by James Copenhaver, Director of Investment Management,
Wealth Enhancement Group

As the Lehman Brothers bankruptcy sank in and the remaining investment banks scrambled to find financing or merge, the credit crisis grew. Treasury Secretary Paulson and Fed Chairman Bernanke went to Washington D.C. looking for a bail-out of the major financial institutions in the U.S. The Global Financial System was on the edge of collapse and the world was looking to the U.S. for a way out of the impending crisis.

Following the initial response of passing a $700 billion financial rescue plan, which grew $110 billion in a span of five days to $810 billion, U.S. investors grew increasingly nervous. The U.S. Dow Jones Industrial Average declined eight straight days from October 1st to the 10th, a decline of nearly 22 percent and 2,279 points. Little had been done to alleviate the fears that the U.S. and global economies were headed for a steep recession and possible depression.

Events of October, November and December of 2008 Oct. 3 – President Bush signs into law $810 billion financial market bailout package Oct. 8 – Fed Cuts Rates by 0.5% to 1.5% Oct. 13 – U.S. officials tell top bankers that government wants to buy stakes in their firms Oct. 29 – Fed Cuts Rates by 0.5% to 1.0% Nov. 4 – Barack Obama is elected president Nov. 23 – U.S. officials agree to buy more stock in Citigroup and insures large chunk of assets. Dec. 16 – Fed Cuts Rates by 0.75% to 0-0.25% Dec. 24 – The Federal Reserve approves GMAC's bank holding company application

The fear was palpable as the London-Interbank Offered Rate (LIBOR), spiked in the fist part of October. The LIBOR is the interest rate banks charge each other for overnight funds. The LIBOR spiking in October signaled that banks were unwilling to lend to one-another.

The U.S. Federal Reserve responded quickly by lowering the rate the Treasury department uses on loans to U.S. Banks. In a matter of months the FED reduced rates three different times, stopping at nearly zero percent. This was followed by an infusion of massive amounts of cash to help struggling financial institutions.

A New President is Elected

In November, a new president was elected and the possibility of change was prevalent. The newly elected president and congress would be faced with an unprecedented set of problems both domestically and foreign when they started work in January.

The first order of business for President Obama was to find a replacement for the exiting Treasury Secretary Henry Paulson, and provide stability for a shaky economic situation, fragile housing industry and financial institution that seemed to be on the brink of failure.

The U.S. Equities markets rebounded from the lows of October and November to end the year down nearly 34 percent.