What is the Plunge Protection Team?
The “Plunge Protection Team” (PPT) is a colloquial term for the Working Group on Financial Markets. Established in 1988 to offer economic and financial recommendations to the U.S. President during market turmoil, the group is chaired by the Secretary of the Treasury. It also includes 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.
Key Takeaways
- The Plunge Protection Team aims to advise the U.S. President during economic and stock market turbulence.
- It reportedly draws high-ranking government financial officials and reports directly and privately to the president of the United States.
- Critics argue that the PPT might actively intervene in markets, portraying an image of market manipulation and collaboration with major banks.
How the Plunge Protection Team (PPT) Works
In March 1988, following the stock market crash of 1987, President Ronald Reagan created the President’s Working Group on Financial Markets via executive order. This group was tasked with enhancing the integrity, efficiency, orderliness, and competitiveness of America’s financial markets while maintaining investors’ confidence.
Originally, the group’s mission was to analyze the Black Monday event of October 19, 1987, when the Dow Jones Industrial Average plummeted 22.6%. Since then, the team has continued to meet during significant market disruptions. In 1999, the group recommended regulatory changes to Congress regarding the derivatives markets. It also convened during the 2008 financial crisis. More recently, it met on Christmas Eve in 2018, chaired by Treasury Secretary Steven Mnuchin, amid plunges in stock prices.
Concerns About the Plunge Protection Team (PPT)
Despite not being entirely secluded, the Plunge Protection Team operates with little public exposure and does not release the minutes of its meetings or its recommendations. This opacity leads to speculation and concerns about the group engaging in more than advisory roles—hinting at potential market manipulations.
Further fueling speculation are conspiracy theories suggesting that the PPT collaborates with major banks like Goldman Sachs and Morgan Stanley to execute trades during market downfalls. Notably, a 1989 speech by former Federal Reserve Board of Governors member Robert Heller raised the idea of the Fed supporting the stock market by purchasing index futures contracts.
How the Plunge Protection Team (PPT) Might Work
Consider the happenings on Monday, February 5, 2018, when the Dow Jones Industrial Average experienced an unprecedented drop. Subsequent arbitrary buying caused markets to recover half of the day’s losses. Critics attributed this coordinated buying to the PPT. Further scrutiny emerged in response to a series of dramatic recovery fluctuations during Christmas 2018, after the team’s teleconference.
If allegations hold, this tactic resembles actions by private bankers in the late 19th and early 20th century, who would intervene during financial panics. The significant contrast is that today, the Working Group on Financial Markets is a governmental entity in a country founded on free-market principles. Should it operate openly and transparently, it could mitigate suspicions of its covert influences.
Related Terms: Dow Jones Industrial Average, Federal Reserve, market crash, economic policy, financial regulation.
