PARANOIA

The May 10, 2010 New Yorker features Malcolm Gladwell's "Pandora's Briefcase," about the World War II intelligence maneuver "Operation Mincemeat" (memorably recounted in Ewen Montagu's 1953 book The Man Who Never Was) and the larger implications of spycraft:

[I]n Peter Ustinov’s 1956 play, “Romanoff and Juliet” [...] a crafty general is the head of a tiny European country being squabbled over by the United States and the Soviet Union, and is determined to play one off against the other. He tells the U.S. Ambassador that the Soviets have broken the Americans’ secret code. “We know they know our code,” the Ambassador, Moulsworth, replies, beaming. “We only give them things we want them to know.” The general pauses, during which, the play’s stage directions say, “he tries to make head or tail of this intelligence.” Then he crosses the street to the Russian Embassy, where he tells the Soviet Ambassador, Romanoff, “They know you know their code.” Romanoff is unfazed: “We have known for some time that they knew we knew their code. We have acted accordingly—by pretending to be duped.” The general returns to the American Embassy and confronts Moulsworth: “They know you know they know you know.” Moulsworth (genuinely alarmed): “What? Are you sure?” [...]

In the nineteen-sixties, Angleton [James Jesus Angleton, head of the CIA's counter-intelligence division] turned the CIA upside down in search of KGB moles that he was sure were there. As a result of his mole hunt, the agency was paralyzed at the height of the Cold War. American intelligence officers who were entirely innocent were subjected to unfair accusations and scrutiny. By the end, Angleton himself came under suspicion of being a Soviet mole, on the ground that the damage he inflicted on the CIA in the pursuit of his imagined Soviet moles was the sort of damage that a real mole would have sought to inflict on the CIA in the pursuit of Soviet interests.