Everyone, including managers, loves a good cloak and dagger story. But those looking for covert ops, shaken martinis, and secret handshakes will be disappointed to read Caroline Baum’s opinion piece on Bloomberg.com today debunking conspiracy theories about the PPT. Unfamiliar with the acronym? It stands for something you’re not supposed to know about — the plunge protection team (PPT), a secret cohort of government types fabled to be standing by to intervene to support the markets if they take a tumble.
Baum looks at last week’s stock market trouble and asks: where are they? Sadly for spy novel enthusiasts, the PPT seems to be an urban legend.
But don’t think that means the government doesn’t have a hand in the markets. And not simply by making soothing pronouncements like Treasury Secretary Hank Paulson’s comments last week that problems with sub-prime mortgages “did not pose a threat to the overall economy.”
Writing in the Financial Times yesterday, Tim Price blames former Fed chief Alan Greenspan for the recent market woes. Greenspan, in Price’s view, “was a serial inflationist, willing to slash interest rates to bail out investors who should not need rescuing from themselves.”
And now, Price feels, we’re paying the price for Greenspan’s bail-outs:
“It is abundantly clear that, having gorged on overly easy money for years, Anglo-Saxon financial markets are suffering from indigestion.”
“The problem for financial markets now is that a functioning financial system ultimately comes down to trust. When trust is in short supply, there is no obvious price base for securities and credits that during the good times seemed to offer unimpeachable quality.”
What’s the lesson here? Obviously, first off, don’t expect a bail-out this time for companies or individuals who have been slurping up cheap credit. Second, and perhaps more interestingly, Price makes the point that fast and loose borrowing is essentially dishonest and destructive to trust. Crafty financial shenanigans might keep stock prices high, or result in a hefty pay-day for executives, but when they mask weaknesses in an individual company or the economy in total, they damage that fundamental ingredient of a healthy economy: trust.
