LINDA WERTHEIMER, host:
This is Morning Edition from NPR News. I'm Linda Wertheimer.
RENEE MONTAGNE, host:
And I'm Renee Montagne. We're getting to the end of 2008, and many of us here on Morning Edition - I'm sure many of you - are sort of scratching heads and thinking, what in the world just happened to our economy? This happened so fast and with such confusion, we thought it would be worthwhile to look back at this past year with NPR's Adam Davidson. He's part of Planet Money, our team that makes confusing economics more clear. He covered just about every bump and bobble of the economy this past year. Welcome, Adam.
ADAM DAVIDSON: Hey, Renee.
MONTAGNE: Start off with where we were just a year ago. Hard to remember what was happening in the economy at the end of 2007.
DAVIDSON: There was a very small handful of economists who were saying there was a severe risk of a systemic breakdown in the economic system. But the vast majority did not see that. It was still very reasonable to say that the economy was not headed for recession. We now know that the economy actually was already in recession. The big themes were: China's growth will continue unimpeded; gasoline prices will stay very high; there was a recognition of a housing-market crisis, but not anything like the systemic crisis that we did witness.
MONTAGNE: So, let's look to what really happened in 2008. Sort of remember flashes; it feels like a bad dream, actually: Bear Stearns, Lehman Brothers, Fannie and Freddie. Give us the key moments.
DAVIDSON: Well, the first three months of 2008, for most of that time there was this real belief, OK, we have a tough housing market; if you make your living building homes or selling homes you're probably not going to have a great year. But everyone else dodged a bullet. We're safe. Then in March, we had the collapse of Bear Stearns. Very shocking, nothing like that had happened before. But the feeling was...
MONTAGNE: That's it.
DAVIDSON: That's it; we're done. The other major investment banks - Lehman Brothers, Merrill Lynch, Morgan Stanley - certainly the big, broader universal banks like Citibank are totally safe. There were a growing number of economists saying, ooh, I'm seeing some scary things on the horizon. But the bulk of the voices were, OK, I think we're OK - until mid-September; that's when everything really changed.
MONTAGNE: And that's when things got really scary.
DAVIDSON: Yes. Those were intense, intense days. But mid-September is when Lehman Brothers collapsed, and for a few precious hours, there was a feeling of, oh, OK, we can survive the collapse of a big investment bank; that wasn't so bad. And then very quickly, over the course of that week, there was a money-market mutual fund called the Reserve Fund, one of - the oldest, the most venerable. It lost money. This is something that never happens to money market mutual funds. That terrified everyone. Basically for a couple of days there, it's almost not too much to say the economy was technically dead. There was virtually no money moving between banks, between corporations. And that was the week that we had Ben Bernanke and Henry Paulson saying this is the greatest challenge the United States economy has ever faced.
MONTAGNE: And that's what brought us the $700 billion bailout.
DAVIDSON: Exactly. It's - almost every week since mid-September has been a transformational week, and that's sort of where we are now.
MONTAGNE: And of course, we started this conversation with what people were saying at the end of 2007. What are people saying now?
DAVIDSON: Well, if at the end of 2007, people were reasonably certain and entirely wrong, now people are totally confused and probably right to be totally confused. I've never seen such lack of certainty among economists and politicians. But what the heck? Renee, I'll say, let's say, second quarter GDP growth 3.8 percent, Dow at 24,000, by June 4th.
MONTAGNE: Thank you, Adam.
DAVIDSON: Thanks, Renee.
MONTAGNE: That was very helpful.
(Soundbite of laughter)
DAVIDSON: And totally ridiculous.
MONTAGNE: NPR's Adam Davidson. And you can find continuous and, of course, crystal-clear coverage of the economy in our Planet Money podcast and blog at npr.org/money.
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