2008: The year of financial disasters

The year 2008 will go down as the year of ups and downs in history. This was the year when economic turmoil and business news remained in the thick of things all year round. This was also the year when jargons like subprime, mortgage, bailout, equity and bankruptcy found a place in the layman's dictionary. The sub-prime crisis in the US triggered a series of financial uncertainties across the world. Investment banker Lehman Brothers and banking biggie Washington Mutual collapsed, insurance giant AIG, investment banks Goldman Sach and Merril Lynch, mortgage giants Fannie and Freddie tottered, only to be rescued by the US government later.

Global equity markets also felt the tremors of the global financial crisis. US markets and also other Asian markets slumped to unprecedented lows. India business news was also gloomy all through the year. Pessimism gripped Indian share market investors also. While on one hand, the Sensex touched its all-time high in January 2008, it also sank to sub-8000 levels in the very same year in October. Foreign financial institutes, due to problems in their home countries, continued to pull out funds from the Indian share market. Insurance companies and domestic financial institutions supported our markets till September - October this year. But thereafter, even they started withdrawing, thereby taking the markets lower.

The commodities had quite a run-up in the first half of the year but as demand fell, prices came down drastically. Crude hit the high of $147 per barrel in July 2008 and subsequently dropped below $39 per barrel a few months later. A slide in crude prices essentially gave signals of a fall in demand and thus of a slowdown in the overall economy. Amid the global economic turmoil, job losses, production cuts and shutdowns became a reality. India is also facing the heat of the same. Eventually, America, Euro Zone and parts of Asia like Japan were declared to be in recession. Central banks around the world announced drastic cut in interest rates to boost demand. The Federal Reserve of US and Japan's Bank of Japan reduced short term lending rates to near zero per cent. India's Reserve Bank also followed suit and cut key lending rates many times over to tackle the liquidity crunch.

2008 was also the year of bailouts and stimulus packages. The US government's announced a massive $700 billion rescue plan, Out of this $250 billion, was set aside by the federal government to buy stakes in troubled banks. Under this plan, the US government, bought stakes in many American banks for $150 billion. The Bush government also announced a bailout plan for cash-strapped automakers, Chrysler and GM. China also declared a mammoth stimulus plan to boost its exports and the economy in general. India also came up with its fiscal stimulus package in the first week of December and is gearing up for the second stimulus plan. This plan is likely to be declared in January first week. Analysts say that it would take at least six months before its impact is seen on the real economy.