What is the Plunge Protection Team (PPT)?

Published by Thomas Herold in Banking, Economics

'Plunge Protection Team (PPT)' is explained in detail and with examples in the Banking edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

The Plunge Protection Team is a nickname given to the President’s Working Group on Financial Markets. It came into existence to make economic and financial recommendations on the economy when there are periods of economic chaos. On the team are the heads of the most critical U.S. financial regulatory organizations. This includes the Secretary of the U.S. Treasury, the SEC Securities Exchange Commission Chairman, the Chairman of the Federal Reserve, and the Chairman of the CFTC Commodity Futures Trading Commission.

The Washington Post newspaper created the nick name Plunge Protection Team only a decade later in 1997. President Ronald Reagan originally convened the team as a response to the terrible Black Monday stock market crash. The government was desperate to restore investor confidence in U.S. financial markets. President Reagan called together the group to improve on the efficiency, integrity, and order of them.

The Working Group on Financial Markets was instructed to find out what happened with the financial markets in the U.S. on and around trading day October 19, 1987. They were told to come up with government actions for coordinating efforts and making contingencies to prevent them from happening again when possible.

To carry this out they were told to talk with various representatives from the business world. This included individuals from clearing houses, exchanges, significant market players, and regulating bodies to learn what the market might suggest for non-government solutions.

Finger pointing at first characterized the investigation. The NYSE held the various futures exchanges responsible for the crash. The CME group engaged in a number of studies to refute this by having market experts rationally analyze the events. They refuted the accusations for the problems with these studies.

One positive mechanism came from these initial meetings with the Plunge Protection Team. NYSE and CME group worked to establish circuit breakers between the securities and futures markets. This slowed down or stopped wildly erratic moves in the market. These circuit breakers remain in effect to this day.

The PPT had 60 days from the Executive Order to give this initial report to the President. They were to report from time to time after this as they reached more findings and solutions for recommended changes to the legislation. When the report and finished recommendations were completed, the President did not disband the group as many had expected.

Instead it stayed together to be reconvened on any subsequent crisis and threat to the financial system. This caused some observers to believe that the group had a secret purpose to manipulate markets and ensure they stayed higher. The group covered such issues as the almost collapse of Long Term Capital Management, Terrorism Risk Insurance from September of 2006 and Over the Counter Derivatives Markets and the Commodity Exchange Act in November of 1999.

Most famously the group reconvened during the financial crash of the Great Recession in 2008. In March, 2008 they issued their Policy Statement on Financial Market Developments. It had the PPTs analysis and report on what continued to plague the markets and cause the ongoing market turmoil.

Their final conclusions had to do with the subprime market mortgages. The determined that the main cause of the destructive chain of events started with the rise in delinquencies of these mortgages. They issued another statement on the continuing crisis on October 6 of 2008. In this they announced that the situation in worldwide financial markets continued to be very strained. They assured investors that they were working with global regulators and market participants to take on the problems and restore stability and confidence to markets.

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The term 'Plunge Protection Team (PPT)' is included in the Banking edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.