All Is Well in Stepfordville: More on the Pre-election Chicanery of the Plunge Protection Team

“The Dow is a dead banana republic dictator in full military uniform propped up in the castle window with a mechanical lever moving the cadaver’s arm, waving to the Wall Street crowd.”                                                       

– Michael Bolser, Le Metropole Cafe1    

It was another surreal week on Wall Street, with the Dow Jones Industrial Average rising a thousand points while the economy continued to sink into its worst financial crisis since the Great Depression.  Most of this stellar climb occurred on Tuesday, October 28, when the Dow rose some 900 points, making it the largest one-day stock market rise since the Great Depression.  The climb was especially remarkable in that it occurred in just the last two hours of trading, on no particularly good news.  Commentators attributed it to an expectation of a half point interest rate cut by the Fed the following day, but the likelihood of a rate cut was not new news two hours before closing, and previous rate cuts have not evoked that sort of dramatic response.  When the cut was actually announced, the market yawned and proceeded to drop.  

Meanwhile, gold -- the “go to” investment that at one time could be counted on to go up when the economy was tanking -- had its worst month in 25 years.  Gold rounded out the month by dropping $60 in a little over a day.  Gas prices also ended 31% lower than a mere six weeks ago, all just in time to assure voters on November 4 that their fears of rampant inflation and stock market collapse were unfounded.   

Nothing to See Here:  Concealing a $700 Billion Boondoggle 

The Stepfordville-like stability of the market may have been engineered for another reason: to divert Congress from reconsidering its $700 billion bailout bill, which is proving to be as disastrous for the taxpayers as it is lucrative for the banks.  The bankers are manning the lifeboats as the taxpayers go down with the Titanic.  In an October 29 article in The Nation titled “Bailout = Bush’s Final Pillage,” Naomi Klein wrote:       

“When the Bush administration announced it would be injecting $250 billion into America’s banks in exchange for equity, the plan was widely referred to as ‘partial nationalization’– a radical measure required to get the banks lending again. In fact, there has been no nationalization, partial or otherwise. Taxpayers have gained no meaningful control, which is why the banks can spend their windfall as they wish (on bonuses, mergers, savings . . .) and the government is reduced to pleading that they use a portion of it for loans. . . . 

“By purchasing stakes in these institutions, Treasury is sending a signal to the market that they are a safe bet . . . [b]ecause the government won't be able to afford to let them fail. . . . That tethering of the public interest to private companies is the real purpose of the bailout plan: Treasury Secretary Henry Paulson is handing all the companies that are admitted to the program – a number potentially in the thousands – an implicit Treasury Department guarantee. . . . [F]or the banks, the best part is that the government is paying them – in some cases billions of dollars – to accept its seal of approval. . . . 

“[T]he market is being told loud and clear that Washington will not allow the country’s financial institutions to bear the consequences of their behavior. This may well be Bush’s most creative innovation: no-risk capitalism. . . . Meanwhile, every day it becomes clearer that the bailout was sold on false pretenses. It was never about getting loans flowing. It was always about turning the state into a giant insurance agency for Wall Street – a safety net for the people who need it least, subsidized by the people who need it most.” 

William Greider, writing in The Nation on the same day, discussed a stinging letter sent to Henry Paulson by Leo Gerard, president of the United Steelworkers, comparing the sale of very similar bank stock to the American public and to billionaire Warren Buffett, who got a much better deal.  Greider wrote: 

“The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson’s transaction, the taxpayers were taken for a ride – a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public’s money was a straight-out gift to Wall Street, for which taxpayers got nothing in return. . . .  

“If the same rule of thumb is applied to Paulson’s grand $700 billion bailout fund, Gerard said this will constitute a gift of $350 billion from the American taxpayers ‘to reward the institutions that have driven our nation and it now appears the whole world into its most serious economic crisis in 75 years.’ “Is anyone angry? Will anyone look into these very serious accusations? Congress is off campaigning. The financiers at Treasury probably assume any public outrage will be lost in the election returns.”2 

And just to make sure that public outrage is buried, the Plunge Protection Team (PPT) has been busily painting the arid landscape of the U.S. economy with roses and dewdrops.   

The PPT Rides Again 

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