| The Plunge Protection Team 03-07-07 mpg Juicing the Stock Market A quote...." 03/07/07 "ICH " -- -- The Working Group on Financial Markets, also know as the Plunge Protection Team, was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown of October 1987. Its members include the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission. Recently, the team has been on high-alert given the increased volatility of the markets and, what Hank Paulson calls, "the systemic risk posed by hedge funds and derivatives.” Eventually it will all catch up with them. They've pumped and primed the system for disaster; they've broken down every fire wall between banks, insurance companies, and brokerage firms and allowed the financial industry to become increasingly consolidated and interconnected. They've made the system much less transparent - specifically in regards to derivatives. They've allowed massive amounts of highly leveraged securities to be issued, again mostly due to the derivatives markets along with whatever all those arbitrage firms are doing. Finally they've stressed the system to the breaking point by encouraging everyone to take on greater amounts of debt. All of this is just waiting for some unexpected spark or catalyst. The plunge protection team's mandate and methods are eerily reminiscent of what several leading Wall Street bankers tried to do to stem the 1929 stock market crash, which was to simply place buy orders. This method worked to stop the market panic of 1907; it obviously wasn’t as effective in stemming the crash of 1929. No doubt the Plunge Protection team has more efficient methods of controlling market actions than those of simply placing buy orders on the open market. They probably have much greater leverage because they’re using all those new financial derivatives and synthetic securities that have been created in the last twenty years. The problem is they're not the only ones who are using them. - mpg See also....Three observations on market discipline See also....Stable Instability |