There's No Such Agency
Given the Bush administration's disproportionate, bizzare, and totally confusing response to the New York Times' expose that the NSA is illegally spying on US citizens, it must be that something else is going on here.
I think it is now safe to assume that the NSA can intercept all internet traffic coming in and out of the United States. It doesn't seem likely that they would be able to store, let alone process all of that data, but I would imagine that they could store everything on, say, port 25 indefinitely. Storing all HTTP traffic would be a horse of a different color, of course, but maybe you wouldn't need to — in some cases just knowing the IP addresses of the endpoints of every open socket between the US and the outside would yield enough data points to make John Poindexter's socks roll up and down.
Of course the NSA can do this all legally by tapping undersea cables — but this is expensive, and they would need some way of getting the data from the taps to where it could be processed, which would be even more expensive.
My guess is they're getting the data from the service providers, on US soil, presumably with their cooperation (although I suppose that wouldn't necessarily be needed). This would be illegal, but the argument would be made that they could do it legally, it would just be more expensive.
I don't think they can intercept arbitrary traffic within the United States — to get full coverage they would need to tap so many different traffic bottlenecks that someone would surely notice. Right?
It will be interesting to see if we ever learn what the fuck is really going on here. It's times like these that illustrate why subpoena power is so important.
Also see why Dianne Feinstein is so pissed off. It's worth your time, I promise.
Update: Bruce Schnier (Of Applied Cryptography fame) has a piece in Salon.
