It was the bankruptcy heard around the world: The collapse of investment banking giant Lehman Brothers on September 15, 2008, brought the global financial industry to its knees.

The bankruptcy marked the beginning of a ferocious global economic downturn. Many more bankruptcies followed and millions lost their jobs. Banks and car companies were controversially nationalized and trillions of dollars were spent by governments to prop up their ailing economies.

The first global recession since World War II is only now showing signs of easing. Japan, as well as major European economies like France and Germany, pulled out of recession in the second quarter.

Huge cracks exposed

The United States, the world’s largest economy and epicentre of the crisis, is expected to return to growth this quarter.

But the crisis exposed huge cracks in the workings of global finance. Through much of the last decade, banks offered loans to homeowners that could ill afford them and used ever-more complicated financial tools in a bid to spread the risk of people defaulting.

When the housing market ended a decade-long boom and prices began falling in mid-2006, homeowners began defaulting on their mortgages in record numbers. Banks began to realize their own balance sheets were far more exposed than most people thought. More than 3 million foreclosure filings were recorded in 2008 alone.

The looming crisis was already becoming clear by late 2007, but it took Lehman’s spectacular collapse — the largest financial firm to fail in history — to cause a serious panic.

Wall Street essentially stopped functioning as the rest of the nation’s banks realised they, too, were no longer on sound financial footing. Consumers across the globe struggled to get loans as banks, desperate to avoid Lehman’s fate, held onto what little capital they had left.

Governments step in

Governments around the world sought to fill the void that was left by an exodus of private capital. Less than a month after Lehman’s bankruptcy, the US Congress approved 700 billion dollars to plug into other banks and avoid more collapses.

Other financial firms like insurer American International Group were effectively nationalised in a country that has long prided itself on free-market policies. The crisis spread to European banks which had similar exposures to the US housing market.

One year on, governments are still hard at work trying to draw the right lessons from Wall Street’s worst crisis since the Great Depression of the 1930s.

Obama’s musings on Monday

U.S. President Barack Obama on Monday will deliver his musings on the Lehman fiasco, one day before the anniversary that has become known as “Black Monday.” The White House says Mr. Obama’s speech will detail reforms “to prevent a crisis like this from ever happening again.” Later this month Mr. Obama will host leaders of the Group of 20, a bloc of advanced and emerging economies, to consider the international community’s next steps. It is the third such crisis summit since Lehman’s downfall.

While financial regulatory reform has become the catch phrase of the year, most countries have yet to adopt any serious changes. And now, some economists fear, the urgency may have run its course.

“With the headline numbers for the economy beginning to improve, the impetus for any real reform of this sector within the U.S. or internationally starts to fade,” said Simon Johnson, a former chief economist of the International Monetary Fund. “The likely future is: more of the same.” Still, most countries have laid out plans to keep a more watchful eye on their financial industries, led by the U.S. Obama wants to give more powers to the Federal Reserve to monitor the country’s largest banks.

With a debate still raging about whether the U.S. government should have intervened to halt Lehman’s collapse, Mr. Obama also wants to give the Treasury new authority to step into failing institutions before they collapse, and help manage a more orderly bankruptcy.

“The critical imperative we face as a country is making sure that the same vulnerabilities in our system which gave rise to this recession are not allowed to trigger another,” Treasury Secretary Timothy Geithner told Congress on Thursday.

The plans remain controversial. Critics believe the Federal Reserve, which failed to foresee the crisis in the first place, should not be put in charge of stopping the next downturn. Congress has yet to begin seriously considering the overhaul plans.

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