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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 21, 2009 at 9:45 AM

The better-off-in-a-mattress decade for stocks

Top of the News: Stocks are on track to turn in their worst decade-long performance in almost 200 years of market record keeping.

The Wall Street Journal reports, “Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.”

It was more than bear markets, however. The decade was sandwiched by two monumental crashes brought on by corporate corruption enabled by weak government oversight. Enron meet subprime. And we don’t seem to have learned from either calamity, as the deregulation and crony capitalism primarily responsible for the disasters remains largely in place.

Unfortunately, the implications of the dismal performance cut much deeper in society than ever before. Once stocks were the province of the wealthy. Starting in the 1980s, average Americans put their retirement savings in the market — often they lacked any other choices as pensions were replaced by 401(k)s. But they also fell under the sales spell cast during a bull market. By the late 1990s, most working in the brokerage business has never been through a serious bear market. Day traders were wizards.

Meanwhile, the meaning of stock ownership changed. There had always been speculation in the market. But America’s great economic might was primarily build by patient long-term investors. That changed to a mostly speculative-driven market, dependent on unsustainable short-term profits and mergers that destroyed productive companies and jobs. For awhile it seemed to work for everyone. But the crashes exposed Wall Street as a casino where the big players win and average Americans are too often road kill.

Combined with the stagnation of wages over the past decade and the collapse of housing prices, there’s no mystery why Americans have pulled back.

The Back Story: The Person of the Year was assuring bankers and businessmen in May 2007 that the subprime troubles wouldn’t affect them. Ooops. The Washington Post has a nice reminder of how Helicopter Ben was as clueless as the rest of the establishment as the economy ran off the edge, and how Federal Reserve regulation failed.

Bernanke didn’t oversee the worst of the bubble-making — that would be Dr. Greenspan. But the Fed continued the hands-off policies it had been pursuing for years. And like most of the experts, he failed to even image discontinuity. Can he now?

Today’s Econ Haiku:

The big health care bill

Will keep somebody healthy

Insurers’ profits

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