The Daily Herald from Everett, Washington • 29

HERALD SUNDAY JUNE 29 2003 gsj ira 183rfc WsglO Text 4 Cell phone text messaging which is hot in Europe is starting to catch on here Page E2 "NSIDE THIS SECTION Technology E2 inance E3 Wall Street Journal E5 Leaving the nest irst 767 military tanker rolls offline loaded with hopes of Boeing workers Tim Matson (left) Dale Howie David Hillenbeck and Tracy Sohuster perform functional tests in the cockpit the last work that ill be don on the plane before it leaves the main factory A k'X 5 l' A I7 "'ifc' AC? AJ 4 re WVV iTvfefel Ajr? £3 i awwswSbww' 7'vv' 1 Dennis Lavalie tows the jet across an overpass that crosses the Boeing freeway Boeing moves planes from the factory to the paint hangar over the highway at night be cause the sight of a plane disrupts traffic Editors note: This is the fourth and final installment of a series on Plane 912 the first military re fueling tanker built on the 767 airframe By Bryan Corliss HeraldWriter Lars Espeland is convinced he supervises the best part of the Boeing assembly line the functional test area where fully as sembled 767s get their final checks before rolling out the factory door always doing something the Marysville man said Each airline has slightly dif ferent specifica tions for its air planes meaning Espeland and his troubleshooters have to devise slightly different tests to ensure each system functions prop erly Lars Espeland 'About the only stable process we have is the landing he said just something new every The thing Espeland likes best about his job is one of the things Boeing managers want to elimi nate in the newgeneration of pas senger jets 'a the bejeezus out of and that has driven the cost of new airplanes up said Mike Bair tire senior vice president in charge of developing tire 7E7 Dreamliner the plane that may replace the 767 series In fact much of the work that has gone into getting Plane 912 the first KC 767 tanker to this point in the assembly line will dis appear in future factories executives say Because Boeing will use com posite materials similar to the fiberglass and resins used in boat building there will be far fewer SeeBOE'G Photo galley An online photo gallery of the 767 progress can be found atwwwheraldnetcom along with this story Scott Davis (left) and Rubin Phommachanh apply primer to the radar dome in the paint hangar Ass a rrc i i 5: jr jU a qh? vr3U 4w a '4 wan W5k Wj atlo The metalic lemon line color of the temporary coating covering Plane alu minum surface contrasts sharply with the colorful tail of a 767 painted in Hawai ian Airlines col ors that sits next to it on the Boe ing flight line in Everett Photos by Michael of The Herald gfC James reddie Mac probe is excessive Each generation puts its own spin on things In the 1960s pop artist Andy Warhol said the fu ture everyone will be famous for 15 minutes" Today it would be more accurate to say that "everyone will be investi gated and 15 minutes after the headlines we re member The latest major league in vestigation involves reddie Mac the government created publicly haded mortgage fi nance organization Last year reddie Mac switched audi tors from Arthur Andersen to PricewaterhouseCoopers in January the board of directors launched an internal inquiry into its financial accounting and in March federal prosecu tors began a criminal investi gation Since then the top execu tives have been ushered out the door which was difficult because of all the investigators trying to crowd their way in At latest count there were sepa rate investigations underway by the Justice Department the Securities and Exchange Commission three different congressional committees and the Office of ederal Housing Enterprise Oversight (which emerged from near to tal obscurity for the purpose) What reddie Mac does for a living seems simple enough It buys home mortgages from lenders and packages them up to them It then either sells these securitized mortgages to investors in ma jor financial markets or uses them as collateral to borrow money so it can buy more mortgages The original lender then no longer has the loan on its books and is free to make a newmort gageThis simple concept im plemented by reddie Mac and its alter ego annie Mae has created a secondary market and transformed the home mortgage business into the mortgage industry But nothing stays simple when you do it qn a large scale and reddie $7217 billion worth of assets certainly qualifies as large The main complication comes when dealing with and re porting interest rate risk There is no way to make this interest rate risk go away The original lender which might be a savings and loan transfers it to reddie Mac but there it must be dealt with In theory that is in a perfect world one where nobody ever sold their house or refi nanced their mortgage a mortgage financing organiza tion could eliminate interest rate risk by matching the ma turities Unfortunately this would also pretty much elim inate its profits so in the real world 30 year mortgages have to be financed with shorter term bonowings and that leaves an interest rate risk And it is what reddie Mac did about that risk that under lies tire current jamboree Basically it decided to keep more mortgages in its own portfolio to bolster earn ings and tried to offset the ad ditional risk with derivatives That seemed like a good idea at the time even though de rivatives bring their own set of risks But it appears that red die Mac not only overdid it it had $867 billion worth of de rivatives on its books at the See MCCUSKER Page E4.