Starting with Northern Rock on the rocks and ending with what is believed to be the biggest financial scam in history, 2008 will be remembered as the year the financial system as we know it was brought to its knees.

What began with slight unease, as banks announced increasingly hefty writedowns triggered by the American sub-prime crisis, turned into a credit crunch and ultimately a recession, a drama that reached its climax when Lehman Brothers collapsed.

Along the way, Bradford & Bingley was part-nationalised and RBS fell under state control as the price of a government bailout. Bear Stearns, one of America's oldest investment banks, was scooped up by JPMorgan Chase for $10 a share, HBOS fell into the arms of Lloyds TSB and Merrill Lynch was swallowed by Bank of America to save it from bankruptcy.

The credit crunch coincided with the collapse of the UK's housing market, bringing the pinch literally to people's doors. House prices had peaked in October 2007 but come 2008, with prices collapsing, sales began to dry up. Housebuilders have seen their share prices tumble and companies such as Taylor Wimpey and Barratt Developments have each had to lay off more than 1,000 staff.

The crisis then spread to the high street, with household names, including Woolworths, MFI and Whittard of Chelsea, calling in the administrators, as consumers tightened their grip on their purse strings and credit evaporated. By the end of the year it was clear that Woolworths would be lost. And as companies went under and cost-cutting rose to the top of the survivors' agendas, what was a trickle of job losses turned into a deluge.

By December the number of people out of work and claiming jobless benefits had broken through the million mark and was growing at the fastest rate since 1991. Some analysts believe that three million people could be unemployed by the end of this year, including more than 60,000 who previously worked in the City.

Oil rose - hitting $147 a barrel in July - before plunging in a commodities price collapse as the crunch bit. By the end of December it had dropped as dramatically to finish the year below $40 - a fall that finally gave the Bank of England confidence to cut interest rates. It responded by taking them down to 2 per cent.

The FTSE 100 closed down 31.5 per cent, the biggest fall since its launch in 1984, a plunge that helped to lay low multimillionaires such as David Ross as much as the man in the street. But there were winners among the chaos too.

Prime Minister Gordon Brown won back dwindling support towards the end of the year as he led a global bailout of the banking sector, announcing £500billion in handouts for Britain's beleaguered banks.

Grupo Santander, the Spanish banking giant, got a good deal hoovering up ailing Alliance & Leicester. Manchester City, for so long the butt of so many football fans' jokes, was bought by an investment group backed by the royal family of Abu Dhabi. Nevertheless, while many would envy the backing of Abu Dhabi's oil and gas billions, even that clout may not be enough to deliver this year the success that has been enjoyed in the red half of Manchester.

Explore Economics

• Pre-Budget Report 2008

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• World Economic Forum

• The Times MPC

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