The Worst Predictions About 2008
**Just about everybody got wrong-footed by 2008, but some people’s mistakes were truly spectacular **
Here are some of the worst predictions that were made about 2008. Savor them—a crop like this doesn’t come along every year.
“A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008. At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.
AIG (AIG) “could have huge gains in the second quarter.” —Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008
AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.
“I think this is a case where Freddie Mac (FRE) and Fannie Mae (FNM) are fundamentally sound. They’re not in danger of going under…I think they are in good shape going forward.” —Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008
Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.
“The market is in the process of correcting itself.” —President George W. Bush, in a Mar. 14, 2008 speech
For the rest of the year, the market kept correcting…and correcting…and correcting.
The Ghost of New Years Yet to Come wakes you from a fretful sleep and brings you to a cold December day in the not-too-distant future.
The long-lived baby boom generation is now in full retirement. A deep recession has set in.
Fiscal crisis looms.
Tax revenues are dwindling. With the national debt having climbed to remarkable heights, creditors are wary of loaning new money to a U.S. government struggling just to meet the Social Security and Medicare obligations promised to retired workers.
America’s balance sheet looks then like General Motors’ does today: too much debt, too many promised benefits.
A lame-duck president decides he will not allow Social Security and Medicare to default on his watch. He will pass the problem to his successor. To do this, he desperately needs cash for a temporary bailout of the entitlement system. He proposes that Congress immediately increase income-tax rates by 7 percentage points for all income brackets.
The House, dominated by liberals and moderates, readily assents. The bill goes to the Senate, where a small bloc of conservatives survives in the minority.
Some Senate liberals argue that tax rates should be raised higher than the president has requested - but only on the rich.
The conservatives object to any tax increase at all, arguing it will deepen the recession and actually diminish federal … READ MORE