What Is the Plunge Protection Team?

The Working Group on Financial Markets, often referred to as the "Plunge Protection Team" (PPT), received its informal name from The Wall Street Journal. The purpose of the Plunge Protection Team is to offer guidance to the U.S. president in times of financial and stock market instability. Some critics have expressed concern that the Plunge Protection Team not only provides advice but also takes action to maintain high stock prices in collaboration with banks, essentially manipulating the market.

Basics

The Working Group on Financial Markets, commonly known as the "Plunge Protection Team", was established in 1988 to offer financial and economic advice to the U.S. President during periods of market instability. Led by the Secretary of the Treasury, the group consists of key figures such as the Chair of the Board of Governors of the Federal Reserve, the Chair of the Securities and Exchange Commission, and the Chair of the Commodity Futures Trading Commission, along with their designated representatives. The Washington Post coined the term "Plunge Protection Team" in 1997 to describe this influential assembly.

How Does the Plunge Protection Team (PPT) Work?

Following the market crash in 1987, President Ronald Reagan responded by establishing the President's Working Group on Financial Markets through an executive order in March 1988. The purpose was to form an informal advisory body that could provide insightful guidance on market affairs to the president and regulators. Its primary objectives encompassed enhancing the integrity, efficiency, orderliness, and competitiveness of the nation's financial markets while simultaneously safeguarding investor confidence.

Originally, the group's mandate centered on investigating the events of Black Monday, which saw the Dow Jones Industrial Average plummet by a staggering 22.6% on October 19, 1987. Their mission was to analyze the situation and propose necessary actions. However, this assembly has persisted throughout the years, continuously convening and reporting to successive presidents, albeit mainly during periods marked by financial turbulence.

In 1999, the team notably provided Congress with recommendations to modify regulations governing derivatives markets. They also gathered during the global credit crisis of 2008, displaying their commitment to proactive engagement. As of March 2019, their most recent assembly took place on Christmas Eve in 2018. Treasury Secretary Steven Mnuchin presided over a conference call that included not only fellow group members but also representatives from the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

Concerns Surrounding the Activities of the Plunge Protection Team

The Plunge Protection Team, although not shrouded in secrecy, maintains a low profile and refrains from disclosing meeting minutes or recommendations to the public. Its sole accountability lies in reporting exclusively to the president. This level of opacity raises suspicions among certain observers who question whether the government's prominent financial figures engage in more than analytical and advisory roles, actively intervening in the markets.

Conspiracy theorists have put forward speculations suggesting that the group, in collaboration with major banks like Goldman Sachs and Morgan Stanley, executes undisclosed trades across multiple exchanges when prices are on a downward trajectory. Their arguments often cite a 1989 speech by former Federal Reserve Board of Governors member Robert Heller and published in The Wall Street Journal. In his speech, Heller hinted at the potential for the Fed to directly support the stock market by acquiring index futures contracts.

Potential Mechanisms of the Plunge Protection Team

In a notable instance on February 5, 2018, the Dow Jones Industrial Average (DJIA) witnessed a historic drop, only to recover significantly within a single day due to what appeared to be forceful and arbitrary buying. Similar patterns emerged in subsequent days when stocks opened lower but experienced swift recoveries, leading to suspicions of orchestration by the Plunge Protection Team.

Another example that drew attention occurred on December 24, 2018, when the team held a teleconference. Throughout that month, the S&P 500 had been steadily declining, prompting the team's meeting. On the 24th, the DJIA plunged by 650 points. However, trading resumed after Christmas with a remarkable rally of over 1,000 points. Although the market lost half of those gains on the 27th, a late-day reversal halted the decline and resulted in a 600-point increase at the market's close. Conspiracy theorists argue that such incidents are not coincidental.

If accurate, this manipulation bears a resemblance to the actions of private bankers and financiers in the late 19th and early 20th centuries. During financial crises, these consortia would intervene by making substantial purchases to stabilize the stock market. The distinction lies in the fact that the Working Group on Financial Markets consists of U.S. government officials and the U.S. is expected to operate within a free-market system. Moreover, transparency and freedom from mysterious influences are fundamental tenets of an open market structure.

Conclusion

The Plunge Protection Team provides guidance to the U.S. president in times of market instability. However, there are concerns about possible market manipulation. Critics suggest undisclosed trading collaborations with major banks. Transparency and open market principles remain vital in the U.S. financial system. The PPT's actions and influence remain a topic of debate and scrutiny.