The Beginning and End of the 2 Great Crashes of the 21st Century


On this day in economic and financial history ...

The Dow Jones Industrial Average reached the end of its financial crisis bear-market slide on March 9, 2009. This was only the second bear market to destroy more than half of the Dow's value and thus was the second most devastating crash in Dow history, behind only that which began the Great Depression. It also became the second most volatile bear market in history, with the exception of the very brief crash of 1987 -- an average trading day during the financial crisis slide saw the Dow's change by an average of 1.51% in either direction.

The causes and consequences of this collapse continue to be debated and explored years later, and investors remain on edge, the memory of wealth destruction fresh in their minds. Nearly four years to the day after the crash ended, the Dow surpassed its previous heights, returning to levels first reached in 2007. Will this new level endure? Only time will tell.

Click here to see an in-depth timeline of the financial-crisis crash, from the early warning signs to the first days of recovery.

Wealth of Nations
Adam Smith's An Inquiry Into the Nature and Causes of the Wealth of Nations was first published on March 9, 1776. It is now widely regarded as one of the cornerstone texts of classical economics, and it has influenced economics writers for centuries in the same way that Isaac Newton advanced physics and Charles Darwin revolutionized biology. Founding Father Alexander Hamilton pushed back against it in 1791, but both James Madison and Thomas Jefferson found wisdom in its pages. Jean-Baptiste Say (of Say's Law) and economic demographer Thomas Malthus both drew inspiration from it. So did Austrian economist Ludwig von Mises, who embraced Smith's support of generally unfettered capitalism.

Smith put forth the concept of gross domestic product as a measurement of national wealth, supported a division of labor into specialist fields for greater productivity, recognized the two-way benefits of trade, and identified the underlying efficiency in the apparent chaos of free markets. These are only some of the key elements of Smith's 950-page magnum opus. Few (if any) economics texts come close to matching it in importance, with the possible exception of John Maynard Keynes' General Theory of Employment, Interest, and Money.

Barbie girl in a Barbie world
Barbie, the world's best-selling toy, made her debut for Mattel on March 9, 1959. The doll's launch was the result of a multiyear development process that began, simply enough, when Ruth Handler, the wife of Mattel co-founder Elliot Handler, noticed how much her daughter Barbara enjoyed playing with paper dolls. A 1956 trip to Europe exposed Ruth Handler to the German Bild Lilli doll, which bears a distinct resemblance to Barbie, with its blonde hair, movable head and limbs, and mature (for a plastic doll) appearance. Handler retooled Bild Lilli for the American market, and Barbie, named after the Handlers' daughter, made her debut at the 1959 American International Toy Fair in New York.

Barbie was America's first mass-produced toy doll, and she caught on quickly with girls across the country. Barbie surpassed $1 billion in annual sales for Mattel in 1993, and since her debut, more than 800 million dolls have been sold around the world. Barbie also inspires budding fashion designers before they move on to runway stardom, and these designers in turn have provided inspiration for some of the more than 1 billion fashion items that have been created for the Barbie brand since 1959.

Several years after Barbie's debut, Hasbro launched the G.I. Joe line of action figures to capture the male half of the doll-buying market. This line also wound up surpassing $1 billion in annual sales by the 1990s.

Barbie isn't without her controversies, though. Her impossible proportions have led to some complaints that the doll fosters an unhealthy body image among young girls. Ironically, Barbie's birthday is celebrated less than a week after the end of National Eating Disorders Awareness Week -- which itself occurs about a month after National Pie Day. Only in America.

Peak tech
The Nasdaq Composite closed at 5,046.86 points on March 9, 2000. It was the first of only two days in its history -- the day that followed would mark the index's all-time peak -- that the Nasdaq has ever closed above 5,000 points. The rise to 5,000 displayed a classic bubble curve, as the Nasdaq more than doubled over the preceding year, buoyed by a number of extraordinarily hot dot-com IPOs (many of which became first-day multibaggers) and by extreme optimism around the transformative potential of computers and the Internet. The Nasdaq's one-year double has never been replicated by the much older Dow industrials index, which experienced a comparatively modest 67% run-up during its best-ever annual rally of 1933.

As if to emphasize the divergence between the old-economy Dow and the new-economy Nasdaq, the former index earned half of its 1.6% gain from the rise of recent additionsHewlett-Packard and Microsoft . The Nasdaq grew twice as much, rising 149.60 points for a 3% gain, led by dot-com darlings Microsoft, Cisco , and Intel , which were then competing to claim the largest market cap in history. The Nasdaq's P/E, distorted by a frothy mass of dot-com pretenders, was purportedly as high as 240 at the time.

This was the Nasdaq's last hurrah. After topping out a day later with a very small gain, the index joined the Dow (in decline since mid-January) in a race to the bottom. The Nasdaq's 59% decline in the year following March 9, 2000, more than erased its double since 1999. In the decade that followed, the Nasdaq never again came close to 5,000 points, and in early 2010 it still sagged beneath a 54% loss for those 10 years. None of the dot-com era Nasdaq's three leading lights came close to regaining their old heights. Only Microsoft avoided a 50% decline in the decade following Nasdaq 5,000, and then not by much.

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Fool contributor Alex Planes owns shares of Intel. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.The Motley Fool recommends Cisco Systems, Hasbro, Intel, and Mattel and owns shares of Hasbro, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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