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The Almighty Buck United States

The Coder Behind the Mortgage Meltdown 379

axjms writes "New York Magazine has a confessional/abdication from the man who wrote the software that turns mortgages into bonds and those nasty little things called CMOs. An interesting first-person account from a coder whose work reached far beyond what he or anyone could have anticipated."
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The Coder Behind the Mortgage Meltdown

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  • bomb? (Score:5, Funny)

    by robvangelder ( 472838 ) on Tuesday May 05, 2009 @03:29PM (#27835961)

    Joe Public: What happen ?
    Coder: Somebody set up us the bomb.
    Operator: We get signal.
    Joe Public: What !
    Operator: Main screen turn on.
    Joe Public: It's you !!
    Wall Street Fat Cat: How are you gentlemen !!
    Wall Street Fat Cat: All your base are belong to us.

  • There is no way in Hades that this topic could possibly be addressed honestly - not at NYMag, nor at /., nor at any other mainstream news outlet.

    The underlying horror of the demographics at work here - and the galactic insanity of the CRA & the redlining initiatives & the fiduciary disaster at Fannie & Freddie - is just too much for the circuits to handle.

    Not to mention - heck, even I can't mention that one.
    • by ColdWetDog ( 752185 ) on Tuesday May 05, 2009 @03:36PM (#27836101) Homepage
      Wasn't it John Kenneth Gailbraith (an economist) who stated that "If all else fails, immortality can always be assured by spectacular error"?

      We've been Osinski'd....
    • by MozeeToby ( 1163751 ) on Tuesday May 05, 2009 @03:41PM (#27836227)

      Yep, you can pretty much say that the financial crises was caused by just about anyone, and you'd probably be right to some extant or another. Homeowners, loan officers, big banks, small banks, the FHA, AIG and companies like them, investors, the media, the non-journalistic media, republicans, democrats, and government regulators just to name a few and I'm sure you can come up with more if you try.

      There's plenty of blame to go around, anyone who claims one group is responsible is pushing an agenda or very short sighted.

      • Re: (Score:3, Insightful)

        by brian0918 ( 638904 )
        Why would anyone in the market have had an interest in loaning to high-risk individuals if it wasn't for the "affordable housing" and "homeownership for all" agenda pushed by both the Clinton and Bush administrations? A few quick examples: driving interest rates artificially low, using Freddie Mac and Fannie Mae to drive the appeal for mortgage-backed securities, using CRA bank regulations to directly force banks to loan to specific demographics in order for bank functions to occur.

        Sure, once this thing
        • by Brian Gordon ( 987471 ) on Tuesday May 05, 2009 @04:11PM (#27836737)
          There's nothing inherently wrong with guaranteeing housing for (nearly) all - it works well in China. The problem is when you can't pay for it. If you spend billions of dollars on housing your citizens and then balance your budget by counting on them paying you back then you're going to face a disaster. Get the money elsewhere; counting on someone with terrible credit to balance your deficit is just stupid.
        • by Dionysus ( 12737 ) on Tuesday May 05, 2009 @04:15PM (#27836801) Homepage

          Why would anyone in the market have had an interest in loaning to high-risk individuals,

          When it's not your money your lending out.

          Say, I'm a loan officer. I see someone being high-risk. Do I loan out to that person? Well, if I'm at risk, I might not, but since the home prices are going up, I give the loan, and then sell the loan to someone else. I'm not stuck with the loan, and I make money on loaning out money. See where my incentive is to loan out money whether the person can pay back or not?

          • by Pontiac ( 135778 ) on Tuesday May 05, 2009 @06:39PM (#27839155) Homepage

            Well really what happened is the bank gave Joe Foreclosure a loan.. They knew Joe is a bad risk so they bought insurance for that loan from AIG.
            Now that loan is 100% guaranteed to pay off so the debt of off my books (balanced by the Insurance policy) repeat over and over again.... Ohh since these loans are fully insured they run out and package bundles of them up as AAA bonds and sell em off to market investors.

            This is all fine and dandy, AIG wrote policys out for trillions in mortgages. To bad and they only had the cash to pay on a handful. No big deal they thought.. Home values have only gone up for 30 years..

            The the bubble burst.. record numbers of homeowners were defaulting on mortgages. The Banks turned to AIG for the insurance. AIG didn't have the cash..

            Now the banks are over leveraged and all those bad loans are wrapped up out there as AAA bonds they are liable for.

            Thats why the feds have to keep pumping billions into AIG.. If they fail the policies fail. then the banks fail and the bond market fails..
            You know the rest..

        • by slashdot_commentator ( 444053 ) on Tuesday May 05, 2009 @04:18PM (#27836833) Journal

          Cut the crap. You're telling me that FMA and FRE caused the world financial meltdown??? That's like blaming Bernie Madoff for the world financial meltdown. FMA and FRE were improperly run, and neutralized regulators, and its going to cost taxpayers in the 11 digits. But they are only a small part of the mortgage market collapse. Residential housing is not the only construction sector being hit, and how many poor people could FMA and FRE subsidize to go bankrupt?

          Look at how bank lobbyists were able to deregulate their industry. What happens when they go into financial competition with a gov't program? They scream bloody murder. Its like saying unionism caused the American economic collapse.

        • by Hatta ( 162192 ) on Tuesday May 05, 2009 @04:31PM (#27837091) Journal

          if it wasn't for the "affordable housing" and "homeownership for all" agenda pushed by both the Clinton and Bush administrations?

          There's no reason everyone can't own a home. Whether you own or rent, you are paying for your living quarters either way. In fact, renting is even more expensive than owning when you consider that you don't get to keep any of the equity, and the landlord needs to make a profit. Knowing this, I would argue that any system where the vast majority of people are not home owners is fundamentally broken.

          So the crime here isn't that poor people had the audacity to buy homes. The problem is the accounting tricks our fucked up system needed to get the poor people in their homes. If, instead of lending large sums of money to poor people up front, our system allowed people to pay as they go and still build equity in their homes, this wouldn't be a problem.

          I imagine some kind of a rent-to-own for homes. If you stay the whole time and pay it off, you get to keep the house. If you can't pay it off for some reason, you're no worse than you would be if you had rented, and no one lost the cash they would have lent you to buy the home. Seems like the best of both worlds.

          • by Americano ( 920576 ) on Tuesday May 05, 2009 @04:55PM (#27837461)
            This system is, I think, known as "owner financing" - the current owner of the property agrees to finance the purchase, and in return, the buyer pays them a monthly payment (instead of a bank); if the buyer defaults, ownership of the house would revert back to the original owner.

            Problem with this is, you still need somebody in the mix who has a vast sum of money - bank or owner - to provide the financing for the new buyer, or the new buyer will end up paying exorbitant monthly fees to cover the interest & risk on the loan the owner must take out to provide financing.

            I'd amend your initial sentence to read: "There's no reason everyone couldn't own a home they can afford." This is the problem - some predatory banks extended too much easy credit to people knowing they didn't have the means to repay, and some unscrupulous people took that credit knowing they didn't have the means to repay. Not everybody is a crook on either side, but both sets of people are guilty of ignoring the simple reality that they were spending (or enabling people to spend) beyond their means.

            If you buy a house you can't afford based on the assumption that "home prices will always rise, so I can just refinance once I have equity!" are taking a gamble, not making an investment.
          • by vlm ( 69642 ) on Tuesday May 05, 2009 @05:14PM (#27837777)

            In fact, renting is even more expensive than owning when you consider that you don't get to keep any of the equity, and the landlord needs to make a profit.

            Actually, no. The whole point of the psychological aspect of the bubble was/is that "housing only goes up". Therefore landlords didn't care that the typical rental cost was a fraction of their mortgage payment.

            For example, say the cost was $500K. That would imply, at a reasonable rent to cost ratio of 100, a rental cost of $5000 per month. But the going rental rate for a SFR is only $1800. Thus each month a landlord loses $3200 in cashflow.

            However the whole point of the bubble is to mix up cash flow and balance sheets. So, if that $500K house cost $250K two years ago, it's gonna double in two years, right? Because housing only goes up, right? So, if you expect to gain $500K on the balance sheet in two years, that is simplistically a monthly gain of $20833. A new car each and every month....

            So, the bubblehead thinks he gains $1800 a month from rent, lost $3200 a month in expenses, and gains $20833 per month in bubble prices. Sounds highly profitable. Now what happens when real estate no longer goes up? What if it drops by half, thus a balance sheet loss of 10K per month, every month? Ooops. Mail the keys back to the bank and tell the bank, tough luck. Don't worry about the bank, taxpayers will bail them out.

            Another way renting can be cheaper is looking at opportunity costs. If the "savings" of ownership are less than the money lost thru peasant work of maintaining the house, then you're better off outsourcing property management to the landlord. People whom get alot of money by working crazy hours are far better off outsourcing toilet plunging and lawnmowing to a landlord. Also some people are willing to pay alot for someone else to handle the hassles for them.

            The final way renting can be cheaper, is if you know anything about economics, and see whats going on in the inflation adjusted prices over the long term over the last century, in the ratio of house prices to rent over the last century, in the ratio of median income to median home price, in the ratio of median home price to... heck just about any commodity, in the historical graph of interest rate vs house price with attention given to the current temporarily multi-generationally low interest rate implying a very temporarily multi-generationally high house price, in the trends of median middle class income over the years, in the demographics of baby boomers flaming out with not enough younger folks to move in/up, in the graphs of house construction vs population change (supply vs demand), it's not too hard to see whats going to happen to prices. On one side you've got all the math and graphs that are worth considering, and on the other side, you've got slogans like "real estate only goes up", pretty easy to evaluate what will happen soon. So, pay a small rent to the landlord whom will take a staggering huge capital loss. Some homes in CA have been/are dropping in the high five figures per month, an order of magnitude larger than their rent...

          • Re: (Score:3, Informative)

            Renting is not more expensive than owning property. It's fairly borderline, depending on what you do with the money you save through renting. There are plenty of other ways to build equity.
            • Re: (Score:3, Interesting)

              by geoskd ( 321194 )

              Renting is not more expensive than owning property. It's fairly borderline, depending on what you do with the money you save through renting. There are plenty of other ways to build equity.

              Renting is absolutely more expensive than owning, by a *very* significant margin. When people figure the cost to own vs. cost to rent, the costs are almost always figured in the present tense, but you need to consider the cost over the lifetime of the occupant. If you are looking at a house that costs $150,000, and you can get 8.0% (not great, but not horrible for someone on the low end of the credit spectrum), then you will pay about $1000 / month in rent, plus about $290 / month in taxes. A fair observat

      • by Brian Gordon ( 987471 ) on Tuesday May 05, 2009 @04:04PM (#27836625)
        I blame IP pirates undermining the entertainment industry.
      • Re: (Score:3, Insightful)

        by Hatta ( 162192 )

        There's plenty of blame to go around

        And yet, no one has gone to jail.

      • > the financial crises was caused by just about anyone

        Except for folks who bought within their means and paid their mortgages on time. Sadly, they will now end up paying for everything else.

        • by Yhippa ( 443967 ) on Tuesday May 05, 2009 @04:46PM (#27837331) Journal
          While this is true, a lot of the economy during this time (when I bought my house) was propped up by the housing/irresponsible lending engine. In a way the people who were responsible about managing their finances still benefited indirectly from all this financial nonsense.
          • Re: (Score:3, Informative)

            by homer_ca ( 144738 )

            This point is often lost on people. Whether or not you personally participated in the bubble by buying or selling a McMansion, much of our employment and investments was either tied directly to real estate or supported by the general economic growth that was driven by real estate.

        • Of course... (Score:4, Insightful)

          by copponex ( 13876 ) on Tuesday May 05, 2009 @06:59PM (#27839379) Homepage

          Although, it will still cost them far less than the American Empire they've been supporting for 60 years. And for some reason, I don't suspect the nightly news will mention it. Strange.

          America's a wacky place. Spending less than 100 billion saving people who were dumb with mortgages is cause for Panic! Hyperbole about Socialism! Quick, throw a tea party! Fox News anchors weeping on air for their fallen values system!

          Spending 1,000 billion on warfare every year is Patriotic! Go team! USA! USA! USA! Post some videos about shock and awe! Let's run some swell pieces on brand new weapons systems designed specifically to "protect freedom," and never mention their price tag...

    • by dkleinsc ( 563838 ) on Tuesday May 05, 2009 @03:50PM (#27836359) Homepage

      I've argued the issue of the CRA on many occasions, but I guess I have to do it one more time. For starters, I refer you to an earlier Slashdot discussion [] on exactly why the CRA had very little if not nothing to do with it.

      The short version: The vast majority of bad loans originated from brokers (e.g. DiTech, Countrywide, Ameriquest) who weren't covered by the CRA. Banks who were under the CRA actually did considerably better than other financial companies. Furthermore, CRA borrowers had to meet identical loan standards as anyone else.

      The reasons that various groups have blamed the CRA has a lot to do with hating that regulation since at least 1990 or so, and very little to do with reality.

    • by bunratty ( 545641 ) on Tuesday May 05, 2009 @04:05PM (#27836653)

      Frontline on PBS had a good explanation of the mortgage meltdown. The problem wasn't the securitization of mortgages itself. The problem was that financial institutions borrowed money to buy more mortgage securities than they had in available cash, creating an insatiable demand for securitized mortgages. In an effort to keep the supply of mortgages to meet the demand, mortgage companies lent money to anyone who could breathe, even if they clearly couldn't repay the loans (i.e. "subprime mortgages"). When the homeowners defaulted on their loans, the bank seized their properties, which were the collateral for the loan. Because so many homes foreclosed, it created a huge supply of houses for sale on the market. This huge supply made housing prices drop, so that other home sellers owed more money on their mortgages than they could sell their house for. This in turn led to their houses going into foreclosure. Wash. Rinse. Repeat. For each foreclosure, the supply of money to the securitized mortgages dried up, making those securities drop in price. Because financial institutions had borrowed money to buy those securities, they ended up losing more cash than they originally had, which any investor knows can happen if you buy on margin.

      It's all pretty simple, really.

      • by slashdot_commentator ( 444053 ) on Tuesday May 05, 2009 @04:27PM (#27837027) Journal

        And the key thing to realize here, was that the banks thought they had a no lose situation. Even the "disaster" of foreclosure still left the bank with a recoverable asset (the property). Instead of losing 135K on a loan, it was more like a 35K loss. The banks didn't count on a reversal of the housing markets, outright fraudulent lending, and how securitization would only mask the losses, not render the losses moot.

        And mortgage securitization only breaks the small banks that specialized in it for their earnings. Investment banks like Lehman and Citigroup got wiped out from their derivatives manufacturing/gambling.

    • by afidel ( 530433 )
      You're another idiot that thinks the CRA is to blame? Let me give you a hint, it wasn't. It was the fed leaving credit too loose for way to long combined with the greed of the banking system and lax regulation. Less than 20% of all subprime mortgages were even insured by Freddie and Fannie, only a few percent of those were due to CRA provisions. All of the rest were made freely and knowingly by banks that thought they could make large profits and handling fees on mortgages that they securitized and sold off
    • by Todd Knarr ( 15451 ) on Tuesday May 05, 2009 @04:31PM (#27837095) Homepage

      Why was the CRA a bad idea? It didn't, after all, say banks had to make loans to people who couldn't afford them. What it said was "We've caught you refusing to give loans to certain groups regardless of their ability to repay. And as a society we don't think locking those groups out completely is in our best interests. So, given your proven track record, if you want to refuse to give loans to people in those groups you're going to need to provide written justification pointing out the exact financial basis for the rejection.". Under the rules, the banks could perfectly well refuse to give loans out to people in those groups whose financial situation would make the loans too risky. All they'd have to do is, for instance, write up a report attaching the guy's credit report and noting "He's defaulted on these loans for these amounts in the past 3 years, and we don't make loans to anybody with that record." (backing it up, of course, by showing they indeed didn't make loans to anybody with that kind of record).

      When I hear people talking about how that's so unreasonable, I can't help but recall that the banks were in fact caught refusing to give loans to a black man with a certain credit record but were perfectly happy to give that same loan to a white man with the exact same credit record. When you've been caught with your hand in the cookie jar repeatedly, it's not unreasonable for your Mom to start taking steps. When I hear people saying how if the banks can't loan money willy-nilly to anybody they won't loan at all, I can't help but hear the brat in the playground who if he can't have it all his way throws a tantrum and threatens to take all his toys home. I think the term is "does not play well with others".

    • CRA (Score:5, Interesting)

      by weston ( 16146 ) <westonsd&canncentral,org> on Tuesday May 05, 2009 @04:34PM (#27837121) Homepage

      the galactic insanity of the CRA

      Whether the CRA was a good idea or not might be up for debate, but if "galactic insanity" implies that it was operating at a scale necessary to be a real driver of the crisis, there are significant indications you're wrong.

      Consider, for starters, these statistics []:

      "Federal Reserve Board data show that:
      * More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions...
      * Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics."

      There are a number of other relevant resources (such as those posted elsewhere in this discussion [] and in my comment history) which also examine the idea that the CRA was a significant cause of the current problems. The data seems to indicate that not only were CRA loans not any significant portion of problematic loans, they're actually turning out better than comparable private loans.

  • by brian0918 ( 638904 ) <> on Tuesday May 05, 2009 @03:37PM (#27836129)
    This article from eight years ago [] sure did a great job of predicting this whole thing. Is it any surprise that when a government (whether under Clinton or Bush) promotes "affordable housing" as an end in itself, by manipulating interest rates and bank regulations, that they're bound to create a bubble, and bubbles by definition cannot last?
    • by StandardDeviant ( 122674 ) on Tuesday May 05, 2009 @04:01PM (#27836573) Homepage Journal

      The idea that giving loans to THOSE PEOPLE (implicitly poor, black, and whatever other qualities our society is calling moral failings this week) is behind the collapse of the financial industry and had nothing whatsoever to do with the saintly finance industry's business practices itself is a meme that really needs to bite the dust. Was CRA part of the problem? Maybe, but there's no such thing as a single cause to a collective fuckup/fiscal meltdown of this magnitude. I'd argue that the repeal of Glass-Steagall is an even larger singular driver.

      I'm sorry if it seems like I'm singling you out or jumping down your throat in particular, I'm just real tired of simplistic finger-pointing at the CRA. (I even vaguely recall seeing numbers that said CRA-driven loans were actually less likely than average to be in foreclosure, but it's been a good while and I can't remember where to dig up the particular citation.)

    • by blueg3 ( 192743 )

      Interesting. I don't see predictions in that article that are anywhere close. Perhaps you could quote from the article where it "predicts this whole thing" (or at least parts); that should be easy enough if the article did a "great job".

    • by hondo77 ( 324058 )
      Finding someone who "predicted" current events is easy. There's always one monkey out of the millions with typewriters who gets it right. Finding someone with a long, successful record of predicting the future? Good luck with that.
      • Re: (Score:3, Interesting)

        by thethibs ( 882667 )
        Nassim Taleb repeatedly predicted these events and made a fortune putting his money where his mouth was.
    • by vertinox ( 846076 ) on Tuesday May 05, 2009 @04:23PM (#27836935)

      Is it any surprise that when a government (whether under Clinton or Bush) promotes "affordable housing" as an end in itself, by manipulating interest rates and bank regulations, that they're bound to create a bubble, and bubbles by definition cannot last?

      I think they key problem here was the lack of regulation than too much of it.

      First, subprime lenders were lending money to people who didn't even meet federal standards, then bundling this toxic debt into CDOs and then selling it off to people who didn't even look at the credit of the people in the inside and then sold it to other people.

      Secondly, the subprimes were talking these people and other borderline credit score people into adjustable loans.

      Then federal reserve twiddled its thumbs about raising interest rates when it needed to calm the situation but because everyone had adjustable loans, the had no choice to default en masse making the situation worse.

      Oh and don't forget about the uptick rule [] that the SEC removed that prevented short sellers from shorting on stocks on downward movement that had originally been in place for 70 years because of the 1929 market crash! And people have to ask why the market did what it did.

      So yes... More regulation would have stopped this.

      1. Banks and subprimes should have been regulated into not giving loans they knew could not be paid back.
      2. Uptick rule needs to be reinstated which they are doing soon under the new head of the SEC.

      And don't bitch and moan about free market because it has been historically observe that free market does correct itself but always... AND it always creates boom and bust cycles through the past 500 years of free hand markets. Which is why we get depressions.

  • Off by one (Score:3, Interesting)

    by diablovision ( 83618 ) on Tuesday May 05, 2009 @03:37PM (#27836147)

    Makes my off by one errors seem so quaint. Add 12 zeros and soon you're talking about real money.

  • by syousef ( 465911 ) on Tuesday May 05, 2009 @03:42PM (#27836251) Journal

    ....I started world war II, even though I wasn't born yet. World war I. Me again. I messed up the decimal point. I hate that. I always do that. Oh and that devasting flu epedemic that killed more people than the war. me again. The rise of aids. I'm afraid that was my friend Jim. Excuse me please I have to go take my little red pills.

    • Re: (Score:3, Funny)

      by khallow ( 566160 )
      Hey, syousef, could I pick up responsibility for the Black Death, this weekend? I need a good pick up line. Promise to return it, good as new, Monday morning!
      • Black Death? Is that what a Black Metal and Death Metal fan has left after passing through an airport X-ray checkpoint?
    • Re: (Score:3, Funny)

      by phorest ( 877315 )
      I have no sympathy, though pleased to meet you, devil.
  • by Anonymous Coward on Tuesday May 05, 2009 @03:44PM (#27836265)

    Two words: Information asymmetry.

    • by dkleinsc ( 563838 ) on Tuesday May 05, 2009 @04:00PM (#27836559) Homepage

      That is one of the most fantastic explanations ever offered, and by an AC no less.

      A more in-depth explanation for those who want more than 2 words:
      1. A mortgage broker knows more about mortgages than your typical homeowner, and uses that advantage to sell a bad deal to said homeowner. The reasons it's a bad deal are buried in the fine print that would take a real-estate attorney to sort out (which a typical sub-prime borrower couldn't afford). The mortgage broker promptly collects the commission.
      2. The mortgage company that the broker works for builds a security that nobody really understands that effectively hides the bad loan that the broker gave out. They work with the security rating agencies to make sure it has a good rating even if it shouldn't. Once someone buys the security, the mortgage company has its profits and no risks.

      In other words, every step of the way the mortgage brokerage has more information than any other party, and uses that to screw over borrowers and investors.

      • by __aagmrb7289 ( 652113 ) on Tuesday May 05, 2009 @04:50PM (#27837383) Journal
        Variable rate mortgages aren't really all that hard to understand - it doesn't take an expert to understand that when things go bad, your rates will go up - perhaps to unaffordable levels. I've seen the friggin' paperwork - it's just not that hard to understand, if you bother reading what you are signing - AT ALL. Blaming the mortgage broker alone is silly.
        • Re: (Score:3, Insightful)

          by dkleinsc ( 563838 )

          Now try and have the same understanding if instead of your college education in a numerically-oriented field (e.g. physics, CS, math, and so forth) you're at about the level of education you had at around 9th grade. There are a lot of adults with roughly that level of education running around, and a lot of them are potential subprime borrowers.

          I'm not saying the borrowers were saints, but brokers definitely took advantage of their ignorance in general and specifically about mortgages.

          • Re: (Score:3, Interesting)

            by Splab ( 574204 )

            The problem isn't education per se. Here in Denmark most people are well educated, but common sense is not on the agenda, while our housing situation isn't as bad as the US, it's still pretty rough for some home owners - the problem is people happily signed the contracts without reading them nor understanding them. If you don't get the numbers you call someone who does, people just blindly trusted the bank.

        • Re: (Score:3, Insightful)

          by jandrese ( 485 )
          IMHO, the Mortgage Broker is supposed to be the person who makes the judgement call as to weather you are a default risk or not. Back in the old days that was the bank manager and they had their skin in the game. In the new system, the bank immediately resells the debt so there is far less incentive to scrutinize the application. In fact there is an incentive to approve as many as possible, because they make a commission on each one. Is it any surprise that this safeguard broke down as a result?
      • Re: (Score:3, Informative)

        by radish ( 98371 )

        The reasons it's a bad deal are buried in the fine print that would take a real-estate attorney to sort out (which a typical sub-prime borrower couldn't afford).

        My impression (and I may be misinformed here) was that the majority of these loans are going bad because people were given more than they could really afford, using a short-term ARM with a big uptick to make the payments look low initially. Now I might be out of line, but when signing something as important as a mortgage, isn't it really a good ide

  • CMO vs. CDO vs. CDS (Score:5, Informative)

    by Fantom42 ( 174630 ) on Tuesday May 05, 2009 @03:44PM (#27836285)

    The end of the article starts to get to the heart of the problem, which really happened after he was involved. It was when they started doing this with all debt that it got really bad. And even then its only half the picture without looking at the other piece of this the Credit Default Swap. Another thing he alluded to when he talked about default models. The problem was much more complicated than this one guy.

    • by slashdot_commentator ( 444053 ) on Tuesday May 05, 2009 @03:58PM (#27836529) Journal

      Here here. Its nice that someone is willing to take blame for the collapse of the world mortgage market, but the reality is that he has a ridiculously overinflated ego.

      Unless he was also an degreed economist, there's no way he independently came up with the formulas used in order to write the software. He just took the spec from the people who paid him to write the software, and away he went.

      Like a gun, its ridiculous to blame the collapse or death on the tool. Its a form of enabling, but certainly not the cause of the problem.

      The problem was that the foxes were running the henhouse. and the guard dogs called the regulators were nowhere in sight, or chihuahuas. Instead of the foxes trying to skim off a self-sustaining scam, they let their trading run wild into bankruptcy, and with no regrets.

      This is what happens when you let people with poor understanding of risk management, or its mathematical models, set policy (and I don't mean the politicians).

      Also sad to see are the comments on this article. People apparently bought this guy's story hook, line and sinker.

      • by actionbastard ( 1206160 ) on Tuesday May 05, 2009 @04:27PM (#27837013)
        He doesn't take the credit for the math behind the securitization of these debt-based securites. What he feels responsible for is the fact that he wrote the code that made the whole process 'pushbutton' for the greedy traders who duped the people 'dumber than they are' into buying those securities. He is akin to the man who installs the bombsight in a bomber feeling partially responsible for all the people killed by the bombs dropped from the plane.
  • Buck passing... (Score:5, Insightful)

    by owlnation ( 858981 ) on Tuesday May 05, 2009 @03:46PM (#27836319)
    Can you say scapegoat?

    Of course, it's a geek who is to blame for it all with his immoral software witchery. It couldn't possibly be the result of a large number of greedy, thieving scum, who were regulated by greedy, corrupt scum, and they in turn were regulated by a greedy, corrupt government.

    The writing was on the Wall(street) for the subprime meltdown for a very long time before this software was written. It was obvious to anyone with Economics 101, a long time ago.
    • Re: (Score:3, Insightful)

      by brian0918 ( 638904 )
      Unfortunately, economists seemed to have forgotten their Econ 101 [], and now think they can stop the bubble. I have no problem with them believing that, except that they're feeding their nonsense to idiot politicians!
      • Re:Buck passing... (Score:4, Interesting)

        by macraig ( 621737 ) <[moc.liamg] [ta] [giarc.a.kram]> on Tuesday May 05, 2009 @04:08PM (#27836695)

        Economists actually don't know anything - anything correct - about economic systems. They've been beer-bonging the wrong Kool-Aid and preaching the wrong sermons for a very long time; the entire field of economics has been hijacked by a greedy minority and perverted to their benefit. Climatologists actually understand more about economic systems than economists do, since climate and economics have quite a bit in common in terms of systemic behavior.

  • Requirements? (Score:5, Insightful)

    by zm ( 257549 ) on Tuesday May 05, 2009 @03:54PM (#27836449) Homepage
    The guy coded it. Who created his requirements?
  • by xjerky ( 128399 ) on Tuesday May 05, 2009 @04:13PM (#27836765)

    That played a large part in this problem. I was eyeing a home from around 2000-2001. Proces were still reasonable. Then the rates dropped to ridiculous lows. Great, right? But then that caused a mad rush on homes, driving the prices to even more ridiculous highs. At that point, your monthly payment became even higher than when the interest rates were higher. At that point I dropped out of the market for a house. Who the hell else didn't see this coming? Who was Alan Greenspan really helping by keeping the rates so low?

  • by evilmousse ( 798341 ) on Tuesday May 05, 2009 @04:19PM (#27836861) Journal

    oh good, my comments still there from the first time i saw the story:

    i programmed in some of the same subject matter for several years recently, and much of this strikes me as a very believable tale. ...except it feels history-rewritten so as to remove any negative light from the author. he comes off entirely too saintly-while-surrounded-by-evil, and that makes me wonder what else to believe.

    in particular how he made it seem like he just happened to fall into his deal to maintain/integrate/etc the software for its new owner, unpaid for a cut of its sales. that's a daring endeavor you take only when you honestly believe in long-term success, so i don't see "i'm tired and wanna take something easier", i see "all in, show your hands boys" kinda farm-betting. he knew then like he said now that his software could become the standard, shot for and achieved success. but i don't think his waxing philosophical about the potential dangers of that success started only after the trouble.

    the contractors building the death star knew the risks of that association, so to speak. (I should explain, this is a meme, and honestly an unfair comparison)

  • Why the "blame"? (Score:4, Insightful)

    by khallow ( 566160 ) on Tuesday May 05, 2009 @04:40PM (#27837235)
    I don't understand the need (apparently in the article above) for people to blame everyone who had any connection at all to the financial crisis. This guy didn't do anything yet some of them are referring to him as a "scumbag" (and maybe a few naughty terms, I didn't look that hard). Further, Osinski claims to feel a little guilty, though he never explains why he should feel a shred of guilt. As I see it, he built a tool. Maybe highly leveraged traders leaned on that tool too much, but it's not intended to spot systemic risks (particularly the risk that all assets decline in a correlated way). Those systemic risks are what brought everything down. So a tool, working as intended, used by fools who made some hideously risky bets.
  • confession? (Score:4, Interesting)

    by superwiz ( 655733 ) on Tuesday May 05, 2009 @04:55PM (#27837469) Journal
    He was part of a team that wrote some trading application. Confession? Is this a joke? Blaming wall street for this meltdown is like blaming your electrician when the power company stop providing power. All they do is repackage stuff. All the repackaging in the world wouldn't raise home ownership from 20% to 30% in 10 years. This was through policy... Brought to you by your friendly government (which I must be a right-wing nut for questioning, right?). Reminds of a the Jackie Mason joke: "This is the richest company in the history of the world and every year we lose money. That's because your congressman gets paid whether we lose money or not. I say put em on commission..." Honestly though... It's the "ownership society" that created this crisis -- not the middleman they are trying to blame now.
  • by Wilson_6500 ( 896824 ) on Tuesday May 05, 2009 @05:03PM (#27837613)
    This is what $2 million of bonus can do to grown men.

    I wanted desperately to try to argue that perhaps the kind of person who can position himself to make that kind of money is simply the kind of person who would be amenable to literal pissing contests and so on, rather than money itself changing what were previously normal people.
    • Re: (Score:3, Insightful)

      by CodeBuster ( 516420 )

      rather than money itself changing what were previously normal people.

      Sort of like taking a collective look in the mirror and not liking what we see, but was this really that surprising? At some point every one of us is corruptible and every man (or woman) has his (or her) price. If you say, "not me" then say that again after tearing up a $2 million dollar bonus check that someone has just placed into your hands.

  • by Richard0Thomas ( 1548405 ) on Tuesday May 05, 2009 @08:57PM (#27840479)
    Apparently a lot of people do not know what they are talking about. The people most invested in the system cannot see the flaws and do not want to. The financial jargon is used to obfuscate. Some genius that actually understands it all at the byte and master accounts level, made it very simple for everyone to understand.
    Derivatives = Bets
    Credit Default Swaps = insurance on bets
    Hedge Funds = borrowing of money to gamble with (unregulated and secret also used to manipulate markets)
    Taxpayer Bailout = Taxpayers covering the gambling losses for gamblers? (it won't happen without a revolution taking place to correct it)
    Reality = Insurance (e.g. AIG) cannot cover failed bets which amount to: USD 206k per person-on-planet.
    The number it is based on has grown from USD 1.144 Quadrillion to USD 1.405 Quadrillion, ie, +22% worldwide. The GDP of the entire world is USD 50 trillion. The derivatives "bets" total USD 1,144 trillion which is 22 times the GDP of the whole world. The money 1,144 trillion doesn't really exist in system but only in the terms of a contract, artificial value not validated by economic system participants. It would be inappropriate for the citizens to go into debt as they already have, to cover these contracts. The people that created this catastrophe do not feel the pain of their decisions, but the common folk do. You can read all the rest of this and a bunch more insight into a system that would actually work on [] Perhaps most ironic was an attempt to build a computer game based on the current economic model, eventually the game / economy always crashed.

The absent ones are always at fault.