2008 is finally at an end, and as the economy totters forward, we can say we survived a tumultuous year. That is an understatement. In my year end review of last year, I said that 2007 was the year it all hit the fan. In hindsight, the fan was just starting to spin last year. It was this year that the bad decisions of the last several years splattered all over the economy, affecting us all. This year was the year that prices of oil and other commodities skyrocketed to all time highs as the markets worried over the impact of runaway inflation, before crashing to historic lows as deflation became the watch word. This was the year that the stock market hit the skids at the same time that house values deteriorated throughout the country. This was the year that some of the mightiest banks and brokerage companies bit the dust or needed Government bailouts to survive. Credit default swaps became part of the national conversation and Ben Bernanke and Hank Paulson became central figures on the nightly news, instead of trivia questions for economics students. This was a year of fear, and uncertainty.

Here is a timeline to some of the highlights (low lights) of the year:

January –

• Bank of America, with low cost government financing, bought out the country’s largest mortgage banker, Countrywide as the company was near imploding.
• As overseas market started to tank based on bad news in the US economy, the Fed announced a surprise cut of ¾% in the Fed discount rate.
• The Bush administration proposed a $150 billion dollar stimulus plan (which seemed huge at the time) which would send out checks to all tax payers.
• Increases in conventional and FHA loan limits were proposed.
• The Fed cut rates again, this time by .25%, for a cut of 1.25% in one week. Is there panic in the air?

February –

• The markets worry about the effects of rate cuts on inflation, and mortgage rates move higher.
• Project Lifeline is announced, the first of several plans to help homeowners behind on their mortgage.
• FHA lending limits increased, making it available to more home owners and home buyers. As conventional guidelines continued to tighten, FHA took more and more of the market share.

March –

• There is panic in the mortgage backed securities market due when 2 lenders, Carlyle Capital and Thornburg Mortgage, are forced to liquidate mortgages to raise funds. This is a small taste of what is to come.
• The Fed cuts rates by another .75%
• Mortgage rates continue to move higher.
• The Fed stepped in to engineer an emergency bailout of Wall Street giant Bear Stearns which was choking from its exposure to bad mortgage debt. With Fed help, JP Morgan Chase bought them out for a price of $2 per share. They were at $68 a share just a week earlier.

April –

• Gas prices are rising and the markets are more and more worried about inflation.
• The Fed cuts again, this time by .25%, bringing the discount rate down to 2.00% – for what looks like this is the end and the Fed is done cutting.

May –

• Conventional underwriting tightened again, and FHA moved toward risk based pricing.
• Fannie Mae drops its declining markets policy, which should be a big boost for real estate, but the PMI companies keep it in place.
• Oil prices hit an all time high of $135 per barrel. With gas prices over $4 per gallon inflation is the big worry.
• The Illinois Anti Predatory Lending law takes place, but all the loans it is supposed to regulate have already been eliminated due to market conditions.

June –

• Mortgage rates hit the highest point in over a year as inflation fears near their peak.
• Lenders write off more losses on their loan portfolios.
• The stock market, which had been volatile all year, starts diving lower.
• Oil prices hit their peak at $147 per barrel.

July –

• Indy Mac bank collapses, making it the 3^rd biggest bank collapse on record.
• The Treasury steps in with an extension of credit for mortgage giants Fannie Mae and Freddie Mac in the hope that it won’t need to do a full scale bailout.
• The oil bubble pops and oil prices start to fall.
• A new housing bill is passed, giving more credit to Fannie and Freddie, a $7,500 tax credit for first time home buyers and eliminating the FHA down payment assistance programs, one of the last ways to buy a home with no down payment.

August –

• This was the calm before the storm. The economy is slowing but inflation levels are still high.
• Lots of rumors and uncertainty on the economy.

September –

• Fannie Mae and Freddie Mac are bailed out and taken into a government conservancy.
• Mortgage rates drop close to their yearly lows.
• A big bomb goes off on Wall street when Lehman Brothers is allowed to fail, Chase buys Merrill Lynch and insurance giant AIG gets a government bailout.
• The repercussions from the Lehman collapse is the start of a true credit crunch, and banks are now afraid to lend to each other, or anyone else.
• The Fed, along with other national banks, steps in with $250 billion line of credit for the major banks.
• The Fed and Treasury come up with the Tarp plan to use $750 billion of government money to buy back the toxic mortgages that are at the heart of the economic problems, re-capitalizing the banks and getting them to lend again.

October –

• The stock market is diving again.
• Volatility centers around the Tarp plan, and whether it will make it through congress. The bill goes from a 3 page out line to over 400 pages before getting passed.
• The TARP plan passes, but there is no real change in conditions.
• De-leveraging is the theme, as big investors sell everything to raise cash.
• Oil drops below $70 a barrel.
• The Fed lowers the Fed Funds rate down to 1%.

November –

• Libor and other short term interest rates move lower as some signs of the credit crunch start to ease.
• Job losses accelerate.
• The Big 3 auto makers hit the skids, and talk of a needed bailout.
• The Fed announces a plan to buy up to $600 billion in mortgage backed securities, and mortgage rates drop.

December –

• It’s officially announced that we’ve been in a recession for a full year.
• The Fed drops mortgage rates to a range of 0 to .25% – effectively 0.
• The Fed also commits to buying more bundled assets like student loans and car loans, trying to bring more liquidity to stalled out markets.
• The GM and Chrysler get their bailout, but big strings are attached and we know they will be back for more soon.
• Oil close the year at just over $40 per barrel, less than a third of its high over the summer.
• Mortgage rates fall further, and refinances boom.

I think we should all give ourselves a little pat on the back for surviving this year. There are still huge problems with the economy and with the real estate market, but there are signs to be optimistic, too. We will see what happens in the coming months and over the course of the year, but for now enjoy the New Year and my hope is that this will be a much more prosperous and less stressful one for one for all of us.

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