Financial Crisis Essay

1278 Words 6 Pages
The institutional investors across the entire globe have always played a significant role in the financial sector. During the global financial crises in 2007 and 2008, they played a major role. In different economies, institutional investors invest substantially on the equity funds. Dropping out of major institutional investors from the equity market was a major issue in the 2007 and 2008 financial crises across the entire globe. The financial crises were according to Weissman (2011) characterized by falling profits in businesses across all industries, falling asset prices and withdrawal of institutional investors’ assets from the equity funds. Marconi (2010) believes that the role played by the institutional investors propagated the …show more content…
Thus, the corporate securities were the most sold in the institutional investors’ portfolio.
Companies normally issue bonds to raise capital. According to Goldsmith (2010), corporate bonds contribute significantly to companies’ source of finances and thus an entire economy. When the financial crises spread out from the housing and mortgaging sector and reached the corporate bonds market it was sure going to reach the global economy. The government and companies had challenges in meeting their operations cash requirements. In fact, the corporate bonds contribute to the overall United States corporate bond by close 50%.
The mutual funds investors were also trying to handle their liquidity needs. They were doing this by attempting to sell off their corporate bonds and retaining the security bonds which had now become ‘toxic’. This was around August of 2007. The market sort became too flooded with every institutional investor trying to liquidate their corporate bonds after the securitized investment became illiquid. As a result, the prices for the corporate bonds also got affected negatively. This according to Devine (2011) implied that it was hard for different companies in different sectors in the economy to finance their operations, they became crippled and thereby the financial crises from the housing and mortgaging to security bond to corporate bond finally hit the real economy and spread worldwide.

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