A couple of articles on the Plunge Protection Team, a.k.a, the Working Group on Financial Markets.
Last Tuesday’s 416 point drop in the stock market has sent tremors through global system. An 8% freefall on the Chinese stock exchange triggered a massive equities sell-off which continued sporadically throughout the week. The sudden shift in sentiment, from Bull to Bear, has drawn more attention to deeply rooted “systemic” problems in the US economy. US manufacturing is already in recession, the dollar continues to weaken, consumer spending is flat, and the sub-prime market in real estate has begun to nosedive. These have all contributed to the markets’ erratic behavior and created the likelihood that the Plunge Protection Team may be stealthily intervening behind the scenes.
Sphere: Related ContentOur suspicion has been that the “Working Group” established by law in 1988 to buy markets should declines get out of control, has become far more interventionist than was originally intended under the law. This group has since been dubbed the Plunge Protection Team. There are no minutes of meetings, no recorded phone conversations, no reports of activities, no announcements of intentions. It is a secret group including the Chairman of the Federal Reserve, the Secretary of the Treasury, the Head of the SEC, and their surrogates which include some of the large Wall Street firms. The original objective was to prevent disastrous market crashes. Lately, it seems, they buy markets when they decide markets need to be bought, including equity markets. Their main resource is the money the Fed prints. The money is injected into markets via the New York Fed’s Repo desk, which once upon a time showed up in the M-3 numbers, warning intervention was nigh. But, in November 2005, the Fed announced with little comment and no palatable explanation that it would no longer report the M-3 number after March 2006. Without the useful resource of M-3, we needed to find other tools to monitor when the PPT is likely to intervene, prolonging a rally and killing shorts.
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