Thursday, September 25, 2008

Plunge Protection Team Bailout?

Is the $700 Billion Really for Bailing Out the Fed?

The Fed, according to PPT theory, acts as the PPT’s private slush fund. Money is taken out to pump up stock prices, and then taken back in so that prices will fall. The PPT players profit on the movements of the market, induced by this activity. If all of this is true, maybe, Bernanke and Paulson don't want to admit the embarrassing facts?

Posted by gardeniadotnet @ 10:01 PM (863 views)
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3 thoughts on “Plunge Protection Team Bailout?

  • Look into the eyes, not around the eyes….

    The trend is your friend.

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  • Excellent article.

    Even without believing in the PPT, it’s still clear that the Fed has paid too much for poor-quality assets. Bernanke is running out of cash which he so desperately needs to continue offering liquidity. The Fed has total assets of $880bn, and allegedly some $600bn of that has now been lent out. The graph below shows the Fed’s balance sheet as it was in May this year; now that we’re in late September we can assume the trend has continued.

    Note how the largest asset category in the Fed’s balance sheet is “securities held outright” – that’s the good stuff. The good stuff has been gradually swapped out for bad categories, including “repurchase agreements”, “term auction credit”, “other loans”, and “other assets”. The problem is that the Fed values the bad stuff at 85% of face value, rather than at market value which is apparently just 22%. This means the Fed’s own balance sheet needs a rapid cash injection, otherwise Bernanke will be revealed as an incompetent central banker.

    If the Paulson plan is rejected, the Fed will have to print money in order to make ends meet. This would obviously be inflationary, and it would send a dangerous message (for the dollar) to the rest of the world’s investors.

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  • @drewster

    That’s a graph and a half – thanks for posting.

    Can I infer from your comment that you approve of the Paulson plan in its original form?

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