US stocks: The visible hand of Uncle Sam

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John Embry and Andrew Hepburn provide a valuable entry into the world of finance. The two analysts illuminate the shadowy trail of the "Plunge Protection Team" in its apparent mission to rig the American stock markets.

Their account is backed up by considerable indirect evidence, as well as statements by credible insiders. If their account is correct, it means that US markets look a lot like the Japanese markets that were long derided for being subject to repeated official manipulation. A more important conclusion may be that US markets are even shakier than many believe.

The trail that the two analysts follow is long, dating to just after Black Monday, October 19, 1987. On that day, the US stock market abruptly crashed. The Dow Jones average dropped by 508 points, to 1738. It threatened to do even worse the next day when, after a brief rally, it went into reverse.

The markets seemed on the edge of a meltdown, but the abyss failed to open up. This lack of a meltdown has generally been attributed to the Federal Reserve Board's (FRB) steady hand and promises of liquidity. But sophisticated research on the events of those two days indicates that a sudden and unprecedented rise in the Major Market Index (MMI) sparked a recovery across the board. There is good reason to suspect that this recovery was the result of concentrated buying by a few firms.

Asia Times