The Market Needs Yellen

 | Oct 09, 2013 | 1:00 PM EDT  | Comments
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Now that U.S. stock markets have come back from the abyss they were facing five years ago, it's very easy to point fingers, assign blame and even criticize Fed Chairman Ben Bernanke for printing too many greenbacks. Yet where was all that criticism five years ago when everyone was desperately seeking a lifeline?

In a recent interview in Bloomberg Businessweek, Michael Lewis, author of The Big Short, commented that the only justice that came out of the financial crisis was the failure of Lehman Brothers. In his view, allowing the likes of Goldman Sachs (GS) and Bank of America (BAC) to benefit from government assistance was the injustice. He recognizes that things would have gotten really bad if TARP wasn't created but feels we would have been better off without it in the end.

Lewis is brilliant, but I will respectfully disagree. Toxic credit wasn't only affecting banks but the likes of AIG (AIG), which insures hundreds of thousands of people as well as provides credit default insurance all over the economy. Businesses such as General Electric (GE) were going to be affected.

So Bernanke's actions, in my view, were more than warranted. Let's not forget that his predecessor Alan Greenspan was a big enabler of the housing bubble. Bernanke did not ask for an epic crisis; he inherited it. And he basically had no playbook; he had to create one. His moves have worked. And while there will likely be some consequences down the road, I don't think they will be as painful as those that would have occurred in 2008 had it not been for Bernanke, Hank Paulson and a few others.

Janet Yellen is a good transitional choice, and it was wise to go ahead and provide certainty, especially now, on who would fill the most powerful economic position in the entire world. While its public knowledge that Yellen supports quantitative-easing measures, her pending new role as chair of the Fed provides for an orderly changing of the guard. And that's exactly what the market needs right now as the uncertainty continues to grow with respect to when the government shutdown will be resolved and what will happen with respect to the debt ceiling.

Yellen's imminent appointment as Fed Chairwoman is surely no guarantee that the Fed will continue to buy bonds. Bernanke has three months to go, and the Fed could decide to slow down before January 2014. At the current juncture however, what Congress does in the coming days and weeks will dominate just about any other financial headline or market headline. In the meantime, let's hope that a Yellen confirmation goes smoothly and doesn't also become a negotiating chip.

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