First, make up and state an average home price for the houses that your imaginary bank has loans on. Then, create a healthy bank balance sheet, making sure to specify a number for each item of assets and liabilities (it will be easiest if you copy the exhibit, but you can make up your own). Next bad news, it comes to light that the government spent decades encouraging people who couldn't afford homes to buy them in order pursue a goal of making everyone's housing the same. Unfortunately, your community has many such homes. Now, state the average home price if the price of homes is cut in half due to this massive housing crisis. Next, create a new bank balance sheet with every number the same except for the Loans category. That is worth a smaller amount now. Assuming all the banks loans were single family homes impacted by the housing crisis, insert your new number for the value of the loans in a second version of the Balance Sheet. Finally, give an opinion on the financial health of this bank after the government pursued a poor policy choice.

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1 A housing bubble or real estate bubble is a runup in housing prices fueled by demand speculation and exuberant spending to the point of collapse Housing bubbles usually start with an increase in dem... View the full answer