A:

Only five months into his tenure as Federal Reserve Chairman, Alan Greenspan faced his first crisis: the October 1987 stock market crash.
In a move that would become the hallmark of his tenure, Greenspan lowered the federal funds rate by 50 basis points, restoring order to the markets and giving investors confidence that the Federal Reserve would take decisive action when financial crises came to a head.

It was not until approximately ten years later that the term "Greenspan put" would enter the investment lexicon formally. Greenspan's willingness to lower the federal funds rate during challenging economic periods, such as the 1987 stock market crash, the 1990-1991 recession, LTCM, The Asian Contagion, the unwinding of the Nasdaq bubble and the period following the September 11 attacks created the perception that, so long as Greenspan remained chairman of the Fed, monetary policy would come to the rescue - hence, the "Greenspan put."

(For more on this topic, read How the Federal Reserve Was Formed and The Federal Reserve's Fight Against Recession.)

This question was answered by Justin Bynum.

RELATED FAQS
  1. What does 'froth' mean in terms of the real estate market?

    On May 20, 2005, while addressing the Economic Club of New York, the now former Federal Reserve chairman Alan Greenspan commented ... Read Answer >>
  2. How successful have "dove" Federal Reserve heads been in the past when it comes to ...

    Review a short history of "dovish" leaders of the Federal Reserve, who use U.S. monetary policy to reduce unemployment through ... Read Answer >>
  3. What is Black Monday?

    Monday October 19,1987, is known as Black Monday. On that day, stockbrokers in New York, London, Hong Kong, Berlin, Tokyo ... Read Answer >>
  4. What is the long-term sector outlook for financial services?

    Read about a few potential threats to the remarkable levels of growth in the financial services sector that have occurred ... Read Answer >>
  5. How is the Federal Reserve audited?

    Learn how the Federal Reserve gets audited. Due to gridlock, the Federal Reserve has been forced to take on the role of stimulating ... Read Answer >>
Related Articles
  1. Insights

    Alan Greenspan: 19 Years In The Federal Reserve

    Follow the economic glories and bumbles in the career of the previous Fed chair.
  2. Insights

    Alan Greenspan: Gold Is Safest Store of Value Right Now

    Alan Greenspan is sounding the alarm on out-of-control entitlements and inflation. Find out why he advocates for a return to the gold standard.
  3. Insights

    Why Greenspan Is Getting Worried About U.S. Interest Rates

    Alan Greenspan says U.S. interest rates have been too low for too long, resulting in a bond market bubble, low productivity growth and possible stagflation.
  4. Insights

    Janet Yellen Vs. Alan Greenspan: Who Is The Better Fed Head?

    We examine how these two histories Fed chairpeople differ and the impact of their views and actions on the world economy.
  5. Insights

    Greenspan Fires a Salvo at Dodd-Frank Reforms

    Former Federal Reserve Chairman Alan Greenspan wants to repeal the Dodd-Frank financial reform bill, saying that it has not worked at all.
  6. Insights

    'Irrational Exuberance' 20 Years On

    The S&P is up 196% since Greenspan uttered these now-famous words.
  7. Trading

    How The Federal Reserve Was Formed

    Find out how this institution has stabilized the U.S. economy during economic downturn.
  8. Investing

    When The Federal Reserve Intervenes (And Why)

    The Federal Reserve doesn't interfere with the economy every time it flounders. Find out more here.
  9. Insights

    Does the Fed Influence Who’s in the White House?

    Whether it's intentional or not, the Federal Reserve plays a major role in politics.
  10. Insights

    Translating "Fed Speak" Into Plain English

    Confused by the Fed's lingo? Find out what it can tell you and learn how to decipher it.
RELATED TERMS
  1. Fed Speak

    A phrase used to describe former Federal Reserve Board Chairman ...
  2. Greenspan Put

    A description of the perceived attempt of then-chairman of the ...
  3. Pale Recession

    A phrase used in May 2008 by former Federal Reserve Board Chairman ...
  4. Infectious Greed

    A phrase used in his July 2002 testimony before the Committee ...
  5. Ben Bernanke

    The chairman of the board of governors of the U.S. Federal Reserve ...
  6. Keynesian Put

    A Keynesian Put is the expectation that markets and the economy ...
Hot Definitions
  1. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends each year relative to its share price.
  2. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  3. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  5. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  6. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
Trading Center