Plunge Protection

As we know from reading the news, there is currently mayhem happening in the marketplace, with the collapse of two major investment banks (Lehman Brothers and Merill Lynch). More on that later. Anyhow, regarding this, Nunya mentions the Plunge Protection Team down below in the big Randian flame-fest, and rather than have it lost amongst all the drivel, I decided to move my response to up here. So I just read her Plunge Protection Team link. My thoughts? I think it's a bunch of conspiratorial crap.

Maybe you weren't around in 1987 when this team was created, but I was. I remember when the market dropped 23% in one day because of a programming bug in computerized trading systems issuing an avalanche of "sell" orders. This wasn't "the wisdom of the market" (as a Randian might put it) at work. This was computerized mayhem. The plunge protection working group works to create policies to prevent further plunges of this sort, plunges which happen because of inherent flaws in the operation of the marketplace rather than because there has been any change in market fundamentals. They rarely meet and generally only in regard to historical events. They have no power to do anything other than suggest solutions, which they have done (for example, if a particular stock plunges more than a certain percentage in a day, the markets now put a hold upon all computerized trading of that stuck to prevent the stock from being driven to the bottom by computerized "sell" orders, this is one innovation that came out of the 1987 stock market crash.

In short, I view this as being a normal and necessary working group, rather than as some dire conspiracy. The only dire conspiracy that the Bush Administration is capable of is delusional thinking and stupidity, neither of which are in shortage anywhere else in America right now...

- Badtux the Economics Penguin