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Just how real is the gold behind those exchange-traded funds?
By John Crudele
New York Post
Thursday, June 8, 2006
http://www.nypost.com/seven/06082006/business/67140.htm
Quick, somebody tell soon-to-be Treasury Secretary
Hank Paulson about the other part of his job: being a
member of the Plunge Protection Team.
What is that? It's something that Wall Street is gonna
need if the stock market continues to be freaky.
But this is a story that's best told in chronological
order.
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.
Yep! 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."
Had Heller been any other schmoe who writes op-ed
pieces for the Journal this would have been long
forgotten. But he had served for three years as a
governor at the Fed and this proposal had the look of
a trial balloon since stocks had just fallen sharply
on Oct. 13, 1989, and memories of the 1987 crash were
still fresh.
Over the next few years people like me (meaning those
who watch the financial world with a critical eye
rather than a blind one) suspected that Heller's plan
was indeed in effect. Whenever the stock market was in
trouble someone seemed to ride to the rescue.
Often it was a Wall Street firm that seemed more
courageous than fiscally responsible. Often it
appeared to be Goldman Sachs, which just happens to be
where Paulson and former Clinton Treasury Secretary
Robert Rubin worked.
Did the U.S. Treasury actually have an allocation of
money to carry out what Heller had suggested -- that
is, throwing fresh investment cash in front of a
falling market until it stopped declining? For a while
I thought something called the Exchange Stabilization
Fund -- which actually exists at the U.S. Treasury but
is meant for currency stability -- was the slush fund
used for this venture.
I was told by people who claimed to know that this
part of the theory wasn't so.
There was no way to prove that these surreptitious
government intrusions into the stock market were
actually occurring. In fact, just mentioning these
possibilities got a person branded as a conspiracy
nut.
This country, the critics would say, never interferes
with its free capital markets. Sure, there's
intervention in the currency markets. And, yes, the
Federal Reserve does manipulate the bond market and
interest rates through word and deed.
But never, ever would such action be taken at the core
of capitalism -- the equity markets, which for better
or worse must operate without interference.
That's the way the standoff stayed until 1997 when --
at the height of the Last of the Great Bubbles --
someone in government decided it wanted the world to
know that there was someone actually paying attention
in case Wall Street could not handle its own problems.
The Working Group on Financial Markets --
affectionately known as the Plunge Protection Team --
suddenly came out of the closet.
Today -- with the stock market acting skittish again
-- the future Treasury secretary should get ready to
go to bat for PPTeam as soon as possible.
(Tuesday: How the Plunge Protection Team got exposed
and my first-hand run in with the riggers.)
--------
John Crudele is business columnist for the New York
Post.
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