December 31, 2008 Summing up the economic year of 2008 Play video

(Peter Howe, NECN) - If just two visual metaphors could sum up this horrible economic year of 2008, maybe it's these: A bursting bubble, and a string of dominoes beginning to fall, one after another after another.

The bubble is the superheated U.S. real-estate sector. Prices soaring year after year for more than a decade, fed by cheap credit and pro-homeownership policies, before ... POP! You can argue the housing bubble burst drove everything else: The collapse of mortgage giants Fannie Mae and Freddie Mac. The collapse of bonds built on subprime mortgages. The collapse of investment banks that borrowed massively to buy those bonds. The collapse of the stock market ... and so on and so on and so on.

"The underlying weakness in our financial system today,'' Treasury Secretary Henry Paulson said in September, "is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy.''

It was a crisis that rapidly spread all around the world. Pran Tiku of Peak Financial Management said, "There are no safe havens for investors that they could take their money and invest in some other place, so the interconnectedness of this malaise is creating a huge issue for governments all around the world.''

It all adds up to what President-elect Barack Obama calls "the worst economic crisis in a century.''

One of the new president's

top economic advisors will be Lawrence H. Summers, former Harvard president and treasury secretary in the Clinton administration. "frankly,'' Summers has said, "policy has been a day late and a dollar short'' during the Bush years.

Summers will be in the White House as chairman of the National Economic Council. "These problems were made over a long time, they were made with failure to think about risk, they were made with a strategy of deregulation, and they will take us time to work through,'' Summers said.

Look for the Obama team to push for hundreds of billions of dollars in new stimulus spending, on everything from highways and mass transit to broadband internet and computerizing medical records. Also, a major overhaul of the creaky 1930s financial regulatory apparatus that proved no match for a 21st century Wall Street scheming and -- let's face it -- greed.

In the meantime, what does this all mean for New England? "We're facing a very difficult road for 2009 and a good part of 2010,'' said Michael Donahue of the University of Massachusetts Donahue Institute and the New England Economic Partnership. NEEP's newest semiannual forecast predicts a recession that peaks in mid-2010, with unemployment rates cresting at 6.9 percent in Vermont, 7.4 percent in New Hampshire, around 8.5 in Massachusetts, Connecticut, and Maine, and a whopping 10.3 percent in Rhode Island. The Ocean State is expected to be hardest hit by the real estate/subprime mortgage meltdown, economists predict.

Mark Zandi, chief economist with Moody's Economy.com, said at a NEEP conference this autumn, "I think it's going to take a good solid almost two years before we feel comfortable about what's going on ... The economy's not going to find its footing until the housing market bottoms.''

Here's a prediction that U.S. Senator Judd Gregg, Republican of New Hampshire, made this year about the $700 billion dollar bailout that will be fun to come back and reevaluate when, hopefully, the dust settles: "We may lose some money. We may break even. Or we may make some money. My gut tells me we are going to make money as taxpayers.''

Harvard Professor Dale Jorgenson, who holds one of just about 20 elite "university professorships" there, is a former president of the American Economics Association. His advice for 2009? "I would say: Be patient. I think that this isn't something we can rush. There is no magic button that we can push that will get the economy going again. It takes time for all of the measures that we have put in place to work.''

Howe: And we're in for a hard year economically that will surely try our patience here in New England. But a lot of experts are guardedly optimistic we'll fare better than much of the rest of the country. For one, we're probably farther through the correction in real estate prices. Secondly, we're lucky to have a more diversified economic base, lots of small entrepreneurial companies, universities and hospitals. Still, brace yourself for a long time before it feels like the economy is no longer in crisis.