The 2008 Financial Crisis: A Year of Devastating Market Swings

Strategic Insights -

The stock market collapse of 2008 was one of the worst in history, wiping out $7 trillion of shareholder wealth in the US alone. The Dow Jones industrial average plummeted 4,488.43 points, or 33.8 percent, its most punishing loss since 1931. Stocks in the BRIC economies, including Brazil, Russia, India, and China, fell 55 to 72 percent, while commodities like oil and copper crashed.

Key Takeaways:

  • The Dow Jones industrial average lost 4,488.43 points, or 33.8 percent, in 2008, its most punishing loss since 1931.
  • Stocks in the BRIC economies, including Brazil, Russia, India, and China, fell 55 to 72 percent.
  • About $7 trillion of shareholder wealth was wiped out in the US, with blue chips like Bank of America, Citigroup, and Alcoa losing more than 65 percent of their value.
  • The S&P 500-stock index sank 39.5 percent, almost exactly matching its decline in 1937.
  • Many investors turned to ultra-safe US Treasury securities as a refuge, providing little or no return.
  • The government's intervention into private industry and markets was necessary to prevent a collapse of the financial system.
  • Policy makers face daunting challenges in stimulating the economy and reviving moribund financial markets.

Statistics:

  • The Dow Jones industrial average plunged 4,488.43 points, or 33.8 percent, in 2008.
  • Stocks in the BRIC economies, including Brazil, Russia, India, and China, fell 55 to 72 percent.
  • About $7 trillion of shareholder wealth was wiped out in the US.
  • The S&P 500-stock index sank 39.5 percent, almost exactly matching its decline in 1937.
  • The International Monetary Fund estimated that banks and other investors would suffer $1.4 trillion in losses on loans and securities, a loss of just 6 percent.
  • Financial institutions globally have already reported $1 trillion in write-downs, according to Bloomberg.

Sources:

  • Vikas Bajaj, "Market Watch: A Year of Turmoil", The New York Times, December 31, 2008.
  • International Monetary Fund, " Global Economic Prospects: A Better Future Is on the Horizon", October 2008.