It had to happen.

One last comment on Bear Stearns, which I have been concerned with for a long time on this blog.

The Fed had to bail them out. Counter-party risk at that point was freezing a good part of our shiny new (well, post 1973) financial system. If Bear were allowed to drift into bankruptcy, the markets would most likely have panicked. Indeed, I wrote to clients that Sunday (after the deal was announced) that U.S. stocks may trade limit down on Monday assuming the liquidation of massive position and a mad scramble for collateral that may actually be worth 100 cents on the dollar.

Obviously, that scenario did not materialize, due to some very nice work by the Fed, who acted with the speed of a private company, and completely obliterated the authority of the SEC in the process...no mean feat in a large bureaucracy.

Now comes the difficult part. The slippery slope of "bailout" has been greased, and at what point does the Fed say "no mas" to all the needy hands that are suddenly now raised?

The answer to that question is beyond the scope of this blog, as it concerns questions of national policy and questions of governmental power dating back to Mill and Locke.

However, confidence is returning. Again, there will be volatility in the finance sector as the pricing difficulties continue to be cleared, but this last episode has marked a turning point for global liquidity and confidence. A large player was forced to fall on his sword. The real economy is learning to live with a damaged financial economy.

Put another way, the problems that started over a year ago are now abating, and stewards of capital would be well-put to capitalize on these developments. There will be volatility short-term (next 30 days...short-term traders will do well here) but the 1320 S&P level that I spoke about here over a year ago will make a nice beachhead going forward.