"what, or who, has prevented AG from supporting/interfering with the markets during the several serious declines in the 2000-2002 timeframe?--this is the question "
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MKT entropy...
Nothing prevented him from doing so, and I am totally convinced he did intervene from time to time -- I posted as much at the time. Here is an overview of the history of intervention in this market to date as I view it.
There can be little question that Greenspan and the PPT was very active during the LTCM debacle and in the aftermath of 09/11, and there are few knowledgeable folks who would argue otherwise -- such events are the whole reason for the existence of the PPT. Once you accept that there was government intervention to prevent a market meltdown during LTCM and after 09/11, you have acknowledged the existence of intervention, and then it is only a matter of deciding when it occurs.
I believe the Fed largely ignored the market decline from 2000 to 09/11, not seeing a need for intervention since the decline was for the most part orderly and thus did not meet the requirements of its mandate. After the intervention following 09/11 and prior to the July 2002 bottom, I believe (and posted at the time) that there were a few instances where the Fed stepped in with support buying to initiate brief rallies to slow the downside momentum of the markets, probably seeing the danger of swiftly falling markets as a national security issue post 09/11 and also one that could make the very vulnerable economy even worse than it was.
The first major post 09/11 intervention (and the beginning of a change in Fed philosophy toward intervention) was in July 2002 when the markets were threatening to collapse on worries about the stability of the money center banks (JPM, C, BAC) and the near financial collapse (and default) of Brazil. The Fed decided to step in and create a temporary bottom in the markets to stabilize them long enough to shore up those banks as well as stem the financial collapse and default in Brazil with IMF money. When the initial bottom was quickly reversed by a spate of bad economic news, the Fed intervened heavily once again and embarked on a longer lasting series of interventions designed to drive the markets higher for a longer period of time to give them time to accomplish what needed to be done (it is probable that the post 09/11 rally was similarly driven). The October bottom was a replay of the August bottom, both were artificial bottoms created by Fed (PPT) intervention, not by market forces.
After the money center banks were out of danger and Brazil was stabilized, they felt an orderly market decline could resume so they ceased driving the markets higher and began to just do support buying when needed to keep the decline orderly, but the change in their philosophy was evident by this time. They were more and more actively intervening to control the markets than ever before imagined probably because of a sense of national security and to protect the economy from collapse in a time of danger.
The next significant intervention was in early 2003, when the international markets began a freefall, with the European and Japanese markets making new bear market lows and a global meltdown was very much a possibility. AG had been actively support buying in our markets to prevent us from joining the potential crash, but it was obvious that he could not prevent a US collapse much longer with the other world markets making daily new lows. In early March, AG and the CB leaders of Europe and Japan agreed to intervene in the global markets to prevent a complete global meltdown. Together, they entered the global equity, currency, bond and gold markets very hard to reverse the downtrend and to restore confidence in the marketplace and to that end they have actively driven the markets higher ever since, especially in the US and Japan. That rally was also the birth of the Greenspan Gambit designed to rescue the US economy from certain recession or worse by reflating the economy and specifically the US equities markets to provide the US consumer with a new source of spending capital to replace the re-fi boom that AG knew could not last.
That is where we now sit -- the Gambit is still alive, but clearly struggling. Because of the stakes involved, AG will do everything possible to both hold the markets up and drive them higher. Personally I continue to doubt his ability to do so in the face of current valuations and fundamentals, but to date he has already taken the markets far further than I thought possible.
mlsoft
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