Question

During subprime mortgage crisis in 2008, what happened to equity holders (banking industry) and what could have done to benefit equity holder?

Answer 1

The shares of the banking companies enormously and the market cap of the banking companies are totally eroded as a result of the sub prime mortgage crisis. Due to the same the equity investors lost majority of their money and investments. The banks should have had enough reserves as a cushion to guard the equity holders against any financial risk and to ensure that their initial investment in the stocks it not at least wiped out. Also, the Fed could have pumped in money in to the industry to make the loss good for the investors.