This page describes the Working Group on Financial Markets aka Plunge Protection Team.

It is referenced from this section on Gold Price Suppression which is part of my web page on Defending the Dollar .



Officially called the Working Group on Financial Markets, it was established on March 18, 1988 by virtue of Executive Order 12631.


Plunge Protection Team



PAULSON'S OTHER JOB AS WALL ST. PLUNGE PROTECTOR

June 8, 2006 --

.......... 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. ..... 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 ... 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. ...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.

john.crudele@nypost.com

A PLAN FOR A PLUNGE
FEDS' BIG SECRET

June 13, 2006 --

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.)

john.crudele@nypost.com


The Plunge Protection Team

An Elite Group Protects the Financial Sector

By kevin Phillips 04/25/2008 | 5 Comments

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 – quietly observed its 20th birthday on Mar. 18.

(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.”

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."







Notes re Robert Rubin and the "Strong Dollar" policy:


It appears that, other than talk, the Strong  Dollar Policy was implemented solely by secret suppression of the price of gold.  It was not implemented by open and understood policies such as stricer fiscal policy (deficit to surplus movement) or stricter monetary policy (higher interest rates)



From January 20, 1993, to January 10, 1995, Rubin served in the White House as Assistant to the President for Economic Policy. In that capacity, he directed the activities of the National Economic Council, which was created by President Bill Clinton after his election in 1992. Rubin served as Treasury Secretary from January 10, 1995 to July 2, 1999, succeeding Lloyd Bentsen. He recently (2005?) started serving on the Harvard Corporation. Summers left Harvard in 1991 and served as Chief Economist for the World Bank (1991–1993) and later in various posts in the United States Department of the Treasury under the Clinton administration. From 1999 to 2001 he served as Secretary of the Treasury, a position in which he succeeded his long-time political mentor Robert Rubin. In 2001, he left the Treasury and returned to Harvard as its President.

Other allegations and chat on the PPT