• This is a rush transcript from "The Journal Editorial Report," December 27, 2008. This copy may not be in its final form and may be updated.

    PAUL GIGOT, FOX HOST: Up next on "The Journal Editorial Report," the biggest stories of 2008. From Barack Obama's historic election to the financial and economic meltdown, our panel looks at the highs and lows, the winners and losers of the year.

    "The Journal Editorial Report" begins right now!

    Welcome to this special edition of "The Journal Editorial Report," our look back at the biggest stories of the year.

    We begin with the financial meltdown. 2008 saw the demise of Wall Street giant's huge stock market, plunging home prices and a rapid rise in foreclosures. It adds up to a global economic panic and severe recession that may well end up defining the decade.

    Here with a look why it happened and what it means going forward, Wall Street Journal columnist and deputy editor Dan Henninger; editorial board member, Dorothy Rabinowitz; columnist, Mary Anastasia O'Grady; and opinionjournal.com editor, James Taranto.

    So, Mary, her we are. The worst downturn in my adult life, since the 1970s. Who do you blame? How did we get here?

    MARY ANASTASIA O'GRADY, COLUMNIST: Paul, I think when the history of all this is written, we are going to look back and say a lot of it came from Washington. The Federal Reserve kept rates too low for too long. Washington — Congress decided not only were Americans entitled to life, liberty and the pursuit of happiness, but also homeownership.

    GIGOT: And a cheap home and a cheap mortgage.

    O'GRADY: And a cheap home. And the credit rating structure I think is a big problem. That the government designates two or three credit rating subdivisions and as soon as they put their stamp of approval on something, well, it's OK.

    GIGOT: These are Standard & Poor's, Moody's and Fitch. The people who slap on AAA and sold all those mortgage-backed securities around the world. People didn't understand what CDOs were, but they did know AAA.

    O'GRADY: That's the structure that didn't hold up.

    DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Paul, I completely agree with Mary about the source of it. But one has to admit, what then happened in the private sector, is astounding. Never have so many smart people made so many stupid decisions. Bear Stearns, Lehman Brothers, Citigroup, which was telling us they were OK, We discovered had $306 million in toxic securities.

    GIGOT: A month ago they were telling us they were OK, shortly before the government guaranteed losses, extraordinary losses.

    HENNINGER: That's right. And the Bernard Madoff story. Madoff himself, a fascinating criminal. The big story in Madoff, you had respectable institutions like Banco Santander and the Bank of Scotland holding or investing in Madoff's fund. What happened here is that people simply no longer performed due diligence. And the average investor or person thinks that people in the financial industry do this kind of work. They stopped doing it.

    GIGOT: Dorothy?

    DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: They became exactly like ordinary citizens, who, when you go to a doctor and you say you can't get into his office because he's so crowded. That fascination with the impenetrable, inaccessible investment counselor, that suddenly afflicted the great professions in this world.

    GIGOT: They gave up their ability to do risk management. They were supposed to be able to assess risk. They told us they were.

    They were masters of the universe, James. And now we have a situation where some of these companies have actually lost more in the last two years than they made throughout the whole decade. Should these executives give back their bonuses or maybe give them to charity?

    JAMES TARANTO, OPINIONJOURNAL.COM EDITOR: Well, Credit Suisse had an interesting approach to this. They're giving out their bonuses in the distressed securities. So that...