Dec. 27, 2007 -- It's been a wild year on Wall Street and Main Street. As 2007 comes to a close, the ABC News Business Unit has pulled together our picks for the biggest Money and Business stories of the past 365 days.
SUBPRIME SLUMP PUSHES HOUSING OFF A CLIFF
The business story of the year has to be the surge in delinquencies and foreclosures in the subprime mortgage market, which has, in turn, impacted the entire U.S. economy. While the housing market started to slip in 2006, the nationwide crisis was assured when borrowers started missing payments after rate resets this year. The latest numbers suggest that millions of homeowners will lose their homes in the next few years because their monthly payments will be higher than what they can afford, sometimes adding more than 50 percent to their monthly bills. The fallout will continue to be felt for some time ,and your home's value -- no matter how great your credit -- will likely feel the impact as average prices continue to drop next year. Analysts believe 2008 could be even worse.
CREDIT CRISIS: BUDDY CAN YOU SPARE A $100 BILLION
That surge in subprime lending was due in part to Wall Street's voracious appetite for "collateralized debt obligations" and "structured investment vehicles" -- basically bundled groups of mortgages. Financial geniuses decided they could make a lot of money by reselling stews of home loans to pension funds, foreign investors and individuals. It allowed all of these folks to profit from the massive boom in the U.S. residential real estate market. But when those loans went south, so did profits. So far, the crisis has claimed less than $100 billion in global wealth (not to mention quite a few CEOs of major investment firms). It has also made it tough for corporations to tap the public markets for loans. Experts suggest that in the next year the crisis will continue to grow, claiming upward of $300 billion and rivaling the S&L crisis of the late 1980s.
A YEAR OF STARTS AND FITS FOR THE STOCK MARKET
Once the mortgage meltdown started, markets reacted, leading to what could be the word of the year for the stock market: "volatility." After breaking through the dot-com high-water mark late last year, the stock market showed strength at the beginning of 2007 -- knocking through the 13,000 mark on the Dow in April and setting new records when it hit 14,000 in July. But with the turmoil in the housing and credit markets, there have been three major market reversals, and the Dow has lost 700 points.
FED ACTION: UNCLE BEN CUTS TO THE CHASE
All this upheaval pushed the Federal Reserve into action. After more than two years of interest rate hikes meant to stabilize the economy and prevent inflation, the Fed changed direction. In September, it cut interest rates to jumpstart the nation's credit markets and to pull the stock market out of a nosedive. Since then, the Fed has shaved a full percentage point off a key Federal interest rate target in the hopes of keeping the economy out of recession. Many economists now believe the U.S. will have stagnant growth in 2008 or maybe even dip into a recession despite the rate cuts. If that happens, there will be lots of finger pointing at new Fed and its new chief Ben Bernanke, saying they didn't act decisively or aggressively enough.
OIL SETS NEW RECORDS TIME AND TIME AGAIN
Lower interest rates could lead to inflation, and that's a growing concern going into 2008, thanks in part to high oil prices. Regular readers of the ABC News Business coverage already know that 2007 has been a record-setting year for crude oil prices. When the year dawned you could buy a barrel of oil for about $60. As the summer driving season kicked in, traders pushed prices above $70 … then above $80 … and finally above $90. The Energy Department is betting the average crude price for this year will be $72.05 -- 9 percent higher than last year. And don't think for a minute we've seen the top of the market. The EIA says it believes oil will average $85 a barrel next year thanks to insatiable global demand. According to their figures, that could push gas prices to $3.40 by the time we all get ready to hit the road in late spring 2008.
"MADE IN CHINA": PRODUCT SAFETY WOES
No matter what you do, don't let the kids lick their Christmas gifts. Seriously. China is the hottest economy in the world and effectively the global engine of manufacturing growth. But many of the products manufactured in China are coming under increased scrutiny as the U.S. issued recall after recall for Chinese products. Tainted toothpaste, killer pet food and lead-painted toys grabbed headlines and put a dent in the "Made in China" brand.
BLACKENED BLACKSTONE: LOVING AND HATING HEDGE FUNDERS
Oh to have a few shares of Blackstone… dare to dream. That was the cry of many an investor in the days before Blackstone issued shares in the most watched IPO of the year. People believed the hype that these private equity/hedge firms were a gateway to great returns. But Blackstone's public offering has tarnished the reputation of the industry a bit. Since going public, shares have dropped 40 percent in value. And despite the losses, Democrats have complained that the people running these huge funds receive massive tax breaks while they racked up multi-million dollar annual pay packages. Executives and partners at Blackstone and other firms don't pay income taxes on their earnings; they're treated as capital gains, which come with a significantly lower tax burden.
MR. MURDOCH CALLING: NEWS CORP. BUYS DOW JONES
Possibly the best reality show on Wall Street this year played out in the very pages of the newspaper that covers it. Rupert Murdoch, possibly the most famous (some would argue notorious) global media titan, successfully bought the business news empire Dow Jones and the Wall Street Journal from the Bancroft family. For weeks, warring factions of the clan feuded in public over whether they should sell out or make a go of it alone. Eventually, a vote was taken and the family conceded control of the company for about $5.6 billion. Murdoch did make a concession to get the company, though, allowing hiring and firing for top editorial players to be under the control of a special committee. It was a move the family wanted to protect the Journal's editorial independence and traditions. Will it work? We'll see in 2008. Already, Murdoch has made his presence felt, replacing some top managers.
i WANT A NEW PHONE
After years of speculation, Apple finally unveiled its first "hyper cool" device meant to grab a piece of the fast-growing global mobile phone market. The product was announced in January at the annual Macfest in San Francisco and went on sale June 29 to much fanfare -- week-long lines and a consumer euphoria that might accompany, say, free money. The company and its network partner AT&T say they've sold 1.4 million of the touch-screen cell phone/Web browser/music players as of the end of October. Macheads are expecting an update to be announced in early 2008 that will take advantage of faster 3G wireless networks and offer new features.
FORGING A WAY FORWARD: NEW UNION AUTO CONTRACT
The American auto industry, beleaguered by years of lagging sales and drops in market share, faced an historic season of union contract negotiations this year. While the UAW and General Motors kicked off the negotiations in late July with a smile and handshake photo op, the negotiations were tough. By Sept. 24 there were still major sticking points and the union started picketing GM plants for the first time in 40 years. Two days later, the strike was over after GM and the UAW reached an agreement that included unprecedented job commitments in exchange for deep concessions -- a deal that shifts retiree medical coverage obligations to the union. By Nov. 4, Chrysler and Ford completed negotiations that mirrored the GM deal.