Seven 2009 memories sure to stay with you, like it or not
A spectacular market crash, a dramatic rebound, a financial system and economy pulled back from the brink of collapse -- who writes this stuff, Hollywood?
The most emotionally riveting reality TV of 2009 was what emanated regularly from Wall Street and Washington, although Sacramento didn't lack for effort, either.
Here are my picks for the year's seven most lasting financial memories:
1. Market Timer of the Year: President Obama. Wall Street greeted Barack Obama’s ascendance to the presidency on Jan. 20 with a 4% dive in the Dow Jones industrial average, the biggest Inauguration Day drop in the Dow’s 113-year history. It was mostly downhill from there.
By March 3, with the Dow at 6,726.02 -- down 15% from Inauguration Day and down 52% from its 2007 all-time high -- the president decided to offer Americans some technical investing advice.
"What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you've got a long-term perspective on it," Obama said at the White House while meeting with British Prime Minister Gordon Brown.
He may have mangled the terminology, but Obama's timing couldn’t have been much better: Just six days later, on March 9, the stock market finally bottomed at 12-year lows, with the Dow closing that day at 6,547.05.
The market’s gains since Obama’s March 3 “buy” recommendation: 57% on the Dow, 62% on the Standard & Poor’s 500 index and 73% on the Nasdaq composite.
2. Has $787 billion ever made so few people happy? The Obama administration’s economic-stimulus spending program, passed by Congress in February, was ridiculed from the get-go as too little, too late, too much pork barrel, or all of the above.
The White House may have figured that that would be the Republican response. But it had to wince when Caterpillar Inc., whose CEO Jim Owens sat on Obama’s Economic Recovery Advisory Board, said in its first-quarter earnings release April 21 that the infrastructure spending in the stimulus plan was “less aggressive than other countries and missed an opportunity to correct past underinvestment in U.S. infrastructure.”
Then Caterpillar held up China as an example of how to do stimulus right. "China, with an economy one-third the size of the United States, is allocating over three times as much for infrastructure," the company said. "Initial results from this package look promising."
Billionaire Warren Buffett wasn’t much more complimentary toward the stimulus plan in July, calling it “sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in.”
Of course, in some circles that might at least qualify as a fine start to an evening.
3. We have a plan, we're working on it. No, really we are. Investors waited, waited, waited last winter for Treasury Secretary Timothy F. Geithner to flesh out the details of the White House’s promised plan to deal with the banking industry’s mountain of toxic real estate debt.
Geithner’s foot-dragging contributed to Wall Street’s sense that the administration really had no plan, and was prepared to just default to the idea of nationalizing the biggest banks, in the same way that the Bush administration unexpectedly took control of Fannie Mae and Freddie Mac.
Even “Saturday Night Live” picked up on the markets’ exasperation. In a skit on March 7 -- two days before stocks hit their bear-market lows -- SNL’s Will Forte played a clueless Geithner hosting a call-in TV show to offer $420 billion to anyone coming up with a solution to the banking crisis.
The Treasury finally unveiled its Public-Private Investment Program on March 23, agreeing to partner with private investors to buy up to $1 trillion in toxic mortgage assets. Since then, however, the program has been sharply scaled back -- in part because the financial system has stabilized, and many banks apparently think they can contain the damage from rotting assets. Where have we heard that before?
4. California scheming. Let us count the ways that the Golden State in 2009 bolstered its image as the most fiscally unfixable member of the Union.
We began the year with Standard & Poor’s cutting California’s debt rating to the lowest of any state, breaking our tie with Louisiana for that distinction. At least they had had a couple of hurricanes as an excuse.
In May, as the budget picture in Sacramento worsened and the state faced the need to borrow billions of dollars in short-term funds from Wall Street, Treasurer Bill Lockyer sought an unprecedented federal guarantee of the debt as a way to ensure that investors would buy it. The Obama administration’s response: “Uh, no.”
In July, with the Legislature and Gov. Arnold Schwarzenegger still battling over a budget for the new fiscal year, Lockyer put all debt offerings on hold, and Controller John Chiang began issuing IOUs to pay many of the state’s bills.
Soon after, Fitch Ratings cut California’s debt rating to "BBB" from "A-minus" -- marking the first time since the 2004 budget debacle that the state’s credit grade started with a "B." (Note to kids: B is OK as a test score, but you don't want it as your state's credit grade, trust me.)
By September, with the budget balanced with the help of smoke, mirrors and a cheap brand of duct tape, Chiang began redeeming the IOUs and Lockyer began borrowing again via bond sales. And borrowing. And borrowing.
This month, facing a new budget deficit quickly turning into a chasm, California again put the hat out to Washington: The Los Angeles Times reported that Schwarzenegger would demand $8 billion in federal aid or he’d hack the state’s main welfare program.
Fun times ahead, for sure.
5. Goldman as the Heart of Darkness? Leave it to Goldman Sachs Group to inspire a new curiosity about deep-sea cephalopods. It just wasn’t by choice.
Goldman, Wall Street’s preeminent investment bank and, as such, perhaps the most reviled financial company of our age, was the subject of a long Rolling Stone piece by investigative journalist Matt Taibbi in June.
His theme: Goldman, by design, has been at the center of the biggest investment bubbles since the Depression. He included the tech-stock bubble of the late-1990s, the housing bubble of this decade, and the oil bubble of the first half of 2008.
Taibbi wrote: “The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
Goldman, the beneficiary of $10 billion in federal TARP money (since repaid), did itself no PR favor by reporting record second-quarter earnings in July. That inspired a New Yorker magazine spoof of an internal memo from CEO Lloyd Blankfein to the troops, advising moderation in celebratory displays: “Don’t wear your crowns, except around the office. . . . For now, let’s take down the giant scoreboard that reads ‘Main Street: zero. Wall Street: a billion gazillion bajillion.’ ”
6. Ben Bernanke tries to give America a big hug. Federal Reserve Chairman Ben S. Bernanke spent much of 2009 on two endeavors: funneling hundreds of billions of dollars into all corners of the financial system via the central bank’s alphabet soup of emergency lending programs, and trying to show that even the Fed had a touchy-feely human side.
In March, Bernanke took a trip down memory lane, agreeing to be interviewed in his hometown of Dillon, S.C., by CBS’ “60 Minutes.” The main topic, of course: the economy, and how the Fed was trying to keep a recession from turning into a depression.
"I come from Main Street," Bernanke told "60 Minutes," revealing that he, too, was royally ticked off about the federal bailout of insurance giant American International Group. “I slammed the phone more than a few times on discussing AIG,” he said. “I understand why the American people are angry.”
(Try to imagine former Fed Chairman Alan Greenspan slamming the phone down. You can’t, can you?)
In July Bernanke took questions from the audience at a town-hall forum in Kansas City, Mo. -- another first for a Fed chief.
By walking among the people Bernanke may well have persuaded President Obama to reappoint him for a second term. It may also have helped him cement "Person of the Year" honors from Time magazine.
Nonetheless, a Gallup poll in July ranked the Fed dead last in terms of Americans' perceptions of how good a job nine government agencies were doing. Even the IRS and Homeland Security got higher marks than the central bank.
Maybe Bernanke should try next for a gig on "Dancing With the Stars."
7. Felon of the Year: Bernie Madoff. The Wall Street veteran faced no real competition for this dishonor. Though he confessed to his $65-billion, 16-year-long Ponzi scheme in December 2008, the case continued to captivate and disgust the nation for much of 2009.
Madoff, who pleaded guilty in March and got a 150-year prison sentence in June, told U.S. District Judge Denny Chin in Manhattan: “I knew what I was doing was wrong, indeed criminal. ... As the years went by I realized this day, and my arrest, would inevitably come.”
In a postmortem report in September, SEC Inspector General H. David Kotz painted a picture of SEC incompetence, asserting that the agency’s repeated failures to expose Madoff -- even after undertaking three examinations and two investigations of the firm over the years -- allowed Madoff to suck in more victims.
Bernie, meanwhile, continues to grab headlines: This month he was transferred to a medical center at the prison complex in Butner, N.C., where he’s doing time. Various reports had him suffering from dizziness, but a TV station in Raleigh-Durham said Madoff had facial fractures, broken ribs and a collapsed lung -- injuries consistent with an assault.
Your get-well card should be sent to: Bernie Madoff, Inmate No. 61727-054, P.O. Box 1600, Butner, N.C. 27509.
-- Tom Petruno
Photos, from top: President Obama; Obama and Caterpillar CEO Jim Owens; Treasury Secretary Timothy F. Geithner. Credits, from top: Getty Images; Charles Rex Arbogast / Associated Press; Shawn Thew / European Pressphoto Agency