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"The thrust of the article is official's efforts to avert a liquidity crisis, which is exactly what the Fed did when it flooded the banking system with reserves following the 508-point plunge in the Dow Jones Industrial Average on Oct. 19, 1987. How an effort to ensure adequate access to credit to prevent a domino effect in the event of market meltdown morphed into a cabal to prop up the stock market is anybody's guess.
So, is the Plunge Protection Team fact or fiction? In order to justify further investigation it doesn't have to qualify as either. In the stock market suspicions count..
The chances are actually very good that clandestine efforts have been underway to elevate stock prices. But, the idea of a Plunge Protection Team is a decoy that keeps the public’s thoughts mis-focused. The original Plunge Protection Team, although counterproductive, had a few noble intentions.
Democracy leaves leaders few options if they want to remain in office. One way to avoid bad economic numbers would be to find a method that would cause financial assets to steadily increase in value.
How might an Asset Enhancement Initiative work? The Federal Reserve would create money by buying securities in its open market operations. The recipient of the Federal Reserve’s business would silently understand that its new deposits would be used to support stock prices. The Securities and Exchange Commission might conveniently ignore market manipulation when the result was a higher price.
Using sound economic criteria to make decisions becomes futile. When assets increase in price because of a government edict consumer spending is likely to increase as well, creating a fragile economic expansion. Continued economic growth is then dependent on financial assets increasing in value year after year. Inevitably the government’s ability to cause increases in value would weaken to the point of being ineffective. A financial disaster would be the eventual result.
Stock market cycles are terrific instruments for transferring money from those who earned it to others with ambiguous identities. Asking where the money went after it is lost in the stock market is like asking, where did my lap go when I stood up?
The beneficiaries of an Asset Enhancement Initiative would be parties who have held the assets from the beginning.
In Economic Theory Economic models assume that human motivations are beyond reproach. In government there is a choice of doing what is best for the economy or doing what simply looks best to voters. In a democracy, what gets done is what looks best to the voters.