The Operators
Behind a seductive Wall Street conspiracy theory
(Greg Klee/Globe Staff Illustration)
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For the past few weeks, as some of the biggest firms in American finance have lurched toward collapse, and as markets the world over have seesawed in response, economic policy makers in the United States have scrambled to insulate the broader economy from panic. The federal government has leaned on Wall Street banks to come to the aid of their rivals. It has committed over $200 billion altogether to rescue Bear Stearns, then
That is what the federal government has done publicly. But in the uncertainty of the souring economy, a rumor has taken hold in some of the less orthodox corners of the financial world that a more shadowy government force may be at work. As the story goes, a select group, comprising the Secretary of the Treasury along with the chairmen of the Federal Reserve, Securities and Exchange Commission, and the Commodity Futures Trading Association, has been using its considerable power to manipulate the markets directly.
Meeting in the utmost secrecy, this group has coordinated the targeted buying of billions of dollars in stocks and stock index futures to blunt the force of stock-market sell-offs, to prevent slides from developing into outright crashes, and to keep the American public from learning that the economy is actually in much worse shape than any of us can imagine.
Its name: the Plunge Protection Team, or PPT.
Few economists and Wall Street analysts have heard of the PPT, and most who have call it a conspiracy theory. Nonetheless, the PPT has proven a durable idea, and has fired imaginations not only in small blogs and online message boards, but in the mainstream press. British financial writers at the Observer and the Telegraph have asserted its existence and its extensive powers, and so has the writer and political commentator Kevin Phillips. John Crudele, a columnist at the New York Post, has in the past few years mounted a sustained campaign to expose the group's machinations.
The PPT has some basis in fact: There is a group of top economic policy makers, the President's Working Group on Financial Markets, who meet to coordinate responses to financial crises - though there is no evidence that they have ever coordinated the buying of stocks or derivatives. Financial analysts interviewed for this story say that the whole premise is based on faulty economic thinking: government-led, top-secret market manipulation of that sort, they argue, is not only implausible but useless - it could do little in the face of real financial turmoil like what we saw last week.
But the PPT fears tell us something important in themselves. They reflect a broader apprehension at the expansive powers the executive branch has taken on in recent years, not just in financial markets, but in everything from dictating the terms of trade agreements to national security matters like wiretapping, detention, and starting wars. Anti-PPT activists see a world in which the market, like the political process, is being wrenched away from the millions of individual actors whose decisions should cumulatively decide its fate, and handed over to a cabal.
"Governments have an incentive to intervene at certain times because markets tend to have some inefficiencies," says Itay Goldstein, a finance professor at the University of Pennsylvania's Wharton School. "And when people see the government doing certain things, you start seeing speculation that there are other things you're not seeing."
It is also the case that events in recent weeks have begun to look a lot like a conspiracy movie. At a time when the news has been full of images of government officials and corporate executives on their way into closed-door meetings to decide the fate of multibillion-dollar companies, we don't lack for reminders that there are a few people who wield enormous power. And when the market seems so profoundly out of whack, there may be something comforting in a story that emphasizes - and even exaggerates - that power.
The idea that a few men conspiring in a room can bring the market to heel is an old and familiar one, and history provides vivid examples.
In the Panic of 1907, when a failed scheme to corner the copper market brought New York City to the brink of bankruptcy, J.P. Morgan famously invited the presidents of the New York trust companies to a meeting in his library, locked the door, and didn't let them out until the next morning, when they had pledged enough cash to stop a bank run that was threatening to engulf the financial world.
Indeed, the Federal Reserve was created to formalize the response to this sort of crisis, and its framework was laid out three years later by a Rhode Island senator and several New York bankers in a secret meeting on Jekyll Island, off the coast of Georgia. The fact that the island was an ultra-exclusive resort frequented by Astors, Morgans, Vanderbilts, and Rockefellers (not to mention the island's spooky name) has provided fodder for generations of those whose politics revolve around a deep suspicion of financial elites.
If the Fed today displays anything, though, it is just how open the government is about its extraordinary power over the economy. Changing interest rates is a very public move, and one that has immediate, often dramatic results. The merest remark by the Fed chairman can move markets. And the hundreds of billions of dollars the Fed has made available to borrowers in recent weeks would do far less good if the public didn't know about it. There's nothing paranoid about the idea that the government pulls strings to keep the markets running smoothly: That is how modern economies work.
But because the PPT is, according to its critics, a deeply secretive organization, they worry that it allows intervention to be pursued in more self-interested ways.
"Saving the system will always take precedent over ideology; just as the 'invisible hand' will always be overpowered by the manicured and mettlesome [sic] fingers of banking elites and Wall Street big wigs," reads one PPT commentary at an Internet newsletter called Dissident Voice.
For his part, the columnist John Crudele believes that the government actually should, in emergencies, prop up the stock market - he just worries about abuse. "Who gets to decide when there's an emergency?" he wrote in a column last year. "Is there one, for instance, if a stock market decline threatens an incumbent president's chances of staying in the White House?"
The President's Working Group on Financial Markets was created by Ronald Reagan in 1988 in response to the stock market crash of the year before. He tasked it, however, not with buying up stocks or stock index futures (the Fed is not allowed to do this directly) but with planning for and responding to future financial crises. While the Department of the Treasury doesn't comment on the market manipulation accusations, a spokeswoman described the body as a sort of high-level discussion group. The term "Plunge Protection Team" was apparently created by headline writers for a 1997
Like most theories about shadowy misdeeds in high places, the PPT is fed less by evidence than by suggestive gaps in what we know. But to Crudele and Kevin Phillips, or to Congressman Ron Paul, who has been the public face of the anti-PPT forces, there are a few clues to what they see as the organization's true purpose. One is a 1989 op-ed written by a former Fed governor named Robert Heller that suggested the government consider injecting money directly into the stock market during crises. The second is a comment by ABC correspondent and former Clinton administration official George Stephanopoulos on "Good Morning America" during the market uncertainty that followed the Sept. 11, 2001, attacks. Stephanopoulos mentioned the PPT and said it was empowered to buy stocks, though he misstated the details of its establishment. Third are the occasional days when the New York Stock Exchange or a major commodity exchange sees a sudden storm of buying at the end of a long slide.
For Representative Paul, what's most galling is that he can't find out more about the organization, and that the public seems almost utterly ignorant of it - he pressed John McCain on the topic during a Republican candidates debate last winter. (It was unclear whether McCain knew what Paul was talking about.)
"I think we should be very worried about it," Paul says. "I've tried to get information all the time on exactly what they do." Because the Working Group doesn't keep written minutes, however, he says it's impossible to know what is discussed in meetings.
Paul's great fear, he says, is that organizations like the PPT are hiding the extent of our nationwide economic dysfunction from us. Without the intervention of the PPT, Paul says, "I think it's a great possibility that markets would be much, much lower."
Paul is hardly alone in his doubts about the soundness of the US economy, and some PPT critics seem to support the sort of reform that, say, Barack Obama is pushing for: In their model, the tinkering of the PPT is an attempt to try to forestall meaningful federal oversight and regulation of the financial markets. Others, however, tend to see the problem as something far deeper: Many are so-called gold bugs, people who believe that the United States has been headed inexorably for catastrophe ever since it went off the gold standard in 1971.
For mainstream Wall Street analysts, there are simple explanations for the evidence given in support of the PPT. Robert Heller's suggestion was just that, a suggestion. George Stephanopoulos didn't seem to know what he was talking about. And rallies at the end of a large sell-off are simply traders scooping up bargains.
The fundamental fact, skeptics point out, is that such a scheme would be doomed to failure in the sort of dire situations where it would be most needed.
"The market's too big and too global and affected by too many macro issues for one organization to defend it," says Art Hogan, chief investment strategist at Jefferies & Co.
But it's not surprising, say psychologists, economists, and other scholars of human behavior, that belief in the power of something like the PPT swells in a climate of financial turmoil.
"It then poses a very simple set of solutions in which you find the evil people and get rid of them and everything is better," says Chip Berlet, coauthor of the book "Right Wing Populism in America."
The dizzying array of complicated financial instruments created in recent years, the way so many of them have gone so badly wrong, and the sense that even formerly safe investments have become vulnerable - taken together they contribute to a pervading sense of uncertainty and rudderlessness. A story in which a hidden group is at the controls, even if they're engaged in a sort of stock market black ops, may seem reassuring when the alternative is that we are all at the whim of an economic storm that is impersonal, voracious, and yet caused, in some sense, by all of us.
Drake Bennett is the staff writer for Ideas. E-mail drbennett@globe.com.
