By The Numbers
by David on January 9th, 2009
Ethnographers like to study those few remaining peoples so deeply ensconced in the vast Amazonian rain forests that their lives still resemble our hunter-gatherer ancestors. Some of these groups are so primitive that they only have three counting words: one, two, and many. The financial debacle of 2008 may have us all yearning for such simplicity. Instead, we are being subjected to a grisly post-mortem as statisticians and economists count the cost.
My vote for most gruesome statistic is the world-wide loss of market capitalization of all publicly-traded corporations. (Market capitalization is a company’s net worth calculated by multiplying the number of its shares outstanding in the markets by the price per share. For example, if a company has 200,000 shares of stock outstanding with a stock price of $30, the company’s market capitalization is $6 million.) On October 31, 2007, the total value of publicly-traded companies around the world was $62.6 trillion. By December 31, 2008, their value had fallen nearly in half to $31.7 trillion. The difference, $30.9 trillion, is approximately the annual Gross Domestic Product of the United States, Western Europe, and Japan combined. (Gross Domestic Product of GDP is the total market value of all the goods and services produced within the borders of a nation during a specified period.)
I don’t know about you, but I can’t count to a trillion. For me, a trillion is the equivalent of the Amazonian “many;” it’s just too big a number to grasp in any real-world way. So, what does it mean to lose $30.9 trillion? In one sense, it’s frightening real and exact. The market capitalization of a stock (or a market or all markets) at any given moment can be calculated down to the penny. But that does not mean in practice that all the investors in the stock (or the market or all markets) could, at that moment, turn that value into cash. One investor could; two investors could; but if many investors started to sell that value would very quickly deteriorate. That’s essentially what happened to the US stock market on October 19, 1987, when the Dow Jones Industrial Average lost 22.6% of its value. To this day, nobody really knows why the market fell so hard and so fast. The best explanation is simply that there were more sellers than buyers.
It took the Dow about a year to recover the losses of October 19 and about two years to top the record high it reached in August 1987. With some luck, the worldwide stock markets will recover this time too, although probably not so quickly. In the meantime, have fun amazing your friends and neighbors with that $30 trillion stat.
Tags: community development, economic predictors, financial crisis, green banking, ShoreBank, triple bottom line
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