-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: September 2, 2007 8:39:32 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: "Plunge Protection Team" Keeping Dow Jones Afloat?
http://www.usnews.com/blogs/capital-commerce/2007/8/20/did-the-
white-house-rig-the-stock-market.html
Did the White House Rig the Stock Market?
By James Pethokoukis
August 20, 2007 02:32 p.m. ET
I don't have the storytelling chops of, say, Oliver Stone, but I'll
do my best
here: Last Thursday, the stock market was deep in the red all day,
with the Dow
trading down more than 300 points at its nadir because of investor
fears about
the mortgage credit crisis. Then, as the session drew to a close,
the stocks
staged an amazing comeback. That huge deficit was nearly erased as
the market
finished with a miniscule 16-point loss for the day. Then, on
Friday, stocks
soared after the Federal Reserve announced a surprise cut in the
discount rate.
Now, most traders attributed that Thursday comeback to rumors that
Federal
Reserve Chairman Ben Bernanke had seen enough and the central bank
would take
some action the next day. Others around the blogosphere had a
different theory
-- make that "conspiracy theory." The Adventures of Citizen X blog
wondered if
the comeback was "a result of investors working through their
worries (in a
couple of hours no less) or government intervention?" The blog at
Greenback
Consulting, a stock trading firm, was also full of questions:
"All of a sudden, around 2:00 or 3:00 some buyers stepped in and
started buying
up everything in sight. Before long it was 4:00 and the Dow was in
positive
territory. Who was the mysterious buyer? Perhaps it was the Plunge
Protection
Team averting a financial disaster. It looks even more convincing
in light of
the Fed's actions the following morning. If anyone knew what the
feds next move
was going to be it would be the Plunge Protection Team. If this
group really does
exist, it would make me really reluctant to be a long term bear...
Every time
things get profitably bad (for the bears) some government dudes
come in and ruin
the party. History makes a pretty convincing circumstantial case
for the Plunge
Protection Team, but maybe its just a series of coincidences."
Yes, the Plunge Protection Team is real, except its actual name is the
President's Working Group on Financial Markets, or P.W.G.. (The
nickname comes
from an old Washington Post headline.) After the 1987 stock market
crash,
President Reagan authorized the creation of the P.W.G. --
consisting of the
Treasury secretary, the Fed chair, and the heads of the Securities
and Exchange
Commission and the Commodity Futures Trading Commission, so that
top regulators
and economic policy chiefs could formally consult with one another
in event of a
financial crisis as well as prepare a plan of action in case of a
financial
markets meltdown. For instance, it might advise the president to
temporarily
close the markets, as happened after the 9/11 terrorist attacks.
But maybe Plunge Prevention Team would be a better moniker if you
believe those
who think the group's mandate goes far beyond acting as an
information clearing
house and instead actually directs large institutional investors --
or maybe even
foreign sovereign funds run by cash-rich nations in the Middle East
and Asia --
to buy stock index futures as a way of propping up the stock market
and ending a
panic.
Now, there's never been any official confirmation of this. But
former White
House aide George Stephanopoulos has said in the past that the
White House and
the P.W.G. have the authority to prop up the stock market and
probably did so
after 9/11. And former Fed governor Robert Heller has suggested
that the
government should do just such a thing. So, maybe the conspiracy
theory worked
like this: After Treasury Secretary Hank Paulson, Bernanke, and the
others
watched the carnage unfold last Thursday, the word was put out to
several
selected players to buy index futures with the knowledge that the
Fed would cut
the next day as sort of financial guarantee.
My take: The people I have talked to in Washington and on Wall
Street totally
dismiss all this. Says one financial insider: "I haven't heard a
single person
suggest anything like that until you called me."
A longtime White House official also scoffed at the idea, though he
did confirm
that Paulson has attempted to reinvigorate the P.W.G. with more
meetings.
But Paulson apparently sees the P.W.G. as more of an economic policy
discussion group, not a market manipulation apparatus.
So until I hear something more solid, I am writing this off as either
cynicism or wishful thinking gone wild.
--------------------
Subprime crisis to hit world economy -D.Bank CEO
http://today.reuters.com/news/articleinvesting.aspx?
type=bondsNews&storyID=2007-09-02T125321Z_01_L02586699_RTRIDST_0_DEUTS
CHEBANK-ACKERMANN.XML
FRANKFURT, Sept 2 (Reuters) - Global economic growth will take a
hit as a result of the U.S. subprime mortgage crisis, says the
chief executive of Deutsche Bank (DBKGn.DE: Quote, Profile ,
Research), Germany's biggest bank.
"Growth, especially of private consumption in the United States,
will suffer because of the housing crisis and that can naturally
not go without negatively affecting the world economy overall,"
Josef Ackermann said in a guest column to be published in the
German business daily Handelsblatt on Monday.
Handelsblatt made a summary of Ackermann's text available to other
media at the weekend.
Ackermann said many banks and investors affected by the credit
market turmoil that arose in the wake of the subprime crisis had
apparently taken risks that exceeded their size and risk-bearing
capacity.
"This is, to say it clearly, above all negligence on the part of
the managements of these houses," he said.
The distribution of credit risks in the international financial
system had not been transparent to supervisory authorities and
market participants, he said.
Deutsche Bank has shut down its proprietary credit trading desk in
London and is laying off some of the 14-strong team, a source
familiar with the matter said on Friday.
Earlier last month a source close to Deutsche Bank told Reuters the
bank was set to ditch its credit relative-value trading strategy
used by the London proprietary trading desk after losses of about
$135 million.
Deutsche Bank has declined to comment.
Two German banks, SachsenLB and IKB have been bailed out after
running into trouble due to their exposure to U.S. subprime mortgages.
----------------------
Barclays comes out fighting
By Ian Dey
http://www.telegraph.co.uk/core/Content/displayPrintable.jhtml?xml=/
money/2007/09/02/cnbarc102.xml&site=1&page=0
Sunday Telegraph,
03/09/2007
"It's not a bail out," barks Bob Diamond, the chief executive of
Barclays Capital, clearly trying to keep his temper in check. He is
referring to the $1.4bn (£700m) refinancing of a troubled debt
vehicle created for Cairn Capital, the London-based hedge fund. It
is the latest episode in the ongoing global credit saga to raise
fears about nasty exposures within Barclays.
Credit cards: The next crisis?
For the man at the helm of the enigmatic Barcap profit machine,
these past few weeks have been getting progressively tougher. It
seems that every major European casualty of the current liquidity
crisis has some connection to Barcap, whether they be regional
banks in Germany or hedge funds in London.
The sudden departure of Ed Cahill, a relatively junior banker who
was involved in setting up "SIV-lites" and other complicated funds,
stoked fears that Barcap is facing some big losses.
Then it emerged last week that Barclays had had to borrow almost
£1.6bn from the Bank of England's emergency lending facility,
prompting further fears of a liquidity crisis. Those fears appear
to be unfounded. But with tongues wagging, Barclays shares have
plunged, killing off any reasonable hope the bank could have of its
all-share bid for ABN Amro proving successful.
Rivals are beginning to question whether the Barcap chick has grown
too big for its parent's nest. Certainly, the news flow out of
Barcap hasn't helped. But there seems to be a feeling in Barclays'
HQ that if there was a straight choice between owning ABN or owning
Barcap, Diamond's outfit would win every time.
"The world's credit market bubble has burst so we have very
difficult trading conditions," says Diamond. "We didn't do a great
job managing the headlines this week. We've been working very
diligently to manage the risks to Barcap and to Barclays, we've
been working with clients to help them if they need help. Some
things that were quite explainable - whether it was Ed Cahill's
resignation or borrowing from the Bank of England's stand-by
facility - have been taken out of context."
Barcap has always been something of a mystery to many Barclays
shareholders. They don't like to admit it, but the average equity
investor knows very little about the debt markets and how to make
money from them. Obviously fund managers in the major institutions
know the basics, but they have had more than enough to worry about
without swotting up on every new product line to emerge from
investment banks over the past few years.
The market's forecasts for profits from Barcap - and from Royal
Bank of Scotland's global capital markets business - have often
seemed to be more about waving a finger in the air than genuine
expectations. Time after time these institutions have beaten profit
forecasts, so no one has asked too many questions. Throwing a few
new acronyms into results presentations to refer to new segments of
the debt markets served as assurances of growth. That seems to have
suited Barcap just fine: We are Barcap. Trust us.
Now that the market has turned, not everyone knows the context,
making whispering campaigns a dangerous adversary. So Barclays
shares have dropped like a stone, falling about 18 per cent since
the middle of June. Of course, every other bank stock has been
hammered, but none as hard as Barclays.
"All financial institutions' valuations have reduced. The fact that
Barclays' bid price [for ABN] was related to our share price has
given us a hedge," insists Diamond. "You have to assume that if all
financial institutions' share prices have gone down, you would want
a hedge against your offer price. We haven't waivered from what
John [Varley, the Barclays chief executive] said at the beginning.
There are two things we absolutely won't compromise on - management
control and doing the right thing for all our shareholders."
On the exposures that Barcap faces in the current market turmoil,
Diamond says: "Barclays Capital is very good at managing its risks.
Our business is managing financing and risk management. We are
weathering the storm. Everyone is getting some pain in July and
August, but I've already said that our July results were better
this year than last year. We'll manage our way through August as
well. But we've said that at these distressed levels we don't
expect losses from SIV-lites to be material."
The Cairn deal that Barcap has negotiated is symbolic of the times.
Cairn High Grade Financing I invests in mortgage-backed securities
- pools of home loans sold to institutional investors. It has had
no problems with the credit quality of its underlying assets. But
much of its funding came from the short-term commercial paper
market, where liquidity has disappeared. The Barclays deal has
replaced this short-term financing with longer-term funding.
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