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Past Decade A Roller Coaster Ride On Wall Street

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Past Decade A Roller Coaster Ride On Wall Street

Business

Past Decade A Roller Coaster Ride On Wall Street

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ROBERT SIEGEL, host:

As bad as 2009 was for the economy, believe it or not, it will likely be remembered as the year the stock market bounced back. From its low point in March, the Dow rallied more than 60 percent. While it may have been a good year for investors, it was not a good decade. In fact, by some measures it was the worst decade since the 1940s.

NPR's Jim Zarroli has this look back.

JIM ZARROLI: In the days right after 9/11, President Bush could still boast about the health of the U.S. economy. The country may have been attacked, he said, but�

Pres. BUSH: The American economy is fundamentally strong. We have the best educated, most productive workforce in the world. Our factories produce more goods and a broader variety of goods than any county in the world.

ZARROLI: Until then, stocks had been on a tear. It was conventional wisdom that they represented the best long-term investment you could make. But the years that followed would challenge that assumption. Showcase companies like Enron and WorldCom were revealed to be accounting frauds and the analysts and rating agencies that had lavished praise on these companies were as much in the dark as anyone else. Once lionized figures, like Federal Reserve Chairman Alan Greenspan, saw their reputations take a hit. But the markets would quickly recover says economist Henry Kaufman.

Professor HENRY KAUFMAN (Economist): It was an extraordinary event in the sense that so much was forgotten so soon. The speculative fervor intensified as we went through this past decade.

ZARROLI: For a time, the Fed kept interest rates low. Then too, Kaufman says, deregulation had freed large financial institutions to borrow recklessly and experiment with new kinds of investments. What followed was a remarkable era of loose credit. Suddenly it was extraordinarily easy to get a credit card, refinance a mortgage or even build a shopping center. By October, 2007, the Dow hit an all-time high of 14,164. What happened next is now a depressingly familiar story as housing prices started to fall, investment banks and hedge funds that had invested in mortgages took a huge hit, credit dried up. Bernie McSherry of Cuttone & Company viewed the carnage from his perch at the New York Stock Exchange.

Mr. BERNIE MCSHERRY (Senuior Vice President, Cuttone & Co): For a number of days last autumn, it felt like the entire edifice was going to crumble and that we'd all wake up in the morning and our ATM's would not have any money in it and nothing is going to work. And there were a lot of bad jokes made about buying guns and ammunition around here and stocking up on canned goods. And that was just reflective of the fact that people were very, very fearful and I've never seen that before.

ZARROLI: In the ensuing recession, the Dow lost half its value. For investors this decade will go down as one of the worst in Wall Street history. And McSherry says something else has been lost as well. He says the public's belief in buy-and-hold investing, the notion that the market will go up over time if you're patient and willing to ride out the downturns, has been weakened. Take Kristin Gabral(ph), a stay-at-home mom from Virginia who was visiting New York recently. Before the recession, she and her husband put much of their retirement savings into stocks. That's changed.

Ms. KRISTIN KARBAU: We're not going to put as much in stocks as we once did, because we took such a hard hit.

ZARROLI: Since March, stock prices have already regained a good bit of the ground they lost, and Bernie McSherry says it's only a matter of time before people's faith in the markets will follow. McSherry says the financial markets have always bounced between fear and greed.

Mr. MCSHERRY: Now that the markets are stabilized and are starting to move back up, people are going to start seeing the potential of profit and that greed part of the equation does come into play. And people will start to step back into the market. It's been going on for hundreds of years and it is the nature of markets.

ZARROLI: On the other hand, there's no question that the wild swings in the market this decade have chastened a lot of people and given them a sense of just how risky stocks can be.

Jim Zarroli, NPR News, New York.

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