Audit Notes: NYT scoop, Freddie’s anti-stimulus, Wired on making stuff

Riches for the family of a top Chinese official

The New York Times David Barboza gets a huge scoop on corruption in China, reporting that the family of the country’s premiere, Wen Jiabao, is now worth billions of dollars and has tried to conceal its riches:

Even so, the business dealings of Mr. Wen’s relatives have sometimes been hidden in ways that suggest the relatives are eager to avoid public scrutiny, the records filed with Chinese regulatory authorities show. Their ownership stakes are often veiled by an intricate web of holdings as many as five steps removed from the operating companies, according to the review.

In the case of Mr. Wen’s mother, The Times calculated her stake in Ping An — valued at $120 million in 2007 — by examining public records and government-issued identity cards, and by following the ownership trail to three Chinese investment entities. The name recorded on his mother’s shares was Taihong, a holding company registered in Tianjin, the prime minister’s hometown.

This story follows a big report by Bloomberg News in June that found the Chinese vice president’s extended family members had accumulated hundreds of millions of dollars in wealth. Both now have had their Web sites blocked by China.

— ProPublica’s Jesse Eisinger has a fine scoop too, reporting that Freddie Mac resisted refinancing underwater mortgages in part because of concerns from Republicans on its board that such a move amounted to “stimulus.”

A more aggressive refi program by both Freddie and its sister company Fannie Mae would have helped an additional nine million homeowners to refinance, saving them nearly $75 billion in interest payments to date, Columbia University housing economist Christopher Mayer estimates. In addition, it would have prevented hundreds of thousands of delinquencies and foreclosures, he says…

Internally, Freddie debated its compliance with HARP for years. Robert Glauber, who left Freddie’s board in March, contended in board meetings that aspects of the refinancing program were “designed to be a stimulus” for the economy, said John Koskinen, who served as Freddie Mac’s chairman from 2008 to 2011, during which time he also served briefly as its interim chief executive.

Glauber, director Linda Bammann and head of risk management Paige Wisdom resisted mass refis. One executive viewed their objections as colored by partisan unwillingness to help the economy recover, something that would benefit President Obama.

— I like this Wired piece on how manufacturers think about how long their stuff should last before it breaks.

It’s not as simple as you might think, and not because of planned obsolescence:

It’s actually not hard to make a hinge that will last for a really, really long time. All you have to do is make it a tough, heavy hinge. But that creates several problems. First, a burly hinge will be stiffer and less sensitive than a small, thin hinge, so the pedal won’t feel right. Second, and worse, is the excess weight. Slap a big hinge onto the gas pedal and you may add only a couple of ounces and a few cents of overhead to the truck. But multiply that across hundreds of hinges, bolts, handles, door locks, latches, and so on, and suddenly you have a bloated truck that is slow, sluggish, gas-hungry, and expensive. A truck that is, in the parlance of reliability testers, overengineered.

The amount of overengineering a product can tolerate depends on what the product is. Airplanes, for example, are a classic example of overengineering because the cost of even minor failure is so high. But with this overengineering comes excess weight—and the resulting loss in fuel efficiency makes flights more expensive than they otherwise could be while also causing them to generate greater carbon emissions. On the other hand, some products—like carbon-fiber racing bicycles of the sort you’d see in the Tour de France—are almost entirely about performance, and so they’re consciously underengineered. Obviously, the makers of such bikes don’t want them to shatter going up l’Alpe d’Huez. But having a few frames that crack earlier than expected is better than adding even a few ounces to a bike.

Wired leads everyone on these kinds of stories, which use deep reporting to show how stuff is manufactured. Check out this excellent article from last month’s issue on the glass in your smartphone.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,