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Looks like I am not the only one who believes that the bubbleoneans at the
wheel (the US Federal Reserve) were bailing water with both hands on
Tuesday. If they wouldn't have let this market get so far out of control
in the first place with their reckless monetary and fiscal policies they
wouldn't be against the wall now. I do not want a prolonged depression in
this country, but I do sincerely hope that Greenspan is exposed for what he
is -- the greatest damn fool the Federal Reserve has ever seen. The harm
that will come to the millions of innocents will be his fault. I do
believe the markets are bigger than they are, and that their manipulations
will only make things worse in the long run. Always has, always will.
New York Post Article
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HOW STOCKS TURNED BACK FROM THE ABYSS
SOMETHING happened at around 1 p.m. our time yesterday that pulled the stock
market back from the edge of the cliff.
Traders say it was almost like divine intervention. One minute the Nasdaq
was down 11 percent -- say it out loud, "Eleven percent in one day" -- and
then it suddenly rallied several hundred points in the matter of an hour.
The Dow followed suit. Down 500 points around mid-day, the blue chip index's
decline -- along with the horrible showing of over-the-counter stocks -- was
destined to make yesterday's market an unqualified disaster for investors
and the country.
Then, traders said, someone started buying large amounts of stock index
futures contracts through two major brokerage firms -- Goldman Sachs and
Merrill Lynch. These transactions are usually done on the QT so we don't
really know how many of these contracts were purchased.
And unless the brokers tell, there is no way of knowing which of their
clients were making the purchases. Goldman wouldn't comment on this and
Merrill did not return a call for comment.
But traders said enough were bought to catch everyone's attention. In fact,
the buyers seemed to want people to know they had an appetite for stocks.
Then the market rebounded.
It didn't go all the way back. At the end of the day the Dow Jones index had
still lost lost 56 points or half a percent on the day. And the Nasdaq lost
another 74 points, or the equivalent of a 1.77 percent drop. Yesterday's
loss by over-the-counter stocks nearly put the Nasdaq index back to ground
zero for the year -- in two days all but 2 percent of its gain for the year
was gone.
It was real nice of Goldman and Merrill to stick their necks out like that.
In fact, it was downright uncharacteristic for Wall Street outfits to put
the thought of possible losses aside for the greater good.
Because of the purely unselfish nature of what went on, traders are
naturally suspicious. Hell, so am I.
"I think some one or more persons saved the market today. There was a
suspicious urge to buy stocks at an opportune time," says one trader. "Why
drive the Dow up 350 points in a half hour? That's never serious buying.
That's someone trying to establish prices," he adds.
I'm especially suspicious when the market suddenly rebounds at nearly the
very same moment that a member of the Clinton administration -- economic
advisor Gene Sperling -- is on TV telling investors not to worry.
And there's the obvious connection between Goldman Sachs and the
administration, the Wall Street firm having given Robert Rubin to the
Clinton administration as its Treasury Secretary.
Plus, what better way to make investors not worry than by having the stock
market recover a lot of the ground it had just lost. That gesture almost
makes a guy want to buy some stock -- bottom fish, if you are into sporting
analogies.
I'm not saying that government intervention in a collapsing market is wrong.
In fact -- except for the obvious contradictions with the free-market
system -- it is politically and socially a very right thing to do.
I've written about this before. And I've mentioned that Washington has had a
secretive group call the Working Group on Financial Markets, made up of
investment industry and government people, that would be in just the right
position to rescue the market.
Informally the folks on Wall Street call this the "Plunge Protection Team."
In February 1997, the Washington Post did a piece on this team, just in case
you don't believe it exists.
And while I can't swear that Goldman and Merrill are captains of that team,
they sure acted like it yesterday.
-------------------------------
Washington Post Article
-------------------------------
Plunge Protection Team
White House Group Shapes Plans to Ensure Any
Market Free Fall Is Contained
By Brett D. Fromson
Washington Post Staff Writer
Sunday, February 23, 1997 ; Page H01
It is 2 o'clock on a hypothetical Monday afternoon, and the Dow Jones
industrial average has plummeted 664 points, on top of a 847-point slide
the
previous week.
The chairman of the New York Stock Exchange has called the White House
chief of staff and asked permission to close the world's most important
stock market. By law, only the president can authorize a shutdown of U.S.
financial markets.
In the Oval Office, the president confers with the members of his Working
Group on Financial Markets -- the secretary of the treasury and the
chairmen of the Federal Reserve Board, the Securities and Exchange
Commission and the Commodity Futures Trading Commission.
The officials conclude that a presidential order to close the NYSE would
only add to the market's panic, so they decide to ride out the storm. The
Working Group struggles to keep financial markets open so that trading
can
continue. By the closing bell, a modest rally is underway.
This is one of the nightmare scenarios that Washington's top financial
policymakers have reviewed since Oct. 19, 1987, when the Dow Jones
industrial average dropped 508 points, or 22.6 percent, in the biggest
one-day loss in history. Like defense planners in the Cold War period,
central bankers and financial regulators have been thinking carefully
about
how they would respond to the unthinkable.
An outline of the government's plans emerges in interviews with more than
a
dozen current and former officials who have participated in meetings of
the
Working Group. The group, established after the 1987 stock drop, is the
government's high-level forum for discussion of financial policy.
Just last Tuesday afternoon, for example, Working Group officials
gathered
in a conference room at the Treasury Building. They discussed, among
other topics, the risks of a stock market decline in the wake of the
Dow's
sudden surge past 7000, according to sources familiar with the meeting.
The officials pondered whether prices in the stock market reflect a
greater
appetite for risk-taking by investors. Some expressed concern that the
higher the stock market goes, the closer it could be to a correction,
according to the sources.
These quiet meetings of the Working Group are the financial world's
equivalent of the war room. The officials gather regularly to discuss
options
and review crisis scenarios because they know that the government's
reaction to a crumbling stock market would have a critical impact on
investor confidence around the world.
"The government has a real role to play to make a 1987-style sudden
market
break less likely. That is an issue we all spent a lot of time thinking
about
and planning for," said a former government official who attended Working
Group meetings. "You go through lots of fire drills and scenarios. You
make sure you have thought ahead of time of what kind of information you
will need and what you have the legal authority to do."
In the event of a financial crisis, each federal agency with a seat at
the table
of the Working Group has a confidential plan. At the SEC, for example,
the
plan is called the "red book" because of the color of its cover. It is
officially known as the Executive Directory for Market Contingencies. The
major U.S. stock markets have copies of the commission's plan as well as
the CFTC's.
Going to Plan A
The red book is intended to make sure that no matter what the time of
day,
SEC officials can reach their opposite numbers at other agencies of the
U.S. government, with foreign governments, at the various stock, bond and
commodity futures and options exchanges, as well as executives of the
many payment and settlement systems underlying the financial markets.
"We all have everybody's home and weekend numbers," said a former
Working Group staff member.
The Working Group's main goal, officials say, would be to keep the
markets operating in the event of a sudden, stomach-churning plunge in
stock prices -- and to prevent a panicky run on banks, brokerage firms
and
mutual funds. Officials worry that if investors all tried to head for the
exit at
the same time, there wouldn't be enough room -- or in financial terms,
liquidity -- for them all to get through. In that event, the smoothly
running
global financial machine would begin to lock up.
This sort of liquidity crisis could imperil even healthy financial
institutions
that are temporarily short of cash or tradable assets such as U.S.
Treasury
securities. And worries about the financial strength of a major trader
could
cascade and cause other players to stop making payments to one another,
in which case the system would seize up like an engine without oil. Even
a
temporary loss of liquidity would intensify financial pressure on already
stressed institutions. In the 1987 crash, government officials worked
feverishly -- and, ultimately, successfully -- to avoid precisely that
bleak
scenario.
Officials say they are confident that the conditions that led to the
slide a
decade ago are not present today. They cite low interest rates and a
healthy
economy as key differences between now and 1987. Officials also point to
SEC-approved "circuit breakers" that were introduced after 1987 to give
investors timeouts to calm down.
Under the SEC's rules, a drop of 350 points in the Dow would bring a
30-minute halt in NYSE trading. If the Dow declined another 200 points,
trading would cease for one hour. No additional circuit breakers would
operate that day, but a new set would apply the next trading day.
Despite these precautions, today's high stock market worries officials
such
as Fed Chairman Alan Greenspan, who in a speech in early December
raised questions about "irrational exuberance" in the markets. Because
the
market declined following Greenspan's speech, government officials have
become even more reluctant to comment on these issues for fear of
triggering the very event they wish to forestall, according to
policymakers.
A Brewing Concern
Greenspan had expressed similar thoughts a year ago at a confidential
meeting of the Working Group. Treasury Secretary Robert E. Rubin and
SEC Chairman Arthur Levitt Jr. also are concerned about the stock
market's vulnerability, according to sources familiar with their views.
The four principals of the group -- Rubin, Greenspan, Levitt and CFTC
Chairwoman Brooksley Born -- meet every few months, and senior staff get
together more often to work on specific agenda items.
In addition to the permanent members, the head of the President's
National
Economic Council, the chairman of his Council of Economic Advisers, the
comptroller of the currency and the president of the New York Federal
Reserve Bank frequently attend Working Group sessions.
The Working Group has studied a variety of possible threats to the
financial
system that could ensue if stock prices go into free fall. They include:
a
panicky flight by mutual fund shareholders; chaos in the global payment,
settlement and clearance systems; and a breakdown in international
coordination among central banks, finance ministries and securities
regulators, the sources said.
As chairman of the Working Group, Rubin would have overall
responsibility for the U.S. response, but Greenspan probably would be the
government's most important player.
"In a crisis, a lot of deference is paid to the Fed," a former member of
the
Working Group said. "They are the only ones with any money."
"The first and most important question for the central bank is always,
`Do
you have credit problems?' " said E. Gerald Corrigan, former president of
the New York Federal Reserve Bank and now an executive at Goldman
Sachs & Co. "The minute some bank or investment firm says, `Hey, maybe
I'm not going to get paid -- maybe I ought to wait before I transfer
these
securities or make that payment,' then things get tricky. The central
bank
has to sense that before it happens and take steps to prevent it."
1987: A Case Study
The Fed's reaction to the 1987 market slide, which Corrigan helped
oversee, is a case study in how to do it right. The Fed kept the markets
going by flooding the banking system with reserves and stating publicly
that
it was ready to extend loans to important financial institutions, if
needed.
The Fed's actions in October 1987 read like a financial war story.
The morning after the 508-point drop on Black Monday, the market began
another sickening slide. Corrigan and other Fed officials strongly
discouraged New York Stock Exchange Chairman John Phelan from
requesting government permission to close the market. Phelan was
concerned that if the market continued to erode, the capital of the NYSE
member firms would disappear. Corrigan feared a shutdown would cause
more panic.
"It was extraordinarily difficult around 11 o'clock," Corrigan recalled.
"The
market was at one point down another 250 points, and that's when the
debate with Phelan took place."
Simultaneously, Corrigan and other central bank officials spoke privately
with the big banks and urged them not to call loans they had made to Wall
Street houses, which were collateralized by securities that could no
longer
be traded and whose value was in question.
A final critical moment came that day when the Fed decided not to shut
down a subsidiary of the Continental Illinois Bank that was the largest
lender to the commodity futures and options trading houses in Chicago.
The subsidiary had run out of capital to provide financing to that
market.
"Closing it would have drained all the liquidity out of the futures and
options markets," said one former top Fed official involved in the
decision.
Investors use stock futures and options to hedge positions in the
underlying
stock market.
Recognizing the crucial role of banks if another financial crisis should
strike, the Office of the Comptroller recently conducted an internal
study of
what damage a market decline would inflict on U.S. banks. The OCC
declined to discuss the study or its conclusions.
At the SEC, one big worry is how to cope with an international financial
crisis that begins abroad but quickly rolls into U.S. markets.
"We worry about a U.S. brokerage firm that is dealing with a Japanese
insurance company, where we don't know how they are run or regulated," a
SEC source said. To improve its ability to react in a crisis, the SEC and
the
Fed have begun joint inspections with their British counterparts of U.S.
and
British financial institutions with global reach.
The most drastic -- and probably unlikely -- move the SEC could take in a
crisis would be to propose a market shutdown to the president. That would
require a majority vote of the commission. If a quorum couldn't be
mustered, the chairman could designate himself "duty officer" and go to
the
president or his staff.
"Closing the market is, of course, the last thing the commission wants to
do," said a source familiar with the SEC's planning. "During a time when
people are extremely worried about their investments, you are cutting
them
off from taking any action. . . . The philosophy of the commission is
that
markets should stay open."
Just the Facts
Gathering accurate information would be the first order of business for
federal regulators.
"Intelligence gathering is critical," Corrigan said. "It depends on the
willingness of major market participants to volunteer problems when they
see them and to respond honestly to central bank questions."
The SEC, CFTC and Treasury have market surveillance units. They
monitor not only the overall markets, but also the cash positions of all
the
major stock and commodity brokerages and large traders.
The regulators also are hooked into the "hoot-and-holler" system used to
notify participants in all financial markets of trading halts. The
hoot-and-holler system alerts traders and regulators when a halt is
coming.
Relying on Quick Action
In the event of a sharp market decline, the SEC and CFTC would be in
constant contact with brokerage and commodity firms to spot early signs
of financial failure. If they concluded that a firm was going down, they
would try to move customer positions from that firm to solvent
institutions.
At least this team of crisis managers already has been through the Wall
Street wars. Greenspan was Fed chairman in October 1987. Rubin has
served as the co-head of investment bank Goldman Sachs & Co. Levitt has
been both a Wall Street executive and president of the American Stock
Exchange.
"I think the government is in good shape to handle a crisis," said Scott
Pardee, senior adviser to Yamaichi International (America) Inc., a
Japanese
brokerage subsidiary, and former senior vice president at the New York
Fed. "A lot depends on personal relationships. You have a number of
seasoned people who have gone through a number of crises. So if
something happens, things can be handled quickly on the phone without
having to introduce people to each other."
Consider what happened at 11:30 p.m. Dec. 5, when Greenspan made his
comments about irrational exuberance. Alton Harvey, head of the SEC's
Market Watch unit, was called at home by officials of Globex, a futures
trading system owned by the Chicago Mercantile Exchange. U.S. stock
futures trading in Asia had fallen to their 12-point limit, they said.
Harvey immediately alerted his direct superior as well as his opposite
number at the CFTC. More senior SEC and CFTC officials were informed
as well. But there wasn't much to be done until the morning. So Harvey
went back to sleep.
REACTING TO A PLUNGE
After the market crashed on Oct. 29, 1929:
* The Federal Reserve provided loans and credit to financial systems.
* President Hoover met with business, labor and farm organizations to
encourage capital spending and discourage layoffs; he also promised
higher
tariffs.
* Federal income taxes were reduced by 1 percent by the end of the year.
After the market dropped 22.6 percent on Oct. 19, 1987, the Federal
Reserve:
* Encouraged the New York Stock Exchange to stay open.
* Encouraged big commercial banks not to pull loans to major Wall Street
houses.
* Kept open a subsidiary of Continental Illinois Bank that was the
largest
lender to the commodity trading houses in Chicago.
* Flooded the banking system with money to meet financial obligations.
* Announced it was ready to extend loans to important financial
institutions.
What would happen today during a stock drop would depend on the
particulars. Here are current guidelines:
* If the Dow Jones industrial average falls 350 points within a trading
day,
NYSE trading would be halted for 30 minutes.
* If the DJIA falls another 200 points that day, trading would stop for
one
hour.
* If the market declines more than 550 points in a day, no further
restrictions would be applied.
SOURCE: The New York Stock Exchange, "The Crash and the Aftermath"
by Barrie A. Wigmore
THE MARKET MANAGERS
The Working Group was established after the 1987 stock drop to help
guide financial policy during a market crisis. Only the president,
however,
has authority to close U. S. financial markets.
----- Original Message -----
From: BruceB <bruceb@xxxxxxxxxxxxx>
To: <jptaylor@xxxxxxxxxxxxxxx>; <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, April 06, 2000 6:07 PM
Subject: Re: [RT] Re: US Govt. Manipulation of Stock Market
> ----- Original Message -----
> From: "James Taylor" <jptaylor@xxxxxxxxxxxxxxx>
> Subject: [RT] Re: US Govt. Manipulation of Stock Market
>
>
> > Well said.
> >
> > Like a mystery thriller movie, I can't wait to see if the government
> indeed
> > has all the right stuff to land this jet full of stary-eyed drunken
> > screaming gamblers on the runway, given the fact that the jet is running
> on
> > fumes (margin debt at record pct levels,
>
> Oh yes, margin debt is a whopping 1.5% of outstanding stock (and is
probably
> much less after Tuesday). In 1929 it was over 30%...
>
>
> > Wall Street pumping out new IPO
> > issues at alarming rate,
>
> Oh yes, starting new companies, funding new technology, and increasing our
> standard of living is such a terrible thing. Let's all just go back to
> being farmers. Just for the record, all the new IPO's are simply a
> reflection of the fact that Business America now gets its funding from the
> stock market, and not from the banking system like it used to.
>
> > GSEs like Fannie Mae and Freddie Mac are issueing
> > bond debt at astronomical levels,
>
> Oh yes, the highest rate of home ownership in history is such a terrible
> thing. I think I'll sleep outside in my tent tonight to protest.
>
> > corporations have loaded their balance
> > sheets with new debt and have bought back their own stock at these
maniac
> > levels),
>
> Oh yes, companies rewarding their stockholders with capital gains rather
> than higher dividends is such a terrible thing. I'd much rather get the
> dividends, which are taxed at a higher rate, because paying federal taxes
is
> my favorite pastime.
>
> > the run-way is damaged (any recession now will likely result in a
> > prolonged one, or worse, depression, given the fragile nature of world
> > economies and the noose of debt the government the Reagan/Bush admin has
> > sown), and the landing gear is gone (past history has shown that there
is
> no
> > 'soft landing' when a bubble is burst).
> >
>
> Oh yes, let's look at past history. When the world economy did virtually
go
> into a depression in 1998, the US still turned in near record growth. In
> 1990, when the ratio of national debt to GDP was far greater than it is
> today, the recession we had lasted all but 2 quarters. Hmmm, looks like
> past history doesn't support your case very much.
>
> Still waiting for the facts or historical evidence to support your
claims,,,
>
> Bruce
>
>
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