Washington  - 2008 is a year that most of the world's economies would like to forget.

The United States leads the pack, suffering from its worst financial crisis since the Great Depression and a year-long economic recession.

The troubles in the world's largest economy have taken the rest of the globe down with it - the International Monetary Fund and World Bank both predict a global recession in 2009.

What began as a downturn in the US housing market nearly brought down the entire US financial system.

Banks wrote down more than 500 billion dollars in mortgage-related assets over the course of the year. Investment bank Bear Stearns was sold off with government help to JPMorgan Chase in March, but the crisis took a dramatic turn for the worse in September.

The bankruptcy of Lehman Brothers Holdings Inc, the largest in US history, prompted remaining institutions to hold on to their cash reserves and stop lending - to each other and to consumers.

The credit freeze choked off spending in the wider US economy, forcing more bankruptcies, including that of consumer electronics chain Circuit City and the looming failure of the country's car industry.

US stocks plunged about 40 per cent in 2008, devastating many retirement accounts. Job losses over the course of the year are likely to top 2 million, according to government figures.

The crisis prompted widespread condemnation of Wall Street - and capitalism more broadly - for taking unnecessary risks as the turmoil quickly spread to the rest of the world.

Banks in Europe struggled with losses from their own involvement in the US mortgage market. Developing countries struggled with evaporating demand for exported goods and lost foreign investment from the US and other wealthy nations.

All this awaits US president-elect Barack Obama, whose November 4 election was aided by the economic turmoil as voters rejected the economic policies of President George W Bush's Republicans.

The world will be looking to Obama to lead an economic revival. He has promised to create 2.5 million jobs and introduce an immediate fiscal stimulus package to boost US demand - as high as 1 trillion dollars by some estimates - when he takes over from Bush on January 20.

To lead the Treasury Department, Obama tapped New York Federal Reserve chief Timothy Geithner, a career public servant who has been heavily involved in the US rescue efforts to date.

But most economists expect the recession to continue well into 2009 regardless of Obama's actions. The World Bank's chief economist Justin Lin in December warned of the worst downturn since the Great Depression of the 1930s.

In addition to reviving the US economy, Obama's administration will be charged with leading a global overhaul in regulations of the international financial system.

That work began with a Washington summit of leaders from the world's top 20 economies in November. Governments promised to close all loopholes in oversight and improve early-warning signs to prevent another financial disaster from striking the worldwide economy. A follow-up summit is expected some time in April.

For the US, the financial crisis prompted a massive rethink of how a once-proudly capitalist country does business.

The Republican-led Bush administration has been forced effectively to nationalize a series of top companies including the world's largest insurer, American International Group (AIG) as well as mortgage giants Fannie Mae and Freddie Mac.

In addition, a 700-billion-dollar financial rescue package approved in October allowed the Treasury to take private equity stakes in dozens of banks in exchange for cash.

But there were limits: Congress refused to step in to save the country's three iconic carmakers - General Motors Corp, Chrysler LLC and Ford Motor Co, which suffered from a drop in credit availability that sent domestic car sales to 25-year lows.

A 14-billion-dollar loan to the US car industry failed to pass the Senate in December. There remained a possibility that the Bush administration would fund the loan through the existing financial package.

But the fact that carmakers could not get legislative approval for a rescue served as a telling sign of the US' evolving debate on its economic recession.

A majority of US voters opposed both the financial and carmaker bail-out. Many in the US were uneasy about rescuing Wall Street and companies that had only themselves to blame for their failures.

Financial institutions and mortgage lenders provided high-interest loans to homeowners that could ill-afford them. Carmakers have been struggling for a decade as foreign competitors gained market share with lower labour costs and more fuel-efficient vehicles.

Legislators this week slammed Treasury officials during congressional hearings for failing to unblock US credit markets and help ordinary consumers, despite already allocating nearly half of the 700-billion-dollar fund to banks.

Bush has acknowledged he was forced to put aside his free-market instincts to keep the economy afloat, but many politicians still argue the government has gone too far in bailing out industries that don't deserve it.

"The goal is to privatize the gains to the few, and socialize the losses to the many," Ohio congresswoman Marcy Kaptur, a strong critic of the bail-out, said back in September.

The Treasury has urged patience as it works to revive the financial sector. The onus will fall on Obama's economic team in 2009. (dpa)