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166 comments on DrumBeat: February 27, 2007

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Darwinian on February 27, 2007 - 11:28am Permalink | Subthread | Parent | Comments top

Stoneleigh, I agree. The myth of the “Plunge Protection Team” started with an article in The Washington Post in 1997:
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

And it is even listed in “Wikipedia”.
http://en.wikipedia.org/wiki/Plunge_Protection_Team

Founded in 1988 after the 1987 stock market crash, it theoretically ensures the stability of the financial markets, prevents liquidity problems, and ensures that stock market hiccups do not cause bank runs. Some Wall Street bears believe that it buys stock index futures or uses other methods to help keep the American stock markets afloat.

In theory and rumor, it prevents stock market crashes and bank runs. In reality it does not exist. Well, a group really does exist:

It includes the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the Securities and Exchange Commission and the chairman of the Commodity Futures Trading Commission.

And what can these guys do to prevent a stock market crash. Absolutely nothing!

Ron Patterson

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tate423 on February 27, 2007 - 1:51pm Permalink | Subthread | Parent | Comments top

All comments are accurate, but we should make a distinction in what the PPT can do in an already up market. If you look at the sell off in May followed by the rally the rest of the year, I can buy some of the argument that a PPT was keeping it going so to speak. Without a correction and everyone buying already, a PPT can increase the bids and push it higher than most bears thought possible. However that only works in a low VIX world, but now it's popped over 20% today alone!

Markets are more about perception than reality and behavioral finance will explode in popularity as people seek to understand why it was they we all lost our asses.

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Darwinian on February 27, 2007 - 2:17pm Permalink | Subthread | Parent | Comments top

Without a correction and everyone buying already, a PPT can increase the bids and push it higher than most bears thought possible.

Tate, I do not understand your reasoning here. “Everyone buying already?” If everyone is buying already then there is no need for a Plunge Protection Team because the market is going up, not down. But that being said, how can they increase the bids? Remember we are talking about the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the Securities and Exchange Commission and the chairman of the Commodity Futures Trading Commission. These guys do not buy stock. They have absolutely no power to increase any bid. No one in the government is allowed to buy stock with government money!

Ron Patterson

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oldhippie on February 27, 2007 - 4:07pm Permalink | Subthread | Parent | Comments top

I don't know what Hank Paulsen did today. He didn't tell me. Duh. One thing I don't believe he did was sit around feeling or being powerless. I don't believe he was busy being a disinterested hapless observer.

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Yosemite Sam on February 27, 2007 - 5:10pm Permalink | Subthread | Parent | Comments top

Not that you are not entirely correct (in a formal way), but as the distinction between government and private blurs these days, it gives me pause.

Mind commenting on the Sprott study I posted below? I would appreciate your opinion.

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Darwinian on February 27, 2007 - 6:34pm Permalink | Subthread | Parent | Comments top

Sam, the study has very serious flaws which leads me to believe that it is mostly fiction. From page 2:

The Plunge Protection team is not merely concerned with the stability of the stock market. Speaking in 2001 as a correspondent for ABC’s “Good Morning America,” Stephanopoulous also revealed that at the time the Long Term Capital Management crisis in 1998, the Federal Reserve directed large banks to prop up the currency markets.

A couple of problems here; the Federal Reserve does not have the power to tell banks how to invest their money. Buying currency in order to try to prop up the currency would involve enormous risk. And unless the Fed would be held liable for those risk, no bank in their right mind would go along with it. And it would be illegal for the Fed to accept responsibility for any losses.

And the second thing wrong with that statement is that such an endeavor would be useless anyway. Since the initiation of the FOREX, no bank has enough money to prop up any major currency, especially the US dollar, for more than thirty minutes.

http://www.tradingacademy.com/forextrading.htm

Daily volume in the currency markets is around $1.5 trillion. By comparison, the NYSE daily volume averages $25 billion a day.

Daily volume on the FOREX market is sixty times the daily volume, in dollars, of the NYSE. 1.5 trillion is a lot of change. No bank has enough money, especially enough risk money, to even attempt to intervene and sway such a market.

To put it mildly, I simply do not believe it.

Ron Patterson

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Yosemite Sam on February 27, 2007 - 6:45pm Permalink | Subthread | Parent | Comments top

Thx!

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oldhippie on February 27, 2007 - 8:06pm Permalink | Subthread | Parent | Comments top

If you play with real money it is not necessary to put up trillions to sway the currency markets. Central banks prop up currencies every day as a normal matter of business. Always have.

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tate423 on February 27, 2007 - 6:12pm Permalink | Subthread | Parent | Comments top

True, but like some others have pointed out, are you really going to live in an insulated world to think it's not possible? I'm simply a bit more cynical in my short years. I read too much. I know my parents fu*cked this up and now this bull$hit is about to hit the fan.

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Greg Hunter on February 27, 2007 - 5:07pm Permalink | Subthread | Parent | Comments top

Hey Ron I read Policy Pete who talks periodically about the PPT and he points to this site

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