There’s been a lot of chatter lately about secret cabals and the plunge protection team.
I notice it seems to be coming primarily from those folks who missed the rally off of the lows. Rather than admit their errors, they are rationalizing them with discussions of secret government equity buyers.
I addressed the PPT in Bailout Nation. This little excerpt is from chapter 5:
In 1988, President Ronald Reagan issued Executive Order 12631 establishing the President’s Working Group (PWG) on Financial Markets. The goal of the PWG was to “enhance the integrity, efﬁciency, orderliness, and competitiveness of our Nation’s ﬁnancial markets while maintaining investor conﬁdence.” (Once again with the psychology.)
Twenty years later, it remains a secretive organization, one whose formalized meetings keep no minutes and whose functions are poorly understood. There is surprisingly little academic publishing on this body. Due to its secretive nature, the PWG’s workings are often described in market folklore as “they,” as in “They won’t let the market drop, they were in buying today.”
It wasn’t until 1997 that the PWG received the name by which they are best know today: the Plunge Protection Team (PPT). That was the headline of a Sunday Washington Post article by staff writer Brett D. Fromson.3
For our purposes, the PPT is an irrelevant footnote.
Why? First off, it is hard to imagine a secret cabal manipulating markets, deploying billions or even trillions in capital, with a nary a shred of evidence ever surfacing. The Bush White House couldn’t illegally ﬁre nine U.S. attorneys without the political motivation being discovered and a major investigation launched.4 Could the markets be supported via massive trading, and no one anywhere would ever see proof and come forward? It’s hard to imagine that big a secret being kept for so long.
Second, and more important, the PPT, well, they really suck at their jobs. If the conspiracy theorists are correct and this group is supposed to prevent market meltdowns, they are not exactly hitting the cover off the ball. The late George Carlin had a routine on American Indians’ military organizational structure. They weren’t bad ﬁghters, he said, just because they started out defending Massachusetts and ended up in Santa Monica.
And so it is with the PPT.
How is their ﬁghting prowess? Well, consider that starting in 2000, the NASDAQ fell from over 5,100 to about 1,100—a plunge of nearly 80 percent in about two and a half years. And in 2008, the PPT performed even more miserably. Bloomberg reported that as of November 19, 2008, markets were suffering from “the worst annual decline in the Standard & Poor’s 500 index since 1931.”5 The carnage “dragged down every industry in the benchmark gauge and 96 percent of its stocks.
Four hundred eighty-two companies slipped as the 500-stock index slumped 46 percent, poised for its biggest yearly retreat in eight decades.” And after the major indexes ended 2008 down more than 40 percent for the year, the ﬁrst 10 weeks of 2009 saw the markets fall another 22 percent.
Worst annual decline in eight decades? Down another 22 percent in two months? Geez, how incompetent must a secret market-manipulating organization be before someone gets ﬁred?
Plunge Protection Team
Brett D. Fromson
Washington Post, February 23, 1997, H01
Report Shows White House Engineered U.S. Attorney Firings
TPM, October 1, 2008
S&P 500 Index Drop Leaves 64 Industries with Losses
Lynn Thomasson and Eric Martin
Bloomberg, November 21, 2008