Working Group on Financial Markets
Encyclopedia
The Working Group on Financial Markets (also, President's Working Group on Financial Markets, the Working Group, and colloquially the Plunge Protection Team) was created by Executive Order 12631, signed on March 18, 1988 by United States
President
Ronald Reagan
.
The Group was established explicitly in response to events in the financial markets surrounding October 19, 1987 ("Black Monday
") to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence".
As established by Executive Order 12631, the Working Group consists of:
on February 23, 1997, and has since become a colloquial term used by some mainstream publications to refer to the Working Group. Initially, the term was used to express the opinion that the Working Group was being used to prop up the markets during downturns. Financial writers for British newspapers The Observer
and The Daily Telegraph
, along with U.S. Congressman Ron Paul
and writers Kevin Phillips
(who claims “no personal firsthand knowledge” and is “not interested in becoming a conspiracy investigator”) and John Crudele, have charged the Working Group with going beyond their legal mandate. Claims about the Working Group, which are labeled conspiracy theories by some writers, generally include that it is an orchestrated mechanism that attempts to manipulate U.S. stock market
s in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures—acts which are forbidden by law. 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. However, these articles usually refer to the Working Group using moral suasion to attempt to convince banks to buy stock index futures.
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." His statement has been used to claim that the Fed actually did act in that way. Mainstream analysts call those claims a conspiracy theory
, explaining that such claims are simplistic and unworkable.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
President
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
.
The Group was established explicitly in response to events in the financial markets surrounding October 19, 1987 ("Black Monday
Black Monday (1987)
In finance, Black Monday refers to Monday October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin...
") to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence".
As established by Executive Order 12631, the Working Group consists of:
- The Secretary of the TreasuryUnited States Secretary of the TreasuryThe Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
, or his designee (as Chairman of the Working Group); - The Chairman of the Board of Governors of the Federal Reserve System, or his designee;
- The Chairman of the Securities and Exchange Commission, or his designee; and
- The Chairman of the Commodity Futures Trading CommissionCommodity Futures Trading CommissionThe U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
, or his designee.
Plunge Protection Team
"Plunge Protection Team" was originally the headline for an article in The Washington PostThe Washington Post
The Washington Post is Washington, D.C.'s largest newspaper and its oldest still-existing paper, founded in 1877. Located in the capital of the United States, The Post has a particular emphasis on national politics. D.C., Maryland, and Virginia editions are printed for daily circulation...
on February 23, 1997, and has since become a colloquial term used by some mainstream publications to refer to the Working Group. Initially, the term was used to express the opinion that the Working Group was being used to prop up the markets during downturns. Financial writers for British newspapers The Observer
The Observer
The Observer is a British newspaper, published on Sundays. In the same place on the political spectrum as its daily sister paper The Guardian, which acquired it in 1993, it takes a liberal or social democratic line on most issues. It is the world's oldest Sunday newspaper.-Origins:The first issue,...
and The Daily Telegraph
The Daily Telegraph
The Daily Telegraph is a daily morning broadsheet newspaper distributed throughout the United Kingdom and internationally. The newspaper was founded by Arthur B...
, along with U.S. Congressman Ron Paul
Ron Paul
Ronald Ernest "Ron" Paul is an American physician, author and United States Congressman who is seeking to be the Republican Party candidate in the 2012 presidential election. Paul represents Texas's 14th congressional district, which covers an area south and southwest of Houston that includes...
and writers Kevin Phillips
Kevin Phillips (political commentator)
Kevin Price Phillips is an American writer and commentator on politics, economics, and history. Formerly a Republican Party strategist, Phillips has become disaffected with his former party over the last two decades, and is now one of its most scathing critics...
(who claims “no personal firsthand knowledge” and is “not interested in becoming a conspiracy investigator”) and John Crudele, have charged the Working Group with going beyond their legal mandate. Claims about the Working Group, which are labeled conspiracy theories by some writers, generally include that it is an orchestrated mechanism that attempts to manipulate U.S. stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
s in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures—acts which are forbidden by law. 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. However, these articles usually refer to the Working Group using moral suasion to attempt to convince banks to buy stock index futures.
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." His statement has been used to claim that the Fed actually did act in that way. Mainstream analysts call those claims a conspiracy theory
Conspiracy theory
A conspiracy theory explains an event as being the result of an alleged plot by a covert group or organization or, more broadly, the idea that important political, social or economic events are the products of secret plots that are largely unknown to the general public.-Usage:The term "conspiracy...
, explaining that such claims are simplistic and unworkable.
Market Crisis of 2008
On 06 October 2008, the working group issued a statement indicating that it was taking multiple actions available to it in order to attempt to stabilize the financial system, although purchase of stock shares was not part of the statement. The government may wind up owning shares in the firms to which it has provided loans, as they will receive warrants as collateral for these loans.See also
- Commodity Futures Modernization Act of 2000Commodity Futures Modernization Act of 2000The Commodity Futures Modernization Act of 2000 is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton...
- Single AuditSingle AuditIn the United States, the Single Audit, also known as the OMB A-133 audit, is a rigorous, organization-wide audit or examination of an entity that expends $500,000 or more of Federal assistance received for its operations...
- Government Accountability OfficeGovernment Accountability OfficeThe Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...
, - RevenueRevenueIn business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
(bottom line vs. "top line") - Government-owned corporationGovernment-owned corporationA government-owned corporation, state-owned company, state-owned entity, state enterprise, publicly owned corporation, government business enterprise, or parastatal is a legal entity created by a government to undertake commercial activities on behalf of an owner government...
- Budget theoryBudget theoryBudget theory is the academic study of political and social motivations behind government and civil society budgeting. Classic theorists in Public Budgeting include Henry Adams, William F. Willoughby, V. O. Key, Jr., and, more recently, Aaron Wildavsky. Notable recent theorists include Baumgartner...
- Comprehensive incomeComprehensive incomeComprehensive income is a specific term used in companies' financial reporting from the company-whole point of view. Because that use excludes the effects of changing ownership interest, an economic measure of comprehensive income is necessary for financial analysis from the shareholders' point...
- Permanent fundPermanent fundIn the United States, a permanent fund is one of the five fund types established by GAAP classified as a government fund. Put simply a permanent fund may be used to generate and disperse money to those entitled to receive payments by qualification or agreement, as in the case of Alaska citizens or...
- Public companyPublic companyThis is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...
- Crony capitalismCrony capitalismCrony capitalism is a term describing a capitalist economy in which success in business depends on close relationships between business people and government officials...
- Government Accountability Office investigations of the Department of DefenseGovernment Accountability Office investigations of the Department of DefenseGovernment Accountability Office investigations of the Department of Defense are typically audits in which the Government Accountability Office , the United States Congress’ investigative arm, studies how the Department of Defense spends taxpayer dollars...
- Federal Accountability ActFederal Accountability ActThe Federal Accountability Act is a statute introduced as Bill C-2 in the first session of the 39th Canadian Parliament on April 11, 2006, by the President of the Treasury Board, John Baird...
(Canada)
External links
- Published Working Group reports:
- Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management April 1999
- Over-the-Counter Derivatives Markets and the Commodity Exchange Act November 1999
- Terrorism Risk Insurance September 2006
- "Plunge Protection Team" claims:
- Treasury's Paulson Plays with the Plunge Protectors by 'John Crudele' in New York Post, October 26, 2006
- Hey Hank, Let's Sit Down and Chat about Things by John Crudele, August 9, 2007 New York Post followup to the above article
- "Plunge Protection Team" counterclaims:
- The Plunge Protection Team, by John Mauldin
- The Stock Market's Da Vinci Code, by Jonathan Moreland
- I Am Not Now, and Have Never Been, a PPT Member: Caroline Baum, by C. Baum