Friday, October 10, 2008

RECOVERED HISTORY: THE PLUNGE PROTECTION TEAM

Washington Post, Feb 23, 1997: It is 2 o'clock on a hypothetical Monday afternoon, and the Dow Jones industrial average has plummeted 664 points, on top of a 847-point slide the previous week. The chairman of the New York Stock Exchange has called the White House chief of staff and asked permission to close the world's most important stock market . . . The officials conclude that a presidential order to close the NYSE would only add to the market's panic, so they decide to ride out the storm. The Working Group struggles to keep financial markets open so that trading can continue. By the closing bell, a modest rally is underway . . . As chairman of the Working Group,[Treasury Secretary Robert] Rubin would have overall responsibility for the US response, but Greenspan probably would be the government's most important player . . .

John Crudele, NY Post, 2000: Something happened at around 1 p.m. our time yesterday that pulled the stock market back from the edge of the cliff . . . Traders said someone started buying large amounts of stock index futures contracts through two major brokerage firms -- Goldman Sachs and Merrill Lynch. These transactions are usually done on the QT so we don't really know how many of these contracts were purchased. And unless the brokers tell, there is no way of knowing which of their clients were making the purchases. Goldman wouldn't comment on this and Merrill did not return a call for comment. But traders said enough were bought to catch everyone's attention. In fact, the buyers seemed to want people to know they had an appetite for stocks. Then the market rebounded . . . "I think some one or more persons saved the market today. There was a suspicious urge to buy stocks at an opportune time," says one trader. "Why drive the Dow up 350 points in a half hour? That's never serious buying. That's someone trying to establish prices," he adds . . . I'm not saying that government intervention in a collapsing market is wrong. In fact -- except for the obvious contradictions with the free-market system -- it is politically and socially a very right thing to do. I've written about this before. And I've mentioned that Washington has had a secretive group call the Working Group on Financial Markets, made up of investment industry and government people, that would be in just the right position to rescue the market.

Newsmax, 2000 - It has been no secret that Bill Clinton's former treasury secretary, Robert Rubin, created a system to use federal resources to intervene any time the stock market dropped below certain fixed points. Rubin's market monitoring team was nicknamed the "plunge protection team" - and encompassed top federal officials and Fed chairman Greenspan. Any time the market dropped, as it has in the past few weeks, the plunge protection team would convene, even by phone, to create a coordinated response to maintain market supports. Some market watchers suspected the US government, faced with a badly fallen Dow Jones at the closing bell in New York, would move funds into derivatives overnight on Asian markets. The derivative buys would create incentives for day traders to buy stocks on the New York Stock Exchange. Some are speculating that with his final days here, and Gore a loser, Clinton may have pulled the plug on the plunge protection team.

Observer, London, 2001 - The US Federal Reserve and Wall Street's powerful investment banks are preparing to spend billions of dollars to support the US stock market . . . A secretive committee - the Working Group on Financial Markets, dubbed 'the plunge protection team' - includes bankers as well as representatives of the New York Stock Exchange, NASDAQ and the US Treasury. It is ready to co-ordinate intervention by the Federal Reserve on an unprecedented scale . . . The 'plunge protection team' was established by a special executive order issued by former President Ronald Reagan in 1989. It is known to include senior bankers at leading Wall Street institutions such as Merrill Lynch and Goldman Sachs. It has acted before, in the early Nineties and during the 1998 LTCM hedge fund crisis.

Australian Financial Review, 2002- At 2:32 Wednesday, New York time, something extraordinary happened at the corner of Wall and Broad streets. The New York Stock Exchange's Dow Jones industrial index - struggling since the opening bell after the World Com fraud revelations - threw off its problems. From an intraday low of 8926.6, the Dow shot skywards to its high of 9160 at 3:29 PM . . . Could it be the work of the much talked about, but never seen, Plunge Protection Team? There is a belief fast gaining ground that this team represents a powerful and secretive hand that is ready to act at any time the Dow looks ready to tank big- time. It is reputed to consist of Fed chairman Alan Greenspan, the US Treasury Secretary, and select insider Wall Street brokerages, including Goldman Sachs and Merrill Lynch along with bankers like Citigroup. When needed, so the theory goes, funds are pumped into stocks and futures to derail any market panic. Such a group's existence first came to light in The Washington Post five years ago. The paper reported that after the October 1987 crash president Ronald Reagan signed an executive order authorizing a working group on financial markets aimed at coming up with strategies dealing with stock market crises. No one heard much more about it -- that is, until January 1997 when Dr. Greenspan made a speech saying the government would directly intervene in the market in "rare circumstances." . . . Last January popular online brokerage The Street wrote: 'That may investors believe a so-called 'plunge-protection' team exits may be as important as whether it's fact or myth. Such beliefs may explain why many investors rode the markets down in the past 22 months., and why most continue to have faith in the stock market, and in Greenspan." The New York Post reported in October 2000 that when the Dow dropped 400 points the previous day, Goldman Sachs, Merrill and others saved the market through heavy futures purchases . . . London's Observer newspaper last October reported it had information the plunge team was preparing to spend "billions of dollars" to avert a repeat of 1929 and 1987.

Mike Hartman, Financial Sense, 2005 - One of the top analysts I sent an email had this as part of his reply, "To be honest Mike, I am sick to death with what I see these jokers do day in and day out. It does appear we have entered some brave new world in which our financial masters know what is best for us pitiful peasants. I suppose the stakes are so high they feel justified in playing their games, but they do so from the shadows like thieves lurking in the night." He went on with a great deal more and I read testimony after testimony of many investors that thought there was some heavy intervention with the dollar. Bill Murphy titled his piece last night, "Manipulation of US Financial Markets Intensifying." I think my buddy said it all when he wrote, "I suppose the stakes are so high they feel justified in playing their games." Folks, the stakes are incredibly HIGH!!! The Euro is competing for dual status as a global reserve currency with the dollar, Iran might be opening a commodities exchange denominated in euro, China is being pressured to remove its peg to the U.S. dollar, and on and on. The stakes are very high indeed!

Danny Schechter, AlterNet, September 15, 2008 - As the government in effect takes over mortgage giants and wrestles over what to do about the collapse of huge investment banks like Lehman Brothers, with more to come, you know they are on alert 24/7 scrambling to put more fingers in the dike. . . There is a mechanism in place to avoid this type of crisis. In theory! . . .

In actual fact, this secret branch of government has a sophisticated war room using every state of the art technology to monitor markets worldwide. It has emergency powers. It doesn't keep minutes. There is no freedom of information access to its deliberations. . .

The reports on it are sketchy including one from the Washington Post: "These quiet meetings of the Working Group are the financial world's equivalent of the war room. The officials gather regularly to discuss options and review crisis scenarios because they know that the government's reaction to a crumbling stock market would have a critical impact on investor confidence around the world." Remember this is an administration that claims to worship an unregulated free market and yet here they are big-footing that market. . .

It is time for a congressional investigation and more media scrutiny. Let's find out if this "Working Group" helped defuse the crisis or made it worse? . . .

Before the economy goes down the toilet, as some analysts who are predicting a depression now fear, before that final flush, we need to find out how to protect ourselves from the plunge protectors.

Mostly we need financial elites with a different orientation says Trevor Manuel, South Africa's Finance Minister, and a key player at the International Monetary Fund. "We need elites that plough back, not elites that plunder," he said.

Ambrose Evans-Pritchard, Telegraph, UK, September 22, 2008 - On Friday, Mr Bush convened the so-called Plunge Protection Team for its first known meeting in the Oval Office. The black arts unit - officially the President's Working Group on Financial Markets - was created after the 1987 crash.

It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes and key credit levers. And it has the means to fry "short" traders in the hottest of oils.

The team is led by Treasury chief Hank Paulson, ex-Goldman Sachs, a man with a nose for market psychology, and includes Fed chairman Ben Bernanke and the key exchange regulators.

The Plunge Protection Team - long kept secret - was last mobilized 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.

The Street, October 10, 2008 - Dylan Ratigan hosted CNBC's "Fast Money" Thursday night. He started the show with a discussion of the stock market crash today. He mentioned that over the last 10 days the Dow has gone from 11,000 to below 9000. Ratigan says there's a total crisis of confidence in the U.S. financial system. He says the debate now is when U.S. banks will be able to start lending in a rational way. Joe Terranova says the U.S. government needs to step in and be a buyer of futures. Tim Seymour says the plunge protection team is already buying futures.

Jon Najarian says he would love to trade against the government and he hopes they do it. "I don't think it's a good idea because they can't manage anything," he said. . .

Strategic investor Dennis Gartman joined the traders to discuss the action in the stock market today. Gartman says it's probably not a bad idea to have the government come in and start buying U.S. stock futures. "My friends who are libertarians will be throwing things at me when I go home, but this has to be done," he said

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