IMPEACH BUSH

There was almost no place to hide from the crash of 2008.

When the New York Stock Exchange bell rang out the year on Wednesday, it tolled for virtually anyone with money in the stock market.

The final, grim tally only confirmed what investors had known for months: it was a very bad year to own stocks, any stocks — indeed, one of the worst ever.

In a mere 12 months, the Dow Jones industrial average plunged 4,488.43 points, or 33.8 percent, its most punishing loss since 1931. Blue chips like Bank of America, Citigroup and Alcoa lost more than 65 percent of their value. The broader Standard & Poor's 500-stock index sank 39.5 percent, almost exactly matching its decline in 1937.

All told, about $7 trillion of shareholders' wealth — the gains of the last six years — was wiped out in a year of violent market swings.

But what is striking is not just the magnitude of the declines, staggering as they are, but also their breadth. All but two of the 30 Dow industrials, Wal-Mart and McDonald's, fell by more than 10 percent. Almost no industry was spared as the crisis that first emerged in the subprime mortgage market metastasized and the economy sank into what could be a long recession.

As the new year dawns, Wall Street is looking to Washington, where the balance of financial power has tipped in recent months. Analysts and investors are focusing on what the incoming Obama administration and the Federal Reserve will do to revive the economy and the financial system.

It is a remarkable turnabout from the mid-1990s, when Wall Street traders helped drive economic policy. Back then, bond investors flexed their financial muscle and urged the Clinton administration and a Republican Congress to reduce the federal budget deficit.

These days, the market in ultra-safe United States Treasury securities seems like a refuge, even as the deficit balloons from the cost of bailing out banks, insurers and the Detroit auto companies. Many investors, having lost stocks and other investments, are buying up Treasuries that offer little or no return. They are content simply to get their money back.

"The only willing risk taker is the government," said William H. Gross, the chief investment officer of the Pacific Investment Management Company, or Pimco, the giant bond trading firm. Speaking of the epicenter of the financial world, he added: "It is no longer New York, it's Washington."

Like many money managers, Mr. Gross is a conservative — he describes himself as a "Reagan fan from way back" — who generally prefers limited government involvement in the markets. But he and others say that the government's sweeping intervention into private industry and in the markets, though sometimes flawed, is necessary to prevent a collapse of the financial system. They are hoping that policy makers do even more to stimulate the economy and revive moribund financial markets.

Given the damage in the markets, however, policy makers face daunting challenges.

"When we have bear markets, they usually take twice as long to get down this far," said Robert C. Doll, vice chairman of BlackRock, the big investment firm.

The markets have become incredibly volatile, especially since Lehman Brothers sank into bankruptcy in September. Since then, the S.& P. has moved more than 5 percent in either direction on 18 days. There were only 17 such days in the previous 53 years, according to calculations by Howard Silverblatt, an index analyst at S.& P.

Diversification — the idea that it is unwise to put all your eggs in one basket — did not pay off for investors in 2008, casting doubt over this cornerstone of modern investing. The American market was far from the worst hit in 2008. Stocks fell 55 to 72 percent in the so-called BRIC economies — Brazil, Russia, India and China — that were darlings of the late, great boom. Stocks in developed European and Asian markets also fell sharply, though less than their emerging counterparts. Many commodities like oil and copper crashed.

Losses in the credit markets, which are at the heart of this financial crisis, appear small relative to the devastation in other markets. The International Monetary Fund estimated in October that banks and other investors would suffer $1.4 trillion in losses on loans and securities, a loss of just 6 percent. Financial institutions globally have already reported $1 trillion in write-downs, according to Bloomberg.

The I.M.F.'s estimate, however, does not count losses on derivatives, those complex instruments that derive their value from other assets. Losses on these instruments could outstrip those in the so-called cash markets because they are much bigger than their underlying assets.

A spokeswoman for the I.M.F. said the fund's estimates did not include those losses because they were transfers of wealth from one party of a transaction to another. For example, when the insurer American International Group loses $1 billion on a credit-default swap, a type of derivative, it makes payments to customers like investment banks.

These complex financial instruments will pose one of the biggest challenges to policy makers in the year ahead. Many investors have lost confidence in banks, insurers and other financial intermediaries, in part because they do not know whether these companies are valuing opaque instruments properly. Some firms may be carrying enough toxic sludge to sink them, while others may be relatively unscathed.

"Until those assets can be removed from the balance sheets of the bank, or until the owners get a better understanding of what these assets are worth, we will have uncertainty," said Douglas M. Peta, an independent market analyst.

A broader focus for policy makers will be reviving the economy. Most financial and political analysts expect the Obama administration to enact a stimulus package that could approach $1 trillion. The effort will aim to create three million jobs by spending money on infrastructure, green energy technology, aid to states and other initiatives.

Many analysts say such an effort will help revive the economy, but not immediately. Infrastructure spending, for instance, can have a powerful impact by stimulating demand and creating jobs but, like much else in the economy, it often takes years to work.

Some are looking to efforts by the Treasury and Fed to jump-start lending by lowering mortgage rates and improving the market for bonds backed by small-business, auto and credit card loans. A recent drop in mortgage rates has already set off a refinance boom, but analysts say home prices in many parts of the country are still too high for many would-be buyers. Furthermore, employment and household savings will most likely have to climb for some time before consumers have enough confidence to buy homes and enough money for down payments.

"Across the board, they can potentially prevent a further slide, and they deserve a lot of credit if they achieve that," Martin S. Fridson, chief executive of Fridson Investment Advisors, a bond trading firm, said about policy makers. "I just don't think that they can push a button and have the economy and the stock market turn around."

Thomas J. Lee, the chief equity strategist at JPMorgan Chase, said a recovery early in the year could give way to another sell-off before the stock market finally bottoms later in the year. Mr. Lee said his forecast reflected "how unconventional the current recession is." Unlike in the past, policy makers cannot rely on consumers to push the economy ahead by borrowing and spending, he said.

"This is a recession where households are net debtors," he said. "They have lost money on houses and equities. That has rarely happened, at least since the 1950s."

Mr. Doll of BlackRock agreed that consumers would not "run back and power the economy ahead." But he nonetheless contends that several important markets, including stocks, may be close to their bottom. The Fed, he argued, has taken on a more activist role in the markets and the new administration is likely to push through a huge stimulus.

Such sentiments have probably helped drive the S.& P. 500 index up by 20 percent since Nov. 20 and investment-grade corporate bonds up by nearly 10 percent since October.

"Perhaps we have seen a bottom," Mr. Doll said. But he added that like the economy, "the stock market recovery will be more muted as well."