Posted on 01/03/2009 10:22:52 PM PST by RC one
After months of tortuous trading, Wall Street rang out its worst year since the Great Depression yesterday, leaving shareholders $6.9 trillion the poorer. It hardly mattered that the market finished the last day of the year with a modest gain. The losses in 2008 were so broad and deep that every sector in the Standard & Poor's 500-stock index took a double-digit hit, and the financial sector lost more than half of its value. The Dow Jones industrial average, an index of 30 blue-chip stocks, and the S&P, a broader index watched by market professionals, were down 34 percent and 38 percent, respectively, their deepest losses since the 1930s. The tech-heavy Nasdaq composite index was down 41 percent, its worst year since the exchange was created in 1971. Overseas, the year was just as dismal. In Germany, stocks were down 40 percent, in Japan, 42 percent, in Brazil, 41 percent. Taken together, all of the world's stocks lost 48 percent last year. Traders endured unprecedented turmoil last year as Lehman Brothers, an icon of the financial industry, teetered then collapsed, while other firms were saved by government intervention or disappeared into the arms of competitors. By the end of 2008, the Dow had set new records for its three largest single-day point gains and two steepest point losses after swinging hundreds of points an hour during some sessions.
(Excerpt) Read more at washingtonpost.com ...
Think of it this way: it didn’t exist then, and it doesn’t exist now.
Good question.
Probably the best way to look at it. Equity values do not represent only actual wealth, they represent the market’s best guess about the value of wealth that will be created in the future. Some real wealth was destroyed last year, but most of that $6.9 trillion figure came as people readjusted unrealistic forecasts that had artificially inflated equity values.
No question that some tangible (I avoid using “real” for economic reasons) wealth evaporated, but nothing on the order of this alarmist headline.
“Wall Street’s Final ‘08 Toll: $6.9 Trillion Wiped Out”
And that’s just me...
;-)
If you took part of your paycheck and invested it in the market and then it disapeared, it was a tangible loss. I lost plenty that way. It existed enough that I could have taken it out of the market before the crash and purchased something “real” like a car or a house. That ain’t happening now.
“How do you lose 6.9 trillion dollars?”
Mark to Fantasy, instead of Mark to Market.
That’s 23,333 for every man woman and child in the USA
The implications are that the markets are disrupted for more than a year, for starters.
Here is a recent paper by two people from the NBER comparing the current crisis to other financial period of turmoil since WWII in developed western economies. The take-away is that this won’t be over quickly, we could fall further and that such periods in markets don’t “solve” quickly:
http://ws1.ad.economics.harvard.edu/faculty/rogoff/files/Aftermath.pdf
Funny money lost.
“Think of it this way: it didn’t exist then, and it doesn’t exist now.”
That’s a profound statement and a true one.
People thought the wealth existed, and made plans based on their thoughts. The wealth, however, was an inflationary mirage.
The economic stimulus package hussein intends to enact will set the stage for another inflationary mirage later on. That future one promises to be worse than this present one because it will be combined with all sorts of restraints on market activities (meaning, restraints on individual planning), so the market will never have a chance to readjust and recover. Most people will then demand complete control of all economic activity by the federal government, and the New York Times will publish editorials on how “laissez faire has failed.”
“An examination of the aftermath of severe financial crises shows deep and lasting effects on asset prices, output and employment. Unemployment rises and housing price declines extend out for five and six years, respectively. On the encouraging side, output declines last only two years on average. Even recessions sparked by financial crises do
eventually end, albeit almost invariably accompanied by massive increases in government debt...Indeed,
these historical comparisons were based on episodes that, with the notable exception of the Great Depression in the United States, were individual or regional in nature. The
global nature of the crisis will make it far more difficult for many countries to grow their way out through higher exports, or to smooth the consumption effects through foreign borrowing”
or, in other words, we’re f***ed.
It existed in one form or another. I lost ~30 grand in the market and watched the value of my house fall by another $15,000. The loss of spending power was real; therefore, the wealth was real. If the report is accurate, $6.9 trillion worth of real wealth disapeared into the void in 2008.
If 6.9 trillion people thought they each had a dollar and asked for their buck at the same time, they would all learn that the money they thought was there...wasn’t there after all. That’s real money.
The problem is that that much wasn’t there to begin with except on paper. So, part of it was real and part of it was speculation. And many honest people thought they had enough speculation income on which to retire. Just like the greedy folks at ENRON thought they had more than they did. And I thought Sarbanes/Oxley took care of that type problem. Guess it’s not as easy as they thought to legislation speculatin’, huh.
Those hold goats from our past who “didn’t cotten to banks” and “buried their cash in Prince Albert Tobacco cans” don’t sound so stupid anymore. Wish I had rolled my own all those years before I quit smoking. Might have a little nest egg now instead of a piece of paper showing what “once had been”.
Not necessarily. We’re certainly in for some hard times - much harder than we (as Americans) have seen in the post-WWII era prior to this.
But the happy-happy mantras of the people just talking their book on CNBC’s cleavage-n-claptrap shows is so much nonsense. They say such nonsense as “stocks are cheap!”
Well, using history as our guide — they can get cheaper.
“The sub-prime crisis is over!”
Yea, well, that was just Chapter 1 of the real estate deflation.
It's a simple "BR" or "P" Look into it..
It's a simple "BR" or "P" Look into it..
“The loss of spending power was real; therefore, the wealth was real.”
Spending power isn’t wealth. Only wealth is wealth: real things like cars, houses, computers, clothes, etc., including real skills like doctoring, lawyering, shoe-shining, etc. All of this is wealth.
If spending power were wealth, then to increase wealth, all one would have to do would be to increase spending power by printing more money. The problem is, when government prints more money and people start spending it, prices go up and spending power goes back down again. The winners were those who were lucky enough to get the new money first; the losers are those on fixed incomes who cannot get any of the new money by demanding cost of living increases. They’re stuck with no new money and higher prices for everything brought about by everyone else’s earlier spending...including the additional spending you would have done with that 30K when you cashed out.
Spending power isn’t wealth? If you have 1 million dollars today, you are wealthy. If someone steals it tomoorow, you are no longer wealthy. Printing money is a whole different topic. $6.9 trillion worth of spending power disapeared in 2008. That’s $6.9 trillion that can’t be used to buy those tangible assets and real skills that you mentioned which exacerbates the economic woes we face because without the means to purchase, production will slow which will result in unemployment which will result in a further decrease in spending power which will fuel the cycle further. This, among other things, is what got us into the great depression.
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