Table of Contents
What is the Plunge Protection Team?
A nickname coined by The Washington Post, the Plunge Protection Team refers to the Working Group on Financial Markets. The group, formed in the aftermath of the 1987 ‘Black Monday’ stock market crash, provides financial and economic advice to the U.S. President during market crises.
In recent years, some have had suspicions concerning the methods of the Working Group, as it does not release records of its meetings and recommendations. Plummeting indices have rebounded in a day, leading to speculation that the Plunge Protection Team manipulates markets.
The Zero Theft Movement and our growing community are dedicated to eradicating the rigged parts of the U.S. economy in order for the ethical parts to flourish. While government intervention in stock markets may, on the surface, appear like a positive action, it may not be the case when you think about it a bit more. In this article, we will cover how potential market manipulation (even to save it) can lead to undue losses for all investors.
Membership and Functions of the Plunge Protection Team
President Ronald Reagan’s Executive Order 12361 names the members of the Working Group and details its responsibilities.
The following officials serve as members of the Plunge Protection Team:
- The Secretary of the Treasury, or their designee (as Chairperson of the Working Group
- The Chairperson of the Board of Governors of the Federal Reserve System, or their designee
- The Chairperson of the Securities and Exchange Commission, or their designee
- The Chairperson of the Commodity Futures Trading Commission, or their designee.
The Executive Order identifies three purposes/functions of the Plunge Protection Team. Below, we have quoted the exact text from the order verbatim.
- Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence, the Working Group shall identify and consider:
a. The major issues raised by the numerous studies on the events in the financial markets surrounding Black Monday, and any of those recommendations that have the potential to achieve the goals noted above
b. The actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.
2. The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.
3. The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes.”
The Few Meetings of the Working Group
To expand on the introduction, let’s take a quick look at the events that led to the formation of the Plunge Protection Team.
While economists have debated the true causes of Black Monday, one common explanation attributes the stock market crash to two factors. Mark Carlson, a member of the Board of Governors of the Fed, points out (1) the U.S. House Committee on Ways and Means proposed new tax legislation to decrease the benefits linked to funding mergers and leveraged buyouts; and (2) the U.S. Department of Commerce’s announcement of unexpectedly high trade deficit numbers hurt the value of the U.S. dollar, increasing interest rates and decreasing stock prices.
On October 19, 1987, the Dow Jones Industrial Average (DJIA) dropped by an unprecedented 508 points (22.6%) in a single day. The S&P 500 Index plummeted 20.4%, falling from 282.7 to 225.06. While the NASDAQ Composite decreased by just 11.3%, it exposed the failures of the NASDAQ market system.
In March 1988, President Reagan wanted to create an expert, though informal, financial advisory team to help him and regulators make economic decisions during the recovery effort. The initial intention was for the Working Group to report specifically on the crisis and recommend next steps; however the Plunge Protection Team has met throughout the years whenever the president has deemed it necessary.
In 1999, the team released a report advising Congress to request reforms to regulations of the derivatives market. It reconvened nearly a decade later to examine the 2008 subprime mortgage crisis. Most recently (as of June 2021), the Plunge Protection Team met on Christmas Eve, 2018, to discuss a bad run in financial markets.
The Mysteries of the Plunge Protection Team
While the Plunge Protection Team obviously exists, the inner workings often remain private. The minutes of its meetings, its recommendations, all of that remains privy to only the few people involved. These ‘mysteries,’ let’s say, have led observers to question whether top financial officials have the license to control the country’s (relatively) free markets.
George Stephanopoulos, former advisor to President Clinton, actually spoke on the Plunge Protection Team and its strategies in an appearance on Good Morning America on Sept 17, 2000.
“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.”
On July 28, Shearson Lehman aggressively purchased stock index futures contracts when equity prices started dropping due to a loss of consumer confidence. The company’s purchases managed to mitigate the losses.
According to Buffalo News, “That day the Dow ended 51.87 points higher. Newspapers the next day said the bad news about the economy had made Wall Street believe that interest rates would decline again — a bullish move for stocks…Similar suspicious trading has occurred for months, traders say. Just last Monday, for instance, when stock prices were sliding because of the weak dollar, traders say that nearly identical orders for several hundred Standard & Poor’s 500 futures contracts were handled at the Chicago Mercantile Exchange by Shearson and Goldman Sachs.”
July 24, 2002
After the investment fervor that created the Dotcom Bubble, the collapse of NASDAQ was swift. Some companies allegedly attempted to hide their losses, leading to the Enron scandal and Worldcom scandal.
Michael Edward, from the alternative news site Rense, claims: “An event that should have sent markets spiraling downward was the Enron, et al, unprecedented corporate accounting scandals. Yet despite this, an unprecedented across-the-board markets rally began on July 24, 2002. Once again, the European Press called it a ‘PPT rally.’”
February 5, 2018
Observers cite, for example, the time DJIA dropped by 1,175 points on February 5, 2018. The loss was doubly worse than the biggest decline in the index’s history. For the two following days, stocks opened lower, but aggressive stock purchases continued to prop up markets. Some have attributed the buying to the Plunge Protection Team (New York Post and GoldSilver).
Another potential case emerged during the aforementioned meeting on Christmas Eve. Throughout the month, the DJIA had been dropping, and the S&P 500 appeared to be on the cusp of a major downturn. Nevertheless, the day after Christmas, the DJIA shot up by over 1,000 points.
December 26, 2018
That whole month, the S&P 500 had been heading towards a record decline—the motive for the team’s meeting—and the DJIA dropped 650 on the 24th alone. The Plunge Protection Team’s aforementioned teleconference on Dec. 24, 2018. But when trading resumed after Christmas, the DJIA rallied over 1,000 points. Some believe the recovery came as a result of market manipulation by the Plunge Protection Team.
Why Secret Market Intervention Could be a Problem
If the Plunge Protection Team (or any other person or entity) manipulates the market, it creates serious problems for investors.
At first blush, especially in the case of the Working Group, their potential market manipulation might seem like a positive. What investor wants to lose money on the stock market? If the allegations are true, then the team would be mitigating losses for many.
But it’s not so simple.
For one, there’s the matter of deceit. Investors operate under the assumption that the U.S. stock market is free. Any manipulation, if found, results in a criminal investigation by the Securities and Exchange Commission. Boom and bust periods happen, and all investors should be subject to the same free market forces.
Furthermore, chartered financial analyst David Amerman writes: “…[The Plunge Protection Team] is a committee that is dedicated not to investors but to the financial system. If in the interest of serving the financial system, government manipulations create excessively high prices – then by definition, investors are being cheated out of future yields. This is because for any future stream of cash flows-whether it be interest payments, dividend payments, or the future sales price-the higher the price we pay today for what the cash flow will be in the future, then the lower our future profits or returns.”
In other words, investors are not getting the proper opportunity to get in low and cash out high if the Working Group is trying to artificially maintain markets at a high price.
What can YOU do about the Plunge Protection Team?
Now, we should once again note that, due to the team’s private proceedings, most of us do not have definitive proof that the Working Group manipulates markets. Nevertheless, perhaps it might be in the public’s best interests to know just what recommendations the Plunge Protection Team makes.
What justifies keeping these discussions secret?
If the team does, in fact, manipulate markets, it would be a good case to investigate with the Zero Theft Movement. Our community works to calculate the best estimate for the monetary costs of corruption and unethical practices in the U.S. Corporate, political, and everything in between.
Stock market manipulation is one area that requires extensive investigation. If it is rigged, it can significantly reduce your savings. Citizens who want to retire may have to postpone it due to minimal returns. Not due to free market forces, but others rigging the market.
We have built a safe and independent voting platform where you and your fellow citizens collaborate to thoroughly investigate potential problem areas across the economy. Everyone votes on whether (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically.
Only through hard evidence can we prove where the rigged parts of the economy exist and force Congress to hold the bad actors accountable. We can achieve economic justice, a financial system that allows the many good businesses (big, medium, and small) and good individuals (regardless of their socioeconomic status) to thrive.
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.