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The FBI’s budget for says the collection system increased from $30 million in 2007 to $40 million in 2008, the paper said.

Department of Homeland Security Michael Chertoff has dropped the bomb.

At a speech to hundreds of security professionals Wednesday, Chertoff declared that the federal government has created a cyber security “Mahattan Project,” referencing the 1941-1946 project led by the Army Corps of Engineers to develop American’s first atomic bomb.

According to Wired’s Ryan Singel, Chertoff gave few details of what the government actually plans to do.

He cites a little-noticed presidential order: “In January, President Bush signed a presidential order expanding the role of DHS and the NSA in government computer security,” Singel writes. “Its contents are classified, but the U.S. Director of National Intelligence has said he wants the NSA to monitor America’s internet traffic and Google searches for signs of cyber attack.“

The National Security Agency was the key player in President Bush’s warrantless wiretapping program, which was revealed by the New York Times in 2005.

Sound familiar? Yesterday, documents acquired by the Electronic Frontier Foundation under the Freedom of Information act showed the FBI has engaged in a massive cyber surveillance project that targets terror suspects emails, telephone calls and instant messages — and is able to get some information without a court order.

Last week, the ACLU revealed documents showing that the Pentagon was using the FBI to spy on Americans. The military is using the FBI to skirt legal restrictions on domestic surveillance to obtain private records of Americans’ Internet service providers, financial institutions and telephone companies, according to Pentagon documents.

Chertoff sought to calm those who worry that Homeland Security will begin to take an invasive Internet role.

“We don’t have to sit on the internet and prevent things from coming in or going out,” Chertoff said, which Singel says refers to China and other countries that censor what web sites their citizens can see. “That’s not what we are going to do.”

Bush wants $42 million more for program
But Chertoff may have had another reason for hyping threats of cyber terrorism. Money.

Congress appropriated $150 million in funding for the program this year, Singel notes. The administration has sought $192 million for 2009.

Speaking of threats, Chertoff remarked: “Imagine, if you will, a sophisticated attack on our financial systems that caused them to be paralyzed. It would shake the foundation of trust on which our financial system works.”

Remarked Singel wryly, “That digital mushroom cloud scenario means the government’s role in computer security must extend beyond federal networks, and reach to shared responsibility for financial, telecommunication and transportation infrastructure, Chertoff said. “The failure of any single system has cascading effects across our country.”

Which recalls another quote by a senior administration official.