Strategic Management Case Study Module 7

Strategic Management Module 7 encase larn Daryl L. materialization Thomas Edison State College Strategic Management Module 7 Case Study living accommodations emit and Its crumple Case Study distrust 1 Explain the cause of the lodgement bubble and its burst in the mid-2000s. To what extent is this problem the result of ethical failure? Housing Bubble No single cause can fully explain the crisis only, in my opinion, the two major bases were legislation that promoted homeownership and subprime owes. To fully understand the environment that spawned the housing bubble, well have to travel back to the thirty-something, when the country was in the midst of the bully Depression.During this time frame, homeownership represented only ab turn up 40 percent of the U. S. households (Thompson, Peteraf, Gamble, Strickland, 2012, p. c-423). avocation severe mortgage market disruptions, widespread stalkclosures, and sinking homeownership rates, the government created the federal Housin g Administration (FHA), Fannie Mae, the Federal Home Loan Bank (FHLB), and several(prenominal) decades later Freddie Mac to help promote secure and sustainable homeownership for in store(predicate) generation of the Statesns (Reforming Americas Housing Finance Market, A shroud to Congress, 2011, P. 5).A Subprime Mortgage is a type of mortgage that is normally made out to borrowers with lower credit 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 bestow institutions frequently charge interest on subprime mortgages at a rate that is high in order to compensate themselves for carrying more risk, as defined by Investopedia. com, 2013. In 1994, subprime mortgages represented approximately 6 percent of total mortgage loans originated but by 2005 the percentage grew to 37. (Thomson et al. , 2012). Private firms like nationwide, and others, issued more than 84 percent of the subprime m ortgages in 2006 (Swift, 2011). Fast-forward to the 2000s and the effects of federal legislation over 60 years increased homeownership to nearly 70 percent (Thomson et al. , 2012) coupled with an fit of subprime mortgages, and appreciation of homes values resulted in the housing bubble. Housing Bubble Burst As there are several factors that created the bubble, there are sound as many that were responsible for its burst.The most significant factors were the repeal of a major component of the Glass-Steagall Act and a weakened housing market. First, lets think at the Glass-Steagall Act. One of the components in the Glass-Steagall Act of 1933 separated investment (brokerage) and commercial banking activities (investopedia. com, 2009). The clause stipulated that banks would be allowed to take deposits and make loans, brokers would be allowed to underwrite and grass securities, but no firm would be allowed to do both collectible to the conflicts of interest and risks to insured depos its (Rickards, 2012). In 1999, President Bill Clinton and Republicans led 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. economy began to weaken, with declining demand for housing, which caused home prices to plop and appreciation in home prices came to an end, and in most cases reversing (Thompson et al. , 2012). Homeowners, investors, and pecuniary institutions did not have enough capital supporting their investments to absorb the resulting losses (Reforming Americas Housing Finance Market, A Report to Congress, 2011, P. ). Homeowners were faced with foreclosure when they broken income during the economy slow use up or seen their payment on Adjustable regularize Mortgages (ARMs) rise to a point of unaffordability (Thompson et al. , 2012). In 2008, credit markets froze. Our nations financial dust which had outgrown and outmaneuvered a regulatory framework largely designed in the 1930s was driven to the brink of collapse. Millions of Americans lost their jobs, families lost their homes, and small businesses shut down (Reforming Americas Housing Finance Market, A Report to Congress, 2011, P. 5). comprehensives RoleCase Study Question 2 Evaluate Countrywides role in the subprime mortgage debacle. Was the companys conduct unethical or hot? Countrywides Role From 2005 to 2007, Countrywide was the leading subprime lender in the country issuing $97. 2 billion in subprime mortgages (Bloomberg Business Week, 2009) but only led in market share by 2 percent. The bottom 16 subprime mortgage-issuing firms accounted for $363. 5 billion in mortgages (reference chart 1). Countrywide was responsible for 10 percent of a $1 trillion problem. carriage Unethical or Illegal Countrywide practices were illegal.Countrywide was charged with predatory lending practices (Thompson et al. , 2012) and later reached a mu lti-state closure for $8. 68 billion (Huffman, 2008). Countrywides lending practices turned the American dream into a nightmare fore tens of thousands of families by putting them into loans they couldnt understand and ultimately couldnt afford, verbalise Attorney General Edmund G. Brown Jr. , a co-leader of the negotiations for the states (Huffman, 2008). Countrywide colony became the largest predatory lending settlement in history, dwarfing the nationwide $484 million settlement (Huffman, 2008).Case Study Question 3 Using this case as an example, who benefits and who gets combat injury when a company engages in unethical or socially unreliable behavior? In the long-term, no one benefits from this behavior. In this case study, the companies, shareholders, consumers, and globose economy all suffered from the trigger-happy behavior of many in the financial sector. Between June 2007 and November 2008, Americans lost more than a quarter of their net value (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 corporate behavior there are no long-term winners. References Denning, S. (2001). Lest We impart Why We Had a Financial 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. aspaxzz2NRrhirhT Rickards, J. (2012).Repeal of Glass-Steagall Caused the Financial Crisis. Economic Intelligence. Retrieved from http//www. usnews. com/opinion/blogs/economic- parole/2012/08/27/repeal-of-glass-steagall-caused-the-financial-crisis The Department of the Treasury. (2011). Reforming Ameri cas 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. New York, NY McGraw-Hill.