“Every individual…generally, indeed, neither intends to promote
the public interest, nor knows how much he is promoting it. By preferring
the support of domestic to that of foreign industry he intends only his own
security; and by directing that industry in such a manner as its produce may
be of the greatest value, he intends only his own gain, and he is in this,
as in many other cases, led by an invisible hand to promote an end which was
no part of his intention.” Adam Smith, “The Wealth of
The Plunge Protection Team is a working group of high-ranking officials from
the Dept. of the Treasury, Wall Street, and the Federal Reserve. Its purpose
is to establish the protocols for preventing another incident similar to the
stock market crash of 1987. In the event of a steep decline, the team is prepared
to buy large amounts of equities in an effort to stabilize the market.
Some people believe that the government has no right to interfere in the activities
of “free markets”. Others think it is a prudent way of staving off
economic collapse. Still others believe that the intrusion of government, aided
by the privately-owned Federal Reserve and the NYSE, naturally favors the larger
institutional investors and creates an uneven playing field for small investors.
Whatever side one is on, it is proof-positive that “free markets”
are merely a public relations myth with no basis in reality. The preservation
of the system takes precedent over the lip-service to ideology; the “invisible
hand” will always be overpowered by the manicured and mettlesome fingers
of banking elites and Wall Street big wigs. This is their system and they’re
not going to let it be obliterated by some foolish commitment to principle.
The Plunge Protection Team was first uncovered in comments by Clinton advisor,
George Stephanopoulos on Good Morning America on Sept 17, 2001. Here’s
what Stephanopoulos said:
“Well, what I wanted to talk about for a few minutes is the various efforts
that are going on in public and behind the scenes by the Fed and other government
officials to guard against a free-fall in the markets….perhaps the most
important 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 they have been meeting informally
so far, and they have a 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, with the guidance of
the Fed, all of the banks got together when it started to collapse and propped
up the currency markets. And, they have plans in place to consider that if the
markets start to fall.”
Stephanopoulos comments are hardly shocking. They simply underscore the fact
that “deregulation” has created an economic monster which requires
more and more tinkering from the stewards of the system. Without the stopgaps
provided by the Plunge Protection Team and the actions of similar organizations
which forestall business bankruptcies, (bailouts) the whole over-leveraged system
would quickly crash and burn. The irony is that the same corporate kingpins
and banking moguls who’ve benefited the most from removing the rules for
prudent investment are now trying to create a safety net for when it inevitably
begins to unravel.
It won’t work. The numbers are too large. Trillions of dollars are presently
held in shaky hedge funds and derivatives markets. If the market takes a steep
and sudden downturn, there’s nothing anyone will be able to do.
John Crudele of the New York Post has done extensive research on the Plunge
Protection Team (aka; the Working Group on Financial Markets) and provides the
blueprint for “rigging” the markets when catastrophe hits. The idea
came from an a former member of the Federal Reserve Board named Robert Heller
who suggested that “instead of flooding the entire economy with liquidity,
and thereby increasing the risk of inflation, the Fed could support the stock
market directly by buying market averages in the futures market, thus stabilizing
the market as a whole.”
Whatever happened to the idea of completing the “market cycle”
and allowing markets to self-correct? What about the ethical question of whether
government manipulation should be permitted in a “free market”?
And, who gives the government and the privately-owned banks the right to interfere
in the equities markets and snatch up zillions of futures in order to prop up
the unstable and debt-ridden system.
No doubt, the supporters of these drastic measures are the same “market
purists” who appear frequently on the business channel extolling the virtues
of the “free market” in the most lyrical language as though they
were gazing at the subtle and wondrous workings of the universe. Once the pretense
is stripped away, they're exposed as unprincipled phonies trying to stitch together
a faltering system on its last legs.
Crudele added that, “Over the next few years, people like me (meaning
those who watch the financial world with a critical eye rather than a blind
one) suspected that Heller’s plan was indeed in effect. Whenever the stock
market was in trouble someone seemed to ride to the rescue.”
Crudele is probably right; there are back-channel ways to move the markets.
Fed-master Bernanke even confirmed the role of the Plunge Protection Team in
recent testimony to Rep Ron Paul (R-Texas). The larger question is whether the
group operates in the public interest or merely tends to the needs of establishment
elites who hold all the levers of power. Certainly, no one would object if the
main goal was simply to remove some of the disruptive bumps in market activity.
What’s worrisome is the conjugal relationship between the state and the
privately-owned banking establishment which is designed to operate exclusively
in the interests of its shareholders. This is a basic conflict of interest and
puts the small investor at a real disadvantage. He has no way to lobby government
to mettle in the markets. He must make his investment decisions on reasonable
evaluations from publicly available information.
The same rule applies to bailouts as does to interfering with the equities
markets. Bailouts only serve the interests of the ruling elite and undermine
the credibility of the system. Whenever a major corporation or a hedge fund
finds itself slipping into fiscal quicksand, the Counterparty Risk Management
Policy Group (CRMPG) leans on the federal government to throw them a lifeline.
The CRMPG is a mix of hedge funds and mega-banks who are the “self appointed”
caretakers of the system. Here’s their statement:
“Since we know that financial shocks will occur in the future, and we
no that no approaches to risk management or official supervision are fail-safe,
we also know that we must preserve and strengthen the institutional arrangements
whereby, at the point of crisis, industry groups and industry leaders, as well
as supervisors, are prepared to work together in order to serve the larger and
shared goal of financial stability.”
All very noble, but the bottom line is they serve the limited interests of
corporate plutocrats who need taxpayer money to paper-over their business failures.
The CRMPG is just a fancy-sounding lobby designed to prevent their colleagues
from slipping into bankruptcy. Bailouts are a fundamental contradiction to free
markets. If privately-owned corporations cannot succeed on their own merits
they should be allowed to fail.
The Plunge Protection Team and the CRMPG illustrate the collusive relationship
between the banking establishment, the uber-corporations and the state. They’ve
worked assiduously to remove the safeguards which have traditionally protected
the average investor from hucksters and scam-artists, and paved the way for
a full-system breakdown. The market is more vulnerable now than anytime since
the late 1920s, a fact that was emphasized in a statement from the IMF just
“Financial markets have failed to price in the risk that any one of a
host of threats to economic security could materialize and deliver a massive
shock to the world economy. It is clear that risks are on the downside of a
sharper than expected slowdown in house prices that would produce weaker-than-expected
growth that would have implications for global growth and financial markets.”
(“IMF: Risk of global crash is increasing” UK Independent)
The country now faces the growing probability of an economic tsunami
triggered by the rickety hedge funds, the falling dollar, and the rapidly deflating
real estate bubble. The solid foundation of government oversight and regulation
has been eroded by the persistent attacks of the corporatists and banking giants.
The entire system is now on shaky ground. When the scaffolding starts to fall,
the futile maneuverings of the Plunge Protection Team won’t make a bit
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