Saturday, January 19, 2008

Where is the Plunge Protection Team???

The Plunge Protection Team - long kept secret - was last mobilised to calm the markets after 9/11. It then went into hibernation during the long boom.

Mr. Paulson reactivated it last year, asking the staff to examine "systemic risk posed by hedge funds and derivatives, and the government's ability to respond to a financial crisis'', he said.

It seems he failed to spot the immediate threat from mortgage securities and the implosion of the commercial paper market. But never mind. Where are they now???

Info about `Plunge Protection Team'

Is the legendary PPT just a myth, conjured up by a bunch of conspiratorial nuts? Former president Clinton advisor, George Stephanopoulos told “Good Morning America” on Sept 17, 2001, “There are various efforts going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the market, what is called the “Plunge Protection Team.”

“The Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges have an informal agreement to come in and start to buy stock if there appears to be a problem. They acted more formally in 1998, during the Long term Capital Crisis, and propped up the currency markets. And, they have plans in place if the markets start to fall.”

On August 8th, 2007, President Bush hinted at government intervention in the US stock market. “Treasury secretary Paulson and his advisors are paying close attention, as the market begins to readjust its assessment of risks and are watchful for any downturn,” he said. “There is a lot of liquidity in our system and liquidity will provide the capacity for our system to adjust,” Bush added, alluding to the Fed's tolerance of double digit M3 money supply growth.

The big question is whether US Treasury chief Henry Paulson and Fed chief Bernanke are pursuing a more active interventionist policy than what was originally mandated for the PPT? The turnover of interest rate, currency and stock index derivatives rose 24% to $533 trillion in the first quarter, and that's a big time bomb that can blow-up at anytime. It requires constant surveillance and “vigilance” over the world's greatest casinos. Warren Buffett calls derivatives “weapons of mass destruction.”

If correct, then the PPT is “watching the markets closely”, (Japanese code words for intervention) and Paulson and Bernanke aim to prevent a 10% correction at all costs. There are glaring signals in the marketplace that indicate when the PPT appears to be intervening in stock index futures, and these signals were revealed in the August 3rd edition of Global Money Trends, with plenty of cool charts. If you expand your imagination, as Einstein suggests, and accept the notion that the PPT is “managing the markets,” you might become more successful in trading.

Wall Street's Da Vinci Code

If there is a PPT, it may be hiding in plain sight. Following the 1987 crash, the Reagan administration looked for ways to formalize responses to economy threatening market movers. The U.S. Executive Order 12631, signed on March 19, 1988, by President Reagan, established the “Working Group on Financial Markets.” The order states the purpose of the group as being “… to identify and consider: 1) the major issues raised by the numerous studies on the events in the financial markets surrounding Oct. 19, 1987… ; and, 2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.”

Executive Order 12631 dictates that the Working Group be made up of the highest profile money types in the government, explicitly naming: the Secretary of the Treasury, the chairman of the Board of Governors of the Federal Reserve, the chairman of the SEC and the chairman of the Commodity Futures Trading Commission. To make sure this group has the resources to carry out its will, the order further made the Treasury responsible for providing the “support service” it needs-but only “to the extent permitted by law and subject to the availability of funds.” (No one at any of these agencies would comment for this article.)

So how did this team of crisis managers come to be viewed by some as a secretive fraternity of government and business interests, secretly manipulating stocks and gold and making a mockery of the concept of free markets? Brett Fromson, of the Washington Post, who went on to work for and the Wall Street Journal, was the one who wrote the Washington Post story that came up with the PPT name. (He says a clever copy desk staffer came up with the name for a headline.) Fromson covered the Washington/Wall Street beat, which connected the ongoing relationship between the political and financial capitals. “I got the idea for the story after seeing that many of my sources were often in meetings together. I realized there was an enormous amount of planning going on.” He adds, “The story resulted from a lot of reporting and relied on the people I was talking with having a relationship of trust” with him. Fromson said no called him after the piece was published telling him that he got it wrong — or that he was insane.

Perhaps the only certainty about the PPT conspiracy theory is that it is not going away any time soon. While every rebound by the indices in the face of damning economic fundamentals and market technicals deepens the conviction of PPT believers; not even a market crash will likely convince them otherwise. After all, the market's massive slide from 2000 through 2002 didn't even unwind the theory. Either way, someone should make it into a movie. It might be called Wall Street's Da Vinci Code.

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