I SUGGESTED in last Friday's column that the Federal Reserve should step in whenever the stock market flirts with real disaster. The column was timely. Stock prices had fallen sharply on Thursday. Then, with the help of mysterious buying the next morning, Wall Street made a nice recovery on Friday.
On this past Wednesday, again the Dow Jones industrial average was down - more than 400 points in morning trading. Suddenly, sources tell me, Goldman Sachs, Merrill Lynch and perhaps others threw caution to the wind and saved the market through heavy buying of Standard & Poor's and Nasdaq futures.
Stock prices closed lower Wednesday. But the suspicious and timely buying probably averted a crash.
You and I will probably never know whether the Fed was behind the futures purchases by those firms. And Alan Greenspan will never admit that he is interfering in the supposedly free market.
But we do know something.
From a story that ran in the Washington Post on Feb. 23, 1997, we learned of the existence of something called the Working Group on Financial Markets. The Washington Post said it was informally called the "Plunge Protection Team."
And while that other paper didn't seem to know what it had happened upon, it seemed pretty clear that someone in the government wanted investors to know that the Fed and others were watching out for them.
But do people really want government interference in financial markets? And is this safe?
After I wrote last Friday's column, I was inundated with e-mails from people who didn't think the Fed had the right to butt in and who thought I was nuts for suggesting it. First, here are some readers' comment. Then I'll respond.
* "Why don't we save Greenspan the trouble ... The Federal Reserve can just take the money they were going to spend and send it directly to all investors who lose money in the future." S.C.
* "What a wonderful world you want; a market where we can speculate to our greedy heart's content with no concern about equally out of balance consequences." D.F.
* "To put it mildly, I take strong exception to your article. I first thought it might be written with a sense of ironic humor, but as I skimmed through the article, I realized you were serious." G.M.
* "I almost always agree with your articles re: the markets and investing, but you're very likely mistaken on this one." S.E. Phd.
* "I've enjoyed your commentaries up until now ... but the one today is too much for me." M.T.
* "You're being facetious, right?" A.P.
* "To infer that Mr. Greenspan is responsible for my or anyone else's 401k is absurd. The bottom line is that the long-term PE ratio on the S&P 500 is about 15 and we are roughly twice that level now. The law of averages mandates that long-term trends will prevail." D.K.S.
* "Hey, that's what we need, the government speculating in S&P futures." B.H.
* "The thesis of your article is fundamentally flawed. It is not and should not be the role of the Federal Reserve to target the financial markets." another B.H.
* "I enjoyed your columns in the past. You lost me on this one. In case you are not joking, the reason we have this fraudulent bubble economy is because of ignored moral hazard on the part of government financial sc ... bags in the Fed and Treasury." M.G.
There were many letters that were unprintable.
My answer: Hey, excuse me for worrying that people will go hungry, lose their houses, have to pull their kids out of college and maybe even disconnect their cable TV.
Sure there's a bubble. And, yes, people have been greedily plowing their hard-earned money into the stock market like it was some guaranteed get-rich-quick scheme. But I also agree that, without a doubt, no arm of the government should mess with the financial markets, including the Federal Reserve.
But greedy investors aren't the only ones who'll be hurt when the stock market collapses. And as excessive as stock prices were when moving higher, they can do the same on the way down.
Let the Fed rescue the market if it wants to. It beats the hell out of the alternative.
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