Subject: End of the "Greenspan Put"?
https://www.wsj.com/economy/ce...


Alan Greenspan, Influential Fed Chairman Whose Legacy Was Dimmed by the Financial Crisis, Dies at 100
The ‘maestro’ rivaled the U.S. president for global influence. But his faith in financial markets’ ability to police themselves became an Achilles’ heel.

By Nick Timiraos, The Wall Street Journal, June 22, 2026

Alan Greenspan, who started life as a shy, only child of a single mother, transcended the role of central banker, exercising extraordinary influence over American finance and commerce and enjoying unparalleled global stature during a period of remarkable prosperity. But by the time of his death, at age 100, the 2008-09 global financial crisis had recast his aura of technocratic omnipotence.

Former colleagues and Nobel Laureate Milton Friedman hailed Greenspan as the greatest central banker of all time when he finished 18½ years as Federal Reserve chairman in 2006. Just two years later, the financial crisis triggered an austere reappraisal of his record. His view that markets could effectively police themselves became a driving force of regulatory policy in the 1990s and early 2000s…

The ‘Greenspan put’

In 1959, the libertarian Greenspan warned of how central banks could allow markets to think the business cycle had been tamed, breeding complacency and risk-taking by investors. His early academic work declared the Fed one of the “historic disasters in American history,” according to Sebastian Mallaby’s biography, “The Man Who Knew.”

But as Fed chairman, he molded the central bank as a bulwark against instability. His perceived inclination to stem market panic earned a moniker, the “Greenspan put”—as if the Fed itself was a put option that insured investors against losses. The Fed cushioned markets after the stock-market crash of 1987 and the 1998 failure of Long-Term Capital Management and played a key role arranging a bailout that followed the Mexican debt crisis of 1994… [end quote]

The Greenspan Put is very clear in the fed funds rate cut which was continued long after the 2001 dot-com recession was over. The low interest rates fueled the housing bubble. When the Fed tried to normalize the fed funds rate, beginning in 2004, the housing bubble popped.
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Federal Funds Effective Rate
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Greenspan’s Fed, which regulated the banks, never required the lenders to verify the ability of borrowers to pay their mortgages, instead praising the way risk was supposedly reduced by spreading the securitized debts into internationally-sold derivatives. Greenspan was no longer Fed chair when the GFC hit and was stunned.

Ben Bernanke replaced Alan Greenspan as Chair of the Federal Reserve on February 1, 2006. Bernanke’s book, “21st Century Monetary Policy,” describes how Greenspan and Bernanke (and their successors, Janet Yellen and Jerome Powell) used the fed funds rate plus immense fiat monetary pumping to rescue the economy from financial crises…and also respond to “taper tantrums” from a stock market that had grown addicted to the crack cocaine of low-interest money.

When Greenspan left the Fed in 2006, the breathtaking bloat of the Fed’s assets would have been inconceivable.

fred.stlouisfed.org
https://fred.stlouisfed.org/se...
Assets: Total Assets: Total Assets (Less Eliminations from Consolidation): Wednesday Level

But it was just the Fed continuing the “Greenspan Put.” An entire generation – 25 years – of Wall Street speculators has never seen a time without a Fed put to rescue them. Even more so since 2008 when the “ample reserves regime” which pumps fiat money continuously into banks was substituted for the banks managing their own reserves (sometimes badly).

Fed Chair Kevin Warsh is ideologically opposed to the Fed put. He wants to reduce the Fed’s footprint in the markets. He will surely direct his new task forces – which may include new personnel from outside the Fed – to recommend ways to fundamentally change Fed policies. Unlike the Washington, DC gerontocracy, Warsh is young and could be influential for many years to come.

New Fed Chair Kevin Warsh gave his first press conference for the first FOMC meeting under his leadership. As expected by the markets, the FOMC did not change the fed funds rate though they removed any mention of an “easing bias.” The press conference flew under most peoples’ radar. Tucked inside it is the mention of five new “task forces” that sound boring but could radically change the Fed’s operations and would potentially impact the markets - bigly. The Five Task Forces Specified in the …

It’s ironical that the “maestro” Alan Greenspan died within a week of Kevin Warsh making his terse but impactful speech.

Is this truly the end of the “Greenspan Put”?

If so, markets beware. The upshot will likely be higher volatility, higher interest rates and occasional financial crises.

Wendy