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Working Group on Financial Markets

(Redirected from Executive Order 12631)

The President's Working Group on Financial Markets, known colloquially as the Plunge Protection Team, or "(PPT)" was created by Executive Order 12631,[1] signed on March 18, 1988, by United States President Ronald Reagan.

As established by the executive order, the Working Group has three purposes and functions:

"(a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:

(1) the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have the potential to achieve the goals noted above; and
(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.

(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.
(c) The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes."[1]

The Working Group consists of:

Plunge Protection Team

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"Plunge Protection Team" was originally the headline for an article in The Washington Post on February 23, 1997,[2] and has since been used by some as an informal term to refer to the Working Group.[3][4] Initially, the term was used to express the opinion that the Working Group was being used to prop up the stock markets during downturns.[5][6] Financial writers for British newspapers The Observer and The Daily Telegraph, along with U.S. Congressman Ron Paul, writers Kevin Phillips (who claims "no personal firsthand knowledge" [7]) and John Crudele,[8] have charged the Working Group with going beyond their legal mandate.[failed verification] Charles Biderman, head of TrimTabs Investment Research, which tracks money flow in the equities market, suspected that following the 2008 financial crisis the Federal Reserve or U.S. government was supporting the stock market. He stated that "If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else" and "Why not support the stock market as well? Moreover, several officials have suggested the government should support stock prices."[9]

In August 2005, Sprott Asset Management released a report that argued that there is little doubt that the PPT intervened to protect the stock market.[10] However, these articles usually refer to the Working Group using moral suasion to attempt to convince banks to buy stock index futures.[11]

Former Federal Reserve Board member Robert Heller, in the Wall Street Journal, opined that "Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole." Author Kevin Phillips wrote in his 2008 book Bad Money that while he had no interest "in becoming a conspiracy investigator", he nevertheless drew the conclusion that "some kind of high-level decision seems to have been reached in Washington to loosely institutionalize a rescue mechanism for the stock market akin to that pursued...to safeguard major U.S. banks from exposure to domestic and foreign loan and currency crises."[12] Phillips infers that the simplest way for the Working Group to intervene in market plunges would be through buying stock market index futures contracts, either in cooperation with major banks or through trading desks at the U.S. Treasury or Federal Reserve.[12]

See also

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References

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  1. ^ a b "Executive Orders" (published August 15, 2016). March 18, 1988. Retrieved August 10, 2018., which appears and purports to be a copy of the original: National Archives And Records Administration (March 18, 1988). "Executive Order 12631 of March 18 1988: Working Group on Financial Markets". Federal Register. 53 (55). Library of Congress (published March 22, 1988): 9421. FR Doc. 88-6380. Retrieved August 10, 2018.
  2. ^ "Plunge Protection Team". The Washington Post. February 23, 1997.
  3. ^ Evans-Pritchard, Ambrose (October 30, 2006). "Monday view: Paulson re-activates secretive support team to prevent markets meltdown". London: Telegraph UK. Retrieved September 15, 2008.[dead link]
  4. ^ Wachman, Richard; Jamie Doward Observer (September 16, 2001). "Fed to prop up Wall St". London: Guardian Unlimited. Retrieved September 15, 2008.
  5. ^ Fromson, Brett. D. (February 23, 1997). "Plunge Protection Team". Washington Post. Retrieved September 15, 2008.
  6. ^ Baum, Carolyn (July 31, 2007). "Rubin Should Teach Paulson Secret PPT Handshake". Bloomberg. Retrieved September 15, 2008.
  7. ^ Gross, Daniel (August 3, 2008). "Riches to Rags". The New York Times.
  8. ^ Bennett, Drake (September 21, 2008). "The Operators Behind a seductive Wall Street conspiracy theory". The Boston Globe. Retrieved September 21, 2008.
  9. ^ Crawshaw, Julie (January 10, 2010). "Biderman: Fed, Gov't Likely Rigging Market Rally". Money News. Retrieved April 24, 2012.
  10. ^ "Sprott Asset Management" (PDF). Archived from the original (PDF) on March 31, 2010. Retrieved November 13, 2016.
  11. ^ "Federal Government Manipulating Equities Market?". Archived from the original on April 19, 2012. Retrieved August 29, 2007.
  12. ^ a b Phillips, K. (2008). Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism. Viking. ISBN 978-0-670-01907-6.
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Example of a PWG report, from 1999
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