When I joined the ranks of Wall Street’s investment bankers, I was what they called a “rocket scientist.” I never worked on spacecraft, but I did hire real rocket scientists along the way, along with software engineers, an Air Force test pilot, finance professors, and more than a few freshly-minted MBA’s.
I called what I was doing “financial engineering” when my friends outside the business asked for stock tips. Even though I paid attention to the stock market before I worked on Wall Street and after, I actually had no time for stocks when I worked there, so I never had any tips for my friends.
But back to Financial Engineering. As far as I know, I was the first person to refer to my vocation by that phrase, though since that time I’ve seen universities award degrees in it.
During those early years of my career, I was lucky enough to love what I did, to get paid well (though not nearly as well as the more effective political operators around me), and to perform a service that I could see was helping a huge swath of my fellow Americans.
So why did structured mortgage finance turn into a “force of evil” that nearly drove the world economy into a second great depression?
The answer, as always, is not to blame the tools but to look at how they were used.
At this point it is just about exactly four years since I wrote “Mortgage Market Mayhem.” At the time, I was involved in damage control on a hedge fund my employer set up for me to run. It was a long-biased equity and debt fund running 5:1 leverage investing exclusively in “down in credit” private label mortgage company stock and bonds. Subprime, in other words.
About that time, the word “subprime” was chosen as the Word of the Year, and even though the losses in my fund were far less than any other (long-biased) fund in that sector, it was clear that no one would be interested in investing new money in that sector for a very long time, if ever.
Having been one of the early inventors of the financial technology in my years on Wall Street, and then a customer with a mandate and money to buy in that sector, I saw the whole slow-motion train wreck first hand.
When I first thought of writing the book, I was going to “sanitize” my weekly missives to management, written every Friday from mid-2006 through the end of 2007. A number of the senior executives at my firm told me they loved reading my Friday letters, even though they were more often than not describing an unfolding disaster.
Even after the names of the innocent (and the guilty) were removed, those e-mails (more than 100,000 words) served as a fascinating real-time diary of the events of the subprime disaster and subsequent global market meltdown. Add that to the 25 years I spent developing and studying and investing in the market, and I knew I had a unique perspective that no financial reporter would ever get by interviewing people in the news.
In fact, since losers seldom want to talk to reporters, the books that followed were almost all of the “history is written by the winners” variety. Even well-respected reporters that should have known better were taken in by the outright dishonesty of some of the players who made retirement-level (or even multi-generation wealth level) money off the “play” they had engineered.
For that reason, and others, I will be publishing my book this spring.
I think the real story from an insider recorded in real time even before the last act of the play was done will serve as a cautionary tale, and as a much-needed counterbalance to the virtual propaganda that the subject has gotten so far.
Here’s hoping all my readers have a safe, happy and joyous holiday. I’ll post from time to time as a kind of break from writing the necessary update and intro that four years of events requires.
All the best,