The term "put" refers to a put option, a contractual obligation giving its holder the right to sell an asset at a particular price to a counterparty. The put option can be exercised if asset prices decline below that put price, protecting the holder from further losses. During Greenspan's chairmanship, when a crisis arose and the stock market fell more than about 20%, the Fed would lower the Fed Funds rate, often resulting in a negative real yield. In essence, the Fed added monetary liquidity and encouraged risk-taking in the financial markets to avert further deterioration.
The Fed did so after the 1987 stock market crash, which prompted traders to coin the term Greenspan Put, later termed moral hazard. In 2000, Alan Greenspan raised interest rates several times. These actions were believed by some to have caused the bursting of the dot-com bubble. The Fed also injected funds to avert further market declines associated with the savings and loan crisis and Gulf War, the Mexican crisis, the Asian financial crisis, the LTCM crisis, Y2K, the burst of the internet bubble, the 9/11 attacks, and repeatedly from the early stages of the Global Financial Crisis to the present.
The Fed's pattern of providing ample liquidity resulted in the investor perception of put protection on asset prices. Investors increasingly believed that in a crisis or downturn, the Fed would step in and inject liquidity until the problem got better. Invariably, the Fed did so each time, and the perception became firmly embedded in asset pricing in the form of higher valuation, narrower credit spreads, and excess risk taking. Joseph Stiglitz criticized the put as privatizing profits and socializing losses and implicates it in inflating a speculative bubble in the lead-up to the 2008 financial crisis.
In 2007 and early 2008, the financial press had begun discussing the Bernanke Put, as new Federal Reserve Board chairman, Ben Bernanke continued the practice of reducing interest rates to fight market falls. The decision by the Fed to lower short-term interest rates to 50 basis points (0.5%) on October 8, 2008, and thereafter a range from 0.00-0.25% rate in December 2008 suggests attempts to create a Bernanke put similar to the Greenspan put. New steps in quantitative easing further illustrate the Fed's attempt to moderate the business cycle. Recent (post March 2011) declines in measures of velocity and related declines in monetary growth measures suggest there is a limit to market manipulation.
Dow Jones is combination of the names of business partners Charles Dow and Edward Jones and may refer to:
Dow Jones & Company, the company they founded
Dow Jones Newswires
any of the stock market indices they published, notably:
Dow Jones Industrial Average, a stock market index published by the company
Dow Jones Transportation Average, the oldest stock index in use
S&P Dow Jones Indices, the joint venture that is the current publisher of the indices
Dow Jones Sustainability Indices, a strategic partner of the S&P Dow Jones IndicesGreenspan
Greenspan is an English surname popular among Jewish Americans. It is the anglicized form of the German/Yiddish surname Grünspan ("green swarf", "green patina", "verdigris", "copper(II) acetate"). Cognate are the surnames Grynszpan and Grinshpan (Poland, Romania, Hungary). Notable people with the surname include:
Alan Greenspan (born 1926), American economist
Greenspan Commission (1981–83) on social security reform, chaired by the above
Greenspan put, a policy named after the economist
Guidotti–Greenspan rule of finance, publicized by the economist
Bennett Greenspan (born 1952), American entrepreneur, founder of Family Tree DNA
Brad Greenspan (born 20th century), American entrepreneur (MySpace)
Brian Greenspan (born 1947), Canadian lawyer
Bud Greenspan (1926–2010), American film director
David Greenspan (born 1956), American actor and playwright
Deborah Greenspan Born 20th century. Anglo-American dental academic scientist and oral medicine /AIDS expert.Dorie Greenspan (born 20th century), American author of cookbooks
Jason Scott Greenspan (born 1959), aka Jason Alexander, American actor
Jerry Greenspan (born 1941), American basketball player
John S. Greenspan. Born 1938. Anglo-American dental academic scientist and oral pathologist.
Marshall Greenspan, American engineer
Melissa Greenspan (born 20th century), American actress
Nachman Shlomo Greenspan (1878–1961), Polish-born UK rabbi and Talmudic scholar
Ryan Greenspan (born 1982), American paintball player
Stanley Greenspan (born 1941), American psychiatrist
Ronald Greenspan, Q.C. (born 1936) Canadian lawyer
Herschel Grynszpan (1921-before 1945), Jewish assassin
Edward Greenspon (born 1957), Canadian newspaper editor