The Bernanke Put, named after United States Federal Reserve chairman Ben Bernanke, is a jocular reference to what seems to be the Federal Reserve's practice of turning to a loose monetary policy whenever the US stock market declines in order to get stock prices moving back up again. This practice was previously known as the "Greenspan Put," back when Alan Greenspan was Federal Reserve Chairman.
The term "put" refers to a put option, which is a financial instrument commonly used to hedge against a decline in stock prices. Since the 1980s, under Greenspan and Bernanke (both of whom were heavily influenced by the monetarism of Chicago-school economist Milton Friedman), the Fed has routinely and consistently lowered the Fed Funds interest rate immediately following broad stock market declines of more than 10 or 15 percent, injecting large amounts of liquidity into financial markets and pushing investors into more risky investments, particularly stocks (especially as opposed to bonds), with a result that the stock market seemed to bounce back more quickly than it otherwise would have.
Fed watchers first coined the phrase "Greenspan Put" when Alan Greenspan acted to increase liquidity after the 1987 "Black Monday" stock market crash. Thereafter the Fed also injected funds to avert further market declines associated with the Savings and Loan Crisis, the Iraqi invasion of Kuwait, the 1997 Asian Financial Crisis, Y2K, the bursting of the dot-com bubble, 9/11, and repeatedly from the bursting of the US housing bubble in 2008 to the present.
The Fed's pattern of providing ample liquidity following stock market downturns has been heavily criticized from some quarters as creating a "moral hazard" that prevents accurate pricing of equities. According to this argument, the exercise of the Greenspan/Bernanke Put policy has resulted in a widespread perception of broad, put-like downside protection on stock prices, leading investors to increasingly invest in riskier assets at higher prices than they would have otherwise.
Although on the face of it higher asset prices might seem like a win-win for everyone, critics argue that the Bernanke Put may be masking fundamental weaknesses in the market and setting markets up for an even harder crash when things finally do hit the fan. Indeed, many commentators have argued that the Greenspan/Bernanke Put played a significant role in fomenting the Financial Crisis of 2008 that led to the "Great Recession" from which we may or may not be only just recently emerging. The Put has also been heavily criticized as a potential means of privatizing profits while socializing losses, as well as a means for robbing thrifty savers to reward irresponsible speculators.
However, recent declines in measures of monetary velocity and related declines in monetary growth measures suggest there is a limit to market manipulation. In other words, as the US financial system lurches deeper and deeper into a liquidity trap, the Bernanke Put seems to have less and less efficacy.