U.S. American stock market intervention.

[jim_mich]

U.S. American stock market intervention.

I wear many hats. Usually when I post here on the Bessler forum I am wearing my inventor hat. I also have a CFO hat, a day trader hat, and an investor hat among many other hats. Tonight I am wearing my investor hat. I spend many hours each day sifting though information to help me understand how, why and where the stock market is moving. My post here today is in response to Jonathan's request for proof.

In post http://www.besslerwheel.com/forum/viewt ... 6305#16305

The PPT (U.S. government's 'Plunge Protection Team') has been working overtime behind the scenes trying to keep the economy looking rosy. They fudge economic numbers released to the public. They control the 30 Dow Jones stocks to make the stock market look good. They control gold and silver prices to make paper currency look more valuable.

In post #16322 http://www.besslerwheel.com/forum/viewt ... 6322#16322

And what must inevitably be asked: do you have proof of any of this?

Below is a link to a 41 page Special Report from Sprott Asset Manegament concerning the US government intervention in the American stock market. I could fill this post with many other articles, but will refrain and post just this one as forty one pages is a very long read. I've copied the summary below. Of special interest is discussion of the formation of the PPT starting on page 16 and the conclusion starting on page 39.

http://www.sprott.com/pdf/pressrelease/ ... leHand.pdf

Executive Summary
This report examines information indicating that the U.S. government has surreptitiously intervened in the American stock market. Important findings include the following:
•A statement by former presidential adviser George Stephanopoulos and credible British press reports appear to confirm suspicions that the United States has a so-called "Plunge Protection Team" whose primary responsibility is the prevention of destabilizing stock market declines. Comprising key government agencies, stock exchanges and large Wall Street firms, this informal group was apparently created in 1989 as an outgrowth of the President’s Working Group on Financial Markets. This revelation is significant because the government has never admitted
to private-sector membership in the Working Group.
•The Plunge Protection Team is not merely concerned with the stability of the stock market. Speaking in 2001 as a correspondent for ABC’s "Good Morning America," Stephanopoulos also revealed that at the time of the Long Term Capital Management crisis in 1998, the Federal Reserve directed large banks to prop up the currency markets. This was apparently done to diffuse a global currency crisis. We believe this crisis was rooted in the disorderly unwinding of the yen-carry trade, which resulted in the U.S. dollar plummeting against the Japanese currency.
•In response to the September 11 terrorist attacks, the Federal Reserve and large Wall Street firms prepared to support the main stock markets by buying shares if panic selling ensued. Multiple news reports indicate that investment banks and brokerage houses took concerted actions in the aftermath of the tragedy.
•Before the 2003 Iraq invasion, the U.S. and Japan reached an agreement to intervene in stock markets if a financial crisis occurred during the war. Though it was announced at a press conference by a Japanese government official, the U.S. never publicly acknowledged the accord.
•We believe the stability of domestic stock markets is considered by the U.S. government to be a matter of national security. Interventions are likely justified on the grounds that the health of the U.S. financial markets is integral to American preeminence and world stability. This conclusion flows from an extraordinary financial war game exercise conducted by the Council on Foreign Relations in 2000 and attended by key policy-makers. In this vein, an article in Euromoney magazine disclosed that simulation participants displayed a willingness to consider government intervention in the stock market in the event of a financial crisis.
•A 1989 USA Today story revealed that government regulators asked market participants to buy stocks in October 1989 to prevent another plunge. When these overtures proved ineffective, large brokerage firms appear to have intervened in the futures market to support the underlying index. In this regard, the recovery.was remarkably similar to the miraculous turnaround in equities the day following the 1987 crash.
•A 1989 Wall Street Journal op-ed piece written by former Federal Reserve governor Robert Heller may be the blueprint for the government’s preferred method of equity market stabilization. Heller suggested that the central bank be empowered to stabilize plunging stock markets by purchasing stock index futures contracts. Such a move would force the underlying index to rise. Of note, a 1992 New York Post article quoted a former National Security Council economist as having confirmed that the government supported the stock market in 1987, 1989 and 1992. The article indicated that these interventions were conducted in the manner proposed by Heller.

[Jonathan]

Thank you! I am substantially closer to convinced, but of course it is very long and I read only what you said to.
So...if the gov't is tinkering with the stock market too much, why do you invest in it?

[jim_mich]

Because I can't make 30 percent a year by investing in bank CD's or money market accounts which barely keep up with inflation.

[ken_behrendt]

Jim...

I think this line from what you posted sums it up fairly well:

We believe the stability of domestic stock markets is considered by the U.S. government to be a matter of national security. Interventions are likely justified on the grounds that the health of the U.S. financial markets is integral to American preeminence and world stability.

Such intervention is good in the short term, but I would question what its long term risks could be. They are somewhat in the same situation as those who try to prevent forest fires by prohibiting campfires that might start small blazes. Meanwhile the dry brush and timber accumulate until the day comes when a single bolt of lightning starts a conflagration that can not be controlled. This scenario could well be underway right now with the world's financial markets.

As a day trader or investor, all one can hope (and pray) for is that he can get his money off the table just before that financial Doom's Day arrives and put it into some form of portable wealth. I always recommend gold bullion coins to my friends, but they complain that gold does not provide any interest and that, although the metal has increased in value of late, they think it's at a market high and likely to decline. That may be true, but my whole point is that the gold they own will be the only investment that they have whose value will be soaring as the value of everything else they have is going down the drain should the dreaded day arrive when the world's "Plunge Protection Teams" realize that the situation is way beyond their control...

ken

[jim_mich]

For those who don't want to read the 41 pages, reporter Harlin Levy does a good job of summarizing the article I posted above. I copied the whole article below.




By Harlan Levy
Journal Inquirer, Manchester, Connecticut
Friday, September 9, 2005

http://www.journalinquirer.com/site/new ... 1556&rfi=6

A Canadian report charges that the U.S. government has been surreptitiously intervening in the American stock market, buying shares in conjunction with private parties to prop it up to prevent "destabilizing" declines.

The problem, Toronto-based Sprott Asset Management said in its report, is that this under-the-table manipulation may lead to abuses that could seriously hurt unsuspecting investors and the overall U.S. economy.

"Most people probably assume that the U.S. stock market is free of government interference," Toronto-based Sprott Asset Management authors John Embry and Andrew Hepburn said. "Current mythology holds that share prices rise and fall on the basis of market forces alone. Such sentiments appear to be seriously mistaken."

The Sprott report quotes publications that "strongly suggest that since the October 1987 crash, the U.S. government has periodically intervened.

For proof, Sprott cites former presidential adviser George Stephanopoulos' comments and some British press reports as evidence that appears to "confirm suspicions that the United States has a so-called 'Plunge Protection Team.'"

The private/public team consists of government agencies, stock exchanges, and large Wall Street firms and was apparently created in 1989 "as an outgrowth of the President's Working Group on Financial Markets," Sprott said.

The team is not merely concerned with the stability of the stock market, Sprott charged, citing Stephanopoulos' revelation in 2001 -- when he was an ABC correspondent -- that at the time of the Long Term Capital Management crisis in 1998 the Federal Reserve directed large banks to prop up the currency markets. The move aimed to "diffuse a global currency crisis" when the U.S. dollar plummeted against the Japanese currency.

Sprott also claimed that in response to the Sept. 11 terrorist attacks, the Federal Reserve and large Wall Street firms were ready to buy stock if panic selling occurred. Before the 2003 Iraq invasion, the U.S. and Japan agreed to intervene in the stock markets if a financial crisis developed during the war, Sprott said, although the U.S. never publicly revealed the move. However, a Japanese official announced the accord, Sprott said.

The firm also cites a 1989 USA Today story that asserted that government regulators asked private parties to buy stocks in October 1989 to block a plunge like the October 1987 debacle.

Moreover, Sprott refers to a 1989 Wall Street Journal op-ed piece by former Federal Reserve governor Robert Heller, who suggested that the central bank should be able to purchase stock index futures contracts to stabilize plunging markets.


Finally, Sprott quoted a 1992 New York Post article in which a former National Security Council economist confirmed that the U.S. government made moves like the ones that Heller proposed in 1987, 1989, and 1992.

"Much of the information is evidence of intent to intervene, rather than proof of manipulative activities themselves," authors Embry and Hepburn admitted. "That the government has given such serious consideration to supporting the stock market demonstrates its willingness to cross an important line, violating the traditional American belief in unfettered markets."

Although Embry and Hepburn state that they can establish that the government has intervened in the stock market, they can't provide provable details.

"This is due to the utter lack of official disclosure of market interventions," they wrote.

Nevertheless, the authors acknowledged that they took known information and added "what we think to be reasonable conjecture."

A negative result of federal silence, the authors concluded, is that "the government's unwillingness to disclose its activities has rendered it very difficult to have a debate on the merits of such a policy."

Market manipulation is not necessarily a bad thing, the authors said, citing an alleged government prop-up right after the Sept. 11 attacks and immediately following the calamitous crash in 1987.

However, they contend that such actions must be open and under tough controls to prevent abuses or unpleasant consequences.

"There can be no doubt that the firms responsible for implementing government interventions enjoy an enviable position unavailable to other investors," the report said. "Whether they have been indemnified against potential losses or simply made privy to government policy, the major Wall Street firms evidently responsible for preventing plunges no longer must compete on anywhere near a level playing field."

And if manipulation fails to work, disaster could follow, the authors contended. For instance, market conditions today are calm and relatively stable in spite of severe trade and budget deficits, rising interest rates, and sky-high oil prices.

That's suspicious, the authors said, and may mislead investors if and when economic reality causes a crash, surprising them and catching them unprepared.

A Federal Reserve Board spokesman said the Fed normally does not comment on speculations and reports on its actions.
U.S. Securities and Exchange Commission spokesman John Heine declined an opportunity to comment. The U.S. Treasury Department could not be reached for comment.

[Dave]

Why are we always "confirming suspicions" rather then reviewing facts?

[terry5732]

I suspect that the facts aren't as interesting / entertaining.
The US stock market is largely just a legal pyramid scheme. As such it is bound to fail. It is currently only sustained by an increasing number of willing suckers. Population growth slowing, education, or just a lack of suckers with free money to throw away will inevitably cause a crash. But as we learned from the 30's, it only takes about ten years for people to forget what a racket it was and start putting their money back in.