The effect that real estate has on the economy of a country proves that it is important to the economy and has a direct effect of the performance of the economy of a country. Real estate industry is also hit quite hard when the economy is not doing well. The subprime mortgage…
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Due to this the mortgage originators had lesser incentive to motivate them to take careful underwritings (Chapra, M., 2009). The economy of the real estate industry was affected seriously by the step. With these kinds of effects that the real estate industry had on the economy of the world, it is quite evident that real estate industry is an economic to reckon.
More attention was accorded to loan volumes rather than loan quality as banks fought to increase their investment opportunities hoping to maximize their profits as a result of the economic crunch (Torres, 2010). In Greece alone, investors became reluctant to do business or even finance the Government deficits (Torres, 2010). With the decline in the confidence in government, falling by around 10% in many countries, it became very evident that the masses were discontent with the short term measures that were being taken by governments to try and solve the situation (Torres, 2010). The effects of the meltdown were felt quite deep down the social ladder. Starting at the top with the banks not trusting one another and the interbank credit being anemic, the unequal economic incomes affected the wage growth in countries where it would have been justified by the productivity
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When considering the possible causes for this economic situation, fundamental defect of the free market system is the prominent reason for the crisis. In the US economy, a secure and sustainable economic order is not ensured by the economic regulatory. As a result, banks and financial institutions in the developed countries are not restricted from spending more than what they can afford.
1. What happened in the 2007 financial crisis? Through asymmetric information hence adverse selection, the 2007 financial crisis was caused by the action and inaction by the government (Lounsbury 2010), which created a platform over which both banks, and bank-like institution taking excessive risks specifically in the mortgage backed security market (BBC News 2009).
The global economy was hit by a series of financial crises that, like a volcano, started erupting on August 9, 2007. For many years, business and economic factors have converged to this point, which is why this crisis had several causes that could not be reduced to a single individual, institution, nation-state or financial instrument.
According to Wallison (2009), key issues that led to the crisis included increment and sudden reduction in house prices as well as increases in default rates in 2006. Furthermore, the collapse of stock prices in 2008 speeded by Bear and Lehman’s failures fuelled the crisis (Wallison, 2009, p. 3).
The financial collapse was worsened by the financial institutions ability to use the loopholes existing in capital regulation. Banks increased debt while maintaining their capital requirements. This was made possible by moving assets into special
The author explains that the banks granted loans assuming that markets were efficient while overlooking the underlying risk. The financial crisis of 2007-2012 highlighted the redundancy of efficient market theory as an explanation of the financial decisions. This statement has been evaluated with the help of the following course of events.
Moreover, the incidence of price cut, reduction in capital cost and other measures initiated by major automobile players such as General Motors signals the impact of crisis across industries and economies (UNCTAD, 2009). At this juncture, the present chapter attempts to analyze the impact of global financial crisis in general and automotive industry in particular.
However, the downside of the system is the ripple effect of changes that is almost inevitable in the modern world. If the economy of one important country or region fluctuates, its tremors are bound to be felt by multiple regions. Similar conditions were
ry Institutions Deregulation and Monetary Control Act of 1980 enabled financial institutions to influence the nature of monetary policies thus making the economy susceptible to non-factual policies, as was the case in 2006.
Thesis Statement: There are several fundamental