THE Plunge Protection Team and the Federal Reserve saw it coming.
By John Crudelle, New York Post -- August 16, 2007

The "it" is the turmoil in the financial markets that we've been seeing ever since the failure of some subprime mortgage securities began scaring the bejeezus out of investors.

And in case you haven't noticed the Plunge Protectors - the real name of which is the President's Working Group on Financial Markets - are no longer secretive.

The Treasury is still ignoring The Post's long-standing requests for information on the PWG under the Freedom of Information Act.

And Treasury Secretary Hank Paulson hasn't gotten back to me on my recent request for an interview.

But the rest of the media is suddenly tracking this mysterious organization. Trouble is, while the press now seems to understand the PWG's importance, nobody is asking the big question - what is the group willing and able to do in a crisis? Now that it suits the group's interest, the PWG wants everyone to know it's on the job.

Let me quote from this past Monday's Wall Street Journal: "The market turmoil prompted the President's Working Group on Financial Markets . . . to trigger protocols established by Mr. Paulson shortly after he took office last year.

"They include a detailed list of who is going to call financial institutions, risk managers, traders and chief executives to keep tabs, how often they should call and the like."

The Journal went on to say that Paulson instructed a Treasury Department official named Emil Henry to craft six "meltdown" scenarios.

"One was the catch-all General Withdrawal from Risk Taking. Others included a liquidity crisis, stock market meltdown and oil shock," according to the Journal.

Very, very interesting for several reasons. First, why is the Treasury suddenly being so generous with information? The answer: the government wants people to think that it is on the ball, holding conference calls "at least once a day in recent days," according to the Journal.

And that's great. But what exactly are the "protocols" for the crises?

Specifically, what is the PWG authorized to do if stocks melt down?

I'm guessing that the PWG - which includes all the heads of the major U.S. stock and commodities exchanges as well as Paulson and Fed boss Ben Bernanke, aren't going to simply stand around awestruck if stocks collapse and make phone calls.

As I've been hypothesizing in this column for a long time, the protocol for a stock market collapse has to be action - with the government, or more likely proxies on Wall Street, courageously (though without risk) stepping in front of a falling equities market.

In other words, a rigging operation like the one outlined years ago by Federal Reserve governor Robert Heller; described during the 2001 crisis by former Clinton aide George Stephanopoulos and documented by me.

The government had good reason to go over these protocols because it saw market instability coming.

As I've already exPlained, Paulson deliberately mentioned on a CNBC program a few weeks ago that the President's Working Group was vigilant for the next market crisis.

And various other Treasury and Fed officials, including Under Secretary for Domestic Finance Robert K. Steel and the Fed's Kevin Warsh have prepared Congress recently for trouble.

Warsh, a governor of the Fed, told the House Committee on Financial Services on July 11 that there was a government review of the banking industry's exposure to hedge funds.

At first glance, Warsh said, banks didn't have much of a problem.

He then said, "It was not clear, however, how well the banks' measurement of potential exposures captures the possible size of those exposures under more adverse market scenarios." According to Warsh, "The multilateral review is ongoing."

I'm also continuing my review of the situation.


 

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