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Berko: Working Group ominously pulling the strings

By Malcolm Berko

Published: September 25, 2016, 6:00am

Dear Mr. Berko: Is there a group called the Plunge Protection Team that is part of the Federal Reserve and is supposed to prevent stock crashes and allow the administration to manipulate the prices of stocks and commodities?

— BW, Bethlehem, Pa.

Dear BW: Few civilians are aware of Executive Order 12631, signed by President Ronald Reagan in March 1988 in the Oval Office. According to my daughter, Hilary, an attorney (one of the good ones) who’s a genius at finding anything in the Federal Register, “the provisions of E/O 12631 appear at 53 FR 9421, 3 CFR, 1988 Comp., P 559, unless otherwise noted.” Reading that sounds like George Orwell’s “1984.” EO 12631 established the Working Group on Financial Markets, darkly known as the Plunge Protection Team, or PPT. The PPT was put in place to prevent a stock market crash like the one on Black Monday — Oct. 19, 1987. The Dow Jones industrial average ranged over 1,000 points that day, ending down 508 points (falling 22.61 percent), at 1,738.74.

This working group has four members, who are called “dictators” for their powers, and they are the secretary of the treasury or his designee, the chair of the board of governors of the Federal Reserve System or her designee, the chair of the Securities and Exchange Commission or her designee and the chair of the Commodity Futures Trading Commission or his designee.

The broadly defined, high-sounding purpose of this group is to “(enhance) the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and (maintain) investor confidence.” That kinda sounds ominous! It will be done “to the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative support services as may be necessary for the performance of its functions.” Read that last sentence again, and be warned: Read it slowly. Recognize the power the four dictators have, especially when EO 12631 is backed by the FULL POWER OF THE DEPARTMENT OF THE TREASURY!

The PPT has been hard at the helm saving the world from the Long-Term Capital Management crisis of 1998, the Sept. 11 attacks in 2001, the stock market downturn of 2002, the Chinese stock bubble of 2007, the Great Recession of 2007-09, the U.S. bear market of 2008-09, the European debt crisis of 2009-11, the Chinese stock market turbulence of 2015-16 and the aftermath of the recent Brexit referendum. And it has done it efficiently and quietly. With trillions from the Treasury, the PPT has traded and hedged wheat, tin, aluminum, oil, soybeans, etc., as well as the euro, the pound, the peso, the ruble, the yuan and the yen, purchasing and selling hundreds of billions of dollars’ worth of derivatives. And to maintain an orderly equity market, the PPT has purchased billions of dollars’ worth of securities from mutual funds to meet excessive shareholder redemptions. This is how Soros, Cohen, Paulson and other legendary Wall Street names made their bones.

Assume, hypothetically, that the Fed quietly decides to use $1 trillion from the U.S. Treasury to prop up the British pound. The Fed folks, Treasury analysts, myriad assistants who did the research and technicians who effected the foreign exchange purchases earn only between $60,000 and $100,000 a year, so all inside information is available at a price to the highest bidder. Most “biddees” have burgeoning credit card debt, mortgages, car payments, college loans and other strangling debts.

The mantra most of us are taught is that markets move randomly and reflect the collective wisdom of all buyers and sellers, including those who sit on the sidelines.

This notion is basically pablum for innocents who believe in the Easter Bunny, Elon Musk and an honest congressperson. Now when you see a press story about how high the Dow or the S&P 500 has gone and the mainstream media are pushing that as a signal the economy is taking off, just remember EO 12631.

That’s Washington’s Plunge Protection Team at work. All published federal numbers concerning unemployment, gross domestic product, balance of payments, housing starts and Social Security are malleable for public release.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.

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