[iwar] [fc:To.keep.the.markets.from.falling.(and.the.resulting.run.on.the.banks)...]

From: Fred Cohen (fc@all.net)
Date: 2001-09-16 21:03:49


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Subject: [iwar] [fc:To.keep.the.markets.from.falling.(and.the.resulting.run.on.the.banks)...]
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From www.infowar.org:

Fed to prop up Wall St

Shadowy committee ready to pour billions into stock markets to avert
shares meltdown

Richard Wachman and Jamie Doward Sunday September 16, 2001 The Observer

The US Federal Reserve and Wall Street's powerful investment banks are
preparing to spend billions of dollars to support the US stock market,
which opens this week for the first time since last Tuesday's terrorist
attacks on New York and Washington. 

A secretive committee - the Working Group on Financial Markets, dubbed
'the plunge protection team' - includes bankers as well as
representatives of the New York Stock Exchange, Nasdaq and the US
Treasury.  It is ready to co-ordinate intervention by the Federal
Reserve on an unprecedented scale. 

The Fed, supported by the banks, will buy equities from mutual funds and
other institutional sellers if there is evidence of panic selling in the
wake of last week's carnage. 

The authorities are determined to avert a worldwide slump in share
prices like the crashes of 1987 or 1929.  Investment banks and their
broking subsidiaries are to block short-selling by speculators and hedge
funds by making it hard for them to obtain prices on favourable terms. 

'Everyone is eager to avoid "contagion", where prices fall rapidly as
investors react lemming-like to a falling index,' said one banker. 

In addition, US regulators are prepared to ease rules that prevent
companies from buying their own stock. 

The 'plunge protection team' was established by a special executive
order issued by former President Ronald Reagan in 1989.  It is known to
include senior bankers at leading Wall Street institutions such as
Merrill Lynch and Goldman Sachs.  It has acted before, in the early
Nineties and during the 1998 LTCM hedge fund crisis. 

Whether coordinated action by the US authorities and banking
institutions will be sufficient to avert a large-scale sell-off on Wall
Street this week remains to be seen. 

Tony Jackson, director of UK equity strategy at investment bank ING
Barings, believes there may be an emotional tide of support for Wall
Street this week, but that it will be shortlived.  He said: 'Some people
are talking about a "patriotic rally" that could lift the Dow by 1,000
points on reopening.  I don't think it will be that high, but it will
certainly go up, perhaps several hundred points. 

'But long term, the trend will still be down, perhaps 10 per cent from
where it opens.  Many companies will cut earnings forecasts now.'

Khuram Chaudhry, equity strategist at Merrill Lynch, believes that Wall
Street could fall by as much as 10 per cent.  'You have to remember that
things did not look that good before the attack on the World Trade
Centre.  There were already signs that American consumer confidence was
deteriorating.  I don't think people are now going to rush out to take
foreign holidays or crowd the shopping malls.'

John Llewellyn, economist at Lehman Brothers, is worried that markets
may prove disorderly, despite the best efforts of the authorities. 

'There is a degree of synchronisation between the three major economies. 
The US and Europe are weaken ing in tandem, while Japan is in the
doldrums.  In the early Nineties Japan was in better shape.  The global
economy may end up in a worse condition than 10 years ago.'

But there are optimists too.  Sonja Gibbs, chief equity strategist at
Nomura International, believes 'the economic fundamentals will take a
turn for the better in 2002'. 

Robin Aspinall, equity analyst at broker Teather and Greenwood said:
'The Americans will want to show that the stars and stripes still fly
over Wall Street.'

Special reports

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