Oct 26 2006
Ye Olde Plunge Protection Team Going Global
John Crudele has a fine article updating folks on recent news making the rounds (Wall Street Journal: ) that new Treasury Secretary and former Goldman Sachs CEO, Henry Paulson, is ratcheting up the day to day operations at the shadowy Working Group on Financial Markets (referred to often as just “the Working Group”). Created by an executive order from Ronald Reagan in 1988 in response to the massive and sharp plunge of the U.S. equity markets in 1987, it is dubbed by critics as the “Plunge Protection Team” (PPT). The stated goal of the order was to “enhance the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets” as well as “maintaining investor confidence.” As best can be discerned from the shadowy group is that the PPT every now and then deems it necessary to intervene in the open market to correct the fallibility of market emotion. Traders in the trenches often talk about mysteriously large and loud “Hail Mary trades” that appear in the options markets providing support at key levels for the various indexes. Many chalk a few of these up to the PPT.
Well, we’re told by the Wall Street Journal that Paulson wants the PPT to meet every six weeks instead of its ordinary every couple of months. He’s stressed that he wants the team to expand its work on global competitiveness of the US markets. Easing the absurd regulation is not a bad thing, although one might question why this is not a matter for a less secretive part of the administration that handles the economy.
But the WSJ also points out the real kicker: “Mr. Paulson is having the Working Group look at the systemic risk posed by hedge funds and derivatives, and the government’s ability to respond to a financial crisis, officials said… He has ordered his chief of staff, Jim Wilkinson, to oversee the creation of a Treasury command center to track markets world-wide and serve as an operations base in a crisis. The center would revive a market-monitoring room closed in a 2003 budget cut. Mr. Wilkinson has relevant experience: A former spokesman for the U.S. in Iraq, he was a White House aide during the Sept. 11, 2001, terrorist attacks.”
Woahhohhhoahhh!
Get that right? A “command center” for intervening in global markets? What is it that they’re fearing that were not being told about? How will they go about doing what they do and who will be in charge and why? Don’t forget, higher ups in the Federal Reserve supported intervention in the markets to fix problems back in the day when the PPT was created. From where do you think the purchasing power to save the market and the economy - all of us, from all our imperfections — will come? As G. Edward Griffin points out in his book, The Creature from Jekyll Island (the insidious details of Federal Reserve and Central Banking), the preordained name of the game is bailout!
Skeptics point out that the collapse that started in 2000 proves there is no PPT or, for that matter, its sibling, the “Greenspan Put”. But defenders point out that such intervention never has the power to totally halt a market hell-bent on making a downward move, but it can shore up a market that is thinking about it. But once the dam breaks, then you really have to look out.
Are you taking note?
You can read the WSJ article here: Paulson Pulls for U.S. Markets
