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Global Business Context

In: Business and Management

Submitted By hannahzak
Words 1617
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GBCGlobal Business Context (BIM)

Section (A) 60% of mark
Explain how (i) consumer demand for housing (ii) predatory selling of mortgages to the sub-prime market and (iii) mortgage-backed securities generated a housing bubble in the United States of America before September 2007.

There were quite a few “players” that helped cause the financial crisis and gave birth to a bubble in the USA’s housing market. One of them is the consumer demand for the housing. Obviously consumer demand was high for people to own their own home in America “with bankers offering home buyers 0%-110% mortgages” encouraging buyers to want to buy a home even more, then with that America tried to meet the demand, supplying more houses due to constructing new ones. Luci ellis said that “Firstly, the US housing construction boom itself helped create this vulnerability. In contrast to some other countries, strong housing demand was met with additional supply that exceeded underlying needs. When the boom stopped, the United States was left with an overhang of excess supply that other countries have not built up” so By the end of that year, housing starts had fallen by around 40% “ therefore in the end the supply was greater than the demand and the US had spent money on houses that no one needed. However Paul Krugman, (September 2009) said that “Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy” so if the economists could see it and banks were to ignorant to the possibilities then how could consumer demand be tamed, maybe if the US decided not to meet the consumer demand with so much supply and had approached it more cautiously then maybe they wouldn’t have lost as much money? “In a 2007 interview, Eugene Fama,

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