'Financial 9/11' struck over $6.9 trillion from US economy during 2008
Stephen C. Webster
Published: Thursday January 1, 2009

Print This  Email This

Government bailouts total over $8.5 trillion, nearing a rivalry with US GDP

2008 is over, and we have survived it. Though for some of us, just barely.

2008 saw the greatest financial losses in generations, as $6.9 trillion poured from investors' coffers in the worst series of cascading disasters since the Great Depression.

The resulting panic was met with equally drastic action by the US Treasury and Federal Reserve bank. As pillars of the US economy toppled, the Fed government created an additional $8.5 trillion in currency liquidity and began handing out massive, low interest loans in hopes of stopping a chain reaction of failures.

This massive economic bloodletting threatens to rival the United States' GDP: a now-seemingly hapless $14 trillion.

James Bianco, president of Chicago-based Bianco Research Inc., told the Toronto Globe and Mail: "No one understands these numbers, and I include the Treasury Secretary [Henry Paulson] and the chairman of the Federal Reserve [Ben Bernanke]."

Increasingly, in 2008 the US is being said to have suffered a "financial 9/11."

Many blame the Republican party, namely the Bush administration, for letting it go this far.

The crisis, which grew dramatically in scope with the toppling en masse of shaky mortgages, resulted in credit markets freezing and widespread layoffs. From Dec. 2007 to Nov. 2008, 2.7 million Americans lost their jobs, raising the total number of unemployed to 10.3 million (6.7 percent), according to the US Department of Labor's November report on unemployment.

"The year began with many financial firms attempting to minimize losses tied to rising mortgage defaults and the deteriorating housing market," Forbes recalls. "Investment bank Bear Stearns Cos., which was heavily invested in bonds backed by troubled mortgages, was among the first to crack."

Sifting through the ashes, a Thursday report in the Washington Post tells the tale of the tape on Wall St.:

"The losses in 2008 were so broad and deep that every sector in the Standard & Poor's 500-stock index took a double-digit hit, and the financial sector lost more than half of its value. The Dow Jones industrial average, an index of 30 blue-chip stocks, and the S&P, a broader index watched by market professionals, were down 34 percent and 38 percent, respectively, their deepest losses since the 1930s. The tech-heavy Nasdaq composite index was down 41 percent, its worst year since the exchange was created in 1971."

"It was beyond most people’s comprehension that such a thing could happen," Marc Pado, chief market strategist at Cantor Fitzgerald, told the Financial Times. "No one thought the short-term could be this destructive."

For the year, America's financial sector took at 57 percent drop, said the Times.

The one bright spot, for consumers anyway, was the worldwide decrease in demand for crude oil, causing dramatic decrease in oil prices at the pump. On July 17, consumers paid the highest national average ever at $4.14 per gallon, but by Jan. 1, 2009 that figure had slid to just $1.61 per gallon, according to AAA.

And oil is expected to get cheaper in 2009.

In years past, market speculation inflated prices, said Joe Petrowski, CEO of Massachusetts-based Gulf Oil. Now that the prices are deflated, speculators may 'overshoot' and actually drive the consumer cost down further.

His statements came shortly before Merrill Lynch & Co. predicted oil prices will plunge to $25 a barrel in the coming year if the global recession begins heavily affecting China.

"With the economy expected to sour further during the first half of the year and poor corporate earnings likely to pile up as businesses account for the losses from the financial crisis and housing downturn, a stock market recovery will be bumpy," economic analysts told the Washington Post.

Hold on tight, America.