A Federal Reserve headed by Lawrence Summers may give financial markets even stronger support in times of stress than it did under Ben Bernanke.
That’s according to David Zervos, managing director at Jefferies, who served as a visiting adviser to the Fed in 2009.
In a Sept. 3 report to clients, he outlined what he called the “Summers put,” a reference to investors’ belief in the “Greenspan put,” the idea that the Fed under Alan Greenspan always acted to support financial markets.
“Larry is no fool, and for someone who loves the art of the bailout, this is by far the best seat in the house,” said Zervos. “The chair of the Federal Reserve offers unprecedented monetary and fiscal policymaking opportunities — especially in a time of crisis.” (A put option gives investors the right to sell their asset at a set price.)
“In that sense, I actually think a Summers put will be more potent and have fewer nasty side effects than a Bernanke put,” Zervos said. “I’m a buyer of the Summers put.”
President Obama needs to nominate a successor to Bernanke, whose second term ends in January.
The president has identified Harvard University professor and former Treasury Secretary Summers and Fed Vice Chairman Janet Yellen as candidates.