Year in Review 2008: Top Business Headlines
With that in mind, we take a look back at the biggest business stories of 2008, sincerely hoping that this time next year will allow us to look back at the corners that were turned and the benchmarks that were passed on the road to recovery.Subprime mortgages. Giving ultra-low rate mortgages to risky creditors was a good idea so long as housing prices continued to ascend and the collateral was golden. But the market could only sustain overinflated prices (fueled by real estate speculators and cheap loans) for so long, and as value dropped and tricky balloon payments kicked in, foreclosures mushroomed.
Banking bust. The mortgage mess triggered an unexpected fiasco: Risky loans were often split into tiny pieces and then reconstituted as high-grade investments. Not only did many financial institutions buy and sell the junk, but they participated in side bets called "credit default swaps" that also went bust. Mortgage lenders Fannie Mae and Freddie Mac; banking titans, such as Citigroup and Washington Mutual; and Wall Street icons such as Lehman Brothers and AIG went belly up or at least headed that way as a result.
Credit crunch bailout. In July, IndyMac bank, a major mortgage lender, failed, and depositors lined up down the block to withdraw their money. It would become a metaphor for the banking industry: Many institutions held more bad debt than good deposits. The result was a swift decrease in credit that reached from business loans to credit cards to car leases. Congress responded with a $700 billion "rescue" known as the Troubled Assets Relief Package. The money was originally intended to buy up those troubled mortgage-backed securities. Eventually a good chunk of it ($250 billion) was injected directly into banks. As of late 2008, the heads of said institutions could not explain what they've done with all that taxpayer cash.
Auto industry implosion. No credit? No new car. What's worse, the same day IndyMac signaled the coming credit crunch, the national average for a gallon of gas peaked at $4.11 a gallon. The American auto industry, fat from nearly a decade of profitable sales of gas guzzling SUVs and trucks, was caught off-guard. Dealers started going out of business, automakers shut down production for days and even weeks at a time, and even imports piled up unsold at U.S. ports.
Jobs. When auto dealers, Wall Street firms and major banks go out of business, people end up unemployed. Firms from Starbucks to Citigroup to Motorola cut jobs. The national unemployment rate hit 6.7 percent at the end of the year--the highest it's been since 1982.
Gas. That old perfect storm kept raining on the economy, with gas prices peaking at more than $4 a gallon nationally in July. Fuel-guzzling airlines added baggage handling fees and surcharges to ticket prices, SUV sales got so bad that GM tried to unload its Hummer brand, and Americans stopped driving as far and as frequently as they once did. Oil producers blamed high demand, especially from an ever-growing China, but as the global economy sputtered last fall, demand dropped and gas prices plummeted to below $2 a gallon by winter.
Stocks. The Dow Jones industrial average stock index peaked at 14,164 on Oct. 9, 2007. Since then it's lost about 40 percent of its value. Workers saw their 401(k)-based retirement accounts deflate. Many public companies saw their values decrease tenfold. Investor Kirk Kerkorian, who had major holdings in Ford and MGM Mirage, reportedly lost $13.5 billion on the market by October.
Recession. The little-known Business Cycle Dating Committee of the National Bureau of Economic Research made it official on Dec. 1, but it seemed everyone knew for months. In fact, the committee said the recession started in December 2007, giving some hope that a turnaround could be close.
Joe "the Plumber" Wurzelbacher. Here's the handyman who became an instant celebrity when Senator and presidential hopeful John McCain took up his cause. Wurzelbacher had confronted opponent Barack Obama at an Ohio rally, arguing that Obama's plan to increase taxes on the top 5 percent of income earners would be so onerous as to block his dreams of one day purchasing a high-income enterprise. McCain attempted to use Wurzelbacher to paint Obama as anti-business but, considering the election results, it might have backfired.
Scandal. Even amid the gloomy economic news--with Americans losing homes, jobs and retirement investments at historic rates--greed endured. Examples of scandalous contempt abounded, from Bernard L. Madoff, the former NASDAQ chair accused of bilking investors out of $50 billion, to the heads of GM, Ford and Chrysler, who flew in private jets when they went to Congress to beg for money, to the AIG executives who treated key employees to a $440,000 retreat complete with spa treatments only days after receiving an $85 billion taxpayer bailout.