Reprint: Peter Coy Business Week & Karl Denninger's Paulson/Bernanke 2008 quotes

RCM Comment: Here is a list for your reading amusement. While you are laughing remember there will be many predictions in 2009 and it will be our job to separate fact from fiction.

Peter Coy at Business Week has put together a list of 2008’s worst predictions:

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 at 8,500.
2. AIG (NYSE:AIG - News) "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.
3. "I think this is a case where Freddie Mac (NYSE:FRE - News) and Fannie Mae (NYSE:FNM - News) 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.
4. "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.
5. "No! No! No! Bear Stearns is not in trouble." -- Jim Cramer, CNBC commentator, Mar. 11, 2008 Five days later, JPMorgan Chase (NYSE:JPM - News) took over Bear Stearns with government help, nearly wiping out shareholders.
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 Depression.
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 (NYSE:C - News) 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. A Bound Man: Why We Are Excited About Obama and Why He Can't Win, the title of a book by conservative commentator Shelby Steele, published on Dec. 4, 2007. Mr. Steele, meet President-elect Barack Obama.

RCM Comment: I have also included a list (courtesy of Karl Denninger) of comments by Hank Paulson and Ben Bernanke from 2008. Be careful, after reading this list you may ask yourself, "Are they criminals or imbeciles?", "Were they deliberately missleading the public or were they actually clueless?" Either answer will make you uneasy about 2009:

Mr. Paulson said in a speech March 13th, 2007: "The fallout in subprime mortgages is going to be painful to some lenders, but it is largely contained."

Chairman Bernanke before the Congressional Joint Economic Committee on March 28th 2007, just a few days later: "Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear. The ongoing tightening of lending standards, although an appropriate market response, will reduce somewhat the effective demand for housing, and foreclosed properties will add to the inventories of unsold homes. At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."

Chairman Bernanke at the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition, May 17th, 2007: "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

Chairman Ben S. Bernanke speech to the 2007 International Monetary Conference, Cape Town, South Africa, June 5th: "The troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system."

Mr. Paulson on Bloomberg, July 26th, 2007, just days before two Bear Stearns Hedge Funds imploded: "I don't think it [the subprime mess] poses any threat to the overall economy."

Mr. Paulson's Press Roundtable in Beijing, August 2nd, 2007, likewise, just days before the hedge fund explosion and Ben Bernanke’s unprecedented “emergency” discount rate action: "I also said I thought in an economy as diverse and healthy as this that losses may occur in a number of institutions, but that overall this is contained and we have a healthy economy."

Chairman Bernanke to Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3rd, 2008: "Clearly, the U.S. economy is going through a very difficult period. But among the great strengths of our economy is its ability to adapt and to respond to diverse
challenges. Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year."