December 24, 2008 > Big winners of the past were losers in 2008
Big winners of the past were losers in 2008
By Ellen Simon, AP Business Writer
As 2008 ends, you may feel like the year's biggest loser is you.
If you have a job, it probably feels shaky. If you have a 401(k), you can't bear to open the statements. If you bought a house in the last five years, you feel like a sucker (unless you were the winning bidder at a foreclosure auction).
It's cold comfort to know that the financial crash upended everyone _ calloused Maine lobstermen, french-manicured San Diego real estate brokers, Rolex-wearing Greenwich hedge fund managers.
High diesel prices as the year began ran independent truckers off the road. Soaring summer commodity costs choked businesses from bakeries to airlines. Frozen credit markets left small business owners dialing their moms for loans.
Many of the biggest winners of the past lost their shirts in 2008.
The kings of Wall Street watched as their banks either disappeared through mergers or bankruptcy or received injections of tax dollars to stay alive. The congressmen who once hung on Alan Greenspan's every indecipherable utterance turned hostile, as the once-revered oracle was reassessed, and found to be an oaf. Investors who had trusted Bernard Madoff with $50 billion saw the money manager who had given them steady returns for decades admit it was all a Ponzi scheme.
The financial hurricane made the winners stand out even more.
Hedge fund manager John Paulson made billions by betting against the housing boom. Economist Nouriel Roubini and money manager Peter Schiff, who'd been laughed off as economic Cassandras, were proven right as their dire predictions came true, again and again. Despite conventional wisdom that the labor movement is near death, Boeing Co.'s machinists union flexed its muscle during an eight-week strike.
Some winners and losers don't bear explanation _ renters win, owners lose; retirees with old-fashioned pensions win _ for the time being _ while those with 401(k) plans lose. Florida, California and Nevada lose on home price depreciation, Michigan and Ohio lose on jobs, and nearly every state seems likely to lose tax revenue.
The year's many losers and scant winners are below, listed by group:
Rich men who made big bets used to be lionized. Not this year.
One billionaire beset by debt was Sumner Redstone, who held a fire sale, selling $233 million of his CBS Corp. and Viacom Inc. stock as he struggled to restructure $1.6 billion in debt. He also sold his majority stake in Midway Games Inc., which makes ``Mortal Kombat'' video games, for $100,000 _ less than one-one-hundredth of a penny per share.
Sheldon Adelson, billionaire majority owner of the Las Vegas Sands Corp., also got himself in trouble with debt. The company's expansion into overheated Macau failed to pay off and gambling revenue dropped in the recession, forcing he and his wife to come up with $475 million of their own money to pay down some of the company's $9.21 billion in long-term debt. Shareholders are still waiting for a rescue: The company's shares have lost about 95 percent of their value this year.
Some bets were personal. Aubrey McClendon, CEO of Chesapeake Energy Corp. was forced in October to sell almost 95 percent of his holdings _ representing more than a 5 percent stake in the natural gas giant _ to meet a personal margin call. His fire sale of more than $570 million worth of stock pressed share prices lower.
LOSERS: Private equity kings
Private equity champ Edward Lampert looked smart when he bought Kmart out of bankruptcy, then began selling off its real estate. Wall Street anticipated another success when he scooped up Sears. It hasn't turned out that way. While Lampert is great at selling off a company's pieces, he's less great at the fundamentals of retail: selling more lawnmowers, bath towels and sweaters. Sears Holdings Corp. lost $146 million in the most recent quarter, the stock is down about 60 percent for the year and the company is still searching for a chief executive, nearly a year after its last CEO resigned.
Likewise, real estate mogul Sam Zell burdened Tribune Co. with $13 billion in debt when he bought the company last year, leading it to file for bankruptcy in December. While he blamed the economy, employees and observers blamed him.
``We knew he was going to take this business under,'' said Philip Gregory, a lawyer for a Los Angeles Times auto critic and five former newsroom employees who sued Tribune in September over Zell's takeover. ``Of course he's blaming the market, but it's really the $13 billion in debt that he brought into the business.''
Jerry Yang, Yahoo Inc.'s chief executive, kept waiting for Microsoft Corp. to offer a better price than $47.5 billion for Yahoo. It never happened. Instead, Yahoo's stock sagged near five-year lows, making his refusal look less like an effort to get the best price for shareholders and more like excessive optimism. Yang said in November that he'd step down and Yahoo, in December, overhauled its severance plan in a move that would save a buyer somewhere between $462 million and $2.1 billion.
Former Texas Sen. Phil Gramm, also a vice chairman of Swiss Bank UBS, made headlines _ and enemies _ in July, when he said the U.S. was in ``a mental recession.''
``We may have a recession; we haven't had one yet,'' said Gramm, who was, at the time, an economic adviser to presidential candidate John McCain. ``We have sort of become a nation of whiners.''
LOSERS: U.S. automakers
The CEOs of the Detroit Three went to Washington to beg for billions in bailout money. But it wasn't on their hands and knees.
As new car sales cratered, the group flew private jets to D.C. in November to ask for billions in bailout money. Worse, they came without a plan.
After they drove to Washington for a repeat visit, the Senate quashed a bailout, but the Bush administration approved a $17.4 billion rescue loan.
``Allowing the auto companies to collapse is not a responsible course of action,'' Bush said.
As markets plummeted, the dourest economic observers gained respect.
Nouriel Roubini, a New York University economics professor, said in 2006 that the worst recession in four decades was on its way. He predicted that mortgage defaults would spread, investment banks would no longer exist in their current form and Fannie Mae and Freddie Mac would tumble.
Peter Schiff, president of Euro Pacific Capital, has been saying for years that the economy was built on too much consumption and not enough saving. ``The disease is all this debt-financed consumption,'' he said on a 2006 CNBC appearance. ``The cure is that we stop consuming and start saving and producing again. That's a recession. Sometimes, medicine tastes bad, but you gotta swallow it.''
Dean Baker, an economist the Center for Economic Policy and Research, has been tracking the housing bubble since 2002, when he published a paper titled, ``The run-up in home prices: Is it real or is it another bubble?'' His answer: Bubble. Lately, he has been arguing that the best way to stabilize home prices is to bring them lower and the best way to rescue homeowners who can't keep up with their mortgages is to keep them in their homes _ as renters. Again, few seem to be listening, despite his record.
Associated Press writers Michael Liedtke, Mark Williams and Ryan Nakashima contributed to this report.