The Fix Is In, Or How Pete Took Over the Plunge Prevention Team

Pete was wandering along Virginia Avenue, not far from the Federal Reserve's tennis court.  He was thinking somber thoughts while still glancing nervously skyward every few steps, as though a big chunk of whatever was up there might fall at any moment.  Just then a black limo pulled up and out of it stepped seven gentlemen in business suits, followed by an eighth wearing tennis whites. They walked onto the court. The fellow ready for tennis had forgotten something. He looked back toward the car, saw Pete, and asked whether he would mind bringing the gear. The gear consisted of an expensive and large case holding tennis rackets, and what could only have been a large Hermčs linen bag holding enough tennis balls for a full season at any tennis club in the land. Pete pulled both from the car, lugged them through the gate, walked over, and put them down. “Would you mind?” the tennis player asked. Pete demurred, opened the case, displayed the rackets as one might fan playing cards; an appropriate choice was made; and the man pointed a finger vaguely in the direction of a bench full of dark-suited men, suggesting Pete join them. So he did.

At the far end of the court, also ready for tennis, was a spindly old man with a long nose, coke bottle glasses, and a squint. He picked up his racquet and walked to the base line. “Your nickel, Bob.” The former Treasury Secretary reached into the bag, pulled out as many tennis balls as he could manage, let one drop, and then hit it over the net toward the old man, who didn’t budge. “Uh, you see, Alan, some of the boys blotted their copy books, as it were” Rubin explained.

“It happens,” offered Mr. Greenspan as he watched the ball dribble toward the fence. ”How short were they this time?” he asked, as though setting up a punch line. “Short enough that we wouldn’t be here if it wasn’t worth you worrying about,” Rubin replied, as he hit an immaculate forehand with perfect top spin toward the chairman. Greenspan ignored it and it rolled on toward the fence. Here one of the dark suits suddenly chipped in decisively, “You see Mr. Chairman, they were popping Monkeymanz.” He looked for confirmation from the other suits and each to a man shook his head disapprovingly, as though no one in their right mind would ever do such a thing but what could a good hedge fund manager do. “You do remember that briefing we gave you a couple of years ago, Alan. Don’t you? Emblematic Directions in Second Derivative Derivatives?” The chairman remembered.  He launched into a slow and deliberate tirade marked by an obscure logic, largely phrased in the past subjunctive. Rubin sent another shot past him to shut him up. It worked. “What are monkey men?” asked Pete foolishly. Everyone present, including the chairman, corrected, “Monkeymanz.”

“How much is it going to cost the Fed to pull you out of it this time?” asked Greenspan, his eyes firmly shut. Rubin replied, “This time it’s not just money. I think it's time to use the Plunge Prevention Team, because equities are going way south when news leaks out. And it’ll cost, what Zack? Didn’t we ballpark it at $28 billion?” One of the hedge fund operators looked off into the distance and nodded without speaking. “Do it and send me the details when you know them” mumbled the chairman as he wobbled off in the direction of his own limousine. He stopped and turned around, “You know, Bob, they pulled the Plunge Prevention Team from Treasury and put it in Homeland Security.” “Idiots,” replied Rubin. “What’s worse, and this I checked before our meeting,” Greenspan continued, "they sent the key players to New Orleans out of penance or guilt or, you know, whatever. Nobody’s heard from them, their cell phones don’t work, and no one else knows the drill. You’ll have to do it yourselves.” The chairman turned once more toward his car and walked off, muttering darkly.

Just who would do it had been discussed on the trip down from New York, and all had agreed that not one of them any longer had a clearing broker who would permit it, and all agreed that working with civil servants was sometimes distressingly dull. Pete was more than a bit surprised when all eyes turned to him. “You must be kidding!” he sputtered lamely, but after they established that he had access to a futures and options account and knew a few choice phrases like ‘backwardating to contango,’ he was their man, and there was no getting out of it. “Just email Zack with your broker’s money wire details, which I’ll give to Alan, and then wait for word from us on Monday morning.” Rubin slammed the limo door and the group sped off, no doubt to a waiting private plane.

Pete had neglected to explain that the futures account he had access to in fact belonged to his cousin Eddie, a former juvenile delinquent whose community college career had been cut short when he went through his tuition money speculating on pork bellies. Eddie had forgotten all about it when he took up flipping real estate, but Pete hadn’t forgotten. So Pete called up Eddie, reminded him about a certain debt Eddie had neglected, and wound up with the user name and password for Eddie’s futures account.  He sent Zack the wire directions.

Pete logged on bright and early Monday morning.  There were three messages waiting from eager vice presidents at the futures brokerage house who were astonished that Eddie had bumped his account balance from $12.15 to just over $37 billion in cleared Fedwire funds (Greenspan had added the extra money as an afterthought, not being a man to do things by halves). Pete ignored the messages from the vice presidents. He waited for the phone call. When it finally came, it was Zack on the other end speaking from his yacht on Long Island Sound. The connection was not good. “Here’s what we want you to do … buy calls or sell puts on all the S&P futures you can get your hands on.” Except to Pete it came in as “… buy all puts cause it will fall in the future and do it hands on.” Zack hung up. Pete didn’t quite get it but then again he wasn’t a master of the universe, so he’d just have to be decisive and buy all the puts he could. He did a few calculations, entered the orders, let his mouse hover above the submit button for a second or two, and then took the plunge.