The Plunge Protection Team Blog

Much to the dismay of Bernanke and Paulson, the new & improved PlungeProtectionTeam.com is on its way. Stay tuned.

I hope everyone is watching the Senate Banking Committee discovery session on the Bear Stearns bailout:

Lawmakers opened hearings Thursday into the dramatic rescue of Bear Stearns, with top officials of the Federal Reserve and the Treasury Department defending their actions to save the Wall Street giant from bankruptcy.

The officials said the sudden collapse of the nation's fifth largest investment bank would have had unpredictable but likely severe consequences on the nation's health. In short, stock prices may have plunged, and the resulting turmoil would have lowered home prices and credit for homeowners and businesses might have dried up, the officials said.

While there were risks to taxpayers and to financial regulators from the bailout, these paled in comparison to the economic risks, the officials said.

"Are there risks here? Yes, but the risks are modest in comparison to the substantial damage to the economy and economic well-being that potentially would have accompanied Bear's insolvency," said New York Federal Reserve President Timothy Geithner, who played a central role in the 96 hours of behind-the-scenes rush to rescue Bear Stearns.

We now know where the Bernanke Put lies for the investment banks: at $2 a share. I'll have to do a little research, but this devastating fall seems to be faster than most of the fly-by-night internet companies in the 2000 dot-com crash. And this is an 80+ year old Wall Street institution.

As part of the transaction, the Federal Reserve, which engineered last week's emergency bailout of Bear, will provide up to $30 billion of Bear Stearns' less liquid assets. "JPMorgan Chase stands behind Bear Stearns," said Jamie Dimon, chairman and chief executive of JPMorgan. "Bear Stearns' clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns' counterparty risk. We welcome their clients, counterparties, and employees to our firm, and we are glad to be their partner."

Congratulations Bear Stearns' shareholders. The Plunge Protection Team has stepped in and backstopped JP Morgan to make sure you still have a little value left in those shares. I bet that isn't giving BSC shareholders much comfort this weekend as they wait to see the decimation in their accounts in the morning. Of course, if you still hold shares of BSC after all the very public warning signs, we can't say we have much sympathy for you. Most other companies would have been allowed to go out of business, so you should be thankful for the $2 the PPT let you keep.

Meanwhile, the rest of us who are crazy enough to keep some of our assets in US Dollars are also seeing our account decimated by the socialization of downside risk and the mad money printing going on. The dollar is making fresh lows against Gold, the Euro, and many other currencies.

In other news, I'm sorry about the massive spam attack this site had while I was on my business trip. I've installed some spam trapping software, so hopefully we'll be fine until the new site is up.

Looks like I picked the wrong week for a business conference. The Federal Reserve unveiled its latest attempt to rescue the economy yesterday through a facility which will lend up to $200 billion in exchange for "high quality" mortgage backed securities:

Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.

This sounds like the implementation of the plan devised in the Plunge Protection Team meetings of recent weeks. Will this truly be the "final and ultimate bailout" or just another in a long string of kitchen sink bailouts which will require something even grander in the future. The 400 point rally in the stock market and mini-rebound in the dollar seems to show that markets approve of this plan at least temporarily.

We are seeeing Bernanke's helicopter money drop in action. I wonder if the Federal Reserve will end up having to eat any losses on the securities that are pledged as part of this program? How soon will they be modifying this program to accept even lower quality mortgages?

Read all the plan details here.

In case you thought the PPT had given up, think again. They've had a constant stream of meetings to devise the ultimate bailout from this credit debacle since all previous bailouts have proven ineffective.

From Bloomberg (thanks John for the link):

The Bush administration will release within weeks proposals that address deficiencies in the regulation and functioning of U.S. financial markets, Treasury Secretary Henry Paulson said.

``We're looking at the mortgage-origination process, we're looking at the securitization process, we're looking at rating agencies, we're looking at disclosure issues, we're looking at capital issues and regulatory issues,'' he said in an interview today with Bloomberg Television. More specifics will come ``in the weeks ahead,'' he said.

Seldom mentioned by the press, this article documents the chartered members of the PPT. It doesn't mention the private sector members who are often thought to be the heads of major financial institutions:

The proposals from the President's Working Group on Financial Markets will ``talk specifically about the lessons learned'' from capital-market turmoil, Paulson said after a speech in Arlington, Virginia, to the National Association for Business Economics.

The four-member working group that Paulson chairs includes Fed Chairman Ben Bernanke and the heads of the Securities and Exchange Commission and Commodity Futures Trading Commission. It will issue recommendations on rules to ensure greater transparency on homeowner lending and loan securitization, Paulson said.

Update: The executive order that created the President's Working Group on Financial Markets was posted by John in the comments section. It is good reading for those who haven't seen it, and I'll add it to the right side knowledge base.

The Plunge Protection Team's fame keeps increasing. Today, New York Magazine has a short article on the group (added to the sidebar) with a couple of interesting tidbits:

Among the revelations of last week’s market panic: We’re still not allowed to know anything about the President’s Working Group on Financial Markets, which springs into action during times of crisis. Don’t ask what its members do or how they do it—even if you’re Hillary Clinton. Tuesday morning, in a press conference about the “global economic crisis,” she asked that the president call in these Über–Masters of the Universe, if he hadn’t already. (The PWG doesn’t have a spokesperson, and it doesn’t keep minutes of its meetings.) Only the Journal bothered to print White House spokesman Tony Fratto’s brush-off: “We don’t announce meetings or conference calls of the PWG.”

Apparently, the White House spokesman was a bit ticked off about Hillary Clintons call for a meeting of the PPT to solve the economic crisis:

Either way, the White House would prefer that Clinton shut up about it. It “does not require ‘convening’ by the president,” Fratto sniffed, and he added that “everyone should understand that the members stay in regular communication and meet as needed.” Yes, yes—everyone understands.

This is an interesting bit of info. The PPT is in "regular communication". Does this mean that Paulson is on the phone to the heads of Goldman Sachs and JP Morgan daily? Is President Bush involved? Could they be on the phone right now discussing the continuing market crash in asia?