First there was a story about how a UW grad contributed to Wall Street’s downfall, now here’s another story about a computer program which blinded the traders to the volitility of CMOs
Within a year, we had sold it to four large investment banks; by the end of 1997, we had fifteen. We were it! By the end of ’98, we had 25. If a firm wanted to be in the mortgage business, they needed us. Instead of hiring a large staff to write the software, you could buy it from us, at half what it would cost you to create it from scratch. Price per copy was $500,000, plus annual maintenance. Not only did the big banks buy, but major mortgage servicers decided they could end-run the banks by taking the loans and ramming them through the grinder themselves.
For a decade, every firm had written its own proprietary structuring tool for securitizing mortgages. Now we had commoditized it. Firms liked using the same piece of software. Intex became the King of Mortgages. Bonds were traded without showing up on the Bloomberg screens!
It seems I share a lot of similarities with the events that lost you a lot of money!
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