The credit crunch turned into a full-blown global financial crisis in September when Lehman Brothers, one of Wall Street's big investment banks, declared bankruptcy and American officials seized control of American International Group to prevent the giant insurer's collapse. As panic spread, governments engineered the rescue of distressed banks or took them over directly. By the end of the month the remaining big Wall Street houses had either been absorbed by others or become bank holding companies.

America and Europe reacted to the unfolding crisis by unveiling broad bail-out packages for the financial system. After a battle in Congress America extended $700 billion in funding. With credit markets frozen, central banks took emergency steps to boost liquidity. America's Federal Reserve made unprecedented market interventions, such as buying large amounts of short-term debt issued to companies to enable day-to-day financing.

Most central banks slashed interest rates. The Fed reduced its rates to near zero, lower than they have ever been.

The global stockmarket gains of recent years were wiped out. Hopes that emerging markets would remain buoyant during a downturn in the West were dashed when markets plummeted in China, India, Russia and elsewhere.

With job losses mounting, governments pondered measures to stave off a deep economic slump. Japan and the euro area fell into recession (using the definition of two quarters of negative growth) and America was officially declared to have been in recession since December 2007. The IMF, World Bank and OECD snipped their projections for economic growth next year.

A change is gonna come

Reuters

Events in the markets helped propel Barack Obama to a big win in America's presidential election. John McCain, Mr Obama's Republican rival, was widely judged to have fumbled his response to the crisis.

Earlier, Mr Obama fought an epic battle with Hillary Clinton in the Democratic primaries. Mrs Clinton was given the job of secretary of state in the Obama administration, which starts work on January 20th. One of the new president's top priorities will be to implement a stimulus package, the passage of which should be made easier by increased Democratic majorities in Congress.

Britain's Gordon Brown won plaudits for his handling of the financial crisis. It had looked as though 2008 would be a dismal year for the prime minister. His Labour Party trailed David Cameron's Conservatives by some 30 points in the polls, but rebounded when the Tories failed to explain how they would have handled the crisis differently.

Yasuo Fukuda resigned as Japan's prime minister in frustration at his inability to implement policy. The ruling Liberal Democratic Party put Taro Aso into the job, but his future is in doubt as the country's economy contracts.

Kenya was ravaged by violence following a disputed presidential election, leading to the formation of a fragile government of national unity in April. Two judges oversaw separate reports on the trouble that criticised politicians, police and the electoral commission.

Pakistan's general election was a humiliation for the embattled presidency of Pervez Musharraf. His allies won just 16% of the seats, well behind the Pakistan People's Party led by Asif Zardari, the widower of Benazir Bhutto, a former prime minister assassinated last year. Mr Musharraf eventually resigned when parliament threatened to impeach him; Mr Zardari won an indirect ballot to replace him.

The comandante's last move

Fidel Castro stepped down as Cuba's president, handing over the job to his younger brother, Raúl, whose plans to reform the island's communist economy were slowed by two devastating hurricanes.

AP

A resurgent Russia invaded Georgia in August after Georgian forces entered the breakaway region of South Ossetia. It was Russia's first big military incursion beyond its borders since it invaded Afghanistan in 1979. Moscow pulled its troops back, eventually, but recognised the independence of South Ossetia and Abkhazia.

Dmitry Medvedev won Russia's presidential election in March, though real power remained with Vladimir Putin, who became Mr Medvedev's prime minister.

Radovan Karadzic, the Bosnian Serb wartime leader, was arrested in Belgrade, 13 years after being indicted for crimes against humanity. He was sent to the war-crimes tribunal in The Hague to stand trial.

EPA

India endured another year of frequent terrorist incidents, including a spate of bombings in one day in Jaipur. But even the experts were taken by surprise at the audacity of a co-ordinated attack by gunmen on Mumbai. Security forces fought the assailants over several days and at least 190 people were killed.

The violence was less severe in Iraq than in previous years; American forces handed responsibility back to Iraqi troops for Anbar province, the bloodiest zone in the first years of the insurgency. Iraq's parliament endorsed an agreement that requires American troops to withdraw from Iraq altogether by the end of 2011.

Conversely, it was the deadliest year for coalition forces in Afghanistan since the 2001 invasion. In a chilling development, a 13-year-old boy was deployed as a suicide-bomber by the Taliban, killing three British marines.

After being dogged by corruption allegations, Ehud Olmert decided to step down as Israel's prime minister. He remains in office until February's general election, which Binyamin Netanyahu is currently favoured to win.

When no means wait and see

The European Union was thrown into a tizzy when Irish voters rejected the Lisbon treaty, which Eurosceptics see as an effort to impose the old draft constitution by the back door. EU leaders pressed Ireland to hold another vote.

The ideological divide in Latin America widened. Venezuela nationalised the cement and steel industries, Argentina's government took over its private pension system and Ecuador defaulted on its foreign debt. But most governments in the region maintained their trust in free markets and inflation targeting.

Rest ye merry gentlemen

Merger activity dwindled compared with 2007. Several large takeover bids failed, such as Microsoft's offer for Yahoo! and BHP Billiton's pursuit of Rio Tinto. Hewlett-Packard did buy EDS, and Anheuser-Busch, which makes Budweiser beer, was taken over by Belgium's InBev. At $52 billion, it was one of the biggest ever foreign acquisitions of an American company.

Reuters

China's big year as host of the summer Olympics didn't go quite according to plan. The games were a spectacular success, but China's suppression of the worst outbreak of violence in Tibet in decades led to protests in cities around the world that took part in a relay of the Olympic torch en route to Beijing.

Three months before the Olympics China suffered its worst natural disaster in 30 years when a massive earthquake rocked the province of Sichuan, killing some 70,000 people and leaving 5m homeless. China launched an all-out rescue effort that was widely praised.

In contrast, Myanmar's ruling junta was roundly condemned for its response to a cyclone that left large swathes of the Irrawaddy delta submerged, causing at least 145,000 deaths. The furtive regime was eventually persuaded to allow a trickle of foreign aid into the deluged region.

Most carmakers had a rotten year, no more so than in America. Detroit's Big Three went caps-in-hand to Congress for public assistance.

EPA

The price of oil breached $100 a barrel for the first time in January. Oil prices spiked at more than $147 in July, but fell by more than two-thirds as the world economy drooped.

The end of the commodity boom was especially welcomed in countries that had witnessed riots over high food prices earlier in the year.

Thaksin times

Thailand saw prime ministers come and go with alarming frequency amid a political crisis caused by a stand-off between allies of Thaksin Shinawatra, a former prime minister toppled in 2006, and pro-monarchy supporters. The latter staged a sit-in at Bangkok's international airport for a week that left thousands of passengers stranded.

Canada's Stephen Harper failed to win a parliamentary majority for his Conservative government; two months after the election the prime minister had to suspend Parliament to avoid being ousted by the opposition.

Robert Mugabe won a presidential run-off election in Zimbabwe after his opponent, Morgan Tsvangirai, who won the first round, pulled out because of intimidation. A power-sharing deal gave the prime minister's job to Mr Tsvangirai. Conditions remained miserable for most Zimbabweans; inflation (officially) ran at hundreds of millions per cent and cholera swept the country.

Thabo Mbeki was ejected by the African National Congress from his post as South Africa's president. Jacob Zuma, the ANC's party leader, seems likely to win the job in 2009, provided that continuing court cases do not ensnare him. A breakaway party, the Congress of the People, may dent the ANC's authority in a general election in mid-2009, though probably without ousting the ruling party.

Bernard Madoff, a Wall Street veteran, was arrested in possibly the biggest fraud in history; his Ponzi scheme may have lost investors $50 billion.

It was a bad year for Colombia's FARC guerrillas. Two of their leaders were killed, one of them in a bombing raid by Colombia's army on a camp just across the border in Ecuador, which prompted a break in diplomatic relations. The army also rescued Ingrid Betancourt, the FARC's most famous hostage.

A “farewell kiss”

Pundits began writing George Bush's political obituary as his approval ratings sank to new lows. At a press conference in Baghdad a disgruntled Iraqi journalist threw his shoes (size ten) at the American president, an Arab insult.

The first protons were circulated around the Large Hadron Collider. Designed to help physicists explain the existence of mass, some feared the experiment would create a gigantic black hole. Wall Street's collapse just a few days after the LHC was switched on was deemed a coincidence.