Working Group on Financial Markets Breeches Fed Independence, Manipulates Market

If you bring up the subject of the "Plunge Protection Team," don't be surprised to be labeled a conspiracy theorist or be greeted by dumb looks, even from your financial advisor. The arrogant and the dishonest will say it doesn't exist, invoking all the universal wisdom of mainsteam media to prove their point. In a way, they are right. It's actually called the President's Working Group on Financial Markets, and you won't hear about on TV, but you will see it mentioned in the back pages of The Economist, Wall Street Journal, and other channels that reach a selected audience. To save you the time and convince you of it's reality, here are some links regarding the most recent PPT meeting which was hastily called around the Fed's $30 billion bailout of Bear Stearns on Monday, March 17. Here's one from CFO Magazine titled A Visible Hand Reluctantly Grows Heavier. Here's another link to the story from Financial Week. Oh, and here's an Associated Press photo of our trusted President Bush, Treasury Secretary Paulson, and good Fed Chief Bernanke exchanging laughs and smiles as they address the economic exigencies of a nation.



What's wrong with that, you ask? Lot's of things, but I don't feel like writing a book on the subject (though a book on the subject is needed), so let's just go to the most blatantly obvious problem with the PPT. Go back and look at the AP photo link again. That's the President, his appointed Secretary of the Treasury, and Chairman of the Federal Reserve Bank's Board of Governors. Together. Determining policy. Colluding on policy to deal with the Bear Stearns fiasco. Enough hints? Okay, if you didn't study economics or pay attention during civics lessons, here's the deal. The whole reason we American people have been taught to accept the Federal Reserve Bank is because we had to have a central bank that was isolated from political pressure in order to independently and objectively pursue monetary policy in the best interest of the nation as a whole.



Yet here is the Executive Branch and the Chairman of the private corporation known as the Federal Reserve Bank meeting in the White House and collectively fashioning monetary policy. The result of all this was a loan made and guaranteed by the U.S. taxpayer to save an investment bank from a run by its creditors. We're not talking about the average Joe and his $100,000 of FDIC insured savings here, we're talking about a complete bailout of an investment bank for its own risky behavior.



Yet the PPT does even more than that. The Working Group on Financial Markets actually arranges loans and interbank transfers for anonymous institutions to intervene in market sell-offs by buying futures in key market averages. The result is like buying commodities futures in gold or otherwise, except the PPT is arranging to have bets purchased on market indexes like the DOW, which puts upward pressure on the stock prices and forces margin calls on short positions. In another words, an elected President has a direct means of manipulating the U.S. stock market through the PPT. The myth of Fed independnce is shattered. Forget about cajoling congress to pass sweetheart legislation to pay off political donors. That's now soooo 20th Century. The U.S. President can now rig markets to financially ruin political enemies and reward friends within weeks. The rest of the PPT? Well, except for Bernanke, they are all Presidential appointees like the Chairman of the SEC. Congress, our Constitutionally designated guardians of the U.S. Treasury, has no members on this team.



Of course, billionaire investors like George Soros and Jim Rogers can still play certain stocks short with the funds to cover any upticks, but the average day trader and small investor like me has a whole new dimension to consider when taking a short position. It's not enough to just do your homework and bet on stock declines, now you have to try to guess what the PPT will do, knowing that the President is sitting at the table with his own approval ratings in mind.