So the Fed is favoring Wall Street when lowering interest rates more than say bankers, yes? Real interest rates would drop and thus bankers would lose out because it is also, I imagine, short-term low-interest lending.
Jayson Funke Graduate School of Geography Clark University 950 Main Street Worcester, MA 01610 -----Original Message----- From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Doug Henwood Sent: Tuesday, June 26, 2007 2:34 PM To: [email protected] Subject: Re: [PEN-L] "Greenspan Put" Simplified On Jun 26, 2007, at 2:22 PM, Jayson Funke wrote: > I have been trying to understand the "Greenspan put", which is the > phrase > often used to refer to the Fed's willingness to backstop equity > declines in > financial markets. Why would lower interest rates encourage money > to flow > into financial markets? Who are the investors that borrow said > money for > such purposes and from whom do they borrow? It's not just interest rates - AG made it clear that the Fed would provide whatever liquidity the system needed (see his terse but powerful statement after the 1987 crash) and organize bailouts as necessary (see LTCM, Russia, etc.). That aside, the stock market loves lower interest rates (though not if, as in the 1930s, they come from depression). It makes it cheaper to speculate with borrowed money; the lower the interest rate you plug into a valuation model, the higher the warranted stock price; and the less attractive fixed-income investments appear as an alternative. Hedge funds and individual investors borrow; they borrow from whoever will lend - banks, their brokers, whatever.
