Say Goodbye and Good Riddance to 2008

It was a year when the most dire financial predictions finally came true. After years when the housing bubble inflated, American credit-card debt soared and global stock markets set record highs, everything was brought back to earth in 2008.

The Dow Jones Industrial Average, off 36% year to date, is on pace for its worst return in 77 years. European stocks have done even worse, and once-high-flying emerging markets lost nearly half their value over one four-month period this year reports the Wall Street Journal.

That left panicky investors with few secure options, other than retreating to the safety of U.S. government debt, where one-month notes sold in December yielded essentially nothing. Also this month, the National Bureau of Economic Research declared what many business executives and consumers already felt intuitively: The U.S. is mired in a recession, which the NBER says began in December 2007.

Over the Brink

Has there ever been a year when so many once blue-chip financial companies were pushed to the brink, and in some cases over it?

Shortly after Labor Day, the federal government seized mortgage giants Fannie Mae and Freddie Mac, sticking the American taxpayer with billions of dollars in losses from bad home loans.

The 158-year-old brokerage firm Lehman Brothers Holdings received no such help when it couldn’t raise cash, and was forced to file for bankruptcy protection. Insurance giant American International Group narrowly avoided the same fate by agreeing to hand over control in exchange for an $85 billion loan from Washington.

While AIG survived to live another day (and borrow even more taxpayer money), the net effect of these meltdowns was to cause the credit markets to freeze up further, preventing businesses across the country from borrowing money to meet even basic operating needs, like payroll.

Economists now fear that financial-industry disasters could splash across the industrial sector. Already, the auto industry has required government loans to stay afloat. These loans can be recalled if General Motors and Chrysler don’t demonstrate by March 31 that they are financially viable.

Several forecasters are now suggesting the U.S. is in the midst of the worst economic downturn since the Great Depression. But even if the overall prognosis is for more belt-tightening, job losses and bankruptcies, there’s at least some reason for hope buried underneath much of the obvious gloom.

Start with the U.S. economy. In November, the U.S. lost more than half a million jobs — the largest one-month drop since 1974, which brought total job losses this year to nearly two million.

Economists say with near certainty that the U.S. is in the most protracted recession since the end of World War II. The country also faces the worst housing market in generations. One out of every 10 mortgage holders is in arrears or has had his or her home repossessed.

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