The First Boston Corporation headquartered at Park Avenue PlazaAfter graduating from college in 1983 and before attending graduate school, I landed a summer job at the First Boston Corporation, a major investment bank in New York City. I worked in the Fixed Income Research department earning $7 an hour. I was hired to write and debug software that analyzed bonds, mortgages, and a variety of other "fixed income" securities. I remember one day that summer hearing of a very sophisticated computer program that was being developed to create a new type of mortgage security: the Collateralized Mortgage Obligation or CMO.
There was a lot of curiosity and excitement about the software program, but I didn't think much about it, working busily on my own projects, and looking forward to grad school. Little did I realize that CMOs were about to explode onto the scene and that my own life would soon become intimately involved in developing the software used to create and analyze these new mortgage securities. A whole new way of banking and mortgage finance was about to be launched in the United States, and I, a twenty-something kid right out of college, was soon going to have a central role in structuring some of the largest transactions in Wall Street history.
In any explosion there are casualties. Unfortunately, I was a very early casualty, although I seem to have survived well enough to the present day. Of more significance, our entire nation ultimately got caught up in the explosive growth of this "new way" in mortgage finance and has now become a casualty. After a few manageable crises over the years, the first major systemic shock hit the United States in September of 2008: credit "froze up", the stock market collapsed, the real estate market tanked, and millions became unemployed. In the past year, the Federal Reserve, the world's Central Banks, and the U.S. Treasury have all been scrambling frantically to avoid a total meltdown of our banking and credit systems. It sounds crazy, but the very survival of democratic capitalism actually hangs in the balance.
In this blog, I will cover what I think are the primary causes of the financial meltdown and, in particular, the critical connection to that curious software program I became involved with almost a quarter-century ago.
There was a lot of curiosity and excitement about the software program, but I didn't think much about it, working busily on my own projects, and looking forward to grad school. Little did I realize that CMOs were about to explode onto the scene and that my own life would soon become intimately involved in developing the software used to create and analyze these new mortgage securities. A whole new way of banking and mortgage finance was about to be launched in the United States, and I, a twenty-something kid right out of college, was soon going to have a central role in structuring some of the largest transactions in Wall Street history.
In any explosion there are casualties. Unfortunately, I was a very early casualty, although I seem to have survived well enough to the present day. Of more significance, our entire nation ultimately got caught up in the explosive growth of this "new way" in mortgage finance and has now become a casualty. After a few manageable crises over the years, the first major systemic shock hit the United States in September of 2008: credit "froze up", the stock market collapsed, the real estate market tanked, and millions became unemployed. In the past year, the Federal Reserve, the world's Central Banks, and the U.S. Treasury have all been scrambling frantically to avoid a total meltdown of our banking and credit systems. It sounds crazy, but the very survival of democratic capitalism actually hangs in the balance.
In this blog, I will cover what I think are the primary causes of the financial meltdown and, in particular, the critical connection to that curious software program I became involved with almost a quarter-century ago.
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