John Crudele: Former Clinton aide confirmed rigging of stock market

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By John Crudele
New York Post
Tuesday, June 27, 2006

http://www.nypost.com/business/george_let_plunge_slip_business_john_crud...

George Stephanopoulos knows all about the Plunge Protection Team,
the secretive organization made up of Wall Street bankers and top
administration officials whose job it is to come to the rescue of a
faltering stock market.

Here's the bombshell statement that an obviously nervous
Stephanopoulos, once President Clinton's senior adviser on policy
and strategy, delivered on ABC's "Good Morning America" on Sept. 17,
2001 -- the day the stock market reopened after being shut for
nearly a week because of the 9/11 terrorist attacks.

The statement was barely noticed in the excitement of that time, so
I will quote it here in full.

I'm also citing it verbatim because Stephanopoulos blurted it out in
the heat of that moment (stocks were struggling that morning) and
because no other person with firsthand knowledge of this
organization is likely to ever repeat these words.

"And perhaps the most important, there's been -- the Fed in 1989
created what is called the Plunge Protection Team, which is the
Federal Reserve, big major banks, representatives of the New York
Stock Exchange and the other exchanges, and there -- they have been
meeting informally so far, and they have kind of an informal
agreement among major banks to come in and start to buy stock if
there appears to be a problem.

"They have, in the past, acted more formally.

"I don't know if you remember, but in 1998, there was a crisis
called the Long Term Capital crisis. It was a major currency trader
and there was a global currency crisis. And they, at the guidance of
the Fed, all of the banks got together when that started to collapse
and propped up the currency markets. And they have plans in place to
consider that if the stock markets start to fall."

The most important line is the one about the "informal agreement
among major banks to come in and start to buy stock if there appears
to be a problem."

Over the last month I've outlined in this column how Robert Heller,
a Federal Reserve governor, proposed in 1989 that the central bank
prop up the stock market in times of crisis by purchasing stock
index futures contracts.

I've also contended, and Stephanopoulos confirms, that these rescue
missions were not undertaken by the government itself -- although
off-balance-sheet funds are available -- but by Wall Street firms
acting as fronts for Washington.

Stephanopoulos didn't return calls for comment.

The Plunge Protection Team, first revealed in a Washington Post
story, seems to have been born on March 18, 1988, when President
Reagan signed Executive Order 12631 establishing a Working Group on
Financial Markets that included the chairmen of the various stock
exchanges, the chairman and governors of the Federal Reserve, and
the secretary of the U.S. Treasury, who was also the chairman.

Nowhere does the order mention the heads of private banks or Wall
Street firms, although the group is encouraged to "consult, as
appropriate, with representatives of the various exchanges,
clearinghouses, self-regulatory bodies and with major market
participants" when trouble crops up.

Nor does the order say that this group can buy stocks to prop up the
financial markets, as Stephanopoulos said it was doing.

The purpose of the working group, the order says, is enhancing "the
integrity, efficiency, orderliness, and competitiveness of our
nation's financial markets and maintaining investor confidence." And
what better way to make investors confident than to assure that the
stock market will not crash?

So what does this all mean? Simply that without our knowledge
there's been a brave new world in investing for more than a decade.
And this changes everything.

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Next: Rigging the stock market -- good or bad?

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John Crudele is business columnist for the New York Post.

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