Do you think the Plunge Protection Team was working its magic this week?

FUNDAMENTALS, NOT HYBRID, CAUSED THE PLUNGE

March 4, 2007 -- Dear John: What happened with the stock market last Tuesday? My thought is, someone pushed the sell button and guess what? There was no human there to stem the slide. R.P.

Dear John: Do you think the Plunge Protection Team was working its magic this week? Dave

Dear R.P. and Dave: You two are asking two sides of the same question: Is there human intervention that can prevent the kind of market meltdown we saw last Tuesday when the Dow Jones industrial average fell 416 points?

First I'll deal with R.P., who is obviously asking whether the changeover to an electronic "hybrid" trading system at the New York Stock Exchange from one that relied on the tried and true but sometimes corrupt specialist system might have caused the near catastrophe.



Yes, having a human being pairing off orders might have reduced the confusion. Or it might not have - previous market plunges all occurred when the specialist system was fully intact.


But what also caused the drop of hundreds of points in a matter of seconds was an old failsafe measure established by the NYSE: the so-called collars, or trading curbs.

Certain program trading is halted whenever the NYSE Composite Index is down (or up) 180 or more points. But what typically happens is that sellers just pile up and wait for the curbs to end.

The hybrid system at the Exchange never handled anything like this before and it simply became overwhelmed.

But don't confuse that 300-point drop, which was probably exacerbated by technical glitches, with the real reason the stock market has been weak recently: the U.S. economy is slowing.

Now, for Dave's question about the Plunge Protection Team, which is formally called the Working Group on Capital Markets.

Treasury Secretary Henry Paulson last week said a number of times - as others did - that they were "watching developments carefully." Well, what exactly does that mean?

If the stock market should happen to collapse, does anyone think that Paulson - who heads the Plunge Protection Team - is just going to sit idly by and marvel at the catastrophe.

Or will he contact the others on the team, including several notable Wall St. figures, and (wink, wink) mention that it would be nice if stock prices didn't collapse and create a national nightmare?

There's no doubt about the existence of the Plunge Protection Team.

In the past this group has intervened in the stock market - of that I'm certain. Last week? The government was probably more of a cheerleader, encouraging firms not to panic and (perhaps) indemnifying them against loss.

Send your questions to Dear John, The N.Y. Post, 1211 Ave. of the Americas, N.Y., N.Y., 10036, or john.crudele@nypost.com.