Tuesday, August 14, 2007
PPT is On The Job
The "Plunge Protection Team" (PPT) is doing it's behind-the-scenes thing to try to keep the credit crisis that began with the sub-prime meltdown from taking the rest of the financial system down with it.
Informed sources say that Hank Paulson re-activated the PPT last October.
Bush administration sources said they are assessing the need to speak publicly on the credit crunch, lest too many voices create confusion or prompt retail investors to think the problems are deepening.
Instead, authorities are keeping their public comments to a minimum even as Treasury Department and Federal Reserve Board officials are reaching out privately to lenders, brokerages, banks, credit rating agencies and other market participants for real-time data about the size and scope of the situation.
Representatives for the Treasury Department and the White House declined to comment Monday on reports that Treasury Secretary Henry M. Paulson Jr. convened a meeting at his Washington home Sunday. Paulson often works through the weekend and sometimes convenes meetings there, sources said.
Members of the President's Working Group on Financial Markets [the PPT], including the Treasury, Fed, Securities and Exchange Commission and Commodity Futures Trading Commission, are in touch regularly via staff members and telephone.
And in a not-entirely unrelated note:
Goldman Sachs, Wall Street's most profitable investment bank, said Monday that it is injecting $2 billion into one of its struggling hedge funds, underscoring the intensity of the turmoil in credit markets and its potential reach into the U.S. economy.
The fund shed about 30 percent of its value in last week's trading, shrinking to $3.6 billion from about $5 billion in a matter of days. Goldman's Global Equity Opportunities Fund is the latest hedge fund to acknowledge big losses in recent weeks as problems in the mortgage industry spread to other parts of the credit market and to stocks. ...
Goldman is providing about $2 billion of the $3 billion infusion into its Global Equity Opportunities Fund, which makes bets on stock price movements. A group of investors that includes billionaire Eli Broad and Hank Greenberg, former chairman of American International Group, are putting in the rest.
The GEO fund is a "quant" fund, meaning it makes its trades based on opportunities in the market identified by computer-based models. In recent days, Goldman said, such funds have come under pressure as a volatile stock market moved in unpredictable ways.
"In response, we've been reducing risk and leverage in GEO," Viniar said. "Unfortunately, the recent simultaneous global unwinding of portfolios utilizing quantitative investment strategies has exacerbated GEO's performance challenges."
Responding to the speculation that has helped roil markets in the past week, the company said that its high-profile Global Alpha hedge fund and North American Equity Opportunities Fund have pared their riskier positions and are "positioned to actively pursue market opportunities."
The Global Alpha fund is down 27 percent this year, with more than half of those losses occurring in the past week, the company said. ...
Wall Street is paying attention to news from quant funds, whose automated models are developed by mathematicians and whose trading involves limited human intervention. These models are often based on trading patterns of assets over a period of time.
The models are closely guarded by each fund, but the problems they faced last week suggest that many share the same strategies, analysts said, leading to fears that too many will fail in a volatile market and send ripples through the entire financial system.