Time: Thu Mar 27 03:56:28 1997
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Date: Thu, 27 Mar 1997 03:24:03 -0800
To: (Recipient list suppressed)
From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: Fedgov involved in Wall Street? Strategic Investment (Fwd)

<snip>
>
>Strategic Investment / March 19, 1997
>
>Plunge protection team takes a bow
>
>Strategic Investment has been warning you for years
>that the federal government was secretly rigging the stock
>market. Whenever the market drifted near to a technical
>breakdown point, some big buyers would always
>mysteriously turn up at the last moment to prop up the
>market and crush the shorts.
>
>As I used to run a hedge fund that aimed to profit from
>a market meltdown, I was particularly sensitive to the fact
>that none of the meltdowns ever happened. I wondered
>why. For a time, I entertained the notion that some of the
>big brokerage and mutual fund firms might have clubbed
>together to sponsor a secret intervention fund. But I could
>find no evidence of it. Most brokerage and mutual fund
>groups are public companies. Any intervention fund would
>have had to be disclosed. None was. There was not even a
>self-congratulatory rumor. But there were rumors among
>traders that the U.S. government was stepping into the
>market to purchase S&P contracts.
>
>The frequent, miraculous recoveries might have been
>a coincidence had nothing else been known. But they were
>the type of coincidence that aroused my suspicions. As
>David Atlee Philips, a former CIA division chief once
>noted: "The intelligence profession does not exactly
>condition one to accept coincidence as an explanation for
>a sequence of events." Given Strategic Investment's
>orientation toward providing intelligence for investors, we
>looked more closely.
>
>Our man on Wall Street, Michael Belkin, made
>inquiries. He was soon convinced that the rumors of
>clandestine government intervention in the S&P pits were
>true. The question is why had not this meddling in the
>market been reported in The Wall Street Journal and other
>leading media outlets which have the resources to really dig
>out a story? That remains a good question today.
>
>A concerted investigation by the Journal, New York
>Times or Washington Post would surely have revealed this
>clandestine tampering with the free market. But like the
>murder of Vincent Foster, the rigging of Wall Street was a
>dirty little secret the media establishment would rather not
>reveal unbidden. Rumors at the time held that the
>government was buying S&P futures contracts through the
>good offices of Goldman Sachs, the firm once headed by
>Treasury Secretary Robert Rubin... Many people must
>have known about it. Everyone who did was placed in a
>position to profit dramatically by purchasing the S&P
>futures in the full knowledge that the federal government
>was poised to intervene the market to guarantee the
>profitability of their trades. Under those conditions, anyone
>could trade futures as profitably as Hillary Clinton.
>
>I remember receiving intrigued telephone calls about
>our reports in Strategic Investment from denizens of the
>mainstream press. But without exception, they soon
>contemptuously dismissed our contentions that rigging was
>taking place These reports were based upon sound
>intelligence sources, not daydreams, or mere inference from
>coincidence. We had confirmation from people who were
>in a position to know. Unfortunately, our sources could not
>come public with their proof, because to do so would have
>meant the loss of cushy jobs as well as the risk of severe
>penalties for violating confidentiality requirements.
>
>"Direct intervention in market events"
>
>Because we could not produce photocopies of actual
>confirmations or exchange position reports showing the
>Federal Reserve or the Treasury buying 5,000 S&P
>contracts with fills at or below major support levels, the
>story went nowhere--although to his credit, John Crudele
>at the New York Post doggedly tried to pursue it in the face
>of indifference from the heavyweight media. I remain
>convinced that an investigation backed by subpoena power,
>even a civil suit with the power of discovery, could have
>proven that the federal government was using resources
>provided by all taxpayers, including short sellers, to
>arbitrarily enrich investors on one side of a two-way
>market.
>
>Now stretching for such proof is no longer necessary.
>The government has admitted that we were right. First of
>all, the newly loquacious Alan Greenspan gave a speech in
>Lueven, Belgium on the 14th of January, this year, in
>which he touted the Fed's obligation to bail out banks and
>private financial institutions not just by printing unlimited
>amounts of money but also through "direct intervention in
>market events." (For more information, see Michael
>Belkin's article, and get the whole text of Greenspan's talk
>on the Internet at www.fame.org.)
>
>In case the representatives from Fidelity and Merrill
>Lynch were not in Lueven, Belgium in mid-January, a full
>account of the federal government's "Plunge Protection
>Team" was leaked to the Washington Post and reported on
>February 23. We now know beyond a doubt that the
>Treasury and the Fed have formed an informal working
>group for intervention in the financial markets which can
>bring to bear massive resources of the United States
>government to prop up stocks. A few years ago, we were
>considered somewhat nutty for telling you that the feds
>were rigging the stock market. Now the government itself
>is dropping the veil. Why?
>
>"A sniper preaches gun control"
>
>For that matter, what weird game is Alan Greenspan
>playing? On the one hand, he stirs up public concern about
>a stock market decline. On the other, he force feeds
>liquidity into the system, and even stands ready, with
>backing from the Clinton Treasury Department, to
>monetize S&P contracts, if necessary, to keep the market
>from falling. Maureen Dowd's description of Clinton is
>every bit as apt a statement about Greenspan: "He is like
>a sniper who preaches gun control." Greenspan has known
>all about the Plunge Protection Team. By heightening
>public concern about a plunge, was he more or less inviting
>the Plunge Protection Team to step out of the shadows to
>take a bow? And if so, why?
>
>I believe that the answer may lie with the growing
>concern of the Clinton Administration about continued
>mainstream media focus on the Asian fund raising scandals
>in the White House. This is the first of the innumerable
>scandals involving the Clintons that the mainstream media
>have taken up energetically. The White House is worried
>that it has been unable to deflect attention to other themes
>as it did so deftly in previous scandals. So, in effect, the
>Clintons have elected to send a message to brokers, mutual
>fund companies, and shareholders reminding them of their
>stake in keeping the Great Manipulator in power.
>
>I believe that a subtle version of this message
>accounted for much of the support Clinton received in
>1996 from people who voted the conscience of their
>portfolios. They understood that if they want to keep a
>floor under stock prices, that they should rally around the
>one man who has proven beyond a doubt that he has a
>genius for financial manipulation and bending rules.
>Consider the conversation that Jack Wheeler refers to in his
>column. The man who rates Clinton as "the greatest
>president in history" because his net worth has soared
>under Clinton is presumably well conditioned to respond
>favorably to hints about keeping the Plunge Protection
>Team on the job.
>
>The political wealth effect
>
>To extend the same reasoning a little further, perhaps
>part of the explanation for the fact that the Republicans
>who control Congress have seemed so feckless and half-
>hearted about digging into the fundraising story, not to
>mention the long train of proceeding Clinton scandals, is
>concern about the consequent impact on markets where
>some of their own wealth and that of their contributors is
>at risk.
>
>In any event, I suspect Jack Wheeler's insight is
>correct. High stock prices have helped insulate the Clinton
>White House from scandal. The moment serious charges
>are made that seem likely to stick against Clinton, stocks
>will begin to suffer, especially stocks that are not contained
>within the S&P Index.
>
>Equally, should the stock market sell off, while the
>Plunge Protection Team is on vacation, perhaps because of
>widespread repatriation of foreign money invested in U.S.
>Treasury securities, or a serious disruption in oil supplies
>in the Middle East, or some other macro event too large to
>be easily papered over by the usual tricks, then you should
>expect to see a rapid decline in Clinton's approval rating,
>followed by a surge of media revelations of wrong-doing.
>
>What are the implications for the investor at this time?
>Point number one is that the immediate risk of a market
>meltdown may be somewhat lower than it would appear on
>the basis of fundamental analysis, such as price/earnings,
>price/ cash flow, and price/dividend ratios. Point number
>two is that the rigging of the market is likely in the long run
>to create a more devastating meltdown. Once it comes out
>of the shadows, the government's program to prop up the
>stock market is in danger of becoming as ineffective as any
>other government program.
>
>Lord Rees-Mogg and I argue in The Soveriegn
>Individual, that changes in technology assure that markets
>will eventually predominate over the will of politicians.
>When politicians make a public point of underwriting a
>risk, they usually amplify the countveiling forces that are
>destined to defeat the very purpose to which they aim. In
>due course, the Plunge Protection Team's efforts to protect
>the incomes of brokers and mutual fund buyers will prove
>to be as pathetically in competent and useless as the Ready
>Reserve Mobilization Income Insurance Program
>(RRMIIP).
>
>For those who don't know, the RRMIIP was approved
>by Congress in the 1996 Fiscal Year budget to protect the
>incomes of military reservists ordered to active duty for
>more than 30 days. As the program was outlined, reservists
>were offered up to $5,000 of monthly income protection for
>a premium of $12.00 per $1,000 of coverage. The
>overwhelming majority of reservists slated for mobilization
>opted for the maximum coverage of $5,000 per month.
>
>Like a guarantee against losses in the stock market, it
>sounded like a great deal. The trouble is the Department of
>Defense has determined that enrollees who have been called
>to active duty will receive only 4% of their "coverage
>amounts." Those who thought they were to receive $5,000
>per month coverage will receive only $200. The
>involuntary call-up of reserves to Bosnia bankrupted the
>system.
>
>Investors who depend upon the Clinton White House
>and Alan Greenspan for "Plunge Protection" insurance will
>in due course be whipsawed like the reservists who were to
>be "home for Christmas" with $5,000 in hand for each
>month of service. Instead, they are still stepping lightly
>over land mines in Bosnia, and the $5,000 turned out to be
>just a Tokyo cab fare. There is a lesson there.
>
>
>
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Paul Andrew, Mitchell, B.A., M.S.    : Counselor at Law, federal witness
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