Hidden in plain sight, even though the U.S. Government prefers to be tight lipped about it, the plunge team which I have been referring to as the invisible hand for the past three years, is born out  of the 1987 Crash.

The team is formally known as the Working Group on Financial Markets. It was created by Executive Order 12631, signed on March 18, 1988 by President Reagan.

And under Sec. 2 of the order, its “Purposes and Functions” were stated as follows:

(2) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence, the Working Group shall identify and consider:

1. the major issues raised by the numerous studies on the events (pertaining to the) October 19, 1987 (market crash and consider) recommendations that have the potential to achieve the goals noted above; and
2. . . . governmental (and other) actions under existing laws and regulations. . . that are appropriate to carry out these recommendations.

Working in secret, the group consists of

• the President
• the Treasury Secretary as chairman;
• the Fed chairman;
• the SEC chairman;
• and the Commodity Futures Trading Commission chairman.

The seeds of the Plunge Protection Team were first planted by Robert Heller, a former Fed governor. Heller was a first-hand witness to the ’87 crash, later writing:

Everybody’s attention was tightly focused on containing the damage and preventing a spread of the financial disruptions throughout the financial system. Do not forget that at that time we were also dealing with a severe S&L crisis and almost 200 bank failures per year. Without swift supportive action on behalf of the Fed, the stock market crash could well have been the straw that broke the back of an already weak camel.

Thanks to Cliff for sending me this juicy morsel.