When I pressed the mental rewind button on the year 2008, many words came to mind. ”Change” tops my list since it has saturated every form of media for what seems like an eternity!  

I decided to check Merriam-Webster’s Top Ten List for “Word of the Year” and four of those terms were in heavy Palin rotation: maverick, bipartisan, socialism and rogue.

Each word brings back memories, but financially speaking how will you choose to remember 2008?  

Place your vote for Talk Stock Trading’s “Term of the Year”

Term #1: BAILOUT - Too big to fail?  Ask the government to pay your bail!  A bailout is loosely defined as a financial rescue plan.  In 2008, the giants needed cash and they got it– courtesy of U.S. taxpayers. 

Term #2: RECESSION - It took economists eleven months to admit we were in one and it may take us another eleven to get out :( A recession is confirmed when an economy (as measured by GDP) shrinks for two consecutive quarters. The U.S. economy has been in a recession since December 2007.

Term #3: CREDIT CRUNCH - Anyone having trouble getting a loan lately? Perhaps you are a victim of the infamous credit crunch. A credit crunch is characterized by a lack of loan availability. The crunch started last year and has been crunching around the globe ever since.

Term #4: HOUSING MARKET MELTDOWN - Prices are down, foreclosures are up. According to the Mortgage Bankers Association, over one million American homes are in foreclosure. Celebrity foreclosures include Ed McMahon, Evander Holyfield Michael Jackson, and Jose Canseco.

Term #5: ECONOMIC STIMULUS - It was way back in February when Congress passed the Economic Stimulus Act of 2008. Rebate checks went out and hopes were high, but growth was hindered by tight credit, low consumer confidence and record high gas prices.

How’s that for a financial year in review? Place your vote now!

The TST poll is in the sidebar to your right under the “Subscribe by Email” box.

Another late night weekend deal was struck between the Fed and a credit crunch casualty: Citigroup. 

In my previous post I just wrote about how shocked I was to see Citigroup make it through the weekend.  No sooner than I hit “Publish,” news broke that the U.S. government has agreed to bailout Citigroup!

Madness!!!

The world could not afford to let Citigroup fail.  Citi has a hand in all things money: retail banking, insurance, investments… you name it, they do it.  Citi operates in 140 countries and has $2 trillion in assets on the books.  According to MarketWatch, Citi has another $1.23 trillion in potentially troublesome assets held off of the company’s books.

Choosing what to include on the books?  Why do they have a choice?  Is it me or does it seem like these banks have way too many choices? 

Anyway, the government is set to provide a $20 billion loan to raise capital and may guarantee up to $300 billion worth of Citi’s troubled assets.  I don’t think $20 billion will be enough, but I hope they won’t have to go back and revise this like they did AIG.

How the mighty have fallen.

Banks and lawmakers are pushing the SEC to relax standards placed on banks for mark-to-market accounting, which the banks say exaggerated the effects of the credit crunch.

As the name suggests, mark-to-market accounting is concerned with market value, meaning that the value of an asset on a firm’s books should be linked to its current market price NOT the price paid for it. 

Makes sense to me.  If I wanted to sell my Honda Civic today, I wouldn’t place an ad in the paper with the 1996 sticker price.  No one would buy it because its value is much less now.  On the other hand, if I wanted to sell my oceanfront property in Miami (I’m obviously dreaming right now) you wouldn’t see a listing with the 1996 purchase price.  People would beat down my door to take advantage of the huge discount!

Unfortunately, things are much more complicated in financial markets.  Aren’t you tired of hearing that?  Anyway, the problems come from the difficulty of asset valuation and the constant flow of information.  These problems are exaggerated particularly when the assets in question are tricky (or “innovative” as Wall Street refers to them), backed by shaky collateral or the subject of rumors or misinformation. 

Bottom line: Markets are inefficient, but no accounting rule will save banks from the consequences of poor decision making. 

General Electric has a hand in everything, but has still managed to fall victim to the credit crunch.

Now, GE plans to sell $15 billion worth of new stock, $3 billion in preferred and $12 billion in common stock.  The preferred stock has snagged a buyer in one Berkshire Hathaway.  I’m with Warren Buffett on this one, GE has struggled to maintain its footing during the recent crisis but, the company is solid. 

Today, the stock is trading down about 5 percent and it may continue to go down in the short term, but long term GE is probably one of the most reliable stocks known to man.  Take a look at the chart.

Hopefully, new capital will bring GE to life ;) 

Who knew that a Swiss investment bank was the one hit hardest by the credit crunch?   

UBS has written down over $38 billion since news of the crisis broke last summer and shares of the Swiss bank have lost more than half of their value since the start of this year.

Earlier this week, more negative rumors swirled regarding the bank’s need for financing, generating fears that shareholders would be asked to contribute more money.  But, today UBS surprised the world with the announcement of a tax credit that could be large enough to offset possible write-downs for the second quarter. 

The timing of this 3 billion Swiss franc credit is impeccable.  News sent UBS shares up over 8 percent in trading overseas until…Moody’s issued a downgrade.

The rating agency expressed doubts about the financial strength of UBS and the quality of its debt.  News of the downgrade sent shares down, reversing the 8 percent gain and losing over 1 percent on the day.

UBS has been rescued from another quarter of massive write-downs, but the bank has much ground to cover in order to restore long-term confidence.

CNN recently found that 74% of Americans think the economy is in a recession.  But, according to the technical definition of a recession, this is impossible.  How can this be???

One widely accepted definition of a recession includes the observation of two quarters of declining growth (as measured by GDP).   But, when it comes to a word like “recession,” does anyone actually care about the textbook definition?  Apparently not.  It appears that the recession jitters are contagious!  You can catch them at the gas station or in the dairy aisle of your local supermarket. 

Maybe recessions aren’t just about GDP growth.  Perhaps they reflect consumer sentiment regarding jobs, prices and the economy among other things.  In any case, the combination of job cuts, rising prices and a massive credit crunch probably does not bode well with most consumers.

Many people don’t need Ben Bernanke to confirm the country is in recession, because they already think it is.  Besides, Warren Buffett said so.  And who is going to argue with him? ;)

Do you think the economy is in a recession?