GARY Weiss, a New York freelance writer, provided a field guide to prevalent Wall Street conspiracy theories on thebigmoney.com website last week.
Here is a shortened version of his evaluation of three theories:
The US has a plunge protection team that manipulates the markets.
“This is a classic conspiracy theory because it is grounded in fact,” says Weiss. “Yes, there really is a plunge protection team, though it doesn’t go by that name.” The Washington Post revealed in February 1997 that the president’s working group on financial markets is poised to intervene in the event of a market calamity. The title, plunge protection team, was coined by the Post, and it stuck.
The article spawned a spasm of conspiracy theories that the government actually does secretly intervene in the markets, buying equity index futures or depressing the price of gold.
“However, most of the braying about the plunge protection team has been based on snippets of comments by public officials,” says Weiss, “and the actual evidence has been pretty much absent.”
Wall Street screws consumers at the pumps.
Wall Street speculation that drives up share prices rarely gets the public too excited, says Weiss, but speculation that drives up the price of (petrol), broiler chickens, and other commodities has consumers ready to march with pitchforks. So it was with the oil price spike of 2008. Surely there was a hidden hand? Why else would oil prices suddenly climb? Didn’t make sense; had to be the nasty people on Wall Street.
“Well, guess what?” says Weiss. “That’s exactly what happened. The Commodity Futures Trading Commission has found that speculators did drive up the price of oil. So here’s a clear-cut example of how traders sitting behind terminals did screw ordinary people. It wasn’t their intent, but that’s what they did.”
Naked short-selling killed Bear Stearns and Lehman Bros.
“The accepted history of the death of Bear Stearns and Lehman Bros is that the two were victims of their own doing; overreaching; incompetence; and sheer, squalid leverage-fuelled greed .... But Alan Schwartz of Bear Stearns and Dick Fuld of Lehman Bros both blamed speculators, rumour mongers and naked short-sellers for torpedoing their companies. In appearances before congressional committees they claimed their own actions were flawless, and that naked shorters had ground their stock prices into dust.”
According to Weiss, however, the claim was debunked in an academic study conducted at the University of Oklahoma, which examined the trading data cited by the conspiracy theorists.
It found that there was “no evidence that stock price declines were caused by naked shorting”.
Any naked shorting, they found, took place after the two companies’ stocks crashed.
MICHEL PIREU: pireum@bdfm.co.za