Friday, February 8, 2008

Swimming Upstream with the Plunge Protection Team

Editor's Note: I wrote the following piece on the morning of Friday, Feb. 8, watching with considerable frustration a number of usual, obvious, upward spikes of 70, 50 and 40 points on the Dow, which I usually assign as the work of the Plunge Protection Team. Considering that very few investors and even fewer members of the general public even know of the existence of this group (officially, the President's Working Group on Financial Markets), it is my duty as a proponent of free markets and the Austrian school of economics, to expose them and explain how their interference caused more harm than good.

I have written about them before, and readers can check the tags or labels on this blog for PPT or Plunge Protection Team. It is also advisable to search the same and acquaint oneself with the workings of this group. They are not fictional, but sadly, oh, so real and a better understanding of their role and intentions may bring about some needed changes in our financial markets.

Being neither a zealot nor a fool, I understand that my proposal to the heads of the Federal Reserve, Treasury and other members of the PPT may lead nowhere, but I am hopeful that a robust, open discussion of their actions may lead us all to a better tomorrow.

Coincidentally, shortly after writing this piece, the Dow began an earnest descent. Maybe there is power in thought and force in words. In the end, all we have are faith, hopeful dreams, our good natures and desires.

As I watch the US equity markets gyrate in their long, slow-motion decline to some eventual oblivion, I cannot escape the intransigent maneuverings of the Plunge Protection Team (PPT) in their daily attempts to rescue the markets from their certain swoon.

Their actions are more and more transparent every day. As stocks decline in the somewhat orderly, time-honored tradition of bear markets, the PPT is at odds with the natural forces at work. In effect, they are swimming upstream against a logical, sensible tide of selling. Like salmon returning to their roots, the PPT believes the markets should return to glory days of all-time highs.

They are wrong. They are foolish. They will fail. Their actions speak of desperation, unlike the glorious salmon, which are guided by instinct and propagation, the PPT is swimming blindly into waters neither friendly nor where they are welcome.

A complete, final flushing of the markets is inevitable and preferable to the constant tinkering of these fondlers, who seek to govern what is known and what will be. While they think it right and good to prevent markets from tumbling - lest they incite an already angry public - they do more harm by the day. Their meddling reduces confidence in the fairness of the markets, to say nothing of the massive distortions created by their utterly false intentions.

No good or honest trader is accepting of sharp vertical ascents in the markets. They know what evil hands are at play, goosing the futures, bidding up the blue chips and pampering the investment community with talk of soft landings, strength in the economy and sustainable growth.

Poppycock. Rubbish. Nonsense.

It is time for the PPT, the Fed and Treasury to step back and cease open market operations. Allow the markets to function as they were intended - free and open, without interference - which, in the current environment more than likely means a crash, or at least a long, sustained recession and diminution of equity assets.

It is time for the Fed and their lackey PPTers to stop trying to fix what they themselves have broken, admit defeat and stabilize the situation. Set the federal funds rate at an acceptable 4 1/2-5%, allow the banks that have gorged on risky investments to pay their dues and liquidate their assets and let the American public breathe the clean air of a bottomed-out business cycle.

It would be a refreshing change from the eternal dithering and blathering to which we have become so accustomed. Let those which should fail, fail. Let the market decide. Let the indices fall to where they may, so that companies once again can be accountable and that investments actually start behaving like the fickle instruments of wealth that they are.

Surely, this would be a painful lesson for all, but no less painful than having to endure the uncertainty and unease associated with contrived markets and the grubby molestation of the PPT.

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