What is truly staggering about the 2008 market meltdown is not just its depth, but its breadth.

Virtually every asset class worldwide, except for gold and U.S. Treasury securities, lost value in 2008. Corporate and municipal bonds, foreign stocks, housing and commercial real estate all fell, in some cases off a cliff. Even oil and other commodities, which enjoyed big gains during the first half, ended the year lower.

Never was the phrase "nowhere to hide" more apt.

The decline in U.S. stocks approached record proportions.

-- The Dow Jones industrial average fell 33.8 percent, its worst showing since 1932, when it plunged almost 53 percent. Last year marked the Dow's fourth-worst annual performance since its 1896 inception.

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-- The Standard & Poor's 500 index shed 38.5 percent in 2008, its third-worst year since 1928.

-- The Nasdaq composite index tumbled 40.5 percent, the worst annual loss since its launch in 1971. The tech-heavy index now stands 69 percent below its all-time high in March 2000.

To put it in dollar terms, the Dow Jones Wilshire 5000 index - which covers the vast majority of U.S. stocks - lost $6.9 trillion last year and $8.4 trillion since the market peaked in October 2007.

Coincidentally, $8.5 trillion is the amount the U.S. government and Federal Reserve have pledged to spend to rescue the financial system, according to a Bloomberg tally.

Foreign stocks - a favorite investment for U.S. investors in recent years - did even worse. Developed markets fell 45 percent in U.S. dollars, and emerging markets plunged 55 percent.

No shelter in funds

Investors who thought they were safe because they had diversified into mutual funds still came away battered.

Of the 69 categories of mutual funds tracked by Morningstar, only six were up.

Bear market funds

The winners included bear market funds, which are designed to head north when the stock market goes south; short-term municipal bond funds and funds that invest primarily in U.S. government securities. Government funds benefited from a flight to the perceived safety of U.S. Treasurys.

Only two categories posted double-digit returns; bear market and long-term government bond funds were both up about 32 percent as of Tuesday.

The last time funds came so close to a complete massacre was in 1994, when only 9 out of 67 fund groups were up, led by technology and Japan funds, according to Morningstar.

"Diversification is supposed to work, so that not everything goes down by the same amount. It didn't work (in 2008). If you were diversified or not, it didn't matter," says Jennifer Ellison, a principal with San Francisco money management firm Bingham, Osborn & Scarborough.

What caused collapse?

What caused the widespread collapse, and where did all the money go?

A popular notion is that easy credit created asset bubbles that popped when lenders slammed their doors, a process known as the great de-leveraging.

"You had thousands of hedge funds investing in hundreds of thousands of asset classes around the world, and doing it mostly with borrowed money," says economist Ed Yardeni of Yardeni Research.

"When that borrowed money dried up following the collapse of Lehman Bros. (which along with Bear Stearns had been major lenders to hedge funds), most of these hedge funds were forced to liquidate not just the distressed assets but also the high-quality assets, because those were the easiest to sell."

Charles Biderman, chief executive of TrimTabs Investment Research in Sausalito, has a different explanation.

He says that from the market's bottom in 2003 until its peak in 2007, the market value of all publicly traded stocks worldwide grew from about $20 trillion to $45 trillion.

During this period, only about $1.5 trillion in cash went into the market. Debt accounted for some of the remaining increase in market capitalization, but most of it existed only on paper.

Not related

"Market cap and money aren't necessarily related," he says.

Suppose a company has 1 million shares of stock priced at $100 each, giving it a market value of $100 million. Over the next few days, someone buys $5 million worth of stock. Speculation drives the share price to $140, and suddenly, the company has a market value of $140 million.

In this case, a $5 million investment has created a $40 million increase in market value.

Is the company really worth $140 million? Not if everyone tried to sell their stock at once. The first person might get $140, but everyone else would get less, probably much less.

"It's not any different than a Ponzi scheme, a legal one," Biderman says.

The same thing happens in real estate. Suppose the house next door sells for $700,000. Suddenly, every family on the block thinks their house is worth $700,000. But if everyone on the block put their house on the market, everyone could not get $700,000.

Multiply that by just about every asset class in the world, and you'll get a sense of what happened last year.

"The perceived value evaporated," says Ken Winans, president of Winans International, a research and money management firm in Novato. "Are there trillions of dollars that have simply evaporated? The answer is yes."

For a year-by-year look at the Dow and S&P 500, see sfgate.com/webdb/dowjones and sfgate.com/webdb/sandp.