Greenspan put

The "Greenspan put" refers to the monetary policy approach that Alan Greenspan, the former Chairman of the United States Federal Reserve Board, and other Fed members exercised from late 1987 to 2000.


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.[1] 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.[2]

Bernanke Put

In 2007 and early 2008, the financial press had begun discussing the Bernanke Put,[3][4][5][6] 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,[7][8] 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.

See also


  1. ^ Greenspan "put" may be encouraging complacency - Financial Times
  2. ^ Stiglitz, Joseph E. (2010). Freefall: America, Free Markets, and the Sinking of the World Economy. New York and London: W. W. Norton & Company. p. 135. ISBN 9780393075960.
  3. ^ Stevenson, Tom (2007-09-19). "History won't treat 'Bernanke put' kindly". The Daily Telegraph. London. Retrieved 2010-05-04.
  4. ^ The 'Bernanke Put'—with a Currency Kicker
  5. ^ "When Markets Are Too Big to Fail". The New York Times. 2007-09-22. Retrieved 2010-05-04.
  6. ^ "Paint it black". The Economist. 2007-10-18.
  7. ^ David Leonhardt and Catherine Rampell (2008-10-08). "Q&A: The Fed's Rate Cut". New York Times. Retrieved 2008-10-08.CS1 maint: Uses authors parameter (link)
  8. ^ CARTER DOUGHERTY and EDMUND L. ANDREWS (2008-10-08). "Central Banks Coordinate Global Cut in Interest Rates". New York Times. Retrieved 2008-10-08.CS1 maint: Uses authors parameter (link)

External links

Dow Jones

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 Indices


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

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