1. "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
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.
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.
4. "I'm not an economist but I do believe that we're growing."
— President George W. Bush, in a July 15, 2008 press conference
Nope. Gross domestic product shrank at a 0.5% annual rate in the July-
September quarter. On Dec. 1, the National Bureau of Economic Research
declared that a recession had begun in December 2007.
5. "I think Bob Steel's the one guy I trust to turn this bank around, which is
why I've told you on weakness to buy Wachovia." — Jim Cramer, CNBC
commentator, Mar. 11, 2008. Two weeks later, Wachovia came within hours
of failure as depositors fled. Steel eventually agreed to a takeover by Wells
Fargo. Wachovia shares lost half their value from Sept. 15 to Dec. 29.
6. "Existing-Home Sales to Trend Up in 2008" — Headline of a
National Association of Realtors press release, Dec. 9, 2007. On Dec. 23,
2008, the group said November sales were running at an annual rate of 4.5
million—down 11% from a year earlier—in the worst housing slump since the
7. "I think you'll see [oil prices at] $150 a barrel by the end of the year"
— T. Boone Pickens, June 20, 2008. Oil was then around $135 a barrel.
By late December it was below $40.
8. "I expect there will be some failures. … I don't anticipate any serious
problems of that sort among the large internationally active banks that make
up a very substantial part of our banking system." — Ben Bernanke,
Federal Reserve chairman, Feb. 28, 2008. In September, Washington Mutual
became the largest financial institution in U.S. history to fail. Citigroup
needed an even bigger rescue in November.
9. "In today's regulatory environment, it's virtually impossible to violate rules."
—Bernard Madoff, money manager, Oct. 20, 2007. About a year later,
Madoff—who once headed the Nasdaq Stock Market—told investigators he had
cost his investors $50 billion in an alleged Ponzi scheme.
10. "There's growing evidence that parts of the debt markets…are coming
back to life." — Peter Coy and Mara Der Hovanesian, BusinessWeek, Oct. 1,
As compiled by New York Magazine:
Jon Birger, senior writer, Fortune’s Investors Guide 2008
What he said then: “Question: What do you call it when an $8 billion asset
write-down translates into a $30 billion loss in market cap?
Answer: an overreaction … Smart investors should buy [Merrill Lynch] stock
before everyone else comes to their senses.”
What we know now: Merrill agreed to sell itself Bank of America to avoid a
Lehman-like flameout in a deal closing in January. Meanwhile, Merrill's shares
plummeted 77 percent.
Elaine Garzarelli, president of Garzarelli Capital, in Business Week's
Investment Outlook 2008
What she said then: “Garzarelli is advising investors to buy some of the most
beaten-down stocks, including those of giant financial institutions such as
Lehman Brothers, Bear Stearns, and Merrill Lynch. What would cause her to
turn bearish? Not much. ‘Our indicators are extremely bullish.’”
What we know now: As of January 1, none of these firms will still exist.
Lehman went bankrupt. JPMorgan and Chase bought Bear Stearns in a fire sale.
We all know Merrill’s fate.
Sarah Ketterer, CEO of Causeway Capital Management in Fortune’s
Investors Guide 2008
What she said then: Q: “Sarah, where to you see value?” A: “There are
[financial firms] that have been tainted by this huge credit problem …
Fannie Mae and Freddie Mac have been pummeled. Our stress-test analysis
indicates those stocks are at bargain basement prices.”
What we know now: The federal government placed these two lenders under
“conservatorship” in September. By then, shares of Fannie and Freddie had lost
90 percent of their value.
Jon Birger, senior writer, in Fortune’s Investors Guide 2008
What he said then: “CEO Jeffrey Immelt has been leading a successful
makeover at General Electric, though you wouldn't know it from GE’s flaccid
stock price. Our bet is that in a stormy market investors will gravitate toward
the ultimate blue chip.”
What we know now: GE’s stock price has tumbled 55 percent percent this
year and it’s on the verge of losing its triple-A credit rating. Analysts are
nervous about its financial-services division, which provides about half of GE’s
Archie MacAllaster, chairman of MacAllaster Pitfield MacKay in Barron’s
What he said then:“A lot of people think Bank of America will cut its dividend,
but I don't think there's a chance in the world. I think they'll raise it this year;
they have raised it a little in each of the past 20 to 25 years. My target price
for the stock is $55.”
What we know now: BofA may not have gone the way of Lehman. But
investors who sold when MacAllaster told them to buy were shrewd. The bank’s
share price now hovers around $14, and it has slashed its dividend in half.
James J. Cramer, contributing editor, in his "Future of Business" column
in New York Magazine
What he said then: "Goldman Sachs makes more money than every other
brokerage firm in New York combined and finishes the year at $300 a share.
Not a prediction — an inevitability.”
What we know now: In mid-December, Goldman Sachs’ share price was $78.
The firm also announced a $2.2 billion quarterly loss, its first since going
public nine years ago.
Compilation by CNBC:
"We had $17 billion of cash" at the end of last year, and "that liquidity cushion
has been virtually unchanged." — Bear Stearns CEO Alan Schwartz telling
CNBC in a March 12, 2008, interview that he is not aware of any liquidity
problems at the firm. Two days later, Bear Stearns, the fifth largest U.S.
investment bank, was forced to seek emergency funds from the Federal
Reserve and JPMorgan Chase. The firm was taken over by JPMorgan that
weekend for $2 a share, which was later raised to $10.
"Categorically no." — Lehman Brothers CFO Erin Callan responding on
March 18, 2008, to the question as to whether the firm would be the next to
go out of business. Callan was ousted from her job in June. In September,
Lehman Brothers filed for Chapter 11 bankruptcy protection.
"I expect there will be some failures” of smaller banks. “Among the largest
banks, the capital ratios remain good and I don't anticipate any serious
problems of that sort among the large, internationally active banks that make
up a very substantial part of our banking system.'' — Federal Reserve
Chairman Ben Bernanke in February 2008. IndyMac Bank failed in July 2008,
with $32 billion in assets. Washington Mutual failed in September 2008, the
largest bank failure in history with $307 billion in assets. Wachovia was sold
to Wells Fargo in October 2008, amid concerns about its financial health, and
Citigroup still scrambles to raise cash from both the government and private
"If you put it in a baseball analogy, and you look at the subprime problem in
the U.S., you would say we're in the eighth inning or maybe the top of the
ninth." —Morgan Stanley CEO John Mack in April 2008 on whether the
subprime crisis was coming to an end. "We're probably in the third or fourth
quarter." — Goldman Sachs CEO Lloyd Blankfein, in the same month on the same topic.
In September, AIG and Lehman Brothers collapsed under the weight of
subprime debt, escalating the financial crisis and triggering a massive selloff
in global stock markets. The government agreed to set up a $700 billion
bailout fund for toxic debt. That same month, Morgan Stanley and Goldman
Sachs applied to become bank-holding companies in order to help raise
at Ladenburg Thalmann on Aug. 21, 2008. Within three weeks, Lehman
Brothers filed for bankruptcy. The stock went from $14 a share to $0.
"Fannie and Freddie are very solid institutions. They have more-than-adequate
capital. They have access to capital markets."— Chris Dodd, chairman of the
Senate Banking Committee, July 14, 2008. In September, the U.S. government
seized control of both Fannie Mae and Freddie Mac, concerned about their
Jim Cramer, television personality and author
What he said: "The market will not revisit the
panicked lows it hit on July 15. . . Bye-bye,
bear market. Say hello to the bull, and don't let
the door hit you on the way out." -
- July 30 on CNBC's "Mad Money".
What happened next: The Dow fell another 3,400
points from July 15 to its low on Nov. 20.
Allan Sloan, Forbes Magazine
What he said: "Lehman won't fail." -- July 7, Fortune
What happened next: The investment bank filed for bankruptcy Sept. 15.
What he's saying now: "I got it wrong."
Bill Kristol, "Fox News Sunday" -- Dec. 17, 2006
"If [Hillary Clinton] gets a race against John Edwards and Barack Obama,
she's going to be the nominee. Gore is the only threat to her ... Barack Obama
is not going to beat Hillary Clinton in a single democratic primary. I'll predict
that right now."
Karl Rove, "Fox News Sunday" -- Aug. 19, 2007
On Hillary Clinton: "The Democrats are going to choose a nominee. I believe
it's going to be her. That's their business…But I think she's going to be the
p/s photos; Wang Xi Wei