The Financial Crisis of 2007-2010 - Case Study Example

Generally, the paper "The Financial Crisis of 2007-2010" is a perfect example of a finance and accounting case study. The financial crisis which started in August 2007 and later spread through a number of developed economies can be said to be the outcome of both finance and economic inadequacies and flaws. Most aspect of the finance-related cause can be said to focus on the finance industry and its regulators, whiles flaws in modern economic theories which most businesses and banks had used in operating some years before the crisis can be said to be the major economic cause.

Considered by many economists and analysts as the worst financial crisis since the Great Depression which hit the world in the 1930s, the cause of the financial crisis of 2007 to 2010 can hardly be distant from the finance world given the fact that the worst victims of it became the banks, stock market, and housing market (Godechot, 2009). But as to whether all accounts of its cause should focus on the world of finance is subject to debate. The paper, therefore, gives three major accounts of the cause of the financial crisis which focus on banking regulation issues, boom and bust effect in the finance sector, and the flaws in economic theories.

Rightly related to the finance and economic causes of the financial crisis in 2007 was the blame for the collapse of Lehman Brothers in October 2008. This is because, at the time of filing for bankruptcy on September 15, 2008, the company had $639 in assets and $619 in debt (Angelides et al., 2011). Meanwhile, as would be seen later in the paper, the finance and economic causes of the financial crisis brought about high levels of credit risk as borrowers were no longer in a position to pay their debts due to declining economic activity.

Meanwhile, responding to banking regulation issues, Lehman Brothers had focused on a shadow banking system instead of traditional banking, making the company borrow more money to fund its investment in the housing market (Gaffen, 2008). Indeed the same causes of the financial crisis can be blamed for the collapse of Lehman Brothers because when the dynamics leading to the Great Depression of the 1930s, the two world wars, and capital shortage in 1994 were different, the company could survive through all such hard financial times.