My Top 10 News Stories of 2008
The “top news stories” for 2008 are starting to appear on many of the local and national news sites. Here is my own list of the top 10 news stories for the last 12 months:
10. The Curious Case of Sarah Palin (National)
9. Hurricanes Fay, Gustav, Hanna, and Ike
8. Earthquake in China & Cyclone in Myranmar (Global)
7. Iowan Shawn Johnson wins Olympic Gold (National)
6. Parkersburg EF5 Tornado (Local) & Boy Scouts killed by Tornado (Local)
5. $4.00 to $5.00 per Gallon Gasoline (National)
4. The Harsh Winter of 2008 (National)
3. The Iowa Floods of 2008 (Statewide)
2. The Election of Barak Obama (National)
1. The Worldwide Economic Crash (Global)
There is nothing magical about “top 10” lists of news stories. In putting together my list, I tried to place value on historical significance and news worthiness. While watching Shawn Johnson win Olympic gold, for example, is probably not on the same level of historical significance as the election of Barak Obama, it certainly consumed a lot of media time in Des Moines.
Historically, I believe the economic collapse will prove to be the story of the next several years. It will, I believe, define Barak Obama’s presidency; that is why I placed his election as second on the list.
Interestingly, five of the top 10 news stories were weather-related disasters. In Iowa, for example, we witnessed a hard winter, devastating tornadoes, historic flooding, and the start to another hard winter.
Here are some links to web sites with similar top news stories:
History in the Making
Last week, for the first time, the media started making vast comparisons between September 2008 and October 1929. The words “historic” and “depression” were clearly a part of the conversation.
Money and Markets does a good job of summarizing the historic week:
If you didn't have a chance to keep up with how things played out from day to day, let me do a quick and dirty recap:
Sunday: The Federal Reserve pumped a bunch of money into the system, increased the amount it will provide in its lending facilities and further liberalized the collateral it will except in exchange for loans.
Monday: Lehman Brothers declared bankruptcy. Bank of America took control of Merrill Lynch. And AIG's fate hung in the balance.
Tuesday: The Federal Reserve denied the markets a much anticipated interest rate cut. Instead, it followed with a two-year, $85 billion loan to bail out AIG.
Wednesday: The Treasury announced a finance program where it would auction off Treasuries, separate from what it already offers. The proceeds will go to the Federal Reserve to use for "initiatives."
Thursday: Central banks around the globe decided to join the party. They declared efforts to pump nearly $250 billion into the global system to avert a financial train wreck.
Henry Paulson spearheads a new $1.2 TRILLION bailout initiative.
Friday: We learned of a new initiative, spearheaded by Treasury Secretary Henry Paulson, to put together $800 billion in a new-fangled institution and $400 billion more at the FDIC. The money will be used to take crappy assets off troubled balance sheets and grease up money markets.
Prior to this week, steps taken to stabilize the market were considered ineffective. By the looks of it, though, this week's actions tell me these guys don't want to fail in their efforts to restore order ... again. But the condition of credit markets is far from cured.
(Source: http://www.moneyandmarkets.com/Issues.aspx?The-Moral-Hazards-of-This-Weeks-Events-2287)
Current Headlines
Look at some the recent headlines generated by last week’s implosion:
Meet the Press
Here is a portion of the conversation on NBC’s “Meet the Press” from Sunday, Sept. 21, 2008 between Tom Brokaw, Erin Burnett from CNBC, Steve Liesman from CNBC, and Steven Pearlstein from The Washington Post:
MR. BROKAW: Let's go around the table, if we can. Steve, let's begin with you. There's a good possibility that the credit markets will get stabilized as a result of this. But what about the overall economy? Is it going to get worse before it gets better?
MR. PEARLSTEIN: Yes. We've only seen the financial part of this, Tom. We have seen very little economic impact of this so far, and that's till to come. And, by the way, that's going to be the phase. We're going to have--the credit crunch is going to impinge on the real economy, and then the real economy is going to impinge back on the financial crisis. So we're going to have a rebound effect on smaller and regional, regional banks and medium-sized banks which haven't been caught up in this yet. They will get it when the economy goes down. So this thing is going to ping-pong back and forth between the financial economy and the real economy for at least two years.
MR. LIESMAN: I, I don't think so. If I could just say, Tom, what is amazing to me is however many days we are before the election, how marginalized the candidates have become. What's more important now is what the current administration is saying. I think both of these campaigns are beside themselves with how--behind the scenes, how unimportant they are. I got an angry note from one of McCain's people saying, "McCain came out with this big plan on Friday to solve the problem." Like, who cares? What I care right now is what's going on behind closed doors across town here at Capitol Hill.
MS. BURNETT: ...McCain had come out with something actually very similar to what was proposed by the Treasury secretary. But it, but it does seem, when you think about it, Newsweek's cover, "King Henry," was, was the most appropriate, Tom. And we, we--every morning I come on television, we say, "Live from the financial capital of the world." Well, today we are live from the financial capital of the world. I mean, it truly is an experiment--some people say "socialism," some people say taxpayers will get the upside. The center of the world right now is in Washington--the Washington of today, and, and Hank Paulson is the CEO of, of the United States.
MR. LIESMAN: A friend of mine said he was on his way back from Washington to Wall Street, and he said which is now the People's Republic of Wall Street.
Political Cartoons
Sometimes, it is the political cartoons that best capture the mood:
The Great Paradigm Shift
John Loeffler provides a good summary of the coming paradigm shift heading at Americans at an increasing speed. For several years, Loeffler has been talking about a window from 2009 to 2012 as the critical years when all the pieces begin to fall into place to create what Jim Pulplava has dubbed, "The Perfect Financial Storm."
In his July 18 episode of his weekly "Steel on Steel" webcast, Loeffler hosts:
- James Kunstler - The Long Emergency
- Warren Brucy - The Second Great Depression
- Matt Simmons - Twilight in the Desert
As we come out of this crisis, life as we know it will be very different than it has been. The Great Consumer Economy is coming to an end.
What is a paradigm shift? A paradigm is the way people perceive the world. As people go through a paradigm shift, there first inclination is to try to get things back the way they were. This is evident right now in our political leadership. Both major political parties are promising that the good times will continue to roll, in spite of the clear warning signs the economy has given us in the last year.
As people begin to recognize that perhaps things are not going to be like they used to be, they accept the new paradigm, but they still try to play by the old rules. Loeffler gives the collapse of the Soviet Union as an example. When the Soviet Union broke apart from 1989-1991, the paradigm changed. Unfortunately, the American political and military leadership still tried to play using the old rules of the cold war. It wasn't until 9/11 that Americans began to realize that the world was very different from the one we had lived in from 1946 to 1990.
The third stage = new time, new rules, new methods. The faster you get to that stage, the better you will adapt. Right now, the world is adapting very slowly to the new paradigm that is being thrust upon us.
Where are we now?
IndiMac Bank is the latest bank failure. The way we kept the economy afloat the last 15 years has been through inflation. Starting in the early 1990s, Alan Greenspan, then chairman of the Federal Reserve, started dumping liquidity into the markets. The result was the tech bubble of the late 1990s. By 1998 to 2000, everyone with any spare cash was investing. The news was buzzing with small investors who were suddenly millionaires (on paper). People with little, if any, investing experience were quitting their jobs to become day-traders. As this bubble began to collapse in 2000, the big investors got out in time, and a lot of little investors lost their shirts. Fortunately, for the government, 9/11 provided cover for the economic downturn and mild recession that started in early 2001 (months prior to 9/11).
Following 9/11, Alan Greenspan began to inflate the money supply again in an effort to bring the economy out of the mild recession, and the result this time was the housing bubble. Cheap, "no money down" loans flooded the market, and home buyers who were unqualified under old rules were encouraged by the government and by banks to buy into the housing market. Independent mortgage brokers began to spring up to meet the demand of buyers who were either moving into the housing market for the first time, or existing homeowners hoping to cash in their expanding equity for a bigger home plus cash to continue their consumer buying spree.
This combination of low interest rates, adjustable rate mortgages, and increasing home values provided enough stimulus to keep the economy growing until it all blew apart in August 2007. This is when the first edge of the large wave of bad loans created in late 2003 to 2004 (with three-year adjustable rates) began to readjust, and the home owners were unable to make their new mortgage payments. As a result, they defaulted.
This began a cycle that has not ended. Homeowners default, home values go down, homeowners who are unable to make their payments try to sell their home only to discover they now owe more on their home than the home is worth. This, in turn, drives more homeowners into default.
It took several months, but now we are watching the lending institutions start to collapse under the weight of these bad loans.
The Empire Strikes Barack
For those of you ready for a little humor in the battle between Barack and the Clintons, this is "must see TV."
It's Over?
I'm looking at MSNBC's home page, and without saying it, it looks like the long road to the Democratic nomination is over. Barak Obama has won. In the end, it looks like money will be the deciding factor.
As a political junkie, this has been one of the most fascinating political horse races to watch in recent memory.