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The geek whodunit tells all


My Manhattan Project
How I helped build the bomb that blew up Wall Street
,
 
By Michael Osinski for the April 6, 2009 New York Magazine:

I have been called the devil by strangers and "the Facilitator" by friends. It's not uncommon for people, when I tell them what I used to do, to ask if I feel guilty. I do, somewhat, and it nags at me. When I put it out of mind, it inevitably resurfaces, like a shipwreck at low tide. It's been eight years since I compiled a program, but the last one lived on, becoming the industry standard that seeded itself into every investment bank in the world.

I wrote the software that turned mortgages into bonds....

Captions from the cartoon illustrations that accompany the article:

I arrived on Wall Street in 1985 to work at Salomon Brothers as a computer programmer, one foot out of the typing pool....I learned how to bundle home mortgages into bonds. As my mentor described it, "you put chicken into the grinder and out comes sirloin."...Traders loved the software, as it did more of the thinking, they were able to do less....


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Now I learn a family member bought into these CDOs from a private fund. They started invading principle to meet obligations, then it collapsed.

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Sigh. Close family and discussing financial trouble, now that's a tough one...maybe worse than health or politics...There's all the issues about pride tied up in it, either one is loathe to admit at first they have trouble, or ashamed, or everyone else in the family knows about it and are afraid that calling them will increase the stress. Also there at first the hope that it won't become as bad as it seems to be....

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Family member in question is smart, but also fell into the WorldCom trap. You don't have to be cornpone credulous to get burned, it seems.

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Thanks for the link. It's well worth reading. I thought it was interesting, that Osinski is 'still proud' of his work. That seemed slightly sociopathic to me.

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LOL, can someone be "slightly" sociopathic?

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I've always been a master of understatement. ;)

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Osinski is 'still proud' of his work. That seemed slightly sociopathic to me.

I didn't have exactly the same reaction, it hit me from a different angle. He admits to feeling guilt right at the beginning, though definitely he tries to rationalize as well. But I think there is something in that bigger, broader, something he has difficulty expressing.

. ..I used to go to the trading floor and watch my software in use amid the sea of screens. A programmer doesn’t admire his creation so much for what it does but for how it does it. This stuff was beautiful and elegant.

The aim of software is, in a sense, to create an alternative reality. After all, when you use your cell phone, you simply want to push the fewest buttons possible and call, text, purchase, listen, download, e-mail, or browse. The power we all hold in our hands is shocking, yet it’s controlled by a few swipes of a finger. The drive to simplify the user’s contact with the machine has an inherent side effect of disguising the complexity of a given task. Over time, the users of any software are inured to the intricate nature of what they are doing. Also, as the software does more of the “thinking,” the user does less.

Among other things, that reminded me of things like quinn's blog (and further riffs on neurology) on birds being able to see ultraviolet light. What he seems to be trying to get at, I think when we use complex "machines," we shut down certain sensing techniques, in order to use the new system, skip certain neurological functions, and it's quite possible that those thought processes we are cutting out could be linked to good judgment. Does that make any sense?

I'm not making excuses for him, I just think he's struggling to say something there that's more like a warning, like: these are tools that expand some things for humans but limits others, for that reason, they are dangerous.

And he did, after all, agree to a title of "My Manhattan Project, How I Helped Build the Bomb..." which does most definitely refer to "beautiful" theoretical science being turned to deadly aims with even larger moral questions at issue. Were the Manhattan Project scientists sociopaths? Amoral? Immoral?

Part of it is also probably just the way he writes (he's a geek, after all, and the stereotype is high math ability, low emotional I.Q.), because he does say things like this:

I never would have thought, in my most extreme paranoid fantasies, that my software, and the others like it, would have enabled Wall Street to decimate the investments of everyone in my family.

and this

The world around me, though, had become bizarre. At the time, I had an odd sensation that mortgage traders felt they had to outdo the loutish behavior in Liar’s Poker. The more money they made, the more juvenile they became. What do you expect from 30-year-old megamillionaires whose overwhelming aspiration was something vaguely called Hugeness? They had wrestling matches on the floor. Food-eating contests. Like little kids, they scrambled to hide the evidence when the head of fixed income paid his rare visits to the floor.

He just doesn't go into the moral side of it that much, but there are hints that he could, it just wasn't what the article was about. He does seem kind of self-centered, but that is like most folks, most aren't the Michael Lewis (Liar's Poker) type of personality who when they see activity that disturbs them, have a big picture conversion and feel the need to drop out and make a crusade about it.

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I actually get most of that as well. I think the 'alternate reality' quote pretty much says what's going on in his mind, if not his thought processes. No judgment as to whether one reality is more valid or real than the other, just an admiration for the 'elegance' of the digital mapping he created. Your analogy to Quinn's 'ultraviolet' blog makes a lot of sense. Therein lies perhaps the greatest danger of any modeling program: when we begin accept the model as a wholly accurate analogue for the 'real' world, and cut off other rational considerations that aren't necessarily provided for in the program. As to comparing his response to the Manhattan Project scientists, quite a few of them ultimately denounced the outcome of their work publicly, even though they may have had an intellectual appreciation of the elegance of their thinking which led up to the development of the bomb. Somehow that strikes me as being different than Osinski's statement, and the Manhattan Project scientists were certainly as much 'geeks' as he is.

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He's talking about leveraging via technology. Part of that is imaginary, thus "alternate reality". Just as over-leveraging with debt can be fatal, there is a problem with technological leverage. We become dependent on the machine the farther out on the branch we go.

You don't have to be a Luddite to be wary here.

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If one knows why Nobel initiated the Nobel Prize, one would know whether he should feel guilty.

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Osinski is kidding himself if he thinks the securitization problems of home mortgages were brought about because of banks "writing mortgages to people who can't afford them".

A couple of days ago, the Times wrote about a woman's rental property where the sheriff's sale was canceled at the last minute, due to the bank's walk-away.

In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

Only somewhat similar to a home-owner's recourse to jingle mail, bank walk-aways are becoming more and more common.

The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

Nobody really cared about the mortgages themselves, the greed and profit was in the bundling and leveraging of them as securities.

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Yes, I read the Times article and recommend it for those not aware of the new twist of banks abandoning. There is similar/related stuff sprinkled through a current profile piece I just read about a foreclosure property broker in CA in the current New Yorker.

is kidding himself if he thinks the securitization problems of home mortgages were brought about because of banks "writing mortgages to people who can't afford them".

Well, while it's surely not a simple cause/effect situation, but I don't know if you can get away from that being one strong leg of the stool. I've read (and seen--CBS's "House of Cards" and Frontline's "Inside the Meltdown") so many reports of some pretty nasty mortgage shops just doing anything they could to get more mortgages no matter how dubious, just to feed the growing monster. The bubble monster would have stayed at a certain level without that happening, perhaps more like dotcom. There are many parts to the bubble, and things like crazy mortgages, the flipping craze, the refinance craze, is what made it so huge. It just so happened that politicians with good intentions were pushing easier mortgages unwittingly fed it at exactly the right time.

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"politicians with good intentions"

I'm a bit cynical on that one. But yes, the bubble crisis had one foot in poor lending/borrowing practices, one in outright frauds (borrower or broker), one in over-leverage and complexities, and one in other errant policies such as Ownership Society and Greenspan's loony approach to monetarism.

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What a great piece Thanks for sharing AA. Although I could have done without the 2 million dollar pissing contest.

It fits in with a whimsical blog post that I have been trying to complete on how computers are responsible for finance taking over our economy. I was thinking something that overlay's Moore's law with growth of the financial industry.

I recall talking to a real estate professional after the S&L debacle and he explained that after spreadsheet software came out, everybody just tweaked the premises so the deals would say whatever they wanted. The bankers impressed by the fancy presentation that seemed to account for everything that they were eager to give away the money. Nobody really understood what the data was saying or bothered to examine the underlying premises- just make the deal. Then the software got more complex and shinny and...

I have to admit though I am surprised how long it took for it to collapse.

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I could have done without the 2 million dollar pissing contest.

Yeah, yuck, it certainly drew a really disgusting picture. But I think it served well to perfectly describe a type of 20-something/30-something Wall St. brat we've had to deal with for a couple of decades. They are real, not just characters in pop fiction!

It fits in with a whimsical blog post that I have been trying to complete on how computers are responsible for finance taking over our economy. I was thinking something that overlay's Moore's law with growth of the financial industry.

I recall talking to a real estate professional after the S&L debacle and he explained that after spreadsheet software came out, everybody just tweaked the premises so the deals would say whatever they wanted. The bankers impressed by the fancy presentation that seemed to account for everything that they were eager to give away the money. Nobody really understood what the data was saying or bothered to examine the underlying premises- just make the deal. Then the software got more complex and shinny and...

Oh I happen to think the topic is very important! That's why I jumped on this right away. And Osinski does address it--see my reply to miguelitoh2o above--it is not just that there are those who don't care to or can't understand the data, it is more that computers release you from having to understand certain things, encourage you not to practice certain ways of thinking, while empowering you to move on to other kinds of thinking. Another way of saying it--to skip over using certain neural nets and to focus on using others. (In a way, isn't this one of the themes of the movie "2001" and a lot of other science fiction? Except that the wholistic human intelligence comes back and wins one round in "2001"?)

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What a great piece Thanks for sharing AA. Although I could have done without the 2 million dollar pissing contest.
Actually $100 (per contest), per the article; and also very important, possibly even a key insight.

I go to parties, sometimes until 4.
It's hard to leave when you can't find the door.
It's tough to handle this fortune and fame.
Everybody's so different, I haven't changed.

A significant number of people grow up because they must, not simply because they got older. Large amounts of money enable people to avoid the growing-up part.

Sufficiently-smart folks, like Warren Buffett, recognize this and shelter their kids from inheriting huge fortunes. Others (Conrad Hilton, perhaps) do not, and ... do not.

This is also one reason why a very high estate tax is not, in and of itself, a bad thing. High estate tax levels prevent the sort of empire-building that leaves 50-year-old callow youths in positions of political and economic power. Or, as others have put it, the C students wind up in charge of the A students. (Not that getting "A"s is a measure of wisdom either, but getting "C"s is hardly an indicator that one should be in charge.)

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Thank you for this, AA. :)

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And thank you back for all your recent thank you's. :-)

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I'll joke about anything that smells of doom and the Manhattan Project is at the tops when it comes to Doomsdom.

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Cute story but Osinski simultaneously gives himself too much credit and blame. He is quite proud of his program but it sounds like little more than a simple database. That is all that is needed to slice and dice underlying mortgages of Fannie and Freddie bonds into tranches or to create whole new private MBSs then slice and dice them as well.

Of course, he also needed access to data and computing power but both were readily available to his employers. It probably helped that he had a tolerance for grunt work*, a trait notably lacking in most stockbrockers.:-).

What really and truly created the financial bubble that recently popped was way too much money flowing into made up investments aka derivatives like CMOs, SIVs, etc. Osinski was not the only one creating them. I find it really strange that Osinski would want to claim so much credit since we have not yet reached the tumbrel stage of populism.

Oh, well. Chacun à son goût.

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* data entry/programming = grunt work, especially in 1985.

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Maybe he is looking for work.

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Writing software is like writing a book. It expresses an opinion. The things you don't say are every bit as important as the things you do say.

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