I’m sure most journalists & analysts will fail to put into perspective just what an extraordinary year 2008 was. Here are a few memorable “highlights” (I’m sure I missed a bunch):
2008 “Highlights”:
The Dow dropped ~34%, worst year since 1931
The S&P 500 dropped ~39%, worst year ever
The NASDAQ dropped ~40%, worst year ever
Median home down 13%, worst year ever (since tracking began in 1961)
Household wealth dropped by $10T (biggest loss ever)
Unemployment (even the fictitious government numbers) hit a 26 year high
Total US Debt (excluding unfunded pensions/medical) highest ever ($53T = $700k per family of 4)
A country (
The largest insurer (AIG) failed
The two largest mortgage issuers (FNM/FRE) failed
The largest S&L (Washington Mutual) failed
The two largest investment banks (MS/GS) failed
The largest (remaining) subprime lender (IndyMac) failed
The largest auto maker (GM) effectively failed
The PBGC is now insolvent
The FDIC is now insolvent
The SEC looked the other way on blatant fraud, even when painstakingly documented (Madoff)
Bond ratings were proven worthless (always were, but now everyone knows it)
Investors started pricing in a Treasury default
Securitization market seized up (and could remain that way for a long time)
Muni market seized up (and could remain that way for a long time)
Corporate debt market (esp junk) seized up (and could remain that way for a long time)
The Fed/Treasury committed $8T ($2.3T already spent) without any appreciable benefit
The Fed demonstrated it can expand its balance sheet without any apparent limit (or oversight)
The Fed/Treasury successfully blocked every FOIA request from taxpayers/citizens
The Fed/Treasury became the lender of “first” resort
The Reserve Bank of
Those least deserving of a bailout received one
Some sobering thoughts for 2009 and beyond:
Derivatives ($650 Trillion) have only experienced minor counterparty failures (so far)
The largest Ponzi scheme (worldwide fiat currencies) hasn’t collapsed (yet)
The 2nd largest Ponzi scheme (fractional reserve banking) hasn’t collapsed (yet)
The 3rd largest Ponzi scheme (Medicare) hasn’t collapsed (yet)
The 4th largest Ponzi scheme (Social Security) hasn’t collapsed (yet)
The “Alt-A” (aka “liars loans”) bubble hasn’t burst yet (>$500B of opt-ARMs to recast in 2009-2012)
Housing inventory continues to rise (~12 months now) adding more pressure to prices
Over half of the mortgage “workouts” default again within 6 months
More hedge funds will fail
More money market funds will fail (i.e. “break a buck”)
More insurance companies will fail
200,000 retail stores are expected to close in 2009
More municipal bankruptcies are expected for 2009
Unemployment will worsen
Most large pension funds (i.e. GM) are now hopelessly underfunded
TARP legislation allows suspension of “mark-to-market”
TARP legislation allows suspension of reserve requirements
Every corporation is now “too big to fail”
Every corporation can now become a bank, even if they don’t resemble one (AmEx)
Most corporations can’t afford to roll their existing debt
The most toxic assets are kept off-balance sheet, hidden from investors
No income statement or balance sheet is trustworthy
Foreigners are still buying T-Bills at 0.1% and 10-yrs at 2.2%
Foreigners are still accepting US Dollars as payment
Markets are still expensive by all traditional measures (P/E, yield, etc.)
The Dow/Gold ratio is still a “lofty” 10 (historic bear market lows are in the 1-2 range)
The deficit may approach $2T in 2009
We seem to quickly be crossing the Rubicon from (what was left of) capitalism to fascism/communism
The IMF hinted it might print its own money
The Fed hinted it might issue its own bonds
The Fed is way beyond its original charter; Congress stands aside and watches
Many households are insolvent but haven’t realized it yet
Many corporations are insolvent but haven’t realized it yet
The government is insolvent but hasn’t realized it yet
Final thought: When the excesses are an order of magnitude (or more) beyond those leading up to the Great Depression, why shouldn’t we expect the pain of the correction to be an order of magnitude worse?
Best wishes for what is certain to be a very interesting 2009!
