Little wonder that James Bamford, the leading journalistic chronicler of NSA history, spends the second chapter of The Puzzle Palace looking back at Yardley's life. (The first chapter of that book is summarized in part one of this series.) Yardley's triumphs and serve as proof that cryptology can be of tremendous strategic value. For example, after cracking the code Japan used in cables to its embassy, Yardley was able to intercept a message about ongoing treaty negotiations with the U.S. that would determine the ratio of naval assets that Japan, Britain, and the U.S. would maintain. Thanks to spying, American negotiators knew that Japan would ultimately agree to their initial position.

But the peacetime surveillance operation that Yardley built also contained cautionary tales and surveillance abuses that have been repeated in very recent history.

The end of WWI presented an institutional threat to Yardley's surveillance agency: The end of cable censorship made it harder to get material to read, and the Radio Communication Act of 1912 applied again. "No person engaged in or having knowledge of the operation of any station or stations should divulge or publish the contents of any messages transmitted or received by such station," the federal law stated, "except to the person or persons to whom the same may be directed ..." Bamford explains the context and ensuing events:

This was a very significant step for the United States, since it represented the first international convention of its type to which the country had adhered. To the Black Chamber, however, it represented a large obstacle that had to be overcome—illegally, if necessary. By the time Yardley returned to the United States in April 1919, the State Department was already busy trying to establish a secret liaison with the Western Union Telegraph Company. It was hoped that Western Union would cooperate with the Black Chamber in providing copies of needed messages. For six months the State Department got nowhere; the Radio Communication Act provided harsh penalties for any employee of a telegraph company who divulged the contents of a message. Then Yardley suggested to General Churchill that he personally visit Western Union's president, Newcomb Carlton. The meeting was arranged in September, and Churchill, accompanied by Yardley, raised with President Carlton the delicate matter of his secretly supplying the Chamber, in total violation of the law, copies of all necessary telegrams. After the men "had put all our cards on the table," Yardley would later write, "President Carlton seemed anxious to do everything he could for us." Under the agreed on arrangements, a messenger called at Western Union's Washington office each morning and took the telegrams to the office of the Military Intelligence Division in Washington. They were returned to Western Union before the close of the same day. In the spring of 1920 the Black Chamber began approaching the other major telegraph company, Postal Telegraph, with the same request. Officials of this company, however, were much more disturbed by the possibility of criminal prosecution than were their counterparts at Western Union. For this reason, negotiations with the Black Chamber were carried on through an intermediary, a New York lawyer named L.F.H. Betts. All letters were carefully written so that no outsider would be able to understand what was really being said, and to camouflage the negotiations even further, Betts in one case communicated with General Churchill through the general's wife. In the end an agreement was reached, and that left only the smaller All-American Cable Company, which handled communications between North and South America. Yardley, later that same year, began negotiations with it through W.E. Roosevelt and Robert W. Goelet, who himself had been a commissioned officer in Military Intelligence during the war. Regardless of whether All-American cooperated, by the end of 1920 the Black Chamber had the secret and illegal cooperation of almost the entire American cable industry. American cryptology had lost its virginity.

Despite its willingness to break the law to ensure its institutional survival, the Black Chamber would face significant cuts to its secret budget in ensuing years, and in the winter of 1929, the secret agency faced the prospect of a new president. "To Yardley, any change in Washington was viewed as a potential threat to his Black Chamber, and he advised his liaison at the State Department not to reveal the existence of the organization to the new Secretary for a few months, in the hope that any idealism [Henry] Stimson may have had before taking office would be tempered by reality." When Secretary of State Stimson finally found out, his reaction "was immediate and violent," Bamford writes. He declared the Black Chamber "highly illegal" and is reported to have said, "gentlemen do not read each other's mail." Soon after, Yardley lost his job.