Bill Bonner: Goodbye 2008, we'll miss you
By
Bill Bonner Jan 09, 2009
Print this article
The year of our Lord 2008 died in disgrace. It was tossed in a hasty grave and mud was thrown on its face as though on a dead dictator. 'Good riddance,' says practically everyone. But here on the back page, we're going to miss and mourn it. It may have been the worst year in stockmarket history, but we can't remember when we had such a good time.
Among the other milestones of 2008 came word that one out of 100 adults in the USA was in prison; but as the year progressed, that seemed like hardly enough. On 11 January 2008, for instance, when one of America's biggest mortgage lenders – Countrywide Financial – went bust. Or on 17 February, when Britain's Northern Rock was nationalised. Still, those who rule missed the calamity taking place right under their noses. "I don't think we're headed to a recession," said George W. Bush. "I don't think I've seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars," added Henry Paulson. Then, on 11 March, the treasury secretary went on to explain that the fallout from subprime mortgages was "largely contained".
The very next day, Bear Stearns CEO Alan Schwartz told the world that his firm faced no liquidity crisis. "We finished the year, and we reported that we had $17bn of cash sitting at the bank's parent company as a liquidity cushion," he said. That same week, SEC chairman Christopher Cox added that his agency was comfortable with the "capital cushions" at the nation's five largest investment banks.
Four days later, the cushions seem to have mysteriously disappeared. Bear Stearns faced bankruptcy brought on by collapsing subprime prices. In a desperate measure, the firm sold itself to JP Morgan the next day for $2 a share – a 98% discount from its high of $171.
By July, several things were clear: the subprime problem was not contained, the banks did not have enough cash, and every official – public or private – who opened his mouth was either a joker or a thief. On 16 July, Fed chairman Ben Bernanke told Congress that troubled mortgage giants Fannie Mae and Freddie Mac were "in no danger of failing". The next day, ABC interviewed Fannie Mae CEO Daniel Mudd. Would Fannie Mae need a bail-out, he was asked. "I think it's very unlikely," was the top man's view.
On 6 September, the US government nationalised both Freddie Mac and Fannie Mac, wiping out the shareholders. On the 14th, Lehman Bros. went broke. Lehman's main man, Dick Fuld, blamed the few people who actually seemed to know what was going on – those who sold the company's stock: "When I find a short-seller, I want to tear his heart out and eat it before his eyes while he's still alive." The day after, Merrill Lynch ceased to be an investment bank; it was taken over by the Bank of America. And the following day, the Fed bailed out American International Group Inc in return for an 80% stake.
But by the middle of September, the financial authorities – who neither saw no evil nor heard any – were on the case. On 18 September, the UK Financial Services Authority took the Dick Fuld approach; it banned short-selling financial stocks. The next day, US Treasury secretary Paulson took aim at the problem he never saw, calling on Congress to ante up $700bn. Whence cometh the $700bn figure? "It's not based on any particular data point, we just wanted to choose a really large number," said a Treasury Department spokeswoman. Besides, who had time to look for data points? "If we don't do this, we may not have an economy on Monday," said Mr Bernanke to the US Congress. Bernanke was as wrong about that as about everything else. Monday came. Monday went. The economy didn't seem to notice. But then, the US House of Representatives rejected Paulson's rescue plan and stockmarkets all over the world crashed. The Dow Jones posted its largest point decline ever. "I believe companies that make bad decisions should be allowed to go out of business," opined George Bush.
By early October, however, the world's rescuers had their defibrillators plugged in; Congress approved the acquisition of up to $700bn of Wall Street's toxic assets and the British Government announced a £500bn bank bail-out. "We not only saved the world..." began Gordon Brown's victory speech, before he was drowned out by the howls of Tories.
"I got to tell you," said Paulson on 13 November, "I think our major institutions have been stabilised. I believe that very strongly." Two weeks later, America's largest bank and its largest automaker were on the verge of bankruptcy. And by year-end, these jokers were in control of America's major industries – housing, autos, banking and finance: "...the lack of specifics [in the bailout legislation", explained a Bloomberg report, "gives president-elect Barack Obama plenty of leeway to decide who succeeds and fails..."
And as the year began its death rattle, America's president managed to capture the zeitgeist of the whole remarkable period with just a few flagrantly absurd bon mots: we had to "abandon free market principles to save the free market system", said he. Au revoir, 2008... sniff, sniff.
Published in
News & charts
| More
articles
by
Bill Bonner
Related articles
-
By John Stepek, Nov 12, 2009
-
By Matthew Lynn, Nov 06, 2009
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.
