Caroline, give George a call

It's hard to prove a negative, some say it's impossible, but that's what Caroline Baum seems to want to do about every six months - whenever the markets takes a tumble, that's apparently more proof that the so-called Plunge Protection Team does not exist.

Rubin Should Teach Paulson Secret PPT Handshake
If that acronym, short for Plunge Protection Team, doesn't immediately conjure up images of government officials and representatives of large Wall Street banks (think Goldman Sachs) conspiring to support the stock market, you don't spend enough time with the black-helicopter crowd.

The idea that there is a cabal of government and private- sector individuals who secretly support the stock market in times of distress does have a small basis in fact. Following the 1987 stock market crash, President Ronald Reagan formed a high- level Working Group on Financial Markets to discuss options in the event of a financial crisis and disorderly markets. The group consists of the secretary of the Treasury and the chairmen of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Reporter Brett Fromson described the inner workings of the group and coined the term Plunge Protection Team in a 1997 Washington Post article.

Anyone who can't prove that the PPT doesn't exist is immediately dismissed as a pawn of the government or a part of the cabal. Yours truly has been accused of both by the conspiracy theorists (CTs).

What is their proof that the PPT exists? To a person, these folks haul out two presumably incontrovertible pieces of evidence: one, a mention of the PPT by ABC's George Stephanopoulos on TV shortly after the Sept. 11 terrorist attacks; and two, a 1989 Wall Street Journal op-ed by former Federal Reserve Governor Robert Heller.

Black helicopters and conspiracy theorists - what about "tin foil hats"?

Sprott Asset Management wrote a pretty comprehensive piece on this subject almost two years ago - Move Over Adam Smith - The Visible Hand of Uncle Sam (.pdf) - and a quick review of that work prompts the question of why Caroline called the guy who just wondered aloud about PPT-like actions in an op-ed piece (Heller) rather than the guy who claimed to know of its existence (Stephanopoulos).

If you really want to get to the bottom of this Caroline, give George a call and ask him to explain what he said on September 17th, 2001 as the stock market was about to re-open after the 9/11 attack:

Well, what I just want to talk about for a few minutes is the various efforts that are going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the markets. You reported just a while ago that the Fed has lowered the overnight interest rates, will put about $80 billion into the market. In addition, the SEC, the Securities and Exchange Commission, has relaxed the rules for companies on whether or not they can buy back their stock in case they start to fall.

And dozens of companies, including big companies like Intel and Cisco have announced that they would buy back their stock if necessary. Third, there will be some trading curbs in effect today. If the market drops by about 1,100 points, they will probably suspend trading for a while. And perhaps most important, there’s been – the Fed in 1989 created what is called a plunge protection team, which is the Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges, and there – they have been meeting informally so far, and they have kind of an informal agreement among major banks to come in and start to buy stock if there appears to be a problem.

Was this just a ham-handed reassurance from someone who really didn't know what he was talking about or did George just not realize that he was never supposed to confirm the existence and purpose of such a group?

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Update: Tuesday, 7/31/07 8:00 AM

Another interesting excerpt from the Sprott report regarding this part of the Baum story - "He went on to reveal the formation of the PPT by the Fed (wrong, it was President Reagan) in 1989 (wrong, it was 1987)..."

Of note, Stephanopoulos states that the Federal Reserve created the PPT in 1989.This is significant because it differs from the publicly known details about the Working Group on Financial Markets. As explained earlier, President Reagan created the Working Group in 1988. While a small detail on the surface, it tends to support what journalist Nelson Hultberg wrote in 2003, where he found a link between the PPT and the Robert Heller Wall Street Journal op-ed described earlier:

Bill King of the highly regarded King Report in New York tells us that the PPT sprang from an analysis written and presented by former Fed Governor Robert Heller in 1989. After his paper was published is when the PPT agenda was formalized.