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Stock Rally Owing to Plunge Protection Team Conspiracy?
The 60 percent gain in stocks since March was largely caused by secret government purchases of stock-index futures, the CEO of TrimTabs claims.
The Plunge Protection Team (PPT), otherwise known as the Working Group on Financial Markets, has been the target of conspiracy theorists ever since an article in the Washington Post in 1997 first shed light on the operation. The Working Group was created by Executive Order following Black Monday’s market crash on October 19, 1987, when the stock market declined more than 20 percent in a single session. Its purpose was to give recommendations for legislative and private sector solutions for “enhancing the integrity, efficiency, orderliness, and competitiveness of financial markets and maintaining investor confidence.”
The Group is made up of the Secretary of the Treasury (Timothy Geithner), the chairman of the Federal Reserve Board (Ben Bernanke), the chairwoman of the Securities and Exchange Commission (Elizabeth Murphy), and the chairman of the Commodity Futures Trading Commission (Gary Gensler). Claims are made that this committee consists of an “orchestrated mechanism that attempts to manipulate U.S. stock markets in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures — acts which are forbidden by law.”
Robert Heller, a former board member of the Federal Reserve, said in an op-ed article in the Wall Street Journal, “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.”
Such support for stocks during a market crisis was confirmed by George Stephanopoulos, a former Clinton administration officer, in an article in the Daily Telegraph, where he referred to “an informal agreement among the major banks to come in and start to buy stock if there appears to be a problem.”
Tyler Durden at ZeroHedge.com pointed out that “virtually all of the market’s upside since mid-September has come from after-hours S&P 500 futures activity.”
There are strong objections to calling such potential manipulation a conspiracy. As the writer at MarketWatch.com put it, “The Fed has never said it is buying equities or equity futures. Doing so would likely violate the Federal Reserve's investment policies, and could violate federal law if not disclosed properly.”
Aside from the legal issues, the PPT would have operational constraints. It's hard to believe that the Fed could keep such a conspiracy a secret for 20 years or more. An operation big enough to manipulate markets for months on end would be big enough to develop leaks.
But he points out that “Biderman’s accusation of PPT market manipulation is another argument in favor of a complete public audit of the Fed’s books.”