Week 1 - government sponsored enterprises going against...

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Consider the global financial crisis of 2007–2009 and the Generally Accepted Accounting Principles. Do you feel that any of these principles were ignored by large banks? What were one or two principles that were ignored to a particularly disastrous effect? With the global financial crisis that took place between 2007 and 2009, there were plenty of companies that chose to ignore the GAAP or Generally Accepted Accounting Principles. The biggest and most important problem of this time was the huge number of sub-prime mortgages that were being lended to high risk consumers. This lending clearly showed the large banks and
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Unformatted text preview: government sponsored enterprises going against GAAP, in particular the principle of prudence. This principle in general states that the company should show the reality of the situation as opposed to giving the probability of what might happen. By offering adjustable rate mortgages to high risk consumers they lead them on to believe that the low rates of the time would stay low which is obviously what didn’t happen, especially when the housing bubble burst. Many of the companies that chose to go against these principles are now no longer operating and have gone belly up in the long run....
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