John Cassidy
June 21, 2013

In finance, a “put” is a contract that gives its owner the right to sell something—a stock, a bond, a tanker of crude oil—at certain price, regardless of the price in the market. A put is a guarantee, basically, and when the markets are falling it can be invaluable. But the word is sometimes used in a more general sense.

Back in the old days, when Mark Zuckerberg was in high school and Alan Greenspan was in Foggy Bottom, there was something called “the Greenspan put.” It was a commitment on the part of the Fed to cut interest rates and print money whenever the markets or the economy stumbled. Although its existence was officially denied, many investors believed it was in place, and this belief helped sustain the great stock market bubble of the late nineteen-nineties.

For the past few years, the Fed has been issuing another type of official guarantee, this time in the bond market. Call it “the Bernanke put.” In reducing the short-term interest rate it controls practically to zero, and committing to purchase trillions of dollars of Treasury bonds and high-grade mortgage bonds—a tactic known as quantitative easing—the Fed has managed to bring mortgage rates, and other lending rates, down to levels not seen since the nineteen-fifties. Just as it was designed to do, this policy has given a significant boost to the housing market, and to other parts of the economy, but its flip side has been a bubble, or something closely resembling a bubble, in the global bond markets.

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