'Strategic Management Case Study Module 7\r'

'strategic Management Module 7 eccentric person Study Daryl L. Young Thomas Edison give tongue to College Strategic Management Module 7 Case Study trapping blab out and Its rive Case Study forefront 1: Explain the cause of the caparison bubble and its burst in the mid-2000s. To what cessation is this problem the result of ethical tribulation? lodging Bubble No unmatchable cause can fully explain the crisis further, in my opinion, the two major bases were regulation that come alongd homeownership and subprime owes. To fully understand the environment that spawned the hold bubble, we’ll have to travel back to the 1930s, when the commonwealth was in the midst of the Great Depression.During this judgment of conviction frame, homeownership represented plainly about 40 percentage of the U. S. households (Thompson, Peteraf, Gamble, Strickland, 2012, p. c-423). Following severe mortgage market disruptions, widespread foreclosures, and sinking homeownership rates, the organization created the national Housing Administration (FHA), Fannie Mae, the Federal Home Loan Bank (FHLB), and some(prenominal)(prenominal) decades subsequent Freddie Mac to help promote secure and sustainable homeownership for future coevals of Americans (Reforming America’s Housing finance Market, A Report to Congress, 2011, P. 5).A Subprime Mortgage is a type of mortgage that is normally do out to borrowers with lower cite ratings; a conventional mortgage is not offered because the loaner views the borrower as having a larger-than-average risk of defaulting on the loan; lending institutions often overbear interest on subprime mortgages at a rate that is higher in regula bristle to compensate themselves for carrying more risk, as delimitate by Investopedia. com, 2013. In 1994, subprime mortgages represented about 6 percent of total mortgage loans originated but by 2005 the percentage grew to 37. (Thomson et al. , 2012). snobby firms like countrywide, a nd others, issued more than 84 percent of the subprime mortgages in 2006 (Swift, 2011). Fast-forward to the 2000s and the effects of federal command over 60 years change magnitude homeownership to nearly 70 percent (Thomson et al. , 2012) pair with an explosion of subprime mortgages, and handgrip of homes values resulted in the living accommodations bubble. Housing Bubble Burst As there are several factors that created the bubble, there are just as m any(prenominal) that were responsible for its burst.The to the highest degree meaningful factors were the repeal of a major circumstances of the Glass-Steagall Act and a weakened housing market. First, lets look at the Glass-Steagall Act. One of the components in the Glass-Steagall Act of 1933 separated investment (brokerage) and commercial message banking activities (investopedia. com, 2009). The clause stipulated that banks would be allowed to take deposits and adopt loans, brokers would be allowed to underwrite and sell sec urities, but no firm would be allowed to do both due to the conflicts of interest and risks to see deposits (Rickards, 2012). In 1999, President Bill Clinton and Republicans lead by Sen.Phil Gramm repealed part of the Glass-Steagall Act, removing barriers that prohibited any one institution from acting as any combination, at the behest of big banks (Rickards, 2012). Secondly, the U. S. parsimoniousness began to weaken, with declining demand for housing, which caused home prices to plummet and appreciation in home prices came to an end, and in to the highest degree cases reversing (Thompson et al. , 2012). Homeowners, investors, and financial institutions did not have plentiful capital supporting their investments to absorb the resulting losses (Reforming America’s Housing finance Market, A Report to Congress, 2011, P. ). Homeowners were faced with foreclosure when they upset income during the economy slow trim down or seen their defrayal on Adjustable Rate Mortgages (ARMs) rise to a point of unaffordability (Thompson et al. , 2012). In 2008, credit markets froze. Our nations financial system †which had outgrown and outmaneuvered a regulatory framework largely designed in the 1930s †was driven to the brink of collapse. Millions of Americans muddled their jobs, families bewildered their homes, and small businesses shut down (Reforming America’s Housing finance Market, A Report to Congress, 2011, P. 5). Countrywides’ imageCase Study oral sex 2: Evaluate Countrywide’s role in the subprime mortgage debacle. Was the gild’s conduct u crystallisehical or illegal? Countrywide’s Role From 2005 to 2007, Countrywide was the leading subprime lender in the country issuing $97. 2 one thousand thousand in subprime mortgages (Bloomberg Business Week, 2009) but only led in market serving by 2 percent. The bottom 16 subprime mortgage-issuing firms accounted for $363. 5 billion in mortgages (reference graph 1). Countrywide was responsible for 10 percent of a $1 trillion problem. chair Unethical or Illegal Countrywide practices were illegal.Countrywide was charged with ravening lending practices (Thompson et al. , 2012) and later reached a multi-state settlement for $8. 68 billion (Huffman, 2008). â€Å" Countrywide’s lending practices false the American dream into a incubus fore tens of thousands of families by putting them into loans they couldn’t understand and ultimately couldn’t afford,” say Attorney General Edmund G. Brown junior , a co-leader of the negotiations for the states (Huffman, 2008). Countrywide settlement became the largest predatory lending settlement in history, dwarfing the nationally $484 million settlement (Huffman, 2008).Case Study challenge 3: Using this case as an ex angstromle, who benefits and who gets hurt when a company engages in unethical or socially positive behavior? In the long-term, no one benefits from this behavior. In this case study, the companies, shareholders, consumers, and global economy all suffered from the irresponsible behavior of many an(prenominal) in the financial sector. Between June 2007 and November 2008, Americans lost more than a quarter of their net worth (Wikipedia. org, 2013). Total retirement assets dropped by 22 percent, from $10. 3 trillion in 2006 to $8 trillion in mid-2008 (Wikipedia. org, 2013).As with most unethical or irresponsible somatic behavior there are no long-term winners. References Denning, S. (2001). Lest We Forget: Why We Had a monetary Crisis. Forbes. Retrieve from: http://www. forbes. com/sites/stevedenning/2011/11/22/5086/ Huffman, M. (2008). Countrywide Settles Predatory Lending Charges for $8. 68 Billion. Consumer Affairs. Retrieved from: http://www. consumeraffairs. com/news04/2008/10/ countrywide_settlement. html Investopedia. (2013). Definition of Housing Bubble. Retrieved from: http://www. investopedia. com/terms/h/housing_bubble. asp#axzz2NRr hirhT Rickards, J. (2012).Repeal of Glass-Steagall Caused the Financial Crisis. Economic Intelligence. Retrieved from: http://www. usnews. com/opinion/blogs/economic- intelligence/2012/08/27/repeal-of-glass-steagall-caused-the-financial-crisis The Department of the Treasury. (2011). Reforming America’s Housing Finance Markets, A Report to Congress. Retrieved from: http://www. treasury. gov/initiatives/Documents/ Reforming%20Americas%20Housing%20Finance%20Market. pdf Thompson, A. , Peteraf, M. , Gamble, J. , Strickland III, A. (2012). Crafting & Executing Strategy, The Quest for Competitive Advantage. impudent York, NY: McGraw-Hill.\r\n'