Finance Theories Essay Example | Topics and Well Written Essays - 3000 words

Finance Theories - Essay Example Fosberg (2010, p.2) notes that the crisis began due to default on debt instruments and subprime mortgage loans supported by those loan types. However, it was not until 2007 that companies began realizing that the default on subprime mortgages was likely to cause a crisis on the financial sectors of the economy. This follows the discovery by Bear Stearns that realized that some of its assets, which were held by the subprime hedge funds, were slowly becoming valueless (Mizen 2008, p.15). However, the devastating effect of the subprime mortgage defaults on other markets were felt a year later in February 2008 following the subsidence of the auction rate security market. Fosberg (2010, p.2) notes that buyers failure to bid for the securities during a public auction resulted in an end to these securities market. However, the first major financial market collapses in March 2008 following the liquidation of Bear Stearns after going bankrupt. In the same year in September, another financial institution called Lehman Brothers also went bankrupt signaling a crisis. This prompted government intervention with the aim of forestalling further effects of the financial crisis on the financial market, which resulted in the passage of TARP Act (Fosberg 2010, p.2). The act soon became law in October 2008 as noted by Mizen (2008, p.15). However, the law did not help much in preventing the crisis from continuing biting the financial markets and institutions. In fact, many countries still suffer from the effects of this crisis which no sign of full recovery anytime soon. Some of the countries still suffering from the effects of this crisis include the U.K., the U.S. Greece and Turkey just to name but a few (Brigham and Ehrhardt 2002, p.12). In addition, the financial crisis also affected the issuance of sec urities in the market. What was also evident is that the financial crisis of the 2000s created a recession, which financial management experts expect to have also affected the