September 14, 2009 4:53 pm

Slideshow: A year after the Lehman crash

The collapse of Lehman Brothers in mid-September 2008 transformed an expected global slowdown into the worst economic downturn since the Great Depression. Though the direct losses from the US investment bank’s bankruptcy caused little trouble, the ensuing panic that engulfed financial markets, banks and companies hit the global economy harder than the Opec oil crises of the mid-1970s, the loss of control over inflation in the late 1970s or the dotcom crash at the turn of the millennium.

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Although a year later the scene is of a more stable world economy – thanks to growth in emerging markets and even glimmers of recovery in developed economies – caution still dominates the mood among policymakers.

Employees at Lehman Brothers' headquarters in New York leave with boxes of personal items after the US-based investment bank's collapse in September 2008 triggered global panic. The bankruptcy moved the financial crisis from Wall Street to Main Street and forced policymakers to urgently address the worst economic downturn since the Great Depression
Private investment fluctuates more than the overall economy; businesses invest to expand in good times but want to avoid overcapacity when growth slows. Lehman's fall crushed growth hopes, and investment decisions were put on hold while financing froze. Even a year later, private investment remains weak across the industrialised world
Durables such as cars bear the brunt as consumers retrench spending. Sales in the car industry – already suffering from overcapacity – plummeted in late 2008. Emerging China bucked the trend, but global sales fell dramatically. Cash-for-clunkers schemes boosted carmakers in 2009, but this may simply have shifted sales forward from the future
This is the first contraction in the global economy since the Great Depression. Growth in one part of the world usually outweighs downturns elsewhere, and developed and emerging countries often behave differently. But this crisis hit virtually all countries simultaneously. China and India kept growing but at a slower rate that did not stop the world as a whole from contracting
The crisis had already begun before Lehman fell; in the US, house prices peaked in 2006 and the economy started contracting at the beginning of 2008. So stock market prices had already come down from their 2007 highs, but the Lehman collapse sent stock prices hurtling downward in all the world's main markets. Since March 2009, however, they have staged an impressive rally
The Federal Reserve was the first big central bank to move aggressively on interest rates, but immediately after Lehman's collapse, the European Central Bank and the Bank of England followed suit. Most of the world's central banks have slashed rates to near zero. In addition they have introduced unprecedented measures, such as 'quantitative easing', aimed at directly expanding money and credit in the economy
In the weeks after Lehman Brothers filed for bankruptcy, financial markets were gripped by panic as investors did not know what would happen next. This uncertainty was matched by expectations of markedly more unstable market prices. For example Wall Street's 'fear gauge', the Vix index – which measures the price of options insuring against 30-day fluctuations in the S&P 500 share index – increased threefold

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Slideshow: A year after the Lehman crash

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