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My Manhattan Project

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As demand for mortgage bonds rose, mortgage rates went down. This was the late eighties. Through CMOs, the sheikhs whom we paid to fill up our SUVs could finance our mortgages, the core of the American Dream, as could the Chinese government—all the while getting an extra point or two above the Treasury. Ample financing allowed more people to buy their own homes. The world came full circle. Bonuses got bigger because the Wall Street boys were doing good for themselves and the world.

As CMOs became more complicated, my job was to make everything seem simple—to, in effect, mask the complexity that would’ve made the bonds difficult to trade. We invented a language for mortgage-backed bonds. I called it BondTalk. Lehman was a runner-up in CMO underwriting. I was told to rewrite the entire system. Make it all push-button. Flexible and faster. Traders told us what they wanted, and we wrote the software code to make it possible. We were on the cutting edge. When I finished that project, I approached my former boss to ask if I could move to the trading desk, to where the big money was.

“Mike,” he told me when denying my request, “can you really look for people dumber than you and then take advantage of them? That’s what trading is all about.”

Yes, I assured him, yes, yes. But no deal. The next month, after I pocketed my $100,000 bonus, I left Lehman for Kidder, Peabody, which was the No. 1 underwriter of CMOs but had outdated software.

Working with another programmer, I wrote a new mortgage-backed system that enabled investors to choose the specific combinations of yield and risk that they wanted by slicing and dicing bonds to create new bonds. It was endlessly versatile and flexible. It was the proverbial money tree.

Another recession began, which, in the perverse world of the bond market, was good for business. As the government lowered interest rates to stimulate the economy, bonds increased in price. With a drop in rates, more people refinanced. There was more product for the securitization process, more meat for the grinder. Our software was rolled out to ride the latest wave. Traders loved it. What had taken days before now took minutes. They could design bonds out of bonds, to provide the precise rate of return that an investor wanted. 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.

I made $125,000 in my bonus that year and bought an apartment on Gramercy Park. I had first-tier seats to the ballet, but I still rode my bike to work. The traders pocketed multiple millions. I wasn’t poor, but I wasn’t a plutocrat. I could live with myself. If there was a deception going on, I was but a small cog, I thought.

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.

Now that I was spending more time on the floor, I wondered why the men’s room always stank. Then one afternoon at three, when I was in there taking a leak, I discovered the hideous truth. Traders had a contest. Coming in at eight, they never left their desks all day, eating and drinking while working. Then, at three o’clock, they marched into the men’s room and stood at the wall opposite the urinals. Dropping their pants, they bet $100 on who could train his stream the longest on the urinals across the lavatory. As their hydraulic pressure waned, the three traders waddled, pants at their ankles, across the floor, desperately trying to keep their pee on target. This is what $2 million of bonus can do to grown men.


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