What a difference a year makes

SAN FRANCISCO — Could it be just a year ago that jubilant investors were celebrating record highs in the stock market?

It is almost inconceivable now as both Wall Street and Main Street stare into a seemingly bottomless pit of despair that has swallowed up $8.3 trillion in shareholder wealth during the past 366 days.

"We aren't dealing with a fundamental economic issue any longer," said James Paulsen, chief investment strategist for Wells Capital Management. "We are dealing with fear. And that doesn't respond to economic medicine."

That hasn't stopped the U.S. government from trying to find a remedy.

In a series of moves aimed at avoiding the mistakes that culminated in the Great Depression nearly 80 years ago, the government already has committed to spend more than $1 trillion to prop up ailing banks and other lenders during the past month of turmoil.

But none of it seems to be working, which only seems to be scaring people even more, especially after the nation's leaders spent nearly two weeks painting a gloomy picture of the economic outlook to persuade Congress to approve a $700 billion bailout of the banks.

"I think right now there are just some very powerful negative images that are alive in many people's minds — images of the Depression, images of people selling apples," said George Loewenstein, a behavioral economist at Carnegie Mellon University. "The images of the downside are just so salient in people's minds, and nobody has presented an upside image yet."

The quarterly 401(k) statements that are starting to arrive in the mail will only serve as another grim reminder of the financial carnage. And it has gotten worse since the quarter ended in September, with the Dow Jones industrial average tumbling every day so far this month.

In this week alone, the Dow Jones has plummeted by 17 percent, bringing the total decline to 39 percent since the stock market's most famous bellwether peaked at 14,164.53 on Oct. 9, 2007.

The downturn translates into a paper loss of $8.3 trillion, based on figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies' stocks and represents almost all stocks traded in America.

There are some logical reasons why stocks aren't worth as much as they were a year ago.

For starters, the U.S. economy appears to be in a recession for the first time since 2001. To make matters worse, this contraction looks like it could be particularly painful, with home prices in their steepest slide since the Great Depression and banks in their shakiest condition since the savings-and-loan crisis of the 1980s and early 1990s wiped out thousands of federally insured institutions.