In 1970, 32 years after the creation of Fannie Mae, the U.S. government chartered Freddie Mac. However, the company became shareholder-owned, while keeping its government perks. The company doesn’t pay income taxes, have credit lines with U.S. Treasury, and can borrow at a low price because lenders assume the government will help them if they get in trouble. Investors knew Freddie Mac as “Steady Freddy” due to its predictable earnings. During their statistics-filled speeches, bankers used to walk out confident there weren’t going to be any surprises. When the company went public in 1989, it acquired thirsty stockholders in search of profit growth. In December 2003, Freddie Mac shook investors by overthrowing its CEO for second time in three months. Freddie Mac had hidden billions of dollars in profits to
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The evolution was inevitable, due to the rapid growth of the housing market. The low cost of credit could be threatened if investors knew the extent of the company’s risks and complexity. Freddie Max officials believed that the company was well able to manage its risk (Barta, 2). Paul Peterson, the chief operating officer of the time said Freddie Max “is just a phenomenal success story about the ability to attract capital to the U.S. housing market and at the same time do it in a safe and sound matter” (Barta, 2). However, after the investigations done by Baker Botts LLP, they said senior management had encouraged the use of complex transactions and this helped avoid the effects of unpredictable earnings. The chart below illustrates earnings per common share. The Freddie Mac scandal became public in 2003, and the chart below shows how earnings per share were affected. In 2002, the year before the scandal, earnings per share were at a high $14,17. While time passed, this amount decreased through the years, with 2005 having earnings per share of
The evolution was inevitable, due to the rapid growth of the housing market. The low cost of credit could be threatened if investors knew the extent of the company’s risks and complexity. Freddie Max officials believed that the company was well able to manage its risk (Barta, 2). Paul Peterson, the chief operating officer of the time said Freddie Max “is just a phenomenal success story about the ability to attract capital to the U.S. housing market and at the same time do it in a safe and sound matter” (Barta, 2). However, after the investigations done by Baker Botts LLP, they said senior management had encouraged the use of complex transactions and this helped avoid the effects of unpredictable earnings. The chart below illustrates earnings per common share. The Freddie Mac scandal became public in 2003, and the chart below shows how earnings per share were affected. In 2002, the year before the scandal, earnings per share were at a high $14,17. While time passed, this amount decreased through the years, with 2005 having earnings per share of