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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Joseph G. who wrote (26270)	9/2/1998 6:34:00 PM
From: robnhood	Read Replies (1) \| Respond to of 94695

PPT stuff, from the electronic telegraph and posted on kitco IT is known as the "plunge protection team", an emergency council of America's top financial officials that operates with its own special staff in the shadows of the US Treasury. Since the stock market crash of October 1987, the group has been drawing up contingency plans for the next market meltdown. Its moment may have come. The purpose of the group, known officially as the Working Group on Financial Markets, is to avoid repeating the near-catastrophe of Oct 19, 1987, when the Dow Jones index fell 22.6 per cent in a single day, and then followed with a nosedive the next morning. At that time, the US financial authorities had no response mechanism in place. The Federal Reserve managed to prevent a total breakdown in the payment and settlement system by injecting huge amounts of liquidity into the banking system, but it was an alarmingly close-run affair. Afterwards, it was agreed that the US government needed something better than last-minute improvisation. The team is led by the US Treasury Secretary, Robert Rubin. As the crisis gathered pace last week, Mr Rubin was fishing in Alaska but he remained in constant touch with the other key players on a specially equipped cellular phone. He is back at his desk this week monitoring the crisis. The permanent members include the chairman of the Federal Reserve, Alan Greenspan, and the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission. Decisions are made in conjunction with the National Economic Council at the White House, and the powerful governor of the New York Federal Reserve Bank. They have each other's telephone numbers at all times and are plugged into a sophisticated "market surveillance" system that helps them to anticipate trouble. It works in close alliance with the British financial authorities. Each agency has a confidential crisis plan. At the SEC, this is known as the Red Book, or more properly, the Executive Directory for Market Contingencies. The team relies on "circuit breakers" to ensure an orderly fall in the markets, with intermittent halts in trading. It can extend open lines of credit, inject money into the system and cut interest rates. There is also speculation that it might intervene directly in the stock market, buying shares and futures contracts to prop up the indexes in the same way that the Hong Kong government has been doing, with mixed success, in recent days. A few analysts believe that this form of market rigging is already going on in America, quietly, using a $40 billion ( œ24 billion ) slush fund, known as the Exchange Stabilisation Fund, under the direct control of the Treasury Secretary. It was this fund that was used to bail out Mexico in 1995 when the US Congress was refusing to appropriate enough money. But most analysts believe that the Dow Jones index will have to fall further before there is any attempt to support it with a cut in interest rates, let alone with direct stock purchases. The US economy is still showing signs of strength, with unemployment at 30-year lows. The great unknown is the psychological "wealth effect" of the recent falls. More than 23 per cent of US household wealth is in financial assets, compared to only 10 per cent in 1990. Half of all American adults own shares, and many jumped into the market during the rampant "bull run" of the last three years. So far, they seem to be taking it calmly.>>> <<