Greenspan put

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The "Greenspan put" was an 1998 economic policy named for Alan Greenspan, former Chairman of the United States Federal Reserve Board after the collapse of investment firm Long-Term Capital Management. The policy itself was a recovery measure resembling a put option, which attempted to ensure liquidity in capital markets by lowering interest rates if necessary.[1]

This behaviour resembled a put option to investors: they assumed that they would be able to sell stock at a set price at or before a future date. While Greenspan's actions did have an effect on the markets, offering this 'put' was not necessarily his objective.

In the last years of his career as chairman, the Greenspan put was criticized by some for its effect in encouraging excessive risk taking. Ultimately, investors realized that Greenspan would likely lower interest rates if there was a disruption in the capital markets which would serve to bail out investors who had engaged in behavior they may not have had the "Greenspan put" not been in effect.

[edit] Bernanke put

More recently, the financial press have begun discussing the Bernanke put[2][3][4][5], as new Federal Reserve Board chairman, Ben Bernanke continues the practice of reduced interest rates to fight market falls.

[edit] References

  1. ^ Bloomberg.com: Opinion
  2. ^ History won't treat 'Bernanke put' kindly - Telegraph
  3. ^ The 'Bernanke Put'—with a Currency Kicker
  4. ^ When Markets Are Too Big to Fail - New York Times
  5. ^ Buttonwood | Paint it black | Economist.com

[edit] See also