What is a Plunge Protection Team?

Mary McMahon

The slang term “Plunge Protection Team” is used to refer to the Working Group on Financial Markets, a group of economists and government officials that periodically meets to discuss measures for the protection of financial markets in the United States. Many other nations have similar groups and they may also be known as Plunge Protection Teams after the term was popularized by the Washington Post in the late 1990s. Conspiracy theories swirl around these groups, as some people claim that they interfere in markets and engage in activities like price fixing.

Man climbing a rope
Man climbing a rope

The Working Group on Financial Markets was established in 1988 by executive order from President Ronald Reagan. The group was formed in response to catastrophic volatility in 1987, including the infamous Black Monday crash that occurred in October 1987, sending markets in the United States into a tailspin. Concerned about economic stability and consumer confidence, the president determined the need for a working group to discuss ways to keep the market stable and to develop plans for reacting to emerging market problems.

Members of the Plunge Protection Team include the secretary of the treasury, acting as chairperson of the Working Group, along with the chairpeople of the Securities and Exchange Commission, the board of governors of the Federal Reserve System, and the Commodity Futures Trading Commission. They meet to discuss potential scenarios such as sudden plunges in the value of the stock market to determine the most appropriate responses to these events.

The Plunge Protection Team must keep the interests of national security and financial health in mind when making recommendations, without interfering with the function of the free market. Some critics believe any intervention on the part of the government constitutes interference, and that markets should be allowed to self-correct during periods of volatility. Others support the use of sound, conservative measures designed to stabilize the market, including the use of regulations to prevent abuses of the market.

During periods of economic volatility, suspicious investors and other people active on the market may blame the Plunge Protection Team for adverse market events or claim that sudden upticks in the market were caused by secret market manipulations on the part of the team. In actuality, the team is barred from market manipulation, just like investors, and it is primarily concerned with decision and policy-making rather than active intervention in ongoing market problems. The Plunge Protection Team is involved in decisions about closing the markets in emergencies and developing new policies to address ongoing financial issues.

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