Does the Plunge Protection Team exist?
By John Crudele, NY Post, 27 June 2006
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
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
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
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
Update - 26 October 2006
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 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.