The Internet stock market investment hype community
is getting shook up in this bear market. The aptly
named Motley Fool company announced that they are
going to cut 1/3 of their staff. This is the company of
the Garndner brothers who claim if you buy 4 DOW
stocks every year you will retire filthy rich. Then Tokyo
Joe - the most famous Internut hypester - settled with
the SEC and agreed to pay $750,000 for crimes
committed against individual investors. Joe was paid
by penny stock companies to pump them and then he
dumped them after his readers bought and bid the
prices up. The SEC got after him because he didn’t
disclose that he had already owned them when he
recommended them.
He got what he deserved, but if the SEC wants to really
be serious it needs to go after the big boys on Wall
Street. The analysts who say buy while their firms
dump like mad. Tokyo Joe’s actions are small beans
when compared to them. But to take them on would
put the SEC Chairman under serious political fire.
There would be pay back.
The government works in funny ways that most people
are not aware of. During the hot and heavy days of the
Cold War a secret task force existed whose job was to
coordinate government activities during a nuclear war.
This force consisted of men on the Joint Chiefs of Staff
and the White House.
Although no one worries about nuclear war anymore,
most people are not aware that a similar group exists to
thwart a complete stock market collapse. Officially it is
called The Working Group, but unofficially it has been
known as the plunge protection team.
After the 1987 stock market crash, investors and traders
wondered if such a group existed or if it was just a
myth. It does. Reporter Brett Fromson of The
Washington Post did a detailed story of its existence on
February 23, 1997.
The four main principals of the group are the Secretary
of the Treasury, the Chairman of the Federal Reserve
Board, the Chairman of the Chicago Board of
Exchange, and the Chairman of the Securities and
Exchange Commission. Also in the group is the head of
the President’s National Economic Council and the
President of the New York Federal Reserve Bank.
In the event of a total market collapse one of these men
will contact the White House Chief of Staff who will
brief the President. Each of the four men of the
Working Group have a confidential war plan to use
during a financial collapse. At the SEC the book is
nicknamed “the red book” because of the color on its
cover. It’s official title is Executive Directory for
Market Contingencies.
Inside the book are contact numbers for each agency of
the US government. There are numbers for each stock
exchange. There are also home and personal numbers
for the main players. But just as important are contact
numbers for the largest international bankers and
corporations in the world. A who’s who of world elites
and movers and shakers.
The main goal of The Working Group is to keep the
markets open and in operation and to prevent a run on
banks, brokerage houses, and mutual funds. The main
worry is that if everyone tried to sell at the same time
liquidity would disappear in the financial system and
the stock market and both would cease to operate. The
system of world capitalism would completely stop.
In the event of an emergency most of the tactics in the
“red book” consist of injecting liquidity into the
financial system, increasing the money supply, and
cutting interest rates. Also on the list is to call up the
heads of the largest banks and encourage them. Talk
big money into holding instead of selling for the sake of
the system. The most drastic option The Working
Group has in its planning book is to shut down the
stock exchange.
20 years ago the country’s main worry was nuclear
attack. Government leaders drilled for it every few
months. Now The Working Group meets every month
to drill and respond to mock market meltdown
scenarios. Alan Greenspan never wants to have The
Working Group meet for real. This is his nightmare
and why he panicked and cut interest rates in early
January. His fear is not just that the stock market will
fall, but that the entire financial system could implode.
The more scared he gets the more wildly he changes
interest rate policies.
During the 1987 stock market crash the market
completely melted down. No one came in to buy. Then
all of a sudden someone bought up millions of dollars
worth of stock futures in one large order. Immediately
a rally materialized and the market recovered. Alan
Greenspan told Bob Woodward that he believes that
this huge block trade restored traders’ confidence and
saved the stock market. He also claims that he had
nothing to do with it and wonders who placed the order.
That block trade has served as the legend for the
“plunge protection team.” We don’t know if such a
team bailed out the stock market in 1987. But we now
know that one has existed since then thanks to the
Washington Post. Tomorrow Alan Greenspan testifies
to the Senate. What he has to say won’t be that
interesting. What will be interesting is to see how
haggard and scared he looks.
To read the original Washington Post story click here:
washingtonpost.com |
