Thursday, January 31, 2008
Bernanke put and Sovereign Wealth Funds put
--A put option gives the right, but not the obligation, to sell a specified security at an agreed price within a specified time. In other words, puts limit their owners' potential losses. Wall Street's latest financial crisis has spawned two variations on these hedges, which work like the "get out of jail free" cards drawn by lucky Monopoly players. The new benefactors: the Bernanke put and the Sovereign Wealth Funds put. --The first of these is the heir to the "Greenspan put," which emerged when the former Federal Reserve Board chairman took a machete to interest rates in 1998 following the collapse of the investment firm Long-Term Capital Management. Alan Greenspan bailed investors out, at the cost of fueling booms in housing and credit bubbles.