What Is the Plunge Protection Team?

What Is the Plunge Protection Team?

Let me tell you directly about the Plunge Protection Team, or PPT as it's commonly known. This is the colloquial name for the Working Group on Financial Markets, established back in 1988 to offer financial and economic advice to the U.S. President during periods of market instability. The group is led by the Secretary of the Treasury, and its members include the Chair of the Federal Reserve Board of Governors, the Chair of the Securities and Exchange Commission, and the Chair of the Commodity Futures Trading Commission—or their designated representatives.

The term 'Plunge Protection Team' was first used by The Washington Post in 1997, though some sources attribute it to The Wall Street Journal. Either way, it's stuck as a shorthand for this advisory body. Remember, its official role is to provide recommendations to maintain the integrity, efficiency, and competitiveness of the nation's financial markets while upholding investor confidence.

One key point you should note is that the PPT reports directly and privately to the president. This setup includes high-ranking government officials in finance, and while it's not a secret, its operations aren't transparent.

How the Plunge Protection Team Works

To understand how the PPT operates, consider its origins. In March 1988, following the devastating stock market crash of 1987—known as Black Monday, when the Dow Jones Industrial Average plummeted 22.6%—President Ronald Reagan issued an executive order creating the President’s Working Group on Financial Markets. The idea was to form an informal advisory group that could inform the president and regulators on market issues.

Initially, the group focused on analyzing the 1987 crash and suggesting any necessary actions. Over the years, it has continued to convene, typically during financial upheavals, though not exclusively. For instance, in 1999, it recommended changes to derivatives market regulations to Congress. It also met during the 2008 global credit crisis.

As of my last update in March 2019, the most recent known gathering was a conference call on Christmas Eve 2018, chaired by Treasury Secretary Steven Mnuchin. This included other PPT members plus representatives from the Comptroller of the Currency and the Federal Deposit Insurance Corporation. These meetings underscore the group's role in responding to ongoing market turbulence.

Concerns About the Plunge Protection Team

Now, let's address the concerns surrounding the PPT. While it's not entirely secretive, the group doesn't publicize minutes from its meetings or its recommendations—it reports solely to the president. This lack of transparency raises questions among observers about whether these top financial officials are merely advising or actually intervening in the markets.

Conspiracy theorists go further, claiming the PPT executes trades on exchanges to halt downward price spirals, often in collaboration with major banks like Goldman Sachs and Morgan Stanley through unrecorded transactions. They frequently cite a 1989 speech by former Federal Reserve Board member Robert Heller, published in The Wall Street Journal, where he suggested the Fed could support the stock market by buying index futures contracts. This fuels suspicions of market rigging.

How the Plunge Protection Team Might Work in Practice

If you're wondering how such interventions might look, examine real-world examples. On February 5, 2018, the Dow Jones Industrial Average suffered a drop twice as large as its previous record point decline, but aggressive buying halved the loss in a single day. Over the next two days, despite opening lower, similar buying patterns lifted the markets—actions some attribute directly to the PPT.

Another case is the December 24, 2018, teleconference amid a month where the S&P 500 was on track for a record decline. The DJIA fell 650 points that day, but post-Christmas trading saw a rally of over 1,000 points. Though it dipped again on the 27th, a late-day reversal turned it into a 600-point gain. Conspiracy proponents argue this isn't coincidence but orchestrated manipulation.

Such alleged actions echo historical interventions by private banker consortia in the late 19th and early 20th centuries, who bought massively during panics to stabilize markets. The difference here is that the PPT involves government officials in a system that's meant to be free and open, not swayed by hidden influences.