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26 December 2008

Year in Review - 8 Days to Remember

The year 2008 was a wild ride for investors and a turning point in the American economy. It could be very well the year that marks the end of economic dominance by the United States. Here are some defining days in this wild ride.

June 6, 2008

Crude oil prices were soaring, this was the worst day on Wall Street before the credit crisis hit. Oil had risen $16 in two sessions, was up $10.75 that Friday. Wall Street sold off 394 points or 3.13% but was still at 12,209.

Consumer spending became a huge worry as gas prices spike to $4 a gallon and unemployment jumped to 5.5%, biggest one month surge in 20 years. Demand dropped leading to gas prices plummeting in late summer.

The government's $100 million stimulus package was having little effect.

September 15, 2008

The stock market dropped 504 points or 4.42% as the 158 year old investment bank Lehman Bros. declared bankruptcy. The Dow was trading at 10,917.

Stocks traded lower on further news that AIG was having trouble raising capital to fend off a downgrade. Later that week the government would bail out the company for $85 billion.

Also, Merril Lynch sold itself to Bank of American and Washington Mutual searched for a white knight to avoid bankruptcy. One month later it would become the biggest bank failure in history.

Quick action by the Federal Reserve, FDIC, Treasury and lawmakers would pour trillions of dollars in rescue money into the system. This day would make the start of the credit freeze.

September 29, 2008

Congress rejected a $700 billion bailout plan presented by the Treasury and Federal Reserve. Investors expected this to pass, when it didn't stocks would sell off in its worst day ever, dropping nearly 800 points in one day. The plan would pass a week later.

October 9, 2008

The Dow fell 2,400 points in the trading sessions spanning Oct. 1- Oct. 10, a drop not seen since 1930. On this day the Dow, trading at 8,579, dropped 7.33% as Treasury officials said they would purchase equity stakes in banks.

Announced just a week after the bailout plan was approved, the plan was radically different than the plan that was sold to Congress. The market shunned the strategy shift.

The Chicago Board Options Exchange Volatility Index, a measure of investor fear, rose as high as 64 on Oct. 9th, the first time it ever rose over 60. Later in the month it would reach 90 before falling back to 50. The index typically trades between 15-20 and never rose above 30 before this year.

October 13, 2008

The Dow would rally back 936 points or 11.2% cutting its loss from the 8 day slide in half. A series of global initiatives and details about the $700 billion bailout plan being announced was credited for the bounce.

In addition to buying up equity stakes in banks, and, eventually, mortgage-backed securities, Treasury said it would purchase whole mortgage loans, insure home loans against default and help keep delinquent borrowers in their homes.

On Oct. 12, 15 European nations agreed to help their troubled banks by injecting capital and guaranteeing inter-bank lending. Additionally, the British government said it would pump $63 billion into three of the country's banks.

The U.S. Federal Reserve responded by offering an unlimited supply of dollars to three other central banks in an effort to keep money flowing. The list eventually grew to 13 foreign central banks.

October 15, 2008

In its biggest percentage drop since 1987, the Dow lost nearly 8%. It has fallen 35% year to date. The Dow is trading at 8,577.

The market was taking its cues from some gloomy economic indicators including a report that showed retail sales suffered their biggest drop in three years.

Comments by San Francisco Federal Reserve President Janet Yellen drove the point home by announcing that the economy "appears to be in recession".

November 5-6, 2008

While the nation rejoiced in Obama's victory, the market shifted its focus back to the economy. The Dow rose 300 points as the election got under way, but then quickly reversed to its worst ever two day point loss, dropping 929 points or 9.66%.

Unemployment was the stimulus for the declines as claims shot to a 25 year high.

December 1, 2008

Confirming what the rest of the world has known for the past year, the National Bureau of Economic Research announced that the economy is in a recession.

Stocks tanked, even though the news was not a surprise, on the predictions that the recession could last well into 2009 and be the longest in history.

The market's selloff came after a huge 5-day surge in which the Dow gained just under 17% in the closing week of November. In a sign of a tumultuous year, that rally came after stocks hit multi-year lows Nov. 20, with the Dow sinking to near 7,500 points.

Fed Chairman Ben Bernanke added that the economy will take some time to recover even after the credit crisis is over.

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