The Plunge Protection Team

By
Friday, April 25, 2008 at 5:30 am
Treasury Secretary Henry M. Paulson Jr. (WDCpix)

Treasury Secretary Henry M. Paulson Jr. (WDCpix)

Some people foolishly think that Washington’s recent high-profile effort to steer, subsidize and protect the American financial sector is the beginning of something new — a revolutionary development.

It isn’t. Consider that the President’s Working Group on Financial Markets – nicknamed “the Plunge Protection Team” by The Washington Post in 1997 & ndash; quietly observed its 20th birthday on Mar. 18.

Illustration by: Matt Mahurin

Illustration by: Matt Mahurin

“Quietly,” in fact, is an understatement. “Semi-secretly” would be more like it. The Working Group, or PPT, is much-pondered but reclusive group that has declined to submit to the federal Freedom of Information Act or to testify in detail before Congress about its activities. This is true even though its current chief, Treasury Secretary Henry M. Paulson Jr. – Federal Reserve Board Chairman Ben Bernanke is another prominent member — made no secret of revving up its operations after he took took over at Treasury in 2006.

The curious reader will wonder: Just what does the PPT do?

Right now, Congress ought to able to pursue this basic question: Is the PPT a kind of committee for the extra-legal coordination, manipulation and subsidization of financial institutions and markets? Has it been stepping in when free-market forces have become too perilous to profits and asset values — in financial crisis years like 1998, 2001 and 2007. Has Washington decided to protect the financial sector more than any other element of the U.S. economy?

Over the last decade or so, the Treasury Dept. and the Fed have both developed something of a scofflaw attitude toward strict interpretation of federal statutes and regulations. For example, both winked in the late 1990s, as federal regulators allowed Citibank to merge with Travelers Insurance, despite contrary law still on the books. Both winked in more recent years, as major banks set up huge multi-billion-dollar structured investment vehicles, or SIVs, to do on an off-the-books basis what they were not allowed under banking law. Now we have the federally funded J.P Morgan Chase takeover of Bear Stearns. The PPT may well have had a quiet role in some of these actions.

For the bigger picture, look back to the stock market crash of 1987 — the sickening Oct. 19 fall when the Dow-Jones Industrial Average lost 508 points or 23.6 percent of its value in a single trading day. Alan Greenspan had just taken over as the Federal Reserve Bank chairman, and some believe that the Fed intervened to support the market the next day — by either buying Standard & Poors futures or telling several collaborative broker-dealers to do so.

Tim Metz, in “Black Monday,” contends that “some leaders and market makers at the New York Stock Exchange and Chicago Mercantile Exchange collaborated to save the stock market by rigging stock information and prices.” Tony Dye, a British fund manager, made a similar charge of intervention by U.S. authorities. London Sunday Telegraph, Mar. 22, 1998).]] Edward Chancellor, in his 1999 book, “Devil Take the Hindmost,” noted that if these interventions occurred, they raised a major issue of “moral hazard.”

The likelihood they did occur is increased by the fact that a year after the PPT group’s launch, a retiring Fed board member, Robert Heller, wrote a much-discussed article in The Wall Street Journal that in the case of an another emergency like 1987, there might be a better alternative than the Fed’s usual remedy — interest rate reduction. “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, ” Heller wrote, “the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.” No public mention was ever made of the Fed or the Working Group embracing the Heller scheme, but that may have happened privately.

Such accusations are a long way from being conclusive. But they do help explain the milieu in which the Working Group, or PPT, was set up by presidential proclamation – Congress had no role — in March 1988. The proclamation authorized the Working Group to “enhance the integrity, efficiency, orderliness and competitiveness of financial markets” — language that may have been intended to provide a broad and loose authorization for intervention in the 1987 mode, should it be required again.

Media discussion of the Working Group, negligible in 1988, rekindled after the tribulations over the Asian and Russian debt and currency crises of 1997 and 1998. Washington’s ambitions to manipulate seem to have been on the upswing. In a January 1997 speech in Belgium, Greenspan indicated that the Fed could pursue “direct intervention in market events” — a bold new legal interpretation.

A month later, The Washington Post ran a big article, revealing details never repeated by any other major publication. The article describes how the Working Group had set up a financial “war room;” assembled a global as well as national list of key emergency contacts, and carried out simulated emergency drills.

In the wake of the Sept. 11 terrorist attacks, media attention to possible government market intervention and manipulation refocused again — though less in the United States than in foreign English-speaking media. The London Observer reported, later that September, the Working Group-cum-PTT was “ready to coordinate intervention by the Federal Reserve on an unprecedented scale. The Fed, supported by the banks, will buy equities from mutual funds and other institutional sellers if there is evidence of panic selling in the wake of last week’s carnage.”

The group was cited again a half-year later. The authoritative Financial Times quoted a Fed official, who declined to be identified, but acknowledged that policy-makers had considered “buying U.S. equities” — not just futures. The Fed, said the official, could “theoretically buy anything to pump money into the system,” including “state and local debt, real estate and gold mines, any asset.” That sounds much like the same broad conception of empowerment Greenspan had injudiciously taken note of in 1997.

Two months later, the Australian Financial Review weighed in, wondering whether a 234-point intra-day surge on the New York Stock Exchange could be attributed to the PPT: “There is a belief that this team represents a powerful and secretive hand that is ready to act any time the Dow looks ready to tank big time.”

After 2001-02, there was little mention of the PPT group for several years. But come 2006, when Paulson decided to renew the Working Group as a major player, the British financial pages, if not the American, renewed their interest. The London Telegraph described the PPT as a “shadowy body with powers to support stock index, currency and credit futures in a crash.” It added that the former Clinton aide, George Stephanopoulos, had earlier described the group as having “an informal agreement among the major banks to come in and start to buy stock if there appears to be a problem.”

Over the last decade or so, the Treasury Dept. and the Fed have both developed something of a scofflaw attitude toward strict interpretation of federal statutes and regulations.

Not all U.S. financial journalists have been baaing sheep, ready to ignore the issue. John Crudele of The New York Post has pursued it in several columns, and others have acknowledged hearing about the buy orders from friends in the S&P trading pits. Another columnist, James Pethokoukis of U.S. News & World Report, described at length how in the final two trading hours on Aug, 16, 2007, the Plunge Protection Team might have encouraged one or two major institutions to buy stock index futures, because a 300-point Dow decline was briskly wiped away. But then he felt obliged to close with a semi-disavowal: “there’s never been any official confirmation of this,” and that insiders both in Washington and Wall Street “totally dismiss” these reports.

With the recent market panics and surges, the Working Group — if not its deepest secrets — might have again appeared on the front pages. But this did not happen.

However, in March 2008, the Senate Finance Committee’s top Democrat, Max Baucus (D-Mont.), and top Republican, Charles Grassley (R-Iowa), were consumed by interest in whether Paulson pressured Bernanke into having the Federal Reserve broker the controversial deal in which J. P. Morgan Chase got $30 billion to help take over Bear Stearns.

Baucus and Grassley asked for all kinds of details. However, they seem not to have asked for information on how closely Paulson and Bernanke had been collaborating since 2006 in their mutual roles on the Plunge Protection Team. and how they interpreted their powers under the 1988 presidential proclamation. This is unfortunate.

Former Fed Chairman Paul Volcker, a well-respected senior statesman, stated his concern bluntly. “To meet the challenge,” Volcker said, “the Federal Reserve judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending certain long-embedded central banking principles and practices.”

Volcker is regarded as one of the last honest men in U.S. finance. But since 1987, the lawful and implied powers of the Federal Reserve have probably been extended further than the former Fed chairman would like – and, conceivably, further than he knows.

Kevin Phillips is the author of the new book, “Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism.” His previous books include “Arrogant Capital: Washington, Wall Street and the Frustrations of American Politics” and “Boiling Point: Republicans, Democrats and the Decline of Middle Class Prosperity.”

Categories & Tags: Commentary| Economy/Finance|

Comments

47 Comments

commanderz
Comment posted April 26, 2008 @ 10:36 pm

The Jew Federal Reserve is the destroying force of the world economy.

There is no lack of oil or grains or rice only Jew manipulation of the markets. Jew Depression II and Jew World War III are imminent. The Jews intend to bring the dumbed down GOy to their knees and take over the world as per the Protocols. Henry Ford and Charles Lindbergh knew the truth. Jews control the Press. So let’s see how “independent” this Washington Independent really is.

Jews did 911 and all world wars. Iraq is for Jew control of oil and Afghanistan is for Jew control of the opium poppy crop and production of heroin with manufacturing in the south of Jew controlled France.

http://www.Jews-Did-911.com

Oy Vey! and a big Kol Nidre with Kosher slaughtered Goy child veal blood in the matzos balls for Passover. Just where do you think those milk carton missing children wind up anyway?????


bilejones
Comment posted April 26, 2008 @ 2:00 pm

It’s a damming indictment of the stunning stupidity of the bankers that even with a financial system specifically designed to enrich them at the expense of everyone else on the planet they still manage to screw it up.


deacon
Comment posted April 26, 2008 @ 9:28 am

#######
#######

- my apologies for the
above cluttered commentary;
it had been neatly configured
in the box -

Here’s the CRUX OF THE THING
((my missive to Ron Paul’s staff)):

The Honorable Ron Paul is ignorant of an ongoing conspiracy
to topple, financially, the West, in order to equalize
the world


durangokid
Comment posted April 26, 2008 @ 9:22 am

My first question is with what does the Fed purchase equity from the stock markets? Where does the money come from? Does the tresury issue bonds to cover the outlays? If so, do these bonds represent a 1:1 or fractional portion of the outlays? Something tells me the cost of this PPT is coming out of my pocket in principle and interest. This is one more reason the Fed should be abolished and the Treasury regain the power to issue currency without a debt burden. Call me old fashioned, but it worked for Lincoln.


deacon
Comment posted April 26, 2008 @ 9:21 am

#######
#######

The Third-Way push of socialism/capitalism to equalize
the world’s economies has caused this looming food
crisis, NOT CAPITALISM.

Socialist/communist leftists have captured capitalism
and enslaved it to EQUAL/FAIR outcomes.

Of course, you have think more deeply to find the truth.

Read and learn the truth:

What we are facing in 2008 is a Third-Way (socialist/
communist/capitalist) conspiracy to equalize the world’s
economies, as preface to installing one-world government;
a plan hatched during the 1940s GATT formulations, which
were socialist/communist, in effect.

Keep in mind that there is no PEAK OIL crisis


deacon
Comment posted April 26, 2008 @ 4:21 am

#######
#######

The Third-Way push of socialism/capitalism to equalize
the world's economies has caused this looming food
crisis, NOT CAPITALISM.

Socialist/communist leftists have captured capitalism
and enslaved it to EQUAL/FAIR outcomes.

Of course, you have think more deeply to find the truth.

Read and learn the truth:

What we are facing in 2008 is a Third-Way (socialist/
communist/capitalist) conspiracy to equalize the world's
economies, as preface to installing one-world government;
a plan hatched during the 1940s GATT formulations, which
were socialist/communist, in effect.

Keep in mind that there is no PEAK OIL crisis


durangokid
Comment posted April 26, 2008 @ 4:22 am

My first question is with what does the Fed purchase equity from the stock markets? Where does the money come from? Does the tresury issue bonds to cover the outlays? If so, do these bonds represent a 1:1 or fractional portion of the outlays? Something tells me the cost of this PPT is coming out of my pocket in principle and interest. This is one more reason the Fed should be abolished and the Treasury regain the power to issue currency without a debt burden. Call me old fashioned, but it worked for Lincoln.


deacon
Comment posted April 26, 2008 @ 4:28 am

#######
#######

- my apologies for the
above cluttered commentary;
it had been neatly configured
in the box -

Here's the CRUX OF THE THING
((my missive to Ron Paul's staff)):

The Honorable Ron Paul is ignorant of an ongoing conspiracy
to topple, financially, the West, in order to equalize
the world


bilejones
Comment posted April 26, 2008 @ 9:00 am

It's a damming indictment of the stunning stupidity of the bankers that even with a financial system specifically designed to enrich them at the expense of everyone else on the planet they still manage to screw it up.


commanderz
Comment posted April 26, 2008 @ 5:36 pm

The Jew Federal Reserve is the destroying force of the world economy.

There is no lack of oil or grains or rice only Jew manipulation of the markets. Jew Depression II and Jew World War III are imminent. The Jews intend to bring the dumbed down GOy to their knees and take over the world as per the Protocols. Henry Ford and Charles Lindbergh knew the truth. Jews control the Press. So let's see how “independent” this Washington Independent really is.

Jews did 911 and all world wars. Iraq is for Jew control of oil and Afghanistan is for Jew control of the opium poppy crop and production of heroin with manufacturing in the south of Jew controlled France.

http://www.Jews-Did-911.com

Oy Vey! and a big Kol Nidre with Kosher slaughtered Goy child veal blood in the matzos balls for Passover. Just where do you think those milk carton missing children wind up anyway?????


Andrew
Comment posted October 27, 2008 @ 1:07 am

That is because what they are doing is TREASON, they are destorying America from within, and people think that that they should be secret. Now, the government wants to know EVERYTHING about you, but you have NO right to know what they are doing in the interest of “national security” or better said their “interest group security”. Demand oversight, if the congressmen do not do their job then get rid of them. Stop voting like zombies for republicans and democrats, they will not and have never made any difference, they do not work for you. Its just that they still need to get your votes because of something in the constitution, dont worry they are working on getting rid of that as well !!! I mean you dont need to be a “tin foil” hat to see what is clear before everyones' eyes. You are getting ripped off by a bunch of billionaires who want more power and control. Anyone who does anything against the constitution even if they promise you more money tax breaks etc etc, if they are not for restoring the constitution then get rid of them. Its that simple, take power away from the government and give it back to the power, especially the power to issue money!


marxbites
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Look here people and LEARN what reprehensible evils our rapidly declining freedoms face:

A CHRONOLOGICAL HISTORY OF THE NEW WORLD ORDER
http://www.crossroad.to/Excerpts/chronologies/c…

Still Don't Believe In The New World Order?
http://www.svpvril.com/nwo.html


marxbites
Comment posted November 8, 2008 @ 2:09 pm

Look here people and LEARN what reprehensible evils our rapidly declining freedoms face:

A CHRONOLOGICAL HISTORY OF THE NEW WORLD ORDER
http://www.crossroad.to/Excerpts/chronologies/c…

Still Don't Believe In The New World Order?
http://www.svpvril.com/nwo.html


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