A selection of life forms that flourished during the Cambrian Period
The Cambrian Explosion was a period in the history of life, approximately 530 million years ago, when a wild variety of life forms sprang up in a relatively short amount of time. Apparently, Nature had discovered the unique ability of carbon to mix and match to form all manner of life. Many of the most bizarre living creatures ever created rose up and then disappeared, until the "winners" finally settled out to populate the world. Only a select subset of this diversity survives to the present day.
In a similar way, near the beginning of the CMO era approximately a quarter century ago, the debt merchants on Wall Street, discovering a massive new source of raw material, zealously molded and reshaped this malleable substance into new forms of life that they hoped might appeal to their corporate clients. The mortgage market, a multi-trillion dollar behemoth, was about to be set free from the stable, boring confines of traditional banking and released into the rough-and-tumble world of investment banking.
In 1986 and 1987, the CMO market underwent its Cambrian Explosion. During those two fateful years, I found myself the head CMO modeller at First Boston, the leading structured financing house on Wall Street. How I got to that position is not entirely clear. The prior modelling guru had burned out, and the pace of innovation was so fast and furious that no one particularly wanted the job. I found I had a facility for it, being a decent computer programmer and an absolute ace at organic chemistry in college.
My task was to take all the innovations in bond design that were occurring at breathtaking speed and incorporate them into a single framework: to create a computer model that could be used to create and reverse-engineer every mortgage security ever created. The program had to be comprehensive and easy to use for our designers, who created the deals; and comprehensive and easy to use for our traders, who kept track of the deals in the secondary market.
During these two years, I built this model. By the time I left First Boston in early 1988, the system was able to model virtually every mortgage and asset-backed security ever designed up to that time. Many of the bond structures created during this period became evolutionary dead-ends; some, however, survive to the present day: interest-only strips (IOs), principal-only strips (POs), planned annuity classes (PACs), targeted annuity classes (TACs), floaters, inverse floaters, and others. My CMO structuring program handled them all.
To help you understand the magnitude of what was happening on Wall Street at the time: In October of 1986,at the age of 25, I co-developed the structure for, and my structuring system was used to create, what was to date the single largest bond offering in Wall Street history : the $4 billion GMAC ABSC Series 1. First Boston's profit on the transaction was enormous. Largely because of this deal, I received a six-figure bonus that year: a significant increase from the $7 an hour I had been earning two years before, and an even bigger jump from the $5 an hour I had received as an assembly line worker at a potato chip factory a few years before that.
In a similar way, near the beginning of the CMO era approximately a quarter century ago, the debt merchants on Wall Street, discovering a massive new source of raw material, zealously molded and reshaped this malleable substance into new forms of life that they hoped might appeal to their corporate clients. The mortgage market, a multi-trillion dollar behemoth, was about to be set free from the stable, boring confines of traditional banking and released into the rough-and-tumble world of investment banking.
In 1986 and 1987, the CMO market underwent its Cambrian Explosion. During those two fateful years, I found myself the head CMO modeller at First Boston, the leading structured financing house on Wall Street. How I got to that position is not entirely clear. The prior modelling guru had burned out, and the pace of innovation was so fast and furious that no one particularly wanted the job. I found I had a facility for it, being a decent computer programmer and an absolute ace at organic chemistry in college.
My task was to take all the innovations in bond design that were occurring at breathtaking speed and incorporate them into a single framework: to create a computer model that could be used to create and reverse-engineer every mortgage security ever created. The program had to be comprehensive and easy to use for our designers, who created the deals; and comprehensive and easy to use for our traders, who kept track of the deals in the secondary market.
During these two years, I built this model. By the time I left First Boston in early 1988, the system was able to model virtually every mortgage and asset-backed security ever designed up to that time. Many of the bond structures created during this period became evolutionary dead-ends; some, however, survive to the present day: interest-only strips (IOs), principal-only strips (POs), planned annuity classes (PACs), targeted annuity classes (TACs), floaters, inverse floaters, and others. My CMO structuring program handled them all.
To help you understand the magnitude of what was happening on Wall Street at the time: In October of 1986,at the age of 25, I co-developed the structure for, and my structuring system was used to create, what was to date the single largest bond offering in Wall Street history : the $4 billion GMAC ABSC Series 1. First Boston's profit on the transaction was enormous. Largely because of this deal, I received a six-figure bonus that year: a significant increase from the $7 an hour I had been earning two years before, and an even bigger jump from the $5 an hour I had received as an assembly line worker at a potato chip factory a few years before that.
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