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Proposed as an op-ed in the Wall Street Journal, it™s a seminal
argument that says when a crisis occurs on Wall Street “instead
of flooding the entire economy with liquidity, and thereby
increasing the danger of inflation, the Fed could support the
stock market directly by buying market averages in the futures
market, thus stabilizing the market as a whole.”
The stock market was to be the Roman circus of the twenty-first
century, distracting the masses with pretensions of prosperity. In-
stead of fixing the problem in the economy, the PPT would just “fix”
the investment casino. Crudele wrote:
Over the next few years . . . whenever the stock market was in
trouble someone seemed to ride to the rescue. . . . Often it
appeared to be Goldman Sachs, which just happens to be where
[newly-appointed Treasury Secretary] Paulson and former
Clinton Treasury Secretary Robert Rubin worked.
For obvious reasons, the mechanism by which the PPT has ridden
to the rescue isn™t detailed on the Fed™s website; but some analysts
think they know. Michael Bolser, who belongs to an antitrust group
called GATA (the Gold Anti-Trust Action Committee), says that PPT
money is funneled through the Fed™s “primary dealers,” a group of
favored Wall Street brokerage firms and investment banks. The de-
vice used is a form of loan called a “repurchase agreement” or “repo,”
which is a contract for the sale and future repurchase of Treasury
securities. Bolser explains:
It may sound odd, but the Fed occasionally gives money
[“permanent” repos] to its primary dealers (a list of about thirty
financial houses, Merrill Lynch, Morgan Stanley, etc). They never
have to pay this free money back; thus the primary dealers will
pretty much do whatever the Fed asks if they want to stay in the
primary dealers “club.”
The exact mechanism of repo use to support the DOW is
simple. The primary dealers get repos in the morning issuance
. . . and then buy DOW index futures (a market that is far smaller
than the open DOW trading volume). These futures prices then
drive the DOW itself because the larger population of investors
think the “insider” futures buyers have access to special
information and are “ahead” of the market. Of course they
don™t have special information . . . only special money in the form
of repos.5

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The money used to manipulate the market is “Monopoly” money,
funds created from nothing and given for nothing, just to prop up the
market. Not only is the Dow propped up but the gold market is held
down, since gold is considered a key indicator of inflation. If the gold
price were to soar, the Fed would have to increase interest rates to
tighten the money supply, collapsing the housing bubble and forcing
the government to raise inflation-adjusted payments for Social Security.
Most traders who see this manipulation going on don™t complain,
because they think the Fed is rigging the market to their advantage.
But gold investors have routinely been fleeced; and the PPT™s secret
manipulations have created a stock market bubble that will take
everyone™s savings down when it bursts, as bubbles invariably do.
Unwary investors are being induced to place risky bets on a nag on its
last legs. The people become complacent and accept bad leadership,
bad policies and bad laws, because they think it is all “working”
economically.
GATA™s findings were largely ignored until they were confirmed
in a carefully researched report released by John Embry of Sprott As-
set Management of Toronto in August 2004.6 An update of the report
published in The Asia Times in 2005 included an introductory com-
ment that warned, “the secrecy and growing involvement of private-
sector actors threatens to foster enormous moral hazards.” Moral hazard
is the risk that the existence of a contract will change the way the
parties act in the future; for example, a firm insured for fire may take
fewer fire precautions. In this case, the hazard is that banks are tak-
ing undue investment and lending risks, believing they will be bailed
out from their folly because they always have been in the past. The
comment continued:
Major financial institutions may be acting as de facto agencies of the
state, and thus not competing on a level playing field. There are
signs that repeated intervention in recent years has corrupted the
system. 7
In a June 2006 article titled “Plunge Protection or Enormous Hid-
den Tax Revenues,” Chuck Augustin was more blunt, writing:
. . . Today the markets are, without doubt, manipulated on
a daily basis by the PPT. Government controlled “front
companies” such as Goldman-Sachs, JP Morgan and many others
collect incredible revenues through market manipulation. Much
of this money is probably returned to government coffers,


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however, enormous sums of money are undoubtedly skimmed
by participating companies and individuals.
The operation is similar to the Mafia-controlled gambling
operations in Las Vegas during the 50™s and 60™s but much more
effective and beneficial to all involved. Unlike the Mafia, the
PPT has enormous advantages. The operation is immune to
investigation or prosecution, there [are] unlimited funds available
through the Treasury and Federal Reserve, it has the ultimate
insider trading advantages, and it fully incorporates the spin
and disinformation of government controlled media to sway
markets in the desired direction. . . . Any investor can imagine
the riches they could obtain if they knew what direction stocks,
commodities and currencies would move in a single day,
especially if they could obtain unlimited funds with which to
invest! . . . [T]he PPT not only cheats investors out of trillions of
dollars, it also eliminates competition that refuses to be “bought”
through mergers. Very soon now, only global companies and
corporations owned and controlled by the NWO elite will exist.8

The Exchange Stabilization Fund

Another regulatory mechanism that is as important -- and as sus-
pect -- as the PPT is the “Exchange Stabilization Fund” (ESF). The
ESF was authorized by Congress to keep sharp swings in the dollar™s
exchange rate from “upsetting” financial markets. Market analyst
Jim Sinclair writes:
Don™t think of the ESF as an investment type, or even as a hedge
fund. The ESF has no office, traders, or trading desk. It does
not exist at all, aside from a fund of money and accounts to keep
records. It seems that orders come from the US Secretary of the
Treasury, or his designate (which could be a partner of one of
the international investment banks he comes from), to intervene
in markets . . . . Have you ever wondered how these firms seem
to be trading for their own accounts on the side of the
government™s interest? Have you wondered how these firms
always seem to be profitable in their trading accounts, and how
they wield such enormous positions? . . . Not only [are they]
executing ESF orders, but in all probability, [they are] coat-tailing
trades while pretending there is a Chinese Wall between ESF
orders and their own trading accounts.9

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This is all highly annoying to investors trying to place their bets
based on what the market “should” be doing, particularly when they
are competing with a bottomless source of accounting-entry funds. A
research firm reporting on the unexpectedly high quarterly profits of
Goldman Sachs in March 2004 wrote cynically:
[W]ho does Goldman have to thank for the latest outsized
quarterly earnings? Its “partner” in charge of financing the
proprietary trading operation -- Alan Greenspan.10
Henry Paulson headed Goldman Sachs before he succeeded to U.S.
Treasury Secretary in June 2006, following in the steps of Robert Rubin,
who headed that investment bank before he was appointed Treasury
Secretary just in time for Goldman and other investment banks to
capitalize on the drastic devaluation of the Mexican peso in 1995. An
October 2006 article in the conservative American Spectator
complained that the U.S. Treasury was being turned into “Goldman
Sachs South.”11

Collusion Between Big Business
and Big Government: The CRMPG

Another organization suspected of colluding to rig markets is a
private fraternity of big New York banks and investment houses called
the Counterparty Risk Management Policy Group (CRMPG).
“Counterparties” are parties to a contract, normally having a conflict
of interest. The CRMPG™s dealings were exposed in an article reprinted
on the GATA website in September 2006, which was supported by
references to the websites of the Federal Reserve and the CRMPG.12
The author, who went by the name of Joe Stocks, maintained that the
CRMPG was set up to bail out its members from financial difficulty by
combining forces to manipulate markets, and that it was all being
done with the approval of the U.S. government.
Bailouts, notes Stocks, have been around for a long time. A series
of them occurred in the 1990s, beginning with the Mexican bailout
finalized on the evening Robert Rubin was sworn in as U.S. Treasury
Secretary. This was followed by the 1998 “Asian crisis” and then by
the 1999 bailout of Long Term Capital Management (LTCM), a giant
hedge fund dealing in derivatives. The CRMPG was formed in 1999
to handle the LTCM crisis and to develop a policy that would protect
the financial world from another such threat in the future.

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In May 2002, the SEC expressed concern that a certain major bank
could become insolvent due to derivative issues. The problem bank
was JP Morgan Chase (JPM). By the end of the year, the CRMPG had
recommended that a new bank be founded that would be a coordi-
nated effort among the members of the CRMPG. The Federal Reserve
and the SEC approved, and JPM™s problems suddenly disappeared.
A “stealth bailout” had been engineered.
The same year saw a big jump in the use of “program trades” “
large-scale, computer-assisted trading of stocks and other securities,
using systems in which decisions to buy and sell are triggered auto-
matically by fluctuations in price. The major program traders were
members of the CRMPG. Members that had not had large propri-
etary trading units started them, including Citigroup, which was
quoted as saying something to the effect that there was now less risk
in trading due to “new” innovations in the field. (New innovations in
what “ market rigging?) In early 2002, program trading was running
at about 25 percent of all shares traded on the New York Stock Ex-
change. By 2006, it was closer to 60 percent. About a year later,
concerns were expressed in The Wall Street Journal that JPM was
making huge profits in the risky business of trading its own capital:
Profits have been increasing recently due to a small and low
profile group of traders making big bets with the firm™s money.
Apparently, an eight man New York team has pulled in more
than $100M of trading profit with the company . . .
In 2004, Fed Chairman Alan Greenspan renewed concerns about
the exploding derivatives market, which had roughly doubled in size
since 2000. He called on the major players to meet with the Fed to
discuss their derivative exposure, and to submit a report on the actions
it felt were necessary to keep the markets stable. The report, filed in
July 2005, was addressed not to the head of the Fed but to the chairman
of Goldman Sachs. It was written in obscure banker jargon that is not
easy to follow, but you don™t need to understand the details to get the
sense that the nation™s largest banks are colluding with their clients
and with each other to manipulate markets. The document is all about
working together for the greater good, but Stocks notes that this is not
how free markets work. The antitrust laws are all about preventing
this sort of collusion.
The report says, “we must preserve and strengthen the institutional
arrangements whereby, at the point of crisis, industry groups and
industry leaders, as well as supervisors, are prepared to work together

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in order to serve the larger and shared goal of financial stability.” It
continues:
It is acceptable market practice for a financial intermediary™s
sales and trading personnel to provide their sophisticated
counterparties with general market levels or “indications,”
including inputs and variables that may be used by the
counterparty to calculate a value for a complex transaction.
Additionally, if a counterparty requests a price or level for
purposes of unwinding a specific complex transaction, and the
financial intermediary is willing to provide such price or level, it
is appropriate for the financial intermediary™s sales and trading
personnel to furnish this information.14
Stocks writes, “the big banks are being encouraged to share infor-
mation. We know there are two sides to each trade. . . . How would
you like to be on the other side of [one of their] pre-arranged trades?”
He warns:
Their collusion at their highest ranks to secure the financial
stability of the largest financial institutions could be at odds with
the investments of smaller institutions and may be at odds with
the small investor™s long term investments and goals. When
LTCM failed many of us could have not cared less . . . . The
bailout was simply put in place to save their own skins and the
investors they serve.
. . . We require public corporations to provide open and full
disclosure with the public, why should the CRMPG be allowed
to collude to rig the market against free market principles? . . .
The CRMPG report gives them the outline to execute their
strategy in collusion at the expense ultimately of the small investor
. . . . Moral hazard has led to moral decay at the highest ranks
of our financial institutions. Move over PPT “ the CRMPG is at
the wheel now.

Market Manipulation and Politics

At first blush, the notion that banks and the government are
working together to prevent a national economic crisis by manipulating
markets sounds benignly paternal and protective; but the wizard™s
magic that makes money appear where none existed before can also
be used to divest small investors of their savings and for partisan

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political gain. When the economy looks good, incumbents get re-
elected. Michael Bolser has carefully tracked the Dow against the
“repo” pool (the “free money” made available to favored investment
banks). His charts show that the Fed has routinely “engineered” the
Dow and the dollar to make the economy appear sounder than it is.
When Bolser tracked the rise in the stock market at the start of the
2003 Iraq War, for example, he found that “the ˜Iraq War Rally™ was
nothing of the sort. It was a wholly Fed-engineered exercise.” 15 The

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