Fannie Mae Falls Short

 

Fannie Mae was instrumental in the recession of 2008 in the United States due to a variety of mishaps and deception.  Based on this model it would indicate the Fannie Mae could not be labeled an honest company because they fall short in many of the categories covered by these questions.  Let’s explore two of those questions.

When you look at the question “How do product claims match with reality?” there are many instances provided by Jennings (2012) that do not support claims with reality.  One such claim that was a mismatch was the packaging of subprime mortgage loans and then reselling them on the open market; it created a false sense of hope that these loans were somehow better because Fannie Mae backed those securities.  In reality Fannie Mae did not have the capital to back the $6 trillion so it put the entire country at risk if these, already bad borrowers, continued their behavior.  When these borrowers began to default on their loans it left the country in a very bad position because of the amount of money invested in these securities.  Fannie Mae was fully aware of the risks involved but painted the picture of risk as the “American Dream” of homeownership for everybody.  In reality Fannie Mae handed a ticking time bomb to the American people and ran away before it went off.

Another question which states, “How forthcoming is the company with information?” provides further proof that Fannie Mae was not an honest company.  Fannie Mae should be following the agreed upon standards in regards to accounting known as Generally Accepted Accounting Principles (GAAP).  Because their chief financial officer (CFO) used a different model that would show more stability in the market than what actually existed, it misled investors to believe that the company was in better shape than it was.  This false presentation based on, purposefully altered information is about as far away from “forthcoming” as a company can be.  This information was never shared with the public; it was not even shared with people inside of the company because the CFO knew it was wrong.

These two examples show just how big the gap is between Fannie Mae and the model built by Entine and Jennings to determine a company’s soul.  This company’s soul leaves much to be desired.         

References

Jennings, M. (2012). Business Ethics: Case Students and Selected Readings. OH: South-                            WesternCengage Learning