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There are a number of public services for which preservation of privacy is a fundamental aspect: think health care and taxation. Despite book loan transactions occurring through a public institution, I think that these lending institutions need to preserve privacy for the same reasons that we preserve it in other domains: to prevent secondary compromises to the individual; fear of those compromises may prevent an individual from pursuing those services at all. The free exchange of ideas would be curbed. Perhaps that is exactly what institutions like Homeland Security want.
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The interlibrary loan system is an international lending system. Presumably, Canadians who request flagged material through the system would also expose themselves to investigation by the DHS. I don't know whether such an international investigation has yet occurred, or how it would be handled. Canadian librarians are contemplating using anonymized borrower information to protect their identities.
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