Wall St. and Business Wednesdays: E-Letter To Rep. Maxine Waters, Rep. Melvin L. Watt, Rep. Julia Carson, Rep. Gregory W. Meeks, Rep. William Lacy Clay, Rep. David Scott, Rep. Al Green, Rep. Emanuel Cleaver II, Rep. Gwen Moore, and Rep. Keith Ellison Re: "The President's Working Group On Financial Markets" (May 23rd-May 29th)
I am writing to you all for three very specific reasons. The first of which is your membership on the very important House Committee On Financial Services of the U.S. States Congress. The second of which is your membership in the Congressional Black Caucus. And the third and final reason is that I would like to bring to your attention what appears to be a significant part of the biggest financial story in American history.
This subject is of particular concern to me because it not only affects the entire American economy, the condition of which impacts us all, regardless of race; but also because it might disproportionately affect the millions of Black Americans, who, according to the annual studies of Ariel Mutual Funds and Charles Schwab & Co. Inc., are heavily engaged in the stock markets, but with the least amount of experience, and a decreasing level of confidence. You can read BlackElectorate.com’s re-publication of the summary findings of their report on Blacks and the Stock Market at the following address:
Here’s what’s going on which I believe requires your urgent attention.
According to several highly respected media outlets, reliable sources, and the words and actions of past and present government officials, there is substantial evidence that suggests that for nearly 20 years, the highest ranking financial officials of the United States Treasury Department, the Federal Reserve, and an elite group of financial market professionals and investors, have been working hand-in-hand to prevent the United States stock market from moving in ways that it deems undesirable. There is even strong suspicion that this group is responsible for some especially peculiar movements in the stock market in recent years.
Formally, the coalition is described as The President’s Working Group on Financial Markets. It was created through Executive Order 12631, signed by President Ronald Reagan. Informally it is known as ‘The Plunge Protection Team.’ And political figures such as former adviser to President Clinton, Mr. George Stephanopoulos , as well as prominent newspapers like The Washington Post and The Wall Street Journal have all acknowledged the existence of this body, and indicated something of its enormous power. Others, like highly-respected business journalist, John Crudele of The New York Post have done more than confirm its existence, they have publicly raised important questions about aspects of its secret nature, and the potential for the abuse of power, by its private sector members - individuals that make money in the very same markets that they are apparently being asked by the government to ‘save.’
With the exception of your colleague, Congressman Ron Paul of Texas, it seems that no one on the House Financial Services Committee has had the knowledge or courage to question Treasury Department officials, or Federal Reserve representatives, about this group. Interestingly, Federal Reserve Chairman, Ben Bernanke, in testimony, before your very committee last July, admitted that the group is real and in operation, stating that he believed it was established after the stock market crash of 1987.
Unfortunately, Congressman Paul, for all of his interest in the matter, was not as skilled as I know some of you to be in follow-up questioning, and as a result Mr. Bernanke – as the transcript of the hearing makes clear – acknowledged that the Plunge Protection Team does exist and expressed his belief that records of its work and meetings are kept, without providing any further details.
I think, that for the sake of this nation’s economy, and the smallest, least experienced and least informed investor in the stock market – which too frequently are Black Americans involved in the stock market for the first time or unknowingly through pension and retirement programs – you should take up where Rep. Paul left off, last year, by holding a hearing on The President's Working Group On Financial Markets. In that forum you could place hard questions - using even your subpoena powers - to compel answers and the provision of important information by government and private sector entities and individuals.
Although there may be some noble-sounding aspects of The President’s Working Group On Financial Markets, and a role for emergency market intervention, there are some other equally suspicious and sinister scenarios that become possible when so much power over money and authority over financial markets is placed in the hands of so few - without transparency and the proper checks and balances.
I believe that you are this country’s best hope for obtaining the necessary answers and providing the appropriate oversight of this little-known body.
Next week I intend to offer you some follow-up suggestions on how to pursue this, but for now, I only encourage you to become as informed as possible regarding what has already been published about The Plunge Protection Team. To make that easier for you, your staff, and your constituents, I have included, below, in their entirety, the most relevant articles over the last 10 years.
Please note how the Treasury Department is mishandling John Crudele’s Freedom of Information Act (FOIA) request for information on the Working Group.
What is the government hiding and how much money might it one day cost individual investors and the American economy?
Perhaps only you have the ability to force Treasury Secretary Hank Paulson and the Federal Reserve to answer that question.
I’ll be in touch soon.
Plunge Protection Team
By Brett D. Fromson
Washington Post Staff Writer
Sunday, February 23, 1997; Page H01
The Washington Post
It is 2 o'clock on a hypothetical Monday afternoon, and the Dow Jones industrial average has plummeted 664 points, on top of a 847-point slide the previous week.
The chairman of the New York Stock Exchange has called the White House chief of staff and asked permission to close the world's most important stock market. By law, only the president can authorize a shutdown of U.S. financial markets.
In the Oval Office, the president confers with the members of his Working Group on Financial Markets -- the secretary of the treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The officials conclude that a presidential order to close the NYSE would only add to the market's panic, so they decide to ride out the storm. The Working Group struggles to keep financial markets open so that trading can continue. By the closing bell, a modest rally is underway.
This is one of the nightmare scenarios that Washington's top financial policymakers have reviewed since Oct. 19, 1987, when the Dow Jones industrial average dropped 508 points, or 22.6 percent, in the biggest one-day loss in history. Like defense planners in the Cold War period, central bankers and financial regulators have been thinking carefully about how they would respond to the unthinkable.
An outline of the government's plans emerges in interviews with more than a dozen current and former officials who have participated in meetings of the Working Group. The group, established after the 1987 stock drop, is the government's high-level forum for discussion of financial policy.
Just last Tuesday afternoon, for example, Working Group officials gathered in a conference room at the Treasury Building. They discussed, among other topics, the risks of a stock market decline in the wake of the Dow's sudden surge past 7000, according to sources familiar with the meeting. The officials pondered whether prices in the stock market reflect a greater appetite for risk-taking by investors. Some expressed concern that the higher the stock market goes, the closer it could be to a correction, according to the sources.
These quiet meetings of the Working Group are the financial world's equivalent of the war room. The officials gather regularly to discuss options and review crisis scenarios because they know that the government's reaction to a crumbling stock market would have a critical impact on investor confidence around the world.
"The government has a real role to play to make a 1987-style sudden market break less likely. That is an issue we all spent a lot of time thinking about and planning for," said a former government official who attended Working Group meetings. "You go through lots of fire drills and scenarios. You make sure you have thought ahead of time of what kind of information you will need and what you have the legal authority to do."
In the event of a financial crisis, each federal agency with a seat at the table of the Working Group has a confidential plan. At the SEC, for example, the plan is called the "red book" because of the color of its cover. It is officially known as the Executive Directory for Market Contingencies. The major U.S. stock markets have copies of the commission's plan as well as the CFTC's.
Going to Plan A
The red book is intended to make sure that no matter what the time of day, SEC officials can reach their opposite numbers at other agencies of the U.S. government, with foreign governments, at the various stock, bond and commodity futures and options exchanges, as well as executives of the many payment and settlement systems underlying the financial markets.
"We all have everybody's home and weekend numbers," said a former Working Group staff member.
The Working Group's main goal, officials say, would be to keep the markets operating in the event of a sudden, stomach-churning plunge in stock prices -- and to prevent a panicky run on banks, brokerage firms and mutual funds. Officials worry that if investors all tried to head for the exit at the same time, there wouldn't be enough room -- or in financial terms, liquidity -- for them all to get through. In that event, the smoothly running global financial machine would begin to lock up.
This sort of liquidity crisis could imperil even healthy financial institutions that are temporarily short of cash or tradable assets such as U.S. Treasury securities. And worries about the financial strength of a major trader could cascade and cause other players to stop making payments to one another, in which case the system would seize up like an engine without oil. Even a temporary loss of liquidity would intensify financial pressure on already stressed institutions. In the 1987 crash, government officials worked feverishly -- and, ultimately, successfully -- to avoid precisely that bleak scenario.
Officials say they are confident that the conditions that led to the slide a decade ago are not present today. They cite low interest rates and a healthy economy as key differences between now and 1987. Officials also point to SEC-approved "circuit breakers" that were introduced after 1987 to give investors timeouts to calm down.
Under the SEC's rules, a drop of 350 points in the Dow would bring a 30-minute halt in NYSE trading. If the Dow declined another 200 points, trading would cease for one hour. No additional circuit breakers would operate that day, but a new set would apply the next trading day.
Despite these precautions, today's high stock market worries officials such as Fed Chairman Alan Greenspan, who in a speech in early December raised questions about "irrational exuberance" in the markets. Because the market declined following Greenspan's speech, government officials have become even more reluctant to comment on these issues for fear of triggering the very event they wish to forestall, according to policymakers.
A Brewing Concern
Greenspan had expressed similar thoughts a year ago at a confidential meeting of the Working Group. Treasury Secretary Robert E. Rubin and SEC Chairman Arthur Levitt Jr. also are concerned about the stock market's vulnerability, according to sources familiar with their views.
The four principals of the group -- Rubin, Greenspan, Levitt and CFTC Chairwoman Brooksley Born -- meet every few months, and senior staff get together more often to work on specific agenda items.
In addition to the permanent members, the head of the President's National Economic Council, the chairman of his Council of Economic Advisers, the comptroller of the currency and the president of the New York Federal Reserve Bank frequently attend Working Group sessions.
The Working Group has studied a variety of possible threats to the financial system that could ensue if stock prices go into free fall. They include: a panicky flight by mutual fund shareholders; chaos in the global payment, settlement and clearance systems; and a breakdown in international coordination among central banks, finance ministries and securities regulators, the sources said.
As chairman of the Working Group, Rubin would have overall responsibility for the U.S. response, but Greenspan probably would be the government's most important player.
"In a crisis, a lot of deference is paid to the Fed," a former member of the Working Group said. "They are the only ones with any money."
"The first and most important question for the central bank is always, 'Do you have credit problems?' " said E. Gerald Corrigan, former president of the New York Federal Reserve Bank and now an executive at Goldman Sachs & Co. "The minute some bank or investment firm says, 'Hey, maybe I'm not going to get paid -- maybe I ought to wait before I transfer these securities or make that payment,' then things get tricky. The central bank has to sense that before it happens and take steps to prevent it."
1987: A Case Study
The Fed's reaction to the 1987 market slide, which Corrigan helped oversee, is a case study in how to do it right.
The Fed kept the markets going by flooding the banking system with reserves and stating publicly that it was ready to extend loans to important financial institutions, if needed.
The Fed's actions in October 1987 read like a financial war story.
The morning after the 508-point drop on Black Monday, the market began another sickening slide. Corrigan and other Fed officials strongly discouraged New York Stock Exchange Chairman John Phelan from requesting government permission to close the market. Phelan was concerned that if the market continued to erode, the capital of the NYSE member firms would disappear. Corrigan feared a shutdown would cause more panic.
"It was extraordinarily difficult around 11 o'clock," Corrigan recalled. "The market was at one point down another 250 points, and that's when the debate with Phelan took place."
Simultaneously, Corrigan and other central bank officials spoke privately with the big banks and urged them not to call loans they had made to Wall Street houses, which were collateralized by securities that could no longer be traded and whose value was in question.
A final critical moment came that day when the Fed decided not to shut down a subsidiary of the Continental Illinois Bank that was the largest lender to the commodity futures and options trading houses in Chicago. The subsidiary had run out of capital to provide financing to that market.
"Closing it would have drained all the liquidity out of the futures and options markets," said one former top Fed official involved in the decision. Investors use stock futures and options to hedge positions in the underlying stock market.
Recognizing the crucial role of banks if another financial crisis should strike, the Office of the Comptroller recently conducted an internal study of what damage a market decline would inflict on U.S. banks. The OCC declined to discuss the study or its conclusions.
At the SEC, one big worry is how to cope with an international financial crisis that begins abroad but quickly rolls into U.S. markets.
"We worry about a U.S. brokerage firm that is dealing with a Japanese insurance company, where we don't know how they are run or regulated," a SEC source said. To improve its ability to react in a crisis, the SEC and the Fed have begun joint inspections with their British counterparts of U.S. and British financial institutions with global reach.
The most drastic -- and probably unlikely -- move the SEC could take in a crisis would be to propose a market shutdown to the president. That would require a majority vote of the commission. If a quorum couldn't be mustered, the chairman could designate himself "duty officer" and go to the president or his staff.
"Closing the market is, of course, the last thing the commission wants to do," said a source familiar with the SEC's planning. "During a time when people are extremely worried about their investments, you are cutting them off from taking any action. . . . The philosophy of the commission is that markets should stay open."
Just the Facts
Gathering accurate information would be the first order of business for federal regulators.
"Intelligence gathering is critical," Corrigan said. "It depends on the willingness of major market participants to volunteer problems when they see them and to respond honestly to central bank questions."
The SEC, CFTC and Treasury have market surveillance units. They monitor not only the overall markets, but also the cash positions of all the major stock and commodity brokerages and large traders.
The regulators also are hooked into the "hoot-and-holler" system used to notify participants in all financial markets of trading halts. The hoot-and-holler system alerts traders and regulators when a halt is coming.
Relying on Quick Action
In the event of a sharp market decline, the SEC and CFTC would be in constant contact with brokerage and commodity firms to spot early signs of financial failure. If they concluded that a firm was going down, they would try to move customer positions from that firm to solvent institutions.
At least this team of crisis managers already has been through the Wall Street wars. Greenspan was Fed chairman in October 1987. Rubin has served as the co-head of investment bank Goldman Sachs & Co. Levitt has been both a Wall Street executive and president of the American Stock Exchange.
"I think the government is in good shape to handle a crisis," said Scott Pardee, senior adviser to Yamaichi International (America) Inc., a Japanese brokerage subsidiary, and former senior vice president at the New York Fed. "A lot depends on personal relationships. You have a number of seasoned people who have gone through a number of crises. So if something happens, things can be handled quickly on the phone without having to introduce people to each other."
Consider what happened at 11:30 p.m.
Dec. 5, when Greenspan made his comments about irrational exuberance. Alton Harvey, head of the SEC's Market Watch unit, was called at home by officials of Globex, a futures trading system owned by the Chicago Mercantile Exchange. U.S. stock futures trading in Asia had fallen to their 12-point limit, they said.
Harvey immediately alerted his direct superior as well as his opposite number at the CFTC. More senior SEC and CFTC officials were informed as well. But there wasn't much to be done until the morning. So Harvey went back to sleep.
REACTING TO A PLUNGE
After the market crashed on Oct. 29, 1929:
* The Federal Reserve provided loans and credit to financial systems.
* President Hoover met with business, labor and farm organizations to encourage capital spending and discourage layoffs; he also promised higher tariffs.
* Federal income taxes were reduced by 1 percent by the end of the year.
After the market dropped 22.6 percent on Oct. 19, 1987, the Federal Reserve:
* Encouraged the New York Stock Exchange to stay open.
* Encouraged big commercial banks not to pull loans to major Wall Street houses.
* Kept open a subsidiary of Continental Illinois Bank that was the largest lender to the commodity trading houses in Chicago.
* Flooded the banking system with money to meet financial obligations.
* Announced it was ready to extend loans to important financial institutions.
What would happen today during a stock drop would depend on the particulars. Here are current guidelines:
* If the Dow Jones industrial average falls 350 points within a trading day, NYSE trading would be halted for 30 minutes.
* If the DJIA falls another 200 points that day, trading would stop for one hour.
* If the market declines more than 550 points in a day, no further restrictions would be applied.
SOURCE: The New York Stock Exchange, "The Crash and the Aftermath" by Barrie A. Wigmore
© Copyright 1997 The Washington Post Company
MAYBE THIS WILL HELP TREASURY MOVE FASTER
By JOHN CRUDELE
May 17, 2007
WE'D love to help the U.S. Treasury comply with our request for information about the Working Group on Financial Markets.
So The Post's lawyer is sending the following letter, reminding the government of its legal obligations under the Freedom of Information Act.
Dear Mr. (Hugh) Gilmore:
Director, Disclosure Services
I write to protest the failure by the Department of Treasury to process Mr. Crudele's request for documents relating to the Working Group on Financial Markets.
As you would be aware, under the Freedom of Information Act, the Department is required to process such requests within 20 working days: See 5 U.S.C. S. 552 (a).
Mr. Crudele lodged his request for documents almost 10 months ago. Yet he has yet to receive any document from the Department of Treasury or any explanation for the Department's failure to produce documents.
There's more to the letter, signed by The Post's lawyer, that I won't quote here.
But it essentially recaps that in my last column I showed how the Treasury's FOIA bureaucracy said it wanted to respond to my request "ASAP," even though our original letter seeking information about the secretive Working Group was sent nearly a year ago.
I know about internal discussions only because I was recently given documents detailing how Treasury was supposedly all worked up over the fact that my request had somehow "fallen through the cracks."
It's not that I think the notes and minutes of Working Group meetings will be arriving on my doorstep anytime soon.
What I do think is that Treasury "ASAP" will turn down my request and give me directions on how to appeal the decision.
Hey, I'm not naive. But I am persistent.
I understand how the game is played, especially since I'm after the innermost thoughts of a group whose nickname is the Plunge Protection Team.
The team was formed by a directive of President Reagan back in the late 1980s, right after the stock market had had some embarrassing sinking spells.
This was also when Robert Heller, who had just left his post as a Federal Reserve governor, proposed very publicly that the Fed should be allowed to rig the stock market in times of emergency.
That's all well and good - and probably in the public interest.
But I'm now attempting to determine whether the Plunge Protection Team's powers have been expanded in recent years to situations that aren't necessarily emergencies.
I'd also like to know who, exactly, is being drawn into the consultations of the Team.
Does it still just consist of top government officials like the Fed chairman and Treasury secretary?
Or have big shots from Wall Street firms - the kind that could make money knowing the workings of the clandestine government operations - also been recruited?
In that last column I documented how George Stephanopoulos, who was Bill Clinton's right-hand man, mentioned that the Plunge Protection Team is ready to unofficially act in the event of stock market problems.
Stephanopoulos said that the PPT already has acted during the crisis caused by the failure of Long Term Capital Management, which disintegrated in 1998 and nearly took the U.S. financial system down with it.
And I also know firsthand that such actions were discussed right after the terrorist attacks in 2001.
But the government has been coy about the Team.
Rep. Ron Paul (R., Texas.) last year questioned Fed Chairman Ben Bernanke - who was under oath - about the Plunge Protection Team.
All the Fed chief would say is that the Team met "irregularly," was mostly advisory and prepares reports.
Irregularly: Like when the stock market needs a boost?
Advisory: Like answering the question, how can we get stock prices up?
But I'm not so sure that the meetings are spaced that widely apart.
There have been stories in the press lately that the Team is now having frequent meetings under Treasury Secretary Hank Paulson, who took over that position last summer after being the chairman of Goldman Sachs.
That's why we are sending another letter to remind Treasury of its legal obligations not to act in secret.
I think it's time for the government to be more responsive.
And just as an insurance policy I'm also reaching out to some members of Congress who I believe share that view.
NO FREEDOM OF INFO ON PLUNGE PROTECTION TEAM
The New York Post
By JOHN CRUDELE
May 15, 2007 –
MY request for information about the actions of the secretive Working Group on Financial Markets at the Treasury Department "seems to have fallen through the cracks," according to the wording of an internal government document I just got my hands on.
That document, dated April 5, 2007, indicates that the Treasury's Disclosure Services division spent quite a lot of time discussing the request I made last summer under the government's Freedom of Information Act.
In fact, "Spotlight on New York Post FOIA Request" is the final issue on a seven-item agenda. And the 13-page PowerPoint presentation titled "Bottom Line" devotes a page and a half to The Post's request.
One of the "lessons learned and the way ahead," according to this presentation, is to "process and respond to Mr. Crudele's requests ASAP."
It's now more than a month since that meeting and I still haven't received documents or even an official letter. I guess ASAP might mean something other than "as soon as possible" in government lingo - perhaps "as soon as pigsfly."
For those of you who haven't been following this saga, let me fill you in.
Back when Goldman Sachs Chairman Henry Paulson took over as Treasury secretary nearly a year ago, I did a multi-column investigation of the Working Group on Financial Markets, which is also endearingly nicknamed the Plunge Protection Team.
As far as I can tell, variations of the group have been in existence since the late 1980s. The PPT operates in that shadowy space between the government's desire to keep the market safe for national security reasons and Wall Street's desire to keep prices up for selfish reasons.
Other newspapers have since reported that - unlike his predecessors - Paulson calls frequent meetings of the Plunge Protection Team, which now seems to include Wall Street big shots as well as top officials such as Federal Reserve Chairman Ben Bernanke and New York Stock Exchange Chairman John Thain.
It's nice that all these folks have time to get together. And it is wonderful that the naive media think these meetings of government and finance brains are innocent. But I'm suspicious.
I believe the Plunge Protection Team has emergency powers to protect the stock market if the situation warrants it. (Incidentally, I wholly support such action.)
But I also believe that the Plunge Protectors - left unchecked - could ultimately cause a tremendous loss of confidence in our financial markets.
And they could create the very national security problems they think are fixing.
That's why I've asked for the minutes of meetings of the Plunge Protection Team on very specific dates when the stock market pulled a couple of rabbits out of its hat.
I didn't want to get greedy, so I kept the scope of my search narrow.
But, apparently, I must have guessed right and asked about sensitive enough issues because the Treasury ignored that first request and hasn't been any more obliging in response to follow-up letters.
It was only after I wrote an open letter to Paulson and published it in this column on April 3 that Treasury seemed to get the message. Two days later I was on the agenda of its FOIA Operations Overview.
At that meeting it appears that the folks at Treasury decided that my "request does not meet the criteria for an expedited request and asked the OGC [Office of General Counsel][for] concurrence on April 4."
Expedited! The request for this information was made last July!
I also got the impression when I spoke with a Treasury official last week that my request was about to be turned down.
A spokesman at Treasury told me that the government was trying to determine who the "appeals officer" was for this case - an indication, I imagine, that I'm going to be asked to beg someone else for the information to which we are legally entitled.
I'm not surprised. Congress has tried to crack the mystery of the Plunge Protection Team and failed.
After my first FOIA request was filed, Rep. Ron Paul (R-Texas) last fall asked for the very same things I did - the minutes of the Working Group's meetings.
"An informal inquiry to Treasury from our office yielded nothing. They claim such minutes are not taken and don't exist," one of Paul's people told me in an e-mail last September.
Very interesting! This intriguing group of government officials and private financiers meets regularly under Paulson and nobody keeps a record of what they discuss or do.
Why am I so interested?
If the Plunge Protection Team is doing what I suspect - namely, coming to the rescue of stocks whenever it deems it necessary - this would not only change the entire nature of investing in this country but would be the biggest financial story ever.
The New York Post
HANK, WHY ARE YOU IGNORING MY FOIA REQUESTS?
Byline: John Crudele
I've decided to send a very public letter to Treasury Secretary Hank Paulson.
Dear Mr. Paulson:
How ya doing?
I think you're doing a wonderful job as Treasury Secretary. And don't think I'm saying that just because I'm looking for a favor.
You have been pretty invisible compared with others in that job and, frankly, that worries me a little. It also gets me to the point of this letter.
Hank, I don't trust you. There are just too many ways for you and your former Wall Street firm, Goldman Sachs, to cheat the financial markets.
But don't think I'm picking on just Goldman - I'm a little suspicious of any firm that can make billions on a single trade with the right connections.
So on July 25, 2006, my lawyer drafted a request under Section 552 of the Federal Code called the Freedom of Information Act asking for documents generated by the President's Working Group on Financial Markets.
Around here we call it the Plunge Protection Team.
That request was ignored, although we did get a phone call from someone many months back saying they were working on it.
So on Feb. 28 I had my lawyer file another request. This time we asked for minutes of meetings that might have taken place that day and the day before.
My poor lawyer is getting a little frustrated, but I told him maybe the requests got lost in the mail. That's why I'm sending this parcel Post, pardon the pun.
It's only April, but I get the feeling that you're going to ignore me again.
Perhaps you missed it, but around the time of the first FOIA request, I documented what I believed the Plunge Protection Team was up to.
I believe this group you head, and which includes regulators, brokerage firm chiefs as well as major market players, tries to protect the stock market.
George Stephanopoulos explained it - although not very eloquently - when he was a guest on "Good Morning America" on Sept. 17, 2001.
"And perhaps the most important, there's been - the Fed in 1989 created what is called the Plunge Protection Team . . . [and they] have plans in place to consider if the stock market starts to fall."
Poor George was a little discombobulated. It was right after the 9/11 terrorist attacks. But since he was a very close adviser to President Clinton, Stephanopoulos would have known if something as important as this was happening.
Don't get me wrong. I think rigging the financial markets is a good thing when the nation's security is at risk.
I'm a little leery of putting the likes of hedge funds, Wall Street firms and others with very vested interests in charge of this effort - how could that possibly go wrong?
If you want everyone to be aware that Treasury is on the ball and ready to come to Wall Street's rescue, why not turn over the documents I've requested?
Could it be because you don't want us to know about some very odd trading patterns on Feb. 27 and 28 this year that saved the stock market from having a truly ugly day?
Maybe you'd prefer not to explain why traders such as Paul Tudor Jones are reportedly being consulted by the Plunge Protection Team.
Anyway, I hope you can get that stuff to me pronto. At the very least, please have your lawyers call my lawyer and give him the usual runaround.
Have a nice day printing money.
The New York Post
SHIRLEY, COMMERCE IS HAVING TROUBLE
Byline: John Crudele
IT looks like Commerce Bancorp has a real estate problem. But it has nothing to do with subprime loans.
I've been following this for years: Commerce's Chairman Vernon Hill and his missus, Shirley, have built themselves a really fine company.
And it's too bad that as a public company they can't do anything they please.
Last Friday Commerce cryptically announced that it would restate three years worth of earnings that would resolve some tax accounting matters.
It didn't give any details, but the company said its delayed annual report would come out before March 16.
That disclosure comes a couple weeks after Commerce said it was being investigated by the Securities & Exchange Commission.
It is likely that investigation has to do with some self-dealings by the Hills that were first revealed in this column years ago.
Clever that Commerce made this very sensitive announcement on a Friday, right in the middle of a chaotic week in the stock market. It's almost like they wanted the news to get lost in the confusion.
And even more interesting that the company didn't provide many details.
Don't shareholders have the right to know what the bank did wrong?
Don't people investing in this company need to know what they are dealing with?
The guessing is that the bank is in trouble for booking as revenues real estate transactions that were really inside deals with a partnership owned by Hill.
There might also be some question about the size of the bank's deposits.
A limited partnership in which Vernon Hill was involved owned the land on which Commerce built branches, leasing the sites to the bank. That's a nice deal if you can get away with it.
I'm taking a little vacation after this week so I'm going to clear up this pile on my desk with some short items. Here goes:
Now that the entire world is justifiably worried about the economy, would the Wall Street Journal like to apologize for its Feb. 22 lead story headlined "Global Economy Shrugs Off Oil, Housing Strain?"
Just ain't so.
The story was about as wrong as the one in the Journal last May 11 titled "Behind Surging Stock Market: Old-Fashioned Economic Boom."
The U.S. economy weakened dramatically in the second half of last year, causing the Federal Reserve to stop increasing interest rates.
The Journal is a great newspaper that has gone soft in its economic analysis.
It's Hillary-ious that Sen. Clinton is bringing up America's "economic vulnerabilities" in her quest for the presidency.
She's right, of course, that too much of America's debt is held by foreigners some of whom - this'll shock you - don't like us.
As I've been saying for years, our country's so-called current account deficit should be an issue of national security.
But for any of us journalists who investigated the money side of the Mr. and Mrs. Clinton scandals in the 1990s (before Monica Lewinsky surfaced from under the desk) Hillary's bringing up financial issues is akin to Bill mentioning his fondness for big-lipped brunettes.
I've got boxes full of documents safely secured in my attic showing the Clinton's financial abuses in Arkansas.
And in case you're thinking of burning down my house, other people have copies.
Stocks were down substantially in Far East markets while we slept on Sunday night. But when the U.S. markets opened yesterday they slipped a bit.
It's a miracle!
Or maybe just the President's Working Group on Financial Markets (aka The Plunge Protection Team) deciding that some buyers needed to show up.
I'm still waiting for the documents on the PPT from the Treasury Department that I requested under the Freedom of Information Act months ago and again last week.
If there's nothing going on, what's the big deal? Turn them over.
The New York Post
FUNDAMENTALS, NOT HYBRID, CAUSED THE PLUNGE
Byline: John Crudele
Dear John: What happened with the stock market last Tuesday? My thought is, someone pushed the sell button and guess what? There was no human there to stem the slide. R.P.
Dear John: Do you think the Plunge Protection Team was working its magic this week?
Dear R.P. and Dave: You two are asking two sides of the same question: Is there human intervention that can prevent the kind of market meltdown we saw last Tuesday when the Dow Jones industrial average fell 416 points?
First I'll deal with R.P., who is obviously asking whether the changeover to an electronic "hybrid" trading system at the New York Stock Exchange from one that relied on the tried and true but sometimes corrupt specialist system might have caused the near catastrophe.
Yes, having a human being pairing off orders might have reduced the confusion. Or it might not have - previous market plunges all occurred when the specialist system was fully intact.
But what also caused the drop of hundreds of points in a matter of seconds was an old failsafe measure established by the NYSE: the so-called collars, or trading curbs.
Certain program trading is halted whenever the NYSE Composite Index is down (or up) 180 or more points. But what typically happens is that sellers just pile up and wait for the curbs to end.
The hybrid system at the Exchange never handled anything like this before and it simply became overwhelmed.
But don't confuse that 300-point drop, which was probably exacerbated by technical glitches, with the real reason the stock market has been weak recently: the U.S. economy is slowing.
Now, for Dave's question about the Plunge Protection Team, which is formally called the Working Group on Capital Markets.
Treasury Secretary Henry Paulson last week said a number of times - as others did - that they were "watching developments carefully." Well, what exactly does that mean?
If the stock market should happen to collapse, does anyone think that Paulson - who heads the Plunge Protection Team - is just going to sit idly by and marvel at the catastrophe.
Or will he contact the others on the team, including several notable Wall St. figures, and (wink, wink) mention that it would be nice if stock prices didn't collapse and create a national nightmare?
There's no doubt about the existence of the Plunge Protection Team.
In the past this group has intervened in the stock market - of that I'm certain. Last week?
The government was probably more of a cheerleader, encouraging firms not to panic and (perhaps) indemnifying them against loss.
The New York Post
SMALLER INVESTORS KEPT COOL
Byline: ZACHERY KOUWE
While most Wall Street traders and professional investors were sweating over Tuesday's market meltdown, many small investors remained confused and opted not to panic.
"You probably think I'm getting nervous, but I'm not," said one investor who told his broker not to do anything with his investments yesterday.
"One thing that saves an average small investor is that we all have day jobs and don't have time to obsess with every market move while it happens," said Alex Khenkin, an investor in rural New Hampshire. "I didn't even know anything was amiss until later in the day. I learned long ago to never sell or buy in a panic."
Those who stayed cool were proven correct yesterday as the Dow Jones industrial average gained 52.39 points. The S&P 500 rose 7.78 points to 1,406.82, and the Nasdaq Composite Index added 8.29 points to 2,416.15.
"We really didn't get a lot of calls from clients," said one advisor in Florida. "People weren't sure whether it was Greenspan's comments, China, the housing market or some reaction to Dick Cheney almost getting blown up."
In a note distributed to brokers at UBS, floor trader Art Cashin suggested investors take a hyper-cautious posture. "Find Auntie Em, Uncle Henry and Toto and then get underground to sit this one out," Cashin said.
Other investors had their own conspiracy theories about the markets. "Do you think the Plunge Protection Team was working its magic yesterday?" asked investor David Delman.
The New York Post
TREASURY'S PAULSON PLAYS WITH THE PLUNGE PROTECTORS
By JOHN CRUDELE
Someone - and I don't know who - wants us all to know that since July Henry Paulson, the new secretary of the U.S.
Treasury, has spent a lot of time on a little known Washington operation called the President's Working Group on Financial Markets.
That was the major message in a prominent piece this past Monday in The Wall Street Journal.
The big mystery is why do these people want us to know this? And why now? I wrote about the Working Group on Financial Markets back in June when Paulson left Wall Street powerhouse Goldman Sachs to accept the top job at Treasury.
As I documented in a series of half a dozen columns, the mysterious Working Group had been formed in 1988 by an executive order signed by President Reagan and was manned by the heads of various stock exchanges and top government officials in charge of those markets.
The group was supposed to - ya' know - solve financial problems, although the scope of its authority and its powers were never clearly defined.
The group soon became known as the Plunge Protection Team, and for those who were following its stealthy pursuits, the Working Group seemed to be using a blueprint set down by a former Federal Reserve official named Robert Heller.
Soon after Heller had left his government job in 1989 he gave a widely disbursed speech proposing that the Fed be given authority to rig the stock market in case of emergencies.
The Plunge Protection Team - a. k. a. Working Group - probably remained mostly dormant during the good years. But there were sneaking suspicions that it came out of its shell a couple of times, especially after 9/11.
So it's interesting that now - seemingly out of the blue and far removed from any obvious crisis - Paulson is activating the Plunge Protection Team and someone wants us to know about it.
The Journal's Monday piece started: "With just two years to make his mark, new Treasury Secretary Henry Paulson is focusing much of his attention on making American financial markets more competitive . . .
"Since taking the reins in July, the Wall Street veteran has reinvigorated the President's Working Group on Financial markets, which had languished." The article went on to say that before Paulson's arrival, the group met every few months, and sometimes only once a quarter. Now Paulson is insisting that it meet every six weeks.
Among other things, Paulson and the Plunge Protection gang discuss the problems that might occur with hedge funds and derivatives, plus the "government's ability to respond to a financial crisis," according to a source quoted by the paper.
Since the Federal Reserve is the group that would lower interest rates in an emergency, the Plunge Protectors would probably be the ones who'd fix the problem. In other words, they'd throw money at it.
Stocks have been moving steadily upward since July, when Paulson took over the Plunge Protection Team (and the Treasury). And one of the reasons could be that - as I mentioned back then - there is less risk in stocks if the government is providing a safety net.
Less risk, that is, until something bad happens.
The New York Post
LOOK BEYOND BIG OIL TO THE REAL PREDATORS
Byline: John Crudele
Dear John: If oil companies aren't using predatory pricing, how can they account for their profits? S.C.
Dear S.C.: Oil companies are suffering an embarrassment of riches.
In the second quarter of this year their profits were 41 percent higher. And earnings are expected to be up 21 percent for the entire year - a drop off in gains only because the end of 2005 was when prices really started to rise.
And if you just include integrated companies - like Exxon - then profits also rose a staggering 37 percent in the second quarter. If energy prices stay as high as they have been, the rest of us will be broke, but oil companies will be rolling in dough.
This is like the family down the street that just won the lottery but is still driving in an Olds 88, circa 1995. Oil companies don't want to attract any more attention than some people who suddenly become rich.
But here's a shocker for you: I don't think the oil companies and gasoline producers are to blame for recent high energy prices. Yep, they are the recipients of the profits; that's for sure.
But the real culprits here are the speculators on Wall Street who have been lifting the price of all commodities - gold, lumber and oil, too. Speculators use any excuse to spook commodities prices higher, and this crazy world of ours gives them plenty of opportunity to stir up concern - and spike prices.
Forget the excess-profits tax on oil companies. We should throw some speculators in jail.
Dear John: I read with interest your articles on the Plunge committee on stocks. Do you know if they have one on bonds and real estate, too?
You are referring to the Plunge Protection Team. In a series of recent columns, I proved that the group exists, and former White House aide George Stephanopoulos verified (inadvertently) that the team has been protecting the stock from sizable drops.
Yes, there is also a plunge protector for bonds and housing, and the dollar, too. It's called the Federal Reserve.
The Fed has the job of keeping U.S. currency strong and protecting us against inflation.
Its other job is to manipulate interest rates in a way that guarantees the success of its first job.
But over the last few decades, the Fed's role has become confused.
It isn't, for instance, supposed to keep the economy growing via lower interest rates or slow the economy down by raising borrowing costs. That's supposed to be the domain of our elected officials. And that's why last week's decision by the Fed not to raise interest rates again is so complex.
The Fed seemed to back off more rate hikes because it is worried about the economy - which isn't its role. Purists would have preferred higher rates to keep inflation in check - and the dollar sounder.
The New York Post
COME CLEAN, BEN! - WHAT HAS PLUNGE TEAM BEEN UP TO?
Byline: John Crudele
FEDERAL Reserve Chairman Ben Bernanke revealed that the secretive Plunge Protection Team meets several times a year, but he dodged a congressman's inquiries about what the group does and whether minutes are kept of those meetings.
So The Post has filed a Freedom of Information Act request for those minutes - specifically for the meetings that likely occurred immediately after the terrorist attacks in 2001.
I wrote about the Plunge Protection Team in a series of articles earlier this month.
Formally called the Working Group on Financial Markets, it was formed in 1988 by President Reagan to advise Wall Street.
Headed by the Secretary of the Treasury, it also has top regulators and the chairman of the Fed as members.
But in addition to giving Wall Street advice, I suspect - and former White House adviser George Stephanopoulos seems to have confirmed - that the Plunge Protection team has morphed into something more active.
And Wall Street firms may have been invited to join.
What's clear from answers to questions posed by Rep. Ron Paul, (R.-Texas) is that new Fed chief Bernanke either doesn't know much about the role of the working group or preferred not to discuss the matter.
And, I think, it's time we found out a little more about an organization that could afford some Wall Street firms an opportunity to reap massive profits at the expense of ordinary investors.
Here's some of the exchange that occurred between Bernanke and Rep. Paul last Thursday at the House Financial Committee hearings.
Rep. Paul: Good afternoon, Chairman Bernanke. I have a question dealing with the Working Group on Financial Markets. I want to learn more about that group and exactly what authority they have and what they do.
Could you tell me, as a member of the group, how often they meet and how often they have actions? And have they done something recently? And are there reports sent out by this particular group?
Bernanke: Yes, congressman. The president's working group was convened by the president, I believe, after the 1987 stock market crash. It meets irregularly. I would guess about four or five times a year. But I'm not exactly sure.
And its primary function is advisory, to prepare reports. I mentioned earlier that we've been asked to prepare a report on the terrorism risk insurance. So that's what we generally do.
Rep. Paul: In the media you'll find articles that will claim, at least, that it's a lot more than advisory.
You know, if there is a stock market crash, that you literally have a lot of authority, you know, to impose restrictions. And we're talking about many trillions of dollars slushing around in all the financial markets. And this involves the Treasury and, of course, the Fed as well as the SEC (Securities & Exchange Commission) and the CFTC (Commodities Futures Trading Commission.)
And the reason this came to my attention was just recently there was an article that actually made a charge that out of this group came a position that interfered with the price of General Motors stock.
Have you read that? Or do you know anything about that?
Bernanke: No sir. I don't.
Rep. Paul: But back to the issue of meeting. You tell me it meets irregularly. But are there minutes kept, or are there reports made on this group?
Bernanke: I believe there are records kept by the staff. There are staff, mostly from Treasury, but also from other agencies.
Rep. Paul: And they would be available to us in the committee?
Bernanke: I don't know. I'm sorry. I don't know.
Rep. Paul obviously doesn't have a reporter's knack for the follow-up question, so here's what I would have asked next.
Crudele: Well, Mr. Bernanke, how about you find out! Someone in your position should know if, as former White House adviser Stephanopoulos has claimed, the Working Group on Financial Markets - the Plunge Protection Team - has the authority to interfere with the free market for stocks.
And we'd also like to know who makes decision for the group, politicians or guys on Wall Street. Don't misunderstand, Mr. Bernanke. I'm not saying what the group is doing is wrong. But why should firms like Goldman Sachs - from which two of the last four Treasury secretaries have come - be in a better position than anyone else who gambles in the stock market?
See, that's why I'll never be in Congress.
The New York Post
FOLLOW THE DANCING FIXED-RATE MORTGAGE
Byline: John Crudele
Dear John: I was reading your column recently and nearly spit my coffee into my PC when I read that 30-year fixed-rate mortgages still average only 5.87 percent. Where did you get that worthless information? You'd be hard pressed to find a mortgage anywhere under 6.375 percent to 6.5 percent.
Dear J.P.: That is really disgusting. I have readers who are sitting down to their Sunday breakfast, and now they have that image in their heads.
Here's the problem - rates have been going up each week. I wrote back in the fall that this was going to happen and, indeed, it has.
Back when I wrote the article that turned you into a spitter, 5.87 percent was the going rate according to Bank Rate Monitor. But, as you noticed, things change fast.
Right now - weeks after you wrote - Bank Rate Monitor calculates the average rate on a 30-year fixed mortgage as 6.38 percent.
Even that might not be accurate because so much depends on the region of the country in which you live, your relationship with a bank, plus how many "points" and the amount of fees you are willing to pay for the mortgage.
By the way, if you'd spring for a copy of The Post on Sunday, you could avoid that coffee in the keyboard problem. The actual newspaper is super-absorbent.
Dear John: You recently wrote about the Plunge Protection Team. Do you think the PPT was inversely used in the spring of 2001 to stimulate the correction of irrational exuberance?
Dear K.R.: So, you are suggesting that this is really the Rally Protection Team? I doubt it.
I don't think the Working Group on Financial Markets - as the PPT is really called - would ever purposely push the stock market down just to make prices more rational.
I think the group, which was formed by an executive order signed by President Reagan right after the 1987 market crash, is only used to avoid disaster.
But that's for now.
I think the problem with an organization like this is that it is prone to abuse. The government, of course, won't even acknowledge that the PPT rescues the stock market.
Nor will it say if Wall Street executives are part of this group.
All that we know is this: These folks meet in times of trouble and do something. Just talk? That's apparently what they'd like us to believe. But come on, are we really that gullible?
The problem, I believe, is that taking the risk out of the stock market will create perennial bubbles that will inevitably burst.
The New York Post
JUICED MARTS SMART? - DECISION IS HANK'S
Byline: John Crudele
HANK Paulson is going to be a helluva Treasury Secretary. But can a guy who made his fortune on Wall Street be trusted as the head of the Plunge Protection Team?
Paulson, the former chairman of Goldman Sachs & Co. and proud owner of a $700 million net worth, was confirmed yesterday afternoon by Congress - making him the first Wall Street executive to become Treasury Secretary since Robert Rubin resigned that post in July 1999.
Rubin was also chairman of Goldman and presided over the Treasury - and the secretive Plunge Protection Team - during what turned out to be one of the worst stock market bubbles in history.
When it popped in 2001, the end to the irrational exuberance created under the watch of Rubin and Federal Reserve Chairman Alan Greenspan ended up costing Americans trillions of dollars.
Is this a here-we-go-again moment?
If you've been reading this column over the past few weeks, I've documented the existence of an organization called The Working Group on Financial Markets, which was created by President Reagan in 1988 through Executive Order 12631.
The Working Group seems to have turned into something much more complex: an alter ego known as the Plunge Protection Team which - as former White House aide George Stephanopoulos once explained - encouraged Wall Street firms to purchase stocks if the market was faltering.
Not only has the fox been put in charge of the henhouse, but he's been given the deed to the place.
Still, is it a bad thing to put someone who knows Wall Street so well in charge of stopping a market meltdown?
Purists - and I'm not one - would say that the stock market should be left alone.
But things have changed over the last two decades. American households now rely so heavily on stocks that a debacle on Wall Street is clearly a national security concern.
So, the short answer is that stocks should be kept from crashing.
Simple answers, however, usually aren't sufficient.
The Plunge Protection Team undoubtedly came to the stock market's rescue in Sept. 2001. But what are the guidelines for using this new power?
What if the White House decides that the stock market needs to be higher right before a mid-term election?
Can it ask the Plunge Protection Team to juice stocks?
You can imagine the possible abuses from a Plunge Protection operation that is not only unfettered but invisible to watchdogs and the press.
And while the Plunge Protectors might eventually get a crashed stock market back to its previous level, the insiders who "buy the crashes" will benefit at the expense of small-time investors who'll take a beating on the way down.
It's the stock market on steroids. And it's unhealthy.
The New York Post
GEORGE LET PLUNGE SLIP
Byline: John Crudele
GEORGE Stephanopoulos knows all about the Plunge Protection Team, the secretive organization made up of Wall Street bankers and top administration officials whose job it is to come to the rescue of a faltering stock market.
Here's the bombshell statement that an obviously nervous Stephanopoulos, once President Clinton's senior adviser on policy and strategy, delivered on ABC's "Good Morning America" on Sept. 17, 2001 - the day the stock market reopened after being shut for nearly a week because of the 9/11 terrorist attacks.
The statement was barely noticed in the excitement of that time, so I will quote it here in full.
I'm also citing it verbatim because Stephanopoulos blurted it out in the heat of that moment (stocks were struggling that morning) and because no other person with firsthand knowledge of this organization is likely to ever repeat these words.
"And perhaps the most important, there's been - the Fed in 1989 created what is called the 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.
"They have, in the past, acted more formally.
"I don't know if you remember, but in 1998, there was a crisis called the Long Term Capital crisis. It was a major currency trader and there was a global currency crisis. And they, at the guidance of the Fed, all of the banks got together when that started to collapse and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall."
The most important line is the one about the "informal agreement among major banks to come in and start to buy stock if there appears to be a problem."
Over the last month I've outlined in this column how Robert Heller, a Federal Reserve governor, proposed in 1989 that the central bank prop up the stock market in times of crisis by purchasing stock index futures contracts.
I've also contended, and Stephanopoulos confirms, that these rescue missions were not undertaken by the government itself - although off-balance-sheet funds are available - but by Wall Street firms acting as fronts for Washington.
Stephanopoulos didn't return calls for comment.
The Plunge Protection Team, first revealed in a Washington Post story, seems to have been born on March 18, 1988, when President Reagan signed Executive Order 12631 establishing a Working Group on Financial Markets that included the chairmen of the various stock exchanges, the chairman and governors of the Federal Reserve, and the secretary of the U.S. Treasury, who was also the chairman.
Nowhere does the order mention the heads of private banks or Wall Street firms, although the group is encouraged to "consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies and with major market participants" when trouble crops up.
Nor does the order say that this group can buy stocks to prop up the financial markets, like Stephanopoulos said it was doing.
The purpose of the working group, the order says, is enhancing "the integrity, efficiency, orderliness, and competitiveness of our nation's financial markets and maintaining investor confidence." And what better way to make investors confident than to assure that the stock market will not crash?
So what does this all mean? Simply, that without our knowledge there's been a brave new world in investing for more than a decade. And this changes everything.
Next: Rigging the stock market - good or bad?
The New York Post
THE DAY OUR COLUMNIST TOOK THE PLUNGE
Byline: JOHN CRUDELE
I swear that this is the truth, the whole truth and nothing but: I came face to face with the Plunge Protection Team and lived to tell about it.
As I explained in my two previous columns on the Plunge Protection Team (June 8 and June 13), a former Federal Reserve governor in 1989 proposed that the U.S. government be allowed to rig the stock market in case of emergency.
"The stock market is certainly not too big for the Fed to handle," said Robert Heller, who suggested that the government secretly buy stock index futures to save Wall Street and the economy from catastrophe.
Heller's plan hung like a fairy godmother over the market (in other words, you want to believe but really can't) until the Washington Post naively wrote about the Plunge Protection Team in 1997.
The PPT, the Post said, was started in 1987 and had met secretly until - at the height of the last stock market bubble - dozens of participants suddenly started spilling the beans.
How convenient, no?
My brush with the Plunge Protection Team occurred on Sept. 18, 2001. Yeah, that day!
You'll remember that the stock market had been closed for a week because terrorists had attacked the World Trade Center.
I was stuck in New Jersey when I placed a call to a top financial executive with close ties to the Federal Reserve and who also happens to have spent much of his life in public service. Let's call my source Fred.
As I recall, my intention was to ask Fred some lame question like:
"Can the U.S. economy survive this?" Fred was also stuck somewhere else and couldn't be reached, so I posed my stupid questions to others as I pumped out columns that were dutifully upbeat and patriotic for a week.
I forgot about Fred altogether until he returned my phone call on Sept. 18, explaining that he had been stranded out of the country.
By the time Fred had gotten back to me, the stock market had already opened and prices were sharply lower even though the Federal Reserve had made a not-so-surprising reduction in interest rates that morning.
Fred was annoyed, mostly with Treasury Secretary Paul O'Neill, who Fred felt hadn't emphasized the rate cut enough when addressing the nervous public (and the financial markets) that morning.
Now I was annoyed, so I blurted out that Fred should wise up. I can't remember exactly what I said but it was something like "Hey, wake up. Nobody cares about the interest rate cut. Someone has to step in front of this market and save it." Then I remember referring Fred to the proposal made in 1989 by Heller.
And when it didn't look like Fred was going to be able to get a copy of Heller's Oct. 1989 article in the Wall Street Journal I faxed it over to him. Fred's secretary never acknowledged receiving the fax, but she did call me up later in the day to make sure something Fred had promised me had arrived.
The stock market rallied late in the day on Oct. 18. I don't know if Fred had anything to do with it or whether the rally was just spontaneous.
These days, things seem different with Big Mouth Ben Bernanke now at the helm of the Fed; there's the possibility of a crisis any day.
Remember, Bernanke once proposed running the printing press and dropping currency from helicopters as an economic plan. And lately Bernanke wasn't astute enough to demur when asked about his concern about rising prices, probably because he's trying to overcome his reputation as an inflation slacker.
With a guy like Ben around, it's nice to know that Fred is, too.
The New York Post
BAILING OUT THE MARKET - FEDS' BIG SECRET (M)
-A PLAN FOR A PLUNGE - FEDS' BIG SECRET (S, LCF)
Byline: John Crudele
THE real circumstances behind the death of Vince Foster. The location of Michael Jackson's nose. And the government's meddling to keep the stock market from collapsing.
Those were three mysteries in the 1990s that were destined never to be solved. But now only two remain.
That's because on Feb. 23, 1997, the Washington Post ran a very curious feature article that explained the government's secret role in the stock market.
It was so oddly written that another journalist might suspect that the writer really didn't understand the importance of what he had been given.
The piece started: "It is 2 o'clock on a hypothetical Monday afternoon, and the Dow Jones industrial average has plummeted 664 points on top of a 847-point slide the previous week. The chairman of the New York Stock Exchange has called the White House chief of staff and asked permission to close the world's most important stock market."
At this point, the writer explained, the president "confers with members of his Working Group on Financial Markets - the secretary of the Treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission."
"The Working Group struggles to keep financial markets open so that trading can continue," the article said.
The Post said that "an outline of the government's plan emerges in interviews with more than a dozen current and former officials who have participated in meetings of the Working Group," which it says was established after the market crash in 1987.
The Tuesday prior to when this article ran, the Post contended, the Working Group had met in a conference room at the Treasury Department and discussed the risk of a sudden stock market decline considering that the Dow was then over 7,000 (now close to 11,000).
The Working Group's nickname? The "Plunge Protection Team," which was the headline of that Washington Post piece.
As I said in last Thursday's column, incoming Treasury Secretary Hank Paulson soon becomes a member of that team.
In fact, as a veteran of Wall Street who would know what to do in just such a crisis, Paulson might even be considered the likely team captain.
There are, of course, some innocuous things that Washington could (and should) do to prevent a bad situation on Wall Street from rippling through the whole economy and becoming a national crisis.
For one thing, the Federal Reserve could immediately reduce interest rates so that people will be able to borrow money more easily to make purchases.
That easy money will eventually provide a prop under the financial markets.
Or the Plunge Protection Team could simply rig the market, as was proposed by former Federal Reserve Gov. Robert Heller in 1989.
After all, lowering interest rates is a nice (but slow) way to solve the problem of a stock market collapse rippling through the economy and creating a national crisis. Patience, in this case, is not a virtue.
I'm bringing all this up now not only because the stock market has been looking ill lately but also because Fed Chairman Ben Bernanke is so new at his job that the financial markets might try to test his resolve with a quick plunge here and there.
And it's nice to know that someone besides the newcomer is actually looking out for investors. Bernanke - known for a tongue that moves faster than his considerable brain - has already spoken out of turn at least twice.
And with inflation still a tough problem even as the economy slows (stagflation, it's called), the Fed chairman will have to concentrate his efforts more on protecting the U.S. dollar's value by talking tough than by babying Wall Street.
That's why the existence of the Plunge Protection Team deserves a big cheer.
But think about that Washington Post article for a minute.
While I applaud enterprise reporting, the Feb. 23, 1997, article smells like a government plant. It's not that the story isn't true - it probably is very true. It's just that the timing for letting the existence of this group come out seems very fortuitous.
Alan Greenspan, a member of the PPT, was after all thinking "irrational exuberance" right about this time.
While I swear nobody in Washington asked me to write this column I'm sure the team doesn't mind: like the Washington Post article it'll remind investors that they aren't in this on their own.
(Next: Me and the Plunge Protectors.)
The New York Post
PAULSON'S OTHER JOB AS WALL ST. PLUNGE PROTECTOR
Byline: John Crudele
QUICK, somebody tell soon-to-be Treasury Secretary Hank Paulson about the other part of his job: being a member of the Plunge Protection Team.
What is that? It's something that Wall Street is gonna need if the stock market continues to be freaky.
But this is a story that's best told in chronological order.
Back during a stock market crisis in 1989, a guy named Robert Heller - who had just left the Federal Reserve Board - suggested that the government rig the stock market in times of dire emergency.
Yep! He didn't use the word "rig" but that's what he meant.
Proposed as an op-ed in the Wall Street Journal, it's a seminal argument that says when a crisis occurs on Wall Street "instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole."
Had Heller been any other schmoe who writes op-ed pieces for The Journal this would have been long forgotten. But he had served for three years as a governor at the Fed and this proposal had the look of a trial balloon since stocks had just fallen sharply on Oct. 13, 1989, and memories of the 1987 crash were still fresh.
Over the next few years people like me (meaning, those who watch the financial world with a critical eye rather than a blind one) suspected that Heller's plan was indeed in effect. Whenever the stock market was in trouble someone seemed to ride to the rescue.
Often it was a Wall Street firm that seemed more courageous than fiscally responsible. Often it appeared to be Goldman Sachs, which just happens to be where Paulson and former Clinton Treasury Secretary Robert Rubin worked.
Did the U.S. Treasury actually have an allocation of money to carry out what Heller had suggested - that is, throwing fresh investment cash in front of a falling market until it stopped declining? For a while I thought something called the Currency Stabilization Fund - which actually exists at the U.S. Treasury but is meant for currency stability - was the slush fund used for this venture.
I was told by people who claimed to know that this part of the theory wasn't so.
There was no way to prove that these surreptitious government intrusions into the stock market were actually occurring. In fact, just mentioning these possibilities got a person branded as a conspiracy nut.
This country, the critics would say, never interferes with its free capital markets. Sure, there's intervention in the currencies markets. And, yes, the Federal Reserve does manipulate the bond market and interest rates through word and deed.
But never, ever would such action be taken at the core of capitalism - the equity markets, which for better or worse must operate without interference.
That's the way the standoff stayed until 1997 when - at the height of the Last of the Great Bubbles - someone in government decided it wanted the world to know that there was someone actually paying attention in case Wall Street could not handle its own problems.
The Working Group on Financial Markets - affectionately known as the Plunge Protection Team - suddenly came out of the closet.
Today - with the stock market acting skittish again - the future Treasury Secretary should get ready to go to bat for PPTeam as soon as possible.
(Tuesday: How the Plunge Protection Team got exposed and my first-hand run in with the riggers.)
April 5, 2000
New York Post
“How Stocks Came Back From The Abyss”
By John Crudele
SOMETHING happened at around 1 p.m. our time yesterday that pulled the stock market back from the edge of the cliff.
Traders say it was almost like divine intervention. One minute the Nasdaq was down 11 percent -- say it out loud, "Eleven percent in one day" -- and then it suddenly rallied several hundred points in the matter of an hour.
The Dow followed suit.
Down 500 points around mid-day, the blue chip index's decline -- along with the horrible showing of over-the-counter stocks -- was destined to make yesterday's market an unqualified disaster for investors and the country.
Then, traders said, someone started buying large amounts of stock index futures contracts through two major brokerage firms -- Goldman Sachs and Merrill Lynch. These transactions are usually done on the QT so we don't really know how many of these contracts were purchased. And unless the brokers tell, there is no way of knowing which of their clients were making the purchases. Goldman wouldn't comment on this and Merrill did not return a call for comment. But traders said enough were bought to catch everyone's attention. In fact, the buyers seemed to want people to know they had an appetite for stocks.
Then the market rebounded. It didn't go all the way back. At the end of the day the Dow Jones index had still lost lost 56 points or half a percent on the day. And the Nasdaq lost another 74 points, or the equivalent of a 1.77 percent drop. Yesterday's loss by over-the-counter stocks nearly put the Nasdaq index back to ground zero for the year -- in two days all but 2 percent of its gain for the year was gone.
It was real nice of Goldman and Merrill to stick their necks out like that. In fact, it was downright uncharacteristic for Wall Street outfits to put the thought of possible losses aside for the greater good. Because of the purely unselfish nature of what went on, traders are naturally suspicious. Hell, so am I.
"I think some one or more persons saved the market today. There was a suspicious urge to buy stocks at an opportune time," says one trader. "Why drive the Dow up 350 points in a half hour? That's never serious buying. That's someone trying to establish prices," he adds.
I'm especially suspicious when the market suddenly rebounds at nearly the very same moment that a member of the Clinton administration -- economic advisor Gene Sperling -- is on TV telling investors not to worry.
And there's the obvious connection between Goldman Sachs and the administration, the Wall Street firm having given Robert Rubin to the Clinton administration as its Treasury Secretary.
Plus, what better way to make investors not worry than by having the stock market recover a lot of the ground it had just lost. That gesture almost makes a guy want to buy some stock -- bottom fish, if you are into sporting analogies.
I'm not saying that government intervention in a collapsing market is wrong.
In fact -- except for the obvious contradictions with the free-market system -- it is politically and socially a very right thing to do. I've written about this before. And I've mentioned that Washington has had a secretive group call the Working Group on Financial Markets, made up of investment industry and government people, that would be in just the right position to rescue the market. Informally the folks on Wall Street call this the "Plunge Protection Team."
In February 1997, the Washington Post did a piece on this team, just in case you don't believe it exists.
And while I can't swear that Goldman and Merrill are captains of that team, they sure acted like it yesterday.
Wednesday, May 23, 2007
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