After a while, there were less people who had good credit and were eligible for a mortgage. In order for mortgage brokers, lenders, investment bankers, and investors to continue to make their money, they needed people who were going to buy houses or else they would not be able to maintain their large amounts of income. They decided to accept unqualified mortgage applicants. This added risk to the mortgage and made it inevitable that the homeowners would default on their mortgage resulting in the house foreclosing where the investment banker could then put the house up for sale. This cycle continued to happen which caused houses to lose their value bringing down the other houses around them.
If house Prices fall it will cause significant problems for the UK economy. There will be a fall in consumer wealth, and declining house prices can lead to negative equity. (house prices are less than what people bought them for). Therefore, some people will have their home repossessed and will also owe money on their old mortgages. The effects of a fall in consumer wealth will be to reduce confidence and consumer spending; equity withdrawal will slow down sharply – this has been a significant contributor to increasing AD in UK).
1. The Household Debt Bubble Abstract: Comments on the decline in real wages & paradoxical rise in consumption in the US, arguing that the potential exists for particularly negative consequences. Data on the family debt burden indicate the class nature of the distribution of household debt, with mortgages, credit cards, & installment buying the areas of highest debt for most families. It is argued that low-income families are prime targets for predatory lending, eg, payday loans, subprime mortgage lending. Of greatest macroeconomic significance is home-secured borrowing, & it is contended that the housing bubble & strength of consumption in the economy are linked to the "household debt bubble," which could burst if interest rates rise & housing prices stagnate or decline.
1. Introduction The financial crisis since 2008 has been a real phenomenon in the recent years. It has negatively impacted the countries` national economies as increased their deficits, public and private debts, significantly declined the GDP rates, etc. Moreover, the crisis has also deepened the social discontent and mistrust to the politicians and to the public institutions after millions people in the world remained unemployed and others lost their businesses, as well. Considered that the financial crisis has started from the USA, its effects were quickly and strongly felt beyond the country, too.
We assume that the amount of debt has been constant over 2007. A better option to calculate cost of debt would be to use a synthesized rating based on the interest coverage ratio and use the corresponding default spread, but unfortunately we do not have data of these spreads for 2007. We use the market value of equity to estimate the weight of equity. The market capitalization of the firm was 128,2 million on 31-12-2007 (we assume that this is the date of the balance sheet, since this isn’t mentioned in the case). From this we can calculate the following ratio’s: debt/equity = 0,31 debt/(debt+equity) = 0,24 equity/(debt+equity) = 0,76 In calculating these ratio’s we use gross debt instead of net debt, because in our opinion the debt and cash of the firm
The global financial crisis started in the USA. The bursting of the housing bubble led to falling real estate prices, which caused considerable problems to major U.S subprime lending outfits. This prompted extreme problems for large financial institutions and a heavy credit squeeze; which in turn had a devastating effect on the global economy. According to many economists, the recent global financial crisis of 2008 is arguably the worse financial crisis since the great depression. Globalisation of trade and investment has increased the likeliness of a financial crisis in one country spreading to many different countries around the world.
The decade of the 70s was marked by severe land use policies in the name of: open space, saving farmland, protecting the environment, and historical preservation. This created an artificial scarcity of land which drove up the price of remaining land in the counties and created a shortage of supply houses for a high demand of people wanting to own. These conditions made a modest sized home became literally a million dollar home. This among other policies, such as zoning laws and minimum lot sizes caused housing prices to become unbearable, not only in California, but other cities nation-wide where similar regulations were enforced. While home prices rose thirteen percent nationwide in a single year, from 2004 to 2005, the range was from a four percent rise in Michigan to a thirty-five percent rise in Arizona.
The squeezed society’s neglecting of investment has put both the rich and the poor in a society with low quality infrastructure. Additionally, a recent research shows that throughout the U.S, areas with the highest income inequality have longer commute times, higher rates of divorce, bankruptcy and squandered talent. For example, nowadays, because of being unable to attain fundamental financial needs, several people from the less wealthy classes can hardly own a house but instead choose to rent it. Consequently, house borrowers have to loan houses at higher interest rates on account of subprime mortgage. In this mortgage
According to Gupta & Herman (2010) the financial services industry went through stressful period due to the collapse of the U.S. Real-Estate and as well as the subprime mortgage crisis. The net effect was that market values fell, consumers spending dropped and the country was in a deep recession. In 2007 under pressure to remain competitive, Bank of America launched mobile banking services as an extension of online banking services. This paper will examine and analyze the strategic issues and problems faced by Bank of America.
Marriot Case Study Financial Policy, Professor Thorsten Truijens Jana Jauffret, Moari Avancini, Julian Gole, William Dottax, Toba Horombo EMBA; Geneva University 12 Q1. MC is experiencing a difficult period due to the real estate market crash in the late 80’s, which lead to a sharp drop of income in 1990 ($47 million). In its attempt to readjust to the economic downturn which followed the real estate crash, MC restructured and sold off unprofitable businesses. The cost of restructuring was high, leading to a depletion of cash and followed by important loan payments. The policy of reducing debt made MC leave the company with just $36 million cash which was well under the number of 1990 ($283 million cash ).