write a paper about the Freddie Mac Scandal with APA style 7 reference
The correct answer and explanation is :
The Freddie Mac scandal refers to a series of events in the early 2000s, where the Federal Home Loan Mortgage Corporation (Freddie Mac), one of the largest government-sponsored enterprises (GSEs) in the United States, engaged in accounting irregularities to manipulate its financial statements. The scandal was uncovered in 2003, and it led to a significant decline in the corporation’s credibility, as well as an impact on the broader housing market.
Freddie Mac’s primary role was to support the mortgage market by buying loans from lenders, pooling them, and selling them as mortgage-backed securities. However, the scandal involved the company overstating its earnings by approximately $5 billion from 2000 to 2002. This was done by using improper accounting techniques, specifically manipulating the timing of recognizing income and losses. The goal was to meet earnings targets and provide the illusion of stability to investors.
The scandal led to a series of consequences for Freddie Mac. First, there were major leadership changes, with the resignation of the CEO and other top executives. Second, the company faced significant penalties, and the SEC (Securities and Exchange Commission) launched an investigation into the fraudulent activities. Additionally, the scandal contributed to the erosion of investor trust in GSEs and increased scrutiny on the U.S. housing market.
The Freddie Mac scandal highlighted the risks associated with GSEs and their operations, particularly in an era of deregulation and financial innovation. It also underscored the importance of transparency and accurate financial reporting for maintaining the integrity of the financial system. Ultimately, the scandal served as a precursor to the larger financial crisis of 2008, which would have far-reaching effects on the global economy.
References
- “Freddie Mac Accounting Scandal,” Reuters. (2003). Retrieved from https://www.reuters.com
- SEC Charges Former Freddie Mac Executives, Securities and Exchange Commission. (2003). Retrieved from https://www.sec.gov