure marvel—they are our aqueducts of commerce.  They work beautifully 99.99% of the time, handling trillions of transactions a year.  We are used to an incredibly low rate of problems with payments, and payment systems that fail to achieve that end up out of business very fast. Consumers and businesses are not forgiving of payment systems messing up with their funds.  So I would be very cautious with tinkering with any well-oiled payment system. It’s not like an app like X that can have some glitches from a software update and patch it a day later and say “no biggie.”  And all the more so with Treasury’s distribution systems. Simply put, if you wanted to start a revolution in this country, perhaps the surest way to do so would be to screw up distribution of Social Security funds on the 1st and 3rd of the month.  You’d have angry mobs in the streets with pitchforks—those funds are what many people rely on to live.  Treasury's payment disbursement system is the mother of all too-big-to-fail financial infrastructure. If FedWire or FedACH went down, it would be bad, but there are other ways to route payments. Treasury is the single largest payer in the economy; there is no substitute source of funds. Musk might want to show civil servants who's boss, but he should remember that one does not lightly tinker with Treasury’s distribution systems.

Comments

[Huntly]

Your second motivation is the first thing that came to my mind when I read about this. So many things get pushed/paid through WeChat it’s pretty impressive. If somehow getting access to the treasury system helps the richest man on earth he’s going to exploit it.

[forthedead]

"you'd have angry mobs on the streets" GREAT NEWS. 99% of the planet of needed that for several centuries, and 99% of beings in the u.s have needed it the entirety of u.s empires existence.

the empire harming more is bad, yes, but you do realize that overthrowing the absurdly harmful empire and its bloated disgusting SCRIP system (called "money") is a GOOD THING, right?

you'll have too soon enough, if you don't want to side with fascism.

[Dalié Jiménez]

This is scary stuff. I was very skeptical of the "read only" access that was reported and indeed now it's coming out that apparently a 25-yr old named Marko Elez "not only has full access to these systems, he has already made extensive changes to the code base for these critical payment system." - https://talkingpointsmemo.com/edblog/musk-cronies-dive-into-treasury-dept-payments-code-base

[Adam Levitin]

Call me skeptical about code changes. Some of these systems are programmed in languages that are 2x as old as Elez. A kid who knows Python isn't just going to sit down and know what to do with COBOL or some other older coding language. Indeed, before one can start changing the code, one needs to know what one is trying to change in functionality, and I don't think any of these DOGE newbs have enough understanding of the system to have gotten to that point yet.