The years leading up to and including 2008 had many

different external incidents that helped shape what would become

the biggest investing mistake of Berkshire Hathaway and Warren

Buffett. Political tensions, rising oil prices and general

uneasiness about the direction of the country and the world led

to strong economics reactions during 2008.

Leading up to 2008, many international incidents helped

shape the economic conditions for that year. The American

campaign in Iraq created quite a bit of tension with that

country itself and also in the surrounding countries. These

tensions and occupation of countries slowed down the production

capabilities of Iraq when it came to producing oil. It is said

at the height of the tensions that the production was only

capable of making one million barrels of oil a day, down from

about 2.4 million per day. Later in 2006 the Israel- Hezbollah

War created more issues within the Middle East again pushing up

oil prices while declining the production. April of 2008 saw a

Nigerian militant group attack an oil pipeline, leading to

further increased prices in oil. Lastly, oil saw its largest

increase in price at one time in June of 2008, when there was

fear that Israel and Iran would be going into conflict with each

other.

Starting all the way back in 2004 oil prices had begun

creeping up, and in march of 2005 they had hit the

“psychological” barrier of passing 60 dollars per barrel. Many

events that happened over the next few years continued to drive

the prices higher and higher. Hurricane Katrina was something

that caused a massive increase in the oil prices. Finally, in

January of 2008 the price of a barrel of oil had hit over 100

dollars, but it quickly fell and closed around 99 dollars. OPEC

one of the largest oil producers in the world came out publicly

against the United States in March of 2008 and said that the

U.S. had mismanaged the economy increasing the oil prices

further. After the Iran and Israel conflict discussed earlier,

oil topped out with a price of about 145 dollars per barrel.

Many investors around the world started to invest in the

futures of oil prices, thinking that the peak would be coming

soon and attempted to make money off the price fall. Other

investors saw that the prices of oil would continue to

appreciate as the demand grew more and more over the months.

Then, in July of 2008 President Bush commented that the ban on

oil drilling would be lifted and the prices fell. The united

states purchasing power of the dollar had been increasing, along

with the fact the oil is traded internationally affected the oil

prices in a downward trend; along with a lower demand than

expected by the Europeans lead to further price drops. By

November oil had hit 60 dollars a barrel and by the end of

December the oil prices had hit their bottom at just over 32

dollars per barrel.

With the economy struggling in the midst of the financial

crisis and the bubble bursting in the oil sectors the oil

companies were really hit hard. Some companies went as far as

losing nearly 50% of their stock value from July of 2008 until

January of 2009. Investors worldwide were now dealing with the

after effects of the oil markets completely collapsing out from

underneath them.

Finally, with the financial crisis looming over everyone

during the 2007-2008 era, many people were weary about what

investments they made and how government actions changed the

investments already made. When talks of the bailout occurred and

were made more public by the media, most markets were hit

negatively since investors saw this as a sign of weakness and

this caused more drops through out the different sectors in the

markets.