The Plunge Protection Team Goes to Work

What can I say - we are simply living through times that books will be written about in the future. My jaw was on the floor during 3 hours of Sunday night CNBC as announcement after announcement came through the the wire.

The Plunge Protection Team is working overtime to hold S&P 1200. We will hear how amazing it is the market can absorb all this bad news and not take a big loss. Let me tell you - in a week's span we've had

1. Fannie (FNM), Freddie (FRE) bailout
2. Lehman (LEH) bankruptcy
3. Forced marriage of Merrill (MER) and Bank of America (BAC)
4. AIG (AIG) crumbling
5. A series of initiates by the Federal Reserve over and above everything they've done in the past

And the stock market is flat from where it was before all this happened.

I'm not rooting for shorts, but this is truly not a free market. How the market can be "flat" in all this is hilarious. I truly would not be surprised if the market is up by tomorrow or in a few days as your tax dollars go hard to work buying S&P futures by the bushel behind the scenes. If you are not familiar with the Plunge Protection Team and their "workings" I recommend reading this [Jul 14: Our Gospel is Spreading - Jim Cramer References "The Hand"]

I cannot even begin to go through all the "changes" made in the system Sunday night. I will tell you the most alarming is the change in collateral that the Federal Reserve is now exchanging for Treasuries. Back in the early spring during the last round of dislocations the Federal Reserve said we'd widen what we accept from "AAA rated safe" type of product to credit card debt, auto debt, student debt, etc - AND they lengthened the time they'd exchange this with the banks - up to 84 days (in the "old days" it used to be an overnight loan). They said it's just a temporary measure, until credit markets improve. I said "yeh right". Now we've gotten to the point they will accept EQUITIES (stocks!!!) in exchange for US Treasuries. So what happens if stocks plummet in those 84 days? Are you kidding me? We now are letting banks offload their stock holdings into the balance sheet of America?? This was one of multiple jaw dropping moments.

• The Federal Reserve widened the collateral it accepts for loans to securities firms to include stocks in an effort to help Wall Street weather Lehman Brothers Holdings Inc.'s plans for bankruptcy.
• The Fed will now accept equities in the Primary Dealer Credit Facility, its program for lending cash directly to securities firms, in addition to investment-grade debt. Collateral for the Term Securities Lending Facility, which auctions loans of Treasuries, will now include all investment- grade debt securities.
• The Fed also granted an exemption on a rule that limits banks' transactions with their brokerage subsidiaries, a move that provides securities dealers with another source of funding if they need it for market making this week

I keep using the word historic. It keeps becoming even more surreal.

Comments

[whidbey:]

What did you expect? The government has no qualms about manipulation of money, markets and facts its called modern finance. The FOMC will meet tomorrow and in another day evaluate the risks as more toward slowing economic activity, than inflation, and then declare that they are watching forcefully and diligently to assure that action is taken when it is indicated: They do not want to spire gold and inflation, so jaw boning is in order. Just relax, the mystery of modern monetary theory and management of market expectations is unfolding once again.

2008 Sep 15 09:01 PM

[Just The Facts:]

I'm expecting a half point drop in the Federal Funds rate, and maybe some other "unique" approaches aimed at calming everyone's nerves.


My guess? It will provide a boost that lasts roughly 4 hours or so.


Look for DOW 3,500 by the end of this month. :(

2008 Sep 16 04:21 AM

[adan:]

i've been a long term fan of treasuries, and, for now, still will regard them as the last safe holding place for paper money - but i no longer can accept the rates of return, especially in re to the long bond

2008 Sep 16 08:25 AM

[adan:]

i've been a long term fan of treasuries, and, for now, still will regard them as the last safe holding place for paper money - but i no longer can accept the rates of return, especially in re to the long bond

2008 Sep 16 08:25 AM

[adan:]

i meant to add, the reason for my new reluctance for long term bonds currently, after championing them for so long, is the treasuries and fed's acceptance of such poor collateral for them, especially equities

2008 Sep 16 08:42 AM

[Metzenbaum ...:]

Backed by the full faith and trust of junk bonds and equities... wha?!?

2008 Sep 16 10:03 AM

[wpdragon:]

In other words, backed by the full faith and trust of George W. Bush

Say a prayer people

2008 Sep 16 01:29 PM

[LarsonEWhip...:]

The unfolding events are merely an extrapolation of the March 17, 2008 bailout of Bear Sterns! Except this time, they have let the whole mess get out of control.

The PPT and friends are probably up 24/7, eating pizza, drinking coffee and smoking... desperately trying to do what they can to forestall the quickly approaching total worldwide systemic financial collapse.

You think I am kidding...? Try and find ANYONE who can accurately explain what a "derivative" is and even vaguely how they affect the world economy. Friends... this one is one of the main shoes yet to fully drop... There are 1 QUADRILLION dollars... a Thousand TRILLION dollars of these out there ready to implode and no one is addressing them responsibly! They give you sound bites of matter of a billion dollars or so...!

If you think I am making even some sense here... come visit our site... silverrockstheworld.co... You will pleased you did! Thanks for hanging in there and be aware that the ride has just begun! - Larson

2008 Sep 16 07:35 PM

[Steven Hansen:]

continuing on the lines of larson.... above, all this derivative crap will take a decade to unwind. it will not clear easily and quickly. this will be a major force acting against any economic expansion, and will accelerate contraction. throw in a few foreclosures, tighten consumer credit rules, service more government debt, baby boomer retirement, and the current destruction of capital - we may have a big problem.

but not to worry - our economy is strong.

2008 Sep 16 11:48 PM