The Giant Pool of Money Case Analysis

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

The objective of this case is to understand the importance of crisis management. This case is intended to make the reader consider not only financial implications at the time of the event but the effects on the long term strategies of the organization. Also, the case urges participants to think about the consequences not only on the customer but on those within the organization as well.

It’s a risk that these investors took where in the end, they were financially hurt by it due to the part of the subprime lenders acting unethically. Not only the subprime lenders, but also the investors because they started to loose their standards once the subprime mortgages were booming and becoming more profitable. The investors were blinded by the profit and not paying attention to the qualities of business and the loans. Once the investors started to loose their standards, that’s when the subprime mortgages were being overlooked in which they were hurt by it.

When the real estate market hit rock bottom, trust was broken between the lenders and

They never realized that they were using their home as collateral or that the documents were applications to secure equity loans, line of credits, and modifications. It was proven that many could not read or write. Nevertheless, the banks were able to move forward with the foreclosures and the victims lost their home to either the bank or the contractors. Despite the clear demonstration of criminal activity, no arrests were made and very few consequences directed toward those licensed to uphold the highest standards and to protect the consumer. The fraud and abuse was so widespread throughout the entire real estate industry. Mortgage and real estate brokers, roofers, contractors, surveyors, inspectors, and bankers; there was definitely enough blame to go around.

This systemic approach will engage the whole organization in efforts to avert the elongation of this crisis and at its best make sure to implement proactive and reactive management for the short-run and long-run. Since the company wasn’t properly prepared in advance of this crisis, different

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

The first area was the availability heuristic section. There were two biases that indicated whether or not you were making the right decision. The first was ease of recall, or the fact that we tend to decide things based on what comes to mind easily. The second was retrievability, the fact that we base decisions on the frequency of a particular pattern or event. We base many of our decisions on these two concepts.

The Meltdown is a PBS special on the events of the financial crisis of 2008, in a timeline format, revealing the thinking behind decisions made during the fateful months before the stock market crash in August of that year. Some financial gurus on Wall Street devised a plan to bundle several mortgages together into a group, and then selling that bundle to another group of investors looking to invest in securities. The lender did not need to earn money from the loans he was giving out, he merely gained enough of a profit from the bundling operation that billions were being made on Wall Street from 2005-2008. The problem is that these bundles were risky, and as credit unworthy individuals defaulted on their mortgages, the entire system crumbled into what is now known as the Stock Market Crash of 2008, and have subsequently lived during the Great Recession.

The opportunity for power and competition seems to also be one of the largest intersecting parts of this whole debacle. In the film, I heard and saw that these bankers placed bets on the crash of all the loans. These bankers knowingly put countless families and individuals in

In 2007-2008 the US went into a recession, a financial crisis that has since then taken five years to rebuild. During that time millions of Americans were unemployed and faced many economic struggles which negatively impacted the real estate market causing a multitude of foreclosures. The reason for this recession was because there was no authority over banks and they were not being monitored properly. Banks were able to gamble with the finances of millions of people with no consequences towards their actions. The Dodd Frank Act Wall Street Reform and Consumer Protection Act of 2010 was put into place to make sure that nothing like this ever happened again; The Dodd Frank Act implemented and set laws into place to make sure that banks and financial

They felt that either way they could make a profit; either through the interest on the loan or through the 12% increase in house value that was around in 2006. Had lenders looked at the market with a more realistic expectation, I believe they would have regulated themselves; a perfect example is Wells Fargo. Although they did have subprime loans, they did not engage in the practice with as much abandonment as the rest of the market did. Had lenders saw what was really happening and not what they wanted to see (never ending housing growth translating to unlimited revenue from loans), government would not have had to step in to regulate, nor would they have had to step in to bail them out.

The problem was everyone who qualified for a mortgage already had one. Lenders knew if they sold a mortgage to a person that defaults the lender gets the house, and houses were always increasing in value in that market, that would be a valuable asset to sell. To keep up with the demand from investors, lenders started selling mortgages to borrowers who wouldn’t have qualified before because of the risk for default. These mortgages are called sub-prime mortgages and lenders started creating tons of them. In the unregulated market, lenders employed predatory tactics to get more borrowers with attractive offers such as no money down, no credit history required, even no proof of income. People never would have qualified before were now buying large houses, and the lenders sold their mortgages to Investment bankers. The investors packed subprime mortgages in with prime mortgages so credit agencies would still give a AAA rating. The rating Agencies who had a conflict of interest by receiving payments from the investment banks, had no liability if their credit ratings were correct or not. They turned a blind eye to the risky CDOs and kept giving AAA ratings. This worked for a while and everyone was happy including the new homeowners. The housing market became hyper inflated with more homeowners than ever. Wall Street continued to sell their CDO’s which were ticking time bombs. The subprime mortgages began

The financial crisis of 2007 and 2009 was the worst since the great depression. It was not a single event but a series of crises whose seeds had been planted in yet another recession of 2001 and the era of the internet bubble years earlier (Bodie, Kane, & Marcus, 2011). One of the reasons for the crisis was the rise in subprime lending. Subprime loans were offered to individuals who did not qualify for prime rate loans and carried a higher rate of interest than prime loans (Gilbert, 2011). Another reason behind the subprime mortgage crisis is argued to have been due to the lack of ethics and poor policies such as the Goldman rule which encouraged pursuit of profitable opportunities irrespective of the effects on others (Watkins, 2011).

In experimental inserting, Johnson et al. (2002) observes that folks have a bent to reveal exaggerated conviction more or less their own judgments. Certainty will cause phantasm of management. In line with Pompian (2012), illusion of manage bias could be a bias whereby humans tend to believe that they might management or have an effect on outcomes while, in reality, they cannot. An analysis through the author indicated that alternatives, challenge familiarity, competition and energetic involvement will all inflate poise and generate such illusion. This may hint investor to each modification additional than is prudent or inadequately diversify portfolios, as AN instance, thanks to familiarity thanks to having worked within the agency. Another materialization of sure thing is self-ascription bias. Pompian (2012) explained this bias as a result of the tendency of individuals to attribute their success to innate look which incorporates experience or foresight, whereas larger often blaming disasters on outside influence inclusive of dangerous fate. Therefore, self-ascription patron will, once a duration of successful finance , trustiness