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Search Welcome Economist.com My account Manage my newsletters Log out Requires subscription Friday December 19th 2008 Site feedback Home Print edition December 20th 2008 This week's print edition Why we love music Previous print editions Subscribe Daily news analysis Biologists are addressing one Dec 13th 2008 Subscribe to the print edition Opinion of humanity's strangest Dec 6th 2008 All opinion Or buy a Web subscription for attributes, its all-singing, all- Nov 29th 2008 full access online Leaders dancing culture: see article Nov 22nd 2008 Letters to the Editor Nov 15th 2008 RSS feeds Blogs Receive this page by RSS feed Columns More print editions and KAL's cartoons covers » Correspondent's diary Economist debates The world this week World politics The world this year All world politics KAL's cartoon Politics this week International Christmas Specials United States Leaders The Americas Angels Asia Trade and the world economy Middle East and Africa Fare well, free trade Human evolution Europe Why music? 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Advertising info Legal disclaimer Accessibility Privacy policy Terms & Conditions Help The world this year Dec 18th 2008 From The Economist print edition 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
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