Fannie Mae and Freddie Mac
These government-sponsored enterprises could not be allowed to fall. They own or guarantee about half of the $12 trillion U.S. mortgage market. For the first 30 years, Fannie Mae (NYSE: FNM) was actually owned by the government, and now it's back in government hands after the government took conservatorship of both Fannie Mae and Freddie Mac (NYSE: FRE) in September 2008. As government-sponsored entities, they were not required to report their finances according to the same standards as public corporations. This nontransparency allowed both enterprises to engage in serious accounting fraud and overstatement of earnings. Both companies hid their problems until the government finally stepped in and took them over. Their position in the critical mortgage market was just too important to the U.S. economy to let them fail completely.

Iceland
We've seen governments go into bankruptcy in the developing world and watched as the World Bank and International Money fund bailed them out with the support of the industrialized nations. Yet I doubt any of us ever expected to see a developed, financially wealthy country, such as Iceland, go bankrupt. Well we saw just that on October 22, 2008, when Iceland's economy and government collapsed. Just a few weeks before the actual collapse, Iceland tried to stop the carnage by nationalizing its banks, halting currency trading, and shutting down its stock exchange. Bailing out banks whose assets vastly exceeded the county's own GDP didn't sit well with the credit markets. Stories from inside the country indicate that their supermarkets can't buy imported goods because they have no currency. The shops are half empty and were running out of oil just as the cold winter set in a month early in October. The International Money Fund did step up to work out a rescue. Sweden, Denmark, and Norway promised additional assistance once the IMF bailout was approved.

Lehman Brothers
Once one of the most prestigious players on Wall Street, Lehman Brothers filed for bankruptcy protection on September 15, 2008. This collapse put tens of thousands of people out of work around the world. It also send shockwaves through the entire banking industry and probably hastened the fall of other investment banks on Wall Street. Before the end of September, the last two remaining major investment banks -- Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) -- filed to change from investment banks to bank holding companies to get their share of the government bailout. Before its fall, Lehman expanded aggressively into property-related investments, including subprime mortgages. Before declaring bankruptcy, the bank took $14 billion in losses because of write-offs from these investments. What happened to the conservative portfolio management its customer and shareholders had expected from this firm?

Merrill Lynch
Every time I even see that name I think of the ad with the running bulls. Who ever thought this powerful investment banking and brokerage firm would ever fall so hard it could be bought up by Bank of America (NYSE: BAC) for $50 billion? BoA bought it only after getting some guarantees from the government. Obviously Merrill Lynch was a more attractive partner than what was left of Lehman Brothers, which could not find a similar suitor. Merrill Lynch top execs weren't bulls but pigs about the money they were making on selling (and buying) mortgage securities. Unfortunately for the investors and customers of Merrill Lynch, the pigs greed turned into garbage and the company was bought for peanuts while its investors, employers, and customers lost almost everything they thought they had invested wisely with the bulls.

So now it's up to you to decide which of these 2008 financial collapses is the most shocking.

Lita Epstein has written more than 25 books, including the Complete Idiot's Guide to Improving Your Credit Score and Working after Retirement for Dummies.

Share the reasons for your Most Shocking Financial Collapse pick in the comments, or let us know about any contenders we overlooked. Also be sure to see the rest of the Best & Worst in Money 2008.