2008 - Top 10 Business Stories

Top 10 Business News Stories of 2008

(Results of the Associated Press Annual Poll U.S. newspaper and broadcast editors):

1) Wall Street Turmoil - Mortgage securities devaluation, freezing of debt markets, largest bank failure in U.S. history (Washington Mutual), $150 billion government loan to American International Group Inc. (took over Fannie Mae, Freddie Mac), Merrill Lynch acquired by BofA, Goldman Sachs Group Inc., Morgan Stanley transformed into commercial banks, government agreed to shoulder hundreds of billions in possible losses, plowed $20 billion into Citigroup Inc.

2) Real Estate - Foreclosures hit new highs, housing starts hit all-time low.

3) $700 Billion Rescue ('Bailout') Package - First half ($350 billion) allocated to banks, insurers, automakers.

4) World Economies - Argentina nationalized pension funds; Iceland's three main banks, currency collapsed; Japan, much of Europe fell into recession; China's exports plunged in November by largest amount in seven years.

5) Oil Prices - The global economic angst produced hyper-volatile energy markets. The price of crude soared as high as $150 a barrel in July before crashing to $33 this month. In the U.S., the average price for a gallon of regular gas peaked at $4.11, then plunged below $1.70.



( http://graphics8.nytimes.com/images/2008/12/16/business/16oil.graphic.gif)

6) Stock Market Losses - Everywhere; Russian authorities closed Moscow's stock market for days at a time; Wilshire 5000, broadest measure of U.S. stocks, down more than $7 trillion for year.

7) Detroit Bailout - U.S. automakers' sales down about 16% for year, GM/Chrysler running out of cash; Bush administration reversed course, offered $17.4 billion in rescue loans.

8) Commodities Prices Rise - Prices for corn, fuel, grains soared; American shoppers grappled with substantial food inflation for first time in 17 years; USDA forecast food prices would rise 5-6% for year (compared with average 2.5% annual rise for prior 15 years).

9) $50 Billion Ponzi Scheme - Bernard Madoff earned steady returns of 7-9%/year, in good/bad markets, for almost 20 years; December - admitted returns were falsified, his investment company was a scam; could cost investors %50 billion, largest Ponzi scam in history.

10) Money Market Reserve Primary Fund - invested heavily in Lehman debt, asset value fell to 97 cents for every $1 invested; first time in money market industry in 14 years; $40 billion in redemption orders in week Lehman filed for bankruptcy.

Fed Funds Rate - Lowest in History

U. S. Monetary Policy


December 16, 2008 - Federal Reserve lowered
target for overnight Fed Funds rate to range of 0.25%
(essentially 0% - similar to zero-rate policies used by Japan in
fight against deflation); lowest rate in history - July 1954
(0.80) - June 1981 (19.10) - December 2008 (0.25).




(source: http://research.stlouisfed.org/fred2/data/FEDFUNDS_Max_630_3778.png)

Consumer Spending - Retrenchment

Economics - Consumption

Consumption - Americans claim to be less interested in spending than at any time in last 4 decades (credit crisis, recession); will low prices still draw consumers? (Black Friday - from red ink of losses for year into black ink of profitability for retailers); 3Q 2008 - Commerce Department reported personal consumption spending, adjusted for inflation, fell at 2.7% annual rate, (biggest decline since 2Q 1980 which was helped by tax rebates from stimulus package); economy contracted 0.5%; Conference Board reported 1.9% of respondents (to its 40-year monthly survey of major-items purchase plans for next 6-months) planned to buy a house (lowest since 1982, double-digit interest rates - see below), 3.7% planned to buy a car (lowest in 40 years vs. previous low of 4.5%), 1.3% planned to buy a new car (lowest in 40 years), 8.8% think jobs are easy to find (lowest in 15 years).

(http://graphics8.nytimes.com/images/2008/11/29/business/1129-biz-CHARTSweb.gif)

Digital Music Milestone

Entertainment

November 26, 2008 - Atlantic Records, unit of Warner Music Group, said 51% of its music
sales in United States are now from digital products (downloads on iTunes, ring tones for cellphones, ringbacks, satellite radio, subscription services); first major record label to hit milestone; 4Q 2008 - digital represented 27% of its Warner's American recorded-music revenue; digital revenue for full fiscal year rose 39%, to $639 million, or 18% of company’s total revenue; 2013 - music sales in United States will decline to $9.2 billion,
from $10.1 billion in 2008 (source: Forrester Research), $14.6 billion in 1999 (source: Recording Industry Association of America); 2009 - NBC expects $1 billion in digital revenue (2007 revenue more than $15 billion); Time Inc., largest magazine publisher, about 9% of
its $2.2 billion revenue in first half of 2008 derived
from digital; online revenue accounted for 12.4% of New York Times overall revenue.


 (http://graphics8.nytimes.com/images/2008/11/26/business/1126-biz-webMUSIC.gif)

Stock Market - Worst Year Ever?

2008 - Stock Market on track for worst year since 1931:

1) November 21, 2008 - S & P 500 index traded to an intraday low of 741.02 = down 47.5% from 12/31/2007 close of 1411.63 (down 45.52% year-to-date);

2) 1931 - Dow Jones Industrial Average fell from 164.50 on 12/31/1930 to 77.90 on 12/21/1931 (down 52.64%), to 41.22 on July 8, 1932 (down 89% from September 1929 high); closed at 60.32 on December 30, 1932)

3) 1937 - DJIA closed at 120.85 on December 31, 1937, down 32.8% from 179.90 at the end of 1936

4) 1974 - worst post-Depression
year, until now; S & P 500 lost 29.7% (down to 68.56 from 97,55, worst postwar recession year);

5) October 2008 - worst-ever monthly point decline for the S&P 500, 8th-worst percentage decline.



(https://news.fidelity.com/pf/content/images/Investing/Markets/sp-worst.gif)


(http://graphics8.nytimes.com/images/2008/11/21/business/1122-biz-CHARTSweb.gif)

Crisis of Confidence for U.S. Consumers

November 12, 2008 - Sales of new vehicles have dropped 32% in the third quarter 2008. Consumer spending appears likely to fall next year for the first time since 1980 and, perhaps, by the largest amount since 1942. 1950s through the 1980s — Americans spent about 91% of their income, on average, and put away the rest. Last few years - Americans have spent close to 99% and saved only about 1%.



(http://graphics8.nytimes.com/images/2008/11/12/business/1112-nat-webLEONHARDT.jpg)

Wall Street's 75-Year Round-Trip (Pt. 2)

Bailout; Wall Street's 75-Year Structural Round Trip




(http://graphics8.nytimes.com/images/2008/09/17/business/17aig01-190.jpg)

Bailouts, buyouts, takeovers of financial services companies in US and Europe since July 2007 (when subprime mortgage crisis began) -

July 2007 - IKN Deutsche Industriebank ($79 Billion), Sept. 2007 - Northern Rock ($216.8 B); Dec. 12, 2007 - Central banks in US, EU, Canada, Switzerland announced plan to provide at least $90 B in short-term financing to banks; Dec. 18, 2007 - European Central Bank injected $500 B into financial system; Jan. 2008 - Countrywide Financial ($172.1 B); March 7, 2008 - Federal Reserve offered $200 B in 28-day loans to investment banks, big financial institutions; March 11, 2008 - Federal Reserve offered $200 B in Treasury securities to investment banks in exchange for mortgage-backed securities; March 17, 2008 - Bear Stearns ($399 B); March 21, 2008 - European Central bank offered $24 B in loans to help banks strengthen balance sheets; Bank of England offered $10 B in loans; April 2008 - Dusseldorfer Hypothekenbank ($42.5 B); July 2008 - IndyMac Bancorp ($32.3 B); Alliance & Leicester ($153.4 B); Aug. 2008 - Roskilde Bank ($7.9 B); Sept. 7, 2008 - Freddie Mac ($879 B), Fannie Mae ($885.9 B); Sept. 14, 2008 - Merrill Lynch ($966.2 B); Sept. 15, 2008 - Lehman Brothers ($639.4 B); Sept. 16, 2008 -AIG ($1,049.9 B); Sept. 18, 2008 - HBOS ($1,356.5 B); Federal Reserve, European Central Bank, Bank of England, Bank of Japan, central banks in Switzerland and Canada made $180 B available in currency swaps; September 22, 2008 - Goldman Sachs Group nd Morgan Stanley converted to traditional bank holding companies; Sept. 26, 2008 - Washington Mutual ($309.7 B); Sept. 29-30, 2008 - Fortis ($1,533.2 B), Wachovia ($812.4 B), Hypo Real Estate ($622.2 B), Bradford & Bingley ($104 B), Gilitnir ($48.9 B), Dexia ($913 B)

October 2008 - Return to 1932 Structure: Commercial banks and Small finance boutiques (Meet the new Goldman Sachs, Kidder Peabodys, Kuhn Loebs, Morgan Stanleys -

(http://graphics8.nytimes.com/images/2008/09/23/business/0923-biz-webSTREET.gif)

October 3, 2008 - President Bush signed Troubled Asset Relief Program, $700 billion program to buy illiquid debt, backed by home loans, on bank balance sheets, free flow of credit to companies and consumers.

History of U.S. Government Bailouts - Chronological Order, Cost in 2008 Dollars

(Source: ProPublica, independent, non-profit newsroom that produces investigative journalism in the public interest; http://www.propublica.org/images/articles/bailout_balloons4.gif);

Left to Right (actual $/ 2008 $) - June 1970 - Penn Central Railroad ($676.3 million in loan guarantees/ $3.2 billion); August 1971 - Lockheed (Emergency Loan Guarantee Act, $112.22 million/ $1.4 billion); 1974 - Franklin National Bank ($1.75 billion/$7.7 billion); 1975 - New York City (New York City Seasonal Financing Act, $2.3 billion /$9.4 billion); 1979 - Chrysler (Chrysler Loan Guarantee Act, $1.5 billion in loans/$3.9 billion; 1984- reported $1.7 billion in profits for second quarter, government profit of more than $660 million from bailout investment.); 1984 - Continental Illinois Bank ($9.5 billion); 1989 - Savings & Loans (Financial Institutions Reform Recovery and Enforcement Act, about $220.32 billion; taxpayers responsible for about $178.56 billion, balance covered by private sector); 2001 - Airlines (Air Transportation Safety and Stabilization Act, $5 billion in compensation, additional $10 billion in loan guarantees or other federal credit instruments/ $18.6 billion); March 2008 - Bear Stearns ($30 billion); September 2008 - Fannie Mae/Freddie Mac (U.S. government seized control, $200 billion); September 2008 - American International Group (AIG) - $85 billion; September 2008 - Autos (Congress approved more than $630 billion spending bill, $25 billion for auto industry); October 2008 - Wall Street (Troubled Asset Relief Program, $700 billion).

October 2008 - Size of Market for Derivative Products



(http://graphics8.nytimes.com/images/2008/10/09/business/1009-web-GREENSPAN.gif)

October 8, 2008 - Total value of Dow Jones Wilshire 5000 = about $11.7 trillion, down $7.4 trillion (about 40%) from October 9, 2007 - stock market's all-time high; total value of all stocks = just over $19.1 trillion. Trading through October 10, 2008 below.



(http://bigcharts.marketwatch.com/charts/big.chart?symb=%2Edji&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&size=2&state= 8&sid=1643&style=320&time=8&freq=1&nosettings=1&rand=9800&mocktick=1)

Famous Unheeded Words on Derivatives:

Warren E. Buffett presciently observed five years ago that derivatives were "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential "hydrogen bombs."

George Soros, the prominent financier, avoids using the financial contracts known as derivatives "because we don’t really understand how they work."

Finally: Words of a Sage - "Those Who Aren't Being Paid What They're Worth - Should Be Happy About It!!" - 'They' never were on Wall Street.