Unexpected twists make 2008 an epochal year

The financial crisis, war on two fronts, and, above all, the US election make 2008 historic.

Here's the way the world looked last January: Hillary Rodham Clinton was a lock to win the Democratic nomination for president, and probably the election, too. The economy wasn't great, but it wasn't awful, either – many experts thought we'd avoid global recession. Meanwhile, Iraq seemed a lost case five years after the US invasion. And the price of gas? Hoo boy. It had passed $3 a gallon and was galloping upward, no limit in sight.

A lot has happened in the intervening months, hasn't it? If nothing else, 2008 showed that conventional wisdom isn't always terribly wise.

A year that promised to be merely important turned out to be epochal, as the US elected its first African-American president, and developed nations plunged into a frightening financial crisis, causing China and other emerging powers to question the verities of US-style capitalism itself.

Iraq got better; Afghanistan got worse. Gas went up, then down. Fidel Castro faded away. Michael Phelps won the most gold medals at a single Olympics, ever.

Above all, the year saw the reemergence of state power, as governments from Tokyo to Washington pumped huge amounts of taxpayer cash into national firms. Laissez-faire probably isn't finished, as French President Nicolas Sarkozy claimed. But as they feel their way toward the post-slump era, world leaders may have a new regard for the limits of economic ideology, and for the dangers, as well as the benefits, of global trade and financial flows.

"Fate presents an opportunity wrapped in a necessity: to modernize multilateralism and markets. We must seize it," said World Bank President Robert Zoellick in an address to his Board of Governors this fall.

Perhaps the fraud revealed at the beginning of the year should have been a tip-off. On Jan. 19, the French bank Société Générale discovered and began unraveling a series of what it later called "massive fraudulent directional positions." A week later, French police arrested a junior trader named Jerome Kerviel and charged him with losing $7 billion via unauthorized financial activity.

The lost sum was larger than the bank's total market capitalization, and at the time the biggest such fraud in history. By the end of the year, however, it was easily topped, as US financier Bernard Madoff was arrested Dec. 11 and charged with running a $50 billion Ponzi scheme, a swindle in which early investors are paid off with money from later ones.

It's possible that the alleged Madoff fraud will end up as not just the biggest bank scam, but among the most expensive individual criminal acts of all time.

But in truth, the biggest events of 2008 were not so much one-off actions as culminations of trends that had been building for years.

Even the election of Barack Obama can be seen as the result of a lengthy process. US disapproval of President Bush's job performance has been low for years, in large part due to the grinding war in Iraq.

Bush's job approval ratings, as measured by the Gallup Poll, peaked at 90 percent of Americans in the wave of patriotism that followed the attacks of 9/11. Since then it has been a steady slide, to a low of 25 percent just prior to the election.

Voters were ready for major change

Americans seemed ready for a change in party in the White House. Not that Republicans didn't try – remember Rudy Giuliani, who insisted that he'd win the Jan. 29 GOP Florida primary because of the state's many retired New Yorkers? He got crushed. And Mitt Romney, who had money and hair, but in the end, not enough supporters.

Hillary Clinton fought hard, but in the end she could not overcome Obama's superior organization in caucus states, and the relentless math of the Democratic Party's proportionate allocation of delegates.

Election night was stirring in the way politics seldom is, despite candidate promises and voter hopes. To his credit GOP, nominee John McCain gave a gracious concession speech that acknowledged the history of the moment.

Ironically, Iraq was better by the election. President Bush's surge in troops, plus the defection of former Sunni insurgents into the US-sponsored Sons of Iraq militia groups, greatly reduced violence in the country.

In November the Bush administration struck a landmark deal with the Iraqi government which mandates the withdrawal of US forces by 2011. And as of Jan. 1, 2009, Iraqis will gain control over the Green Zone, the sprawling fortified section of Baghdad from which the US has operated since the 2003 invasion.

For US voters, worry about the economy has more than replaced worry about the stability of Iraq. At the end of December, 77 percent of respondents to a Gallup Poll on consumer confidence said they had a negative impression of economic conditions.

The corresponding figure for those who had a positive opinion of the economy? Three percent. The low single digits.

In retrospect, the causes of today's woes seem obvious. House prices rose too high, driven by irresponsible lending and borrowing. The bubble burst, pulling down consumer spending and economies around the world.

Proponents of the magic of free markets are in retreat. Former Federal Reserve Chairman Alan Greenspan admitted to Congress in October that he had found a "flaw" in his ideology, and that he was "in a state of shocked disbelief" about the failure of lending institutions to protect themselves against the possibility of failure.

In the US, the defining moment of the financial crisis seems to be Lehman Brothers' September bankruptcy, which froze bank lending as institutions retreated in fear of who might fail next. But outside the US, others might point to Iceland, an entire nation brought low by an overextended banking sector.

World economic growth as a whole now seems certain to fall below 3 percent, a level at which the World Bank rates the globe to technically be in recession. Some emerging nations, however, see opportunity in the troubles of the developed world.

China enters superpower ranks

Growth in China, for instance, will undoubtedly slow, as its major western customers retrench. But given the current bad image of US-style free markets, plus China's huge store of dollar reserves, Beijing's rise to superpower influence may be speeded by the financial crisis of '08.

Meanwhile, the Chinese Olympics showcased three decades of national development – and China's ruthless smothering of dissent.

Elsewhere in the world, the New York Philharmonic played in North Korea (February). Iran test fired long-range ballistic missiles (July). Pervez Musharraf resigned the presidency of Pakistan (August). Russia and Georgia engaged in a brief but fierce war over South Ossetia (August).

And in sports, the world saw the rise of a new champion with an eager, friendly touch. No, not Michael Phelps – though those gold medals were impressive, not to mention the size of his breakfasts.

In 2008, Uno the beagle became the first of his breed to win the Westminster Dog Show, the canine equivalent of the Olympics. By all accounts, he is the most popular top dog ever, with public appearances booked deep into 2009.

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