Wall Street's Final '08 Toll: $6.9 Trillion Wiped Out

[DeepModem Mom]

Source: Washington Post, Page 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....

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2008/12/31/AR2008123101083.html?nav=most_emailed

[opihimoimoi]

1. Fuck BUSH and the GOP.....FUCK them ALL.....

[Kutjara]

2. They didn't lose all that "value," because they never had it in the first place.

What they had was inflated prices based on "financial engineering," ponzi schemes, hooky accounting, shell vehicles, and plain old unalloyed greed. PR-spun corporate reports were full of fantasy profits and pie-in-the-sky growth forecasts, which further fueled the feeding-frenzy on Wall Street. Nobody called them on their BS, because the people who were supposed to be regulating things were themselves shoulders-deep in the trough. Everyone involved had a vested interest in keeping the rickety kite up in the air. Then, inevitably, the string broke.

Meanwhile, domestic industrial production had barely grown since the 1980s, innovation was confined to consumer gadgets and penis-enlargement products, and shopping for useless crap was the only growth industry (fueled by easy access to credit and borrowing against bloated house "equity.") Once the buy-now-pay-never carnival left town, all that remained was the dawning realization that we'd been had.

So now the market is beginning to reflect the real value of our Disney-Dollarz economy, once all the hot air has been let out of it. We've been playing Monopoly and pretending it's real for the best part of three decades. Now that we've been forced to look up from the board, we notice our pockets are empty and our house has collapsed.

[Phred42]

3. Fiat Banking - is THE ponzi scheme

[Xenotime]

6. * is 100% responsible for this entire mess.

[bvar22]

9. No.

The large scale fraud and looting of America began under Reagan ("Greed is good"), and ACCELERATED under Clinton. It was done with the full cooperation of the Conservative wing of the Democratic Party (DLC "Centrists"). The inevitable collapse occurred under Bush, but he is by no means wholly responsible.

[SOS]

13. Re: "Greed is good"

That only applies to thieves on Wall Street.
If a kid sticks a gun in the face of one of those Wall Street bankers and says "Gimme all your money", greed is once again bad.

[dixiegrrrrl]

8. Verily, you speak the truth. And well put.

[Baby Snooks]

11. Cash versus credit...

Much of the market was dependent upon the options and hedge markets. Options are "bets" that a stock will go up or down by a certain date and are often made on "borrowed" money. The average investor with a brokerage account has what's called a margin account they can borrow against. Hedge funds are a bit more complicated. Too complicated for me. Probably too complicated at this point for even the economists to figure out. Most of the losses are the result of the hedge funds which contributed to overvaluation of literally everything that is traded and everything that is contracted for such as oil and gas. Hedge funds were and are nothing more than bookies. Welcome to Las Vegas.

We have had two economies. One cash. One credit. The average investor has those margin accounts. The banks, well, the banks have the deposits. They "borrow" it so to speak. Why they pay you interest on it. A lot of people really don't understand that.

The economy of credit is what has collapsed. Which is why the Federal Reserve is having to pump trillions of dollars into the banking system apart from any "bailout" packages. The banks have to cover the deposits that they lost. That is a scary thought but that is what has happened.

The red flag was when the FDIC raised the insured limit to $250,000 in order to keep people from withdrawing their excess funds out of fear of losing the uninsured amounts. The losses if the larger banks were allowed to collapse are probably too frightening to even think about. Reality is the stock market may yet crash. And more banks probably will fail in the coming year. I think most economists are saying the next 6 months will be sink or swim for the economy. Most believe we will sink.

The Federal Reserve has some controls in place which regulate the banking industry to try to keep it solvent.

Congress on the other hand has merely given away hundreds of billions of dollars of taxpayer money with no regulation whatsoever. Which may worsen the situation instead of correcting it.

We need to get away from the economy of credit and back to the economy of cash. We don't realize that when we charge $1,000 on a bank-issued credit card the bank is using $1,000 of the bank's deposits to pay the merchants. Bank-issued credit card defaults are on the rise. Which adds to the losses that have to be covered by the Federal Reserve. And the Federal Reserve is not really a bottomless pit. At some point, they will have to restrict certain loans to the banks. And that's the point where even the large banks may collapse. Not a pretty picture.

Despite Congress acting as if they have it under control it is spinning out of control. Congress needs to realize that the American taxpayers are not a giant ATM machine.

Then interesting thing about the hedge funds is someone made money even when everyone else was losing money. What they call the house in Las Vegas. So what did the house do with the money?

[BR_Parkway]

12. There is no there, there

[Madison knows]

14. There were many who saw this coming a long time ago.

I believe they were referred to as party poopers.

[Kutjara]

15. Guilty as charged.

Even my barely-remembered B.S. in economics from two decades ago was enough to tell me this whole crazy ride was going to come to a nasty end. Every price curve that mattered was far above its long-term trend line. Every earnings curve was far below, and getting worse. The gap was fueled entirely by debt.

When I bought my last house back in 2002, it cost about $1.2m for 1,200 sq. ft. (this was in London at the height of the boom). My wife and I both worked well-paid jobs just to pay the mortgage, with little left over for luxuries (because we were so afraid of the size of the mortgage, there was no way we were going to pile more borrowing on top of it). Meanwhile, the party raged on, with double digit percentage rises in house prices, even easier credit terms, endless exhortations to spend spend spent.

After three years of this nonsense, we decided to sell the damned house, pay off all our bills, and wait for the inevitable. We put our cash into relatively safe places, rented a modest apartment, bought an economy car for cash...and waited. We were about two years early, but the bubble that was clearly about to burst (in spite of the loudest denials by the "experts" and pundits) duly did.

I don't take any satisfaction in being right, however. All it means is that I'll get to eat for a few months longer than the next guy. In the end, if the whole system goes down, the foolish, the wise and the merely lucky will all be in the same sinking boat. Every one of us has gambled our lives away in the Wall Street casino, whether we ever bought a share or not.

[Madison knows]

16. You and your wife were very wise, but am I reading your right?

$1.2 for 1,200 SF?

Anyway, I agree with your approach but I am not sure that we are all doomed if the whole system fails.

That will depend on how people react. My worst fear is that a lunatic "der fuhrer" arrives on the scene with all of the answers. If that happens, you will be right about the future again.

[Kutjara]

18. Yep, London prices reached absurd levels.

Houses in the center of town were stratospheric, regardless of size or condition. My house was the cheapest in the area, because it only had two bedrooms. The three and four bedroom places ran around $1.5 million and up.

When we were getting a mortgage, our combined salaries weren't sufficient to get the money we needed, so the mortgage broker took the form and said, "lets just say you earn this amount," and bumped the figure we'd submitted up by 50% with a stroke of his pen. "There," he said, "that'll cover it." I'm sure he (and thousands of other like-minded, commission-based souls) repeated that little bit of magic dozens of times a day. The mortgage companies never checked documentation (I didn't even have to submit any), so you could basically tell them anything you liked. I think a fast-food employee was reported to have got a $3 million mortgage at one point.

We sold the house for a significant increase three years later, but I hear everything in the neighborhood has dropped by 30% in the past year and will plummet further in '09. Not surprising when everyone was working flat out to pay mortgages they couldn't afford. People don't even have to lose their jobs to get into trouble: many were using their annual financial-services-industry bonuses to cover the shortfall. With bonuses a thing of the past, there's suddenly a big hole in people's budgets.

Another bomb is about to drop, too. Much of the consumer boom in the UK was funded by home equity loans. With home equity vanishing by the day, how long will it be before banks start calling in these loans?

I agree with you that the final outcome will depend on people's response; I'm just a little more pessimistic about the collective wisdom of humanity.

[Blue_Tires]

17. +1

[machI]

4. $6900000000000 Bush legacy

It is sure to be revised upward later in the year as the true numbers are compiled.

[whistle]

5. You mean Bush and his cronies failed to steal it all?

[Gman]

7. And they have their illinformed and barely literate base believing this is Carter and Clinton's

fault. The GOP needs to get it's shit together and fast. If they elect an RNC chair that's a wingnut he'll likely demonize not only Democrats but Republicans also. Anything that doesn't fit their definition of a Republican which means hardcore extreme purist right wing ideology will be attacked. The country's not out of trouble by a long shot.

[sakabatou]

10. Thanks Bush for fucking us all