The Stock Slump of 2008: Wrecking Ball to Wealth
Sure, some of that money may have disappeared by choice, either by those who were smart or lucky enough to foresee crisis and got out, or by those who threw in the towel after repeated pummeling. For the most part, however, the $7 trillion represents an old-fashioned destruction of wealth: a long, relentless decline in stock price valuations.</br></br>The wealth destruction went beyond stocks last year. Jeremy Payne, a senior vice president with market research and analysis firm S&P Capital IQ, estimates that about $10 trillion of wealth disappeared in the global housing market. Add that to the $7 trillion in U.S. stock market losses, another $5 trillion or so in equity losses overseas and the sharp decline in values of more exotic investments such as mortgage securities, and "we're probably looking at $25 trillion worth of asset price deflation," Payne said.</br></br>The downdraft in stocks began early -- so early that when the Standard & Poor's 500 touched 1471.77 points on the first day of trading in 2008, it turned out to be the benchmark stock index's best level of the year. It was a steady march lower from there over several months. Then came the rapid plunge in September, sparked by the collapse of Lehman Brothers and a gathering dread that the foundation of the global financial system was creaky. A six-week rally late in the year ignited theories that a bottom had been reached in November, and that investors would turn the page in 2009. Stocks surged in the new year's first day of trading, but all of that ground and more was given back last week.</br></br>The scenario is radically different from the one investors faced during the last downturn in stocks, in 2001 and 2002, when a euphoric run-up in home prices around the country helped offset the pain of a bear market on Wall Street.</br></br>"I think consumers have been chastened this time," said Stu Schweitzer, global market strategist for J.P. Morgan Private Bank. "Now, with their houses and investment portfolios and retirement accounts having been hurt, consumers need to step up their saving."