Wikinvest Wire

Caroline, give George a call

Tuesday, July 31, 2007

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.

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4 comments:

Anonymous said...

stop picking on Caroline....she's one of the clearer heads out there though on this subject she does sound a little less clear than usual....

Tim said...

Mostly friendly emails were exchanged with Caroline a short time ago - she said she might call George next time the PPT fails to show up.

Anonymous said...

Anyone who thinks the Fed and Wall Street and the government aren't colluding together, making HUGE money off the backs of hard working people, and not participating in inside trading is either braindead or just in denial.

These people have worked out a system that has everyone by the balls. We're being taken for a ride so hard that I can't imagine anyone uncovering it wouldn't be simply knocked off.

Insider trading doesn't exist...lol...yeah...joke of the century.

Aaron Krowne said...

I think this is one of those "hidden in plain sight" things.

Since the market rally that coincidentally began with Paulson's appointment, a number of competent observers have noted that "anomalous" trading seems to prevail -- especially regarding index ETFs. Anomalously-high bids in index ETFs are common, with trading in underlying stocks "sluggish" (Succo).

In a similar vein, I've witnessed the gold GLD ETF diverge downwards from the underlying metal's daily movement by almost 3%... or a 400% multiple in the rate of change. Could just be too many hedge funds racing for the exits at the same time, of course. But that's not good either -- just means there are more highly-leveraged technical/momentum traders out there whom can be manipulated.

The technicals of the broader market have been widely acknowledged as continuously-poised-for-collapse, yet the market just keeps on trucking, in an almost mechanical fashion. Typical daily trading activity (until the past week) involves an early rally, a pull-back into early afternoon, then a late afternoon rally, often miraculously "saving" the indices (especially the Dow) and putting them above the waterline for theday. It just looks fake. Only getting one's recap from the talking heads on CNBC could suppress this impression.

The only meaningful market pullbacks have come from external shocks, particularly leverage shocks involving tightening or appreciation of the Yen. These are precisely the kinds of factors it is difficult to "put a lid on". But steadily and surely, the market has clawed back from these setbacks, with 1% rallies common.

(The decline of the dollar is another matter; but not much of a worry for the propagandistas).

Another major point is that the M3 components keep on pumpin' at record levels. The biggest component, which can still be accessed in the Fed's reports (just not in an "M3" figure), are the bank repos. These are essentially huge (sometimes open-ended) loans to the money center banks. These are not well publicized, but the growth of this sort of credit correlates well with market movements with a lead time of a few weeks.

Finally, it is no secret that the working group has been meeting much more frequently since Paulson arrived and since this "miraculous" rally. Every six weeks, at least, last I heard. Wonder why?

This is not rocket science. To paraphrase an comment I saw from a blogger recently : why wouldn't they be manipulating the market?:

1. there's no accountability
2. insiders can profit from it
3. it produces an illusion of economic health
4. politicians love it
5. they can "print" the money to pull it off themselves

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