From The Times
January 1, 2009

How the financial system nearly crashed in 2008
Our correspondent charts a year when old certainties went out the window


Patrick Hosking, Banking and Finance Editor

It was a stinker of a year by almost any measure. Most homeowning, pension-saving Britons finished 2008 strikingly poorer than they started it. They feel less secure in their jobs. And they face having to pay higher taxes years into the future to fund a rescue package whose success still hangs in the balance.

It was a year when the old financial certainties went out of the window. The orthodox notions that banks were safe places to deposit money, that shares over the long term go up, that multibillion-pound frauds were impossible, that cheap loans would always be available and that ordinary taxpayers would not be tapped to bail out bust firms were all challenged.

It was a year when things financial didn’t just get worse, but got worse at an accelerating pace; when the balance of power shifted dramatically from the City and Wall Street to Westminster and Washington.

It was a year when some of the world’s most senior bankers and financiers were exposed as negligent, corrupt, complacent or greedy and sometimes all four; when ministers and central bankers abandoned all normal policymaking and fiscal rules, arguing that to abide by them was to risk economic calamity.

It was a year when regulated capitalism, the default setting for the West for the past 40 years, came perilously close to collapse. At the height of the crisis, George Bush reportedly exclaimed: “This sucker’s going downâ€