“To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions.”3
In short, taxpayer money is being made available to manipulate markets. The shady history of the PPT was tracked by journalist John Crudele in a June 2006 New York Post series, in which he wrote:
“Back during a stock market crisis in 1989, a guy named Robert Heller – who had just left the Federal Reserve Board – suggested that the government rig the stock market in times of dire emergency. . . . He didn’t use the word ‘rig’ but that’s what he meant. Proposed as an op-ed in the Wall Street Journal, it’s a seminal argument that says when a crisis occurs on Wall Street ‘instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole.’”4
The PPT was to be the Roman circus of the twenty-first century, distracting the masses with pretensions of prosperity. Instead of fixing the problem in the economy, the PPT could just “fix” the investment casino. Crudele continued:
“Over the next few years . . . whenever the stock market was in trouble someone seemed to ride to the rescue. . . . Often it appeared to be Goldman Sachs, which just happens to be where Paulson and former Clinton Treasury Secretary Robert Rubin worked.”
For obvious reasons, the mechanism by which the PPT has ridden to the rescue is not detailed on the Fed’s website; but some analysts think they know. An antitrust group called GATA (the Gold Anti-Trust Action Committee) has been tracking the PPT’s moves for many years. Michael Bolser of GATA concluded in 2004 that PPT money is being funneled through the Fed’s “primary dealers,” a group of favored Wall Street brokerage firms and investment banks. The device used is a form of loan called a “repurchase agreement” or “repo,” which is a contract for the sale and future repurchase of Treasury securities. Bolser explained:
“It may sound odd, but the Fed occasionally gives money [‘permanent’ repos] to its primary dealers (a list of about thirty financial houses, Merrill Lynch, Morgan Stanley, etc). They never have to pay this free money back; thus the primary dealers will pretty much do whatever the Fed asks if they want to stay in the primary dealers ‘club.’ “The exact mechanism of repo use to support the DOW is simple. The primary dealers get repos in the morning issuance . . . and then buy DOW index futures (a market that is far smaller than the open DOW trading volume). These futures prices then drive the DOW itself because the larger population of investors think the ‘insider’ futures buyers have access to special information and are ‘ahead’ of the market. Of course they don’t have special information . . . only special money in the form of repos.”5
With Paulson’s new $700 billion credit card, the PPT obviously has access to much more money than in 2004 – enough money, no doubt, to buy large blocks of some key stocks. Those purchases, in turn, would trigger the program traders’ computers, which follow like robots according to pre-set formulae. Although thousands of stocks are publicly traded, only 30 stocks compose the Dow, making this trend-setting index fairly easy to manipulate.
While the Dow is being propped up by the PPT through massive buying, the gold market is held down by massive short selling, since gold is considered a key indicator of inflation. If the gold price were to soar, the Fed would have to increase interest rates to tighten the money supply, collapsing the housing bubble and forcing the government to raise inflation-adjusted payments for Social Security.
Most traders who see this manipulation going on don’t complain, because they think the Fed is rigging the market to their advantage; but unwary investors are being induced to place risky bets on a nag on its last legs. The people become complacent and accept bad leadership, bad policies and bad laws, because they think things are still “working” for them economically. Worse, there are insiders to this scheme who must find it difficult to resist the temptation to capitalize on their favored positions. As Chuck Augustin observed in a June 2006 article titled “Plunge Protection or Enormous Hidden Tax Revenues”:
“Today the markets are, without doubt, manipulated on a daily basis by the PPT. Government controlled ‘front companies’ such as Goldman-Sachs, JP Morgan and many others collect incredible revenues through market manipulation. Much of this money is probably returned to government coffers, however, enormous sums of money are undoubtedly skimmed by participating companies and individuals.
“The operation is similar to the Mafia-controlled gambling operations in Las Vegas during the 50’s and 60’s but much more effective and beneficial to all involved. Unlike the Mafia, the PPT has enormous advantages. The operation is immune to investigation or prosecution, there [are] unlimited funds available through the Treasury and Federal Reserve, it has the ultimate insider trading advantages, and it fully incorporates the spin and disinformation of government controlled media to sway markets in the desired direction. . . . Any investor can imagine the riches they could obtain if they knew what direction stocks, commodities and currencies would move in a single day, especially if they could obtain unlimited funds with which to invest! . . . [T]he PPT not only cheats investors out of trillions of dollars, it also eliminates competition that refuses to be ‘bought’ through mergers. Very soon now, only global companies and corporations owned and controlled by the [financial] elite will exist.”
A research firm reporting on the unexpectedly high quarterly profits of Goldman Sachs in March 2004 wrote cynically:
“[W]ho does Goldman have to thank for the latest outsized quarterly earnings? Its ‘partner’ in charge of financing the proprietary trading operation -- Alan Greenspan.”7
Henry Paulson headed Goldman Sachs before he succeeded to Treasury Secretary in June 2006, following in the footsteps of Robert Rubin, who headed that major investment bank before he was appointed Treasury Secretary in 1995, just in time for Goldman and other investment banks to capitalize on the drastic devaluation of the Mexican peso. An October 2006 article in the conservative American Spectator complained that the U.S. Treasury was being turned into “Goldman Sachs South.”8
In his October 28, 2008 letter, United Steelworkers president Gerard wrote to Henry Paulson: