What is a Plunge Protection Team?
The term “Plunge Protection Team” (PPT) refers to the Working Group on Financial Markets. Established in 1988 to give financial and economic advice to the United States.
This group is led by the Secretary of the Treasury during times of market volatility. Other members include the Chair of the Federal Reserve Board, the Chair of the Securities and Exchange Commission, and the Chair of the Commodity Futures Trading Commission (or the aides or officials they designate to represent them).
The term “Plunge Protection Team” was invented by The Washington Post and used to the organization for the first time in 1997.
The President of the United States receives direct and confidential reports from the Plunge Protection Team, which is comprised of high-ranking government financial professionals.
How the Plunge Protection Team (PPT) Works
In March 1988, in response to the 1987 stock market meltdown, President Ronald Reagan issued an executive order establishing the President’s Working Group on Financial Markets.
The idea was to establish a knowledgeable, but informal, advisory committee for the president and regulators on the markets. Charged with “improving the integrity, efficiency, orderliness, and competitiveness of our nation’s financial markets and preserving investor confidence.”
Its intended objective was to report explicitly on the Black Monday events of October 19, 1987—during which the Dow Jones Industrial Average plunged 22.6%—and, if necessary, to recommend appropriate responses.
Nonetheless, the panel has continued to convene and report to many presidents throughout the years, often (but not always) amid volatile financial market conditions.
In 1999, it recommended to Congress that derivatives market laws be altered. It was assembled amid the 2008 global financial crisis. The most recent Plunge Protection Team meeting (as of March 2019) took place on Christmas Eve, 2018.
Steven Mnuchin, the Secretary of the Treasury, presided over a conference call with other members of the group, as well as officials from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
Concerns About the Plunge Protection Team (PPT)
Although not technically a secret, the Plunge Protection Team is not extensively reported and does not share meeting minutes or recommendations; it reports exclusively to the president.
Observers speculate that the government’s most influential financial officials are actively meddling in the markets, as opposed to just studying and advising.
Conspiracy theorists say that the organization makes trades on many exchanges when prices are falling, in collaboration with large banks like as Goldman Sachs and Morgan Stanley, in unrecorded transactions.
They often cite a statement by former Federal Reserve Board of Governors member Robert Heller, published in The Wall Street Journal in 1989, in which he proposed the Fed might actively boost the stock market via the purchase of index futures contracts.
How the Plunge Protection Team (PPT) Might Work
On Monday, February 5, 2018, the Dow Jones Industrial Average (DJIA) saw a decrease that was twice as huge as its previous record-setting point fall. The decrease, however, was halved in one day due to arbitrary and aggressive purchasing.
The markets started lower on Tuesday and Wednesday of that week, but strong purchasing supported the shares on both occasions. Some claim that the Plunge Protection Team planned their aggressive purchases.
Or, to use a more current illustration: the Plunge Protection Team’s December 24, 2018 teleconference. The reason for the team’s meeting was the S&P 500’s record-breaking decrease during the whole month, and the DJIA’s 650-point decline on the 24th.
When trading resumed after the holiday break, however, the DJIA rose by nearly 1,000 points. A late-day turnaround halted the decline and allowed the market to end 600 points higher on the 27th. Conspiracy theorists say that this is not coincidental.
If accurate, this kind of manipulation resembles the acts of private bankers and financiers in the late 19th and early 20th centuries who, during financial panics, would make enormous purchases to stabilize the stock market.
The Working Group on Financial Markets is comprised of U.S. government officials, although the U.S. is ostensibly a free-market economy. And also one that is not controlled by secret powers, but rather one that is transparent.
History Of Plunge Protection Team
The Working Group on Financial Markets was founded in 1988 by President Ronald Reagan’s executive order. The organization was created in reaction to 1987’s catastrophic market volatility, particularly the historic Black Monday disaster of October 1987, which sent U.S. markets into a spiral.
Concerned about economic stability and consumer confidence, the president recognized the necessity for a working group to study methods to maintain market stability and prepare strategies for responding to emergent market issues.
Who Is On The Plunge Protection Team?
Members of the Plunge Protection Team include the secretary of the treasury, who serves as the Working Group’s chairwoman, and the chairs of the Securities and Exchange Commission, the board of governors of the Federal Reserve System, and the Commodity Futures Trading Commission.
They convene to evaluate prospective situations, such as abrupt drops in the stock market’s value, in order to establish the most effective reactions to these occurrences.
Rule Of Plunge Protection Team
When making suggestions, the Plunge Protection Team must consider national security and financial health without interfering with the free market’s operation.
Some opponents feel that any government action constitutes meddling and that markets should be let to self-correct during volatile times. Others favor the adoption of prudent, conservative market stabilization measures, such as the implementation of rules to avoid market abuses.
During times of economic instability, skeptical investors and other market participants may accuse the Plunge Protection Team of secretly manipulating the market to induce bad market occurrences or unexpected market increases.
In reality, the team is prohibited from market manipulation, much like investors, and it focuses mostly on decision-making and policy formulation as opposed to intervening actively in current market issues. The Plunge Protection Team participates in decisions about emergency market closures and the development of new rules to handle ongoing financial problems.
Why Is The PPT Secretive?
The media does not cover the Plunge Protection Unit’s meetings or actions, giving rise to rumors and conspiracy theories surrounding the team. The likely explanation for the secrecy of its operations is because it only reports to the president.
Some analysts believe that the team’s duty is not limited to only advising the president, but that it also intervenes in the market and artificially pushes up stock prices.
Critics of the organization claim that its members collude with large banks and benefit from stock markets by trading on several stock exchanges when prices decrease. Then, as part of their market stability efforts, they artificially inflate prices and benefit from their trades.
When Does/ Have The PPT Meet?
The team’s meetings have been reported on a few occasions, despite the fact that the group’s actions have received less coverage in the mainstream media. For instance, in 1999, the group suggested to Congress that derivatives market laws be modified.
At the time of this writing in June 2022, the group’s last known meeting was in December 2018, when Treasury Secretary Steven Mnuchin led a teleconference with group members. Federal Deposit Insurance Corporation and Comptroller of the Currency representatives also attended the conference.
Before the December 24, 2018 teleconference, the S&P 500 and DJIA had been under pressure for a whole month. After Christmas, however, both the DJIA and the S&P 500 rallied and reversed the majority of their losses in the following days.
The rebound and improvements in the indexes are attributed by conspiracy theorists to the participation of the Plunge Protection Team.
The slang phrase “Plunge Protection Team” refers to the Working Group on Financial Markets, a group of economists and government officials that meet frequently to explore safeguards for the United States’ financial markets.
In the late 1990s, the Washington Post popularized the phrase Plunge Protection Team, which is used by comparable organizations in several other countries. Some individuals allege that these organisations meddle with markets and participate in actions such as price fixing, giving rise to widespread conspiracy theories.