Posts filed under “Really, really bad calls”
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
This is simply infuriating: “The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show. AIG said in a draft of…Read More
In a post yesterday, my west coast pal Paul discusses how the Chicago School of Economics Circling the Theoretical Drain: “In the current issue of the New Yorker there is an alternatively depressing and fascinating piece (Letter from Chicago) by John Cassidy about how the Chicago School of economics – monetarism, rational expectations, efficient market…Read More
One of the memes I’ve heard recently in the climate debate is that there is no scientific consensus — that there is actually strong disagreement. The main basis of this argument is that 31,486 dissenting scientists have signed a petition against the belief that Global Warming is man made at the PetitionProject.org. I don’t want…Read More
Economics Nobel laureate and Columbia University professor Joseph E. Stiglitz has what very well be the best year end piece I have seen to date; “The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in…Read More
Invictus is a bulge bracket asset manager with $100+ million AUM. He has no patience for money losers, hacks, partisans pretending to be financial analysts . . . this is the first in a series of critical looks at analysts, media, economists, financial TV. Feel free to share any thoughts in comments. Here’s Invictus: ~~~…Read More
Here is a fascinating twist on the underwater homeowner walking away fromt heir bad purchases: This time, its Morgan Stanley. They spent over $8 billion on commercial property in 2007 — the peak of commercial real estate in the US. Now, they are going to preemptively “Walk Away” from five San Francisco office buildings, letting…Read More
The political buzz today is all about the President’s falling approval ratings. He has now fallen faster than President Bush did (prior to 09/11). The simple solution for the White House: Stop jerking around with Financial Reform. When there is high unemployment, people don’t want to see bailed out bankers making a killing. Fix what…Read More
A hedge fund manager in Tokyo sends this along: > Tiger, Tiger bonking bright in the fleshpots of the night what immortal eye or hand could restore your tarnished brand? On what porn star’s breasts and thighs, burnt the fire of your eyes on what course did your ball run as you sunk a hole in one? You always looked…Read More
“Bankers and regulators have not come anywhere close to responding with necessary vigor” to the worst economic crisis in 70 years. There is a lot of evidence that financial weaknesses brought us to the brink of a great depression . . . The proposed changes are like a dimple.” -Paul A. Volcker, Dec. 8. at…Read More