A Look Back at an Ugly Year

This past year contained some of the most severe economic turmoil since the days of the Great Depression. Even covering only the major events (catastrophes) of 2008 would fill a major city's newspaper, so I'll just provide a synopsis of those things that shaped the past 12 months.

• A Federal Reserve-backed fire sale of Bear Stearns foreshadowed the oncoming near-collapse of the global financial payments system. By the time everything was (is?) said and done, Lehman Brothers collapsed, Fannie Mae/Freddie Mac and AIG were nationalized, two of the largest bank failures on record occurred and the remaining large Wall Street investment firms were essentially forced into reconstituting themselves as old-fashioned bank holding companies.
• U.S. fiscal and monetary policymakers took massive steps to prevent financial market armageddon. The interventions started out with the relatively modest (in federal budget terms) $27-billion Bear Stearns deal as well as a few loan facilities, and have only ballooned from there. Among these are the $700 billion TARP, the $2.2 trillion (and growing) Fed balance sheet and the lowering of short-term interest rates to practically zero.
• The U.S. housing market continued to sink further and further into the abyss. Hamstrung by a rising tide of foreclosures, prices continue(d) to decline precipitously in virtually all major markets. Private and public efforts to stem the incidence of mortgage defaults and foreclosures were put in place, but have had very limited success due to a combination of a weakening labor market, erstwhile poor underwriting standards and persistent downward pressures on home prices.
• Commodity prices experienced the equivalence of a decade-long cycle in less than a year. After spiking to an all-time high of approximately $147 in mid-July, crude oil will likely close the year at below $40 per barrel. While the collapse is certainly a boost to decimated business and consumer balance sheets, the fact that energy and commodity prices are typically perceived as an indicator of the global economy's health, such a steep decline cannot be seen as a good sign.
• Oh yeah, some other stuff happened, too, including: the erasure of the 2002-2007 stock market bull run, the Detroit Three automakers teetering on the edge of failure due to plummeting auto sales, and the uncovering of Bernie Madoff's $50 billion Ponzi scheme.