The “Greenspan Put” makes sense if inflation is both low and not especially responsive to rates, which appears to be the case. (Stay tuned for another piece on this!)

However, it does lead to the pathological consequence that a levered long portfolio of SPX + USTs will get higher and less volatile returns than long positions in either of them. This has been the trade since 1998, when the Asia collapse plus LTCM plus the Fed’s response made treasuries move inversely with equities.

But it does make investors less sensitive to risk. If you never shake the most irresponsible players out of the system, they end up dominating — the normal state of affairs is that they compound faster but eventually go to zero. That’s not ideal; you want to reward prudent risk-taking, not risk-taking as such. Otherwise you just have people betting on the index and getting their “alpha” in the form of lower fees.