Michael Osinski with his oystering equipment, software gone wrong Photo: ADAM NADEL
Michael Osinski, a former Wall Street computer programmer whose fancy software helped bring the banks to near collapse, says he is dismayed at the financial whirlwind
As world leaders in London put the finishing touches to their G20 communiqué, Michael Osinski was up to his thighs in water on the other side of the Atlantic, retrieving oyster cages at low tide off a misty Long Island. Nowadays, he supplies oysters to some of the best restaurants in Manhattan. But he was following the efforts to reach agreement on tackling the global economic crisis with a deep personal interest.
For in his previous incarnation, Mr Osinski played a crucial, if inadvertent, role in stirring up the financial whirlwind that has battered the world. As the top computer programmer for the titans of Wall St, he wrote the complex software that bundled home mortgages into bonds, making possible the subprime loans collapse that sparked the global meltdown.
“I didn’t realise I was building a bomb at the time,” said Mr Osinski, 55, as he reflected on his part in the worst slump since the Great Depression. “I thought I was building something that was a valuable tool for the industry. And for many years, it was.” But, he added wistfully, “the software turned out to be more sophisticated than the people using it”.
Mr Osinski decided to go public about his contribution to the crisis after two encounters in the same day. “I was in a coffee shop near my home and got talking to a stranger about what I used to do and at the end he said: ‘You’re the devil’,” he recalled. “And shortly afterwards, I saw a friend and neighbour and he told me: ‘You’re the facilitator’.”
So how does he feel that he was so intimately involved in a process that has devastated the savings of family, friends and strangers? “To see your work contribute to this is shocking,” he told The Sunday Telegraph. “I feel very bad and certainly somewhat responsible. It nags at me. But ultimately I feel more dismay than guilt that my work was used like this.”
Mr Osinski’s career path is a classic case of the law of unintended consequences. After studying journalism at university in Florida, he was working for some small business publications in Atlanta when his fiancée Isabel was struck down by a serious kidney disease.
Lacking health insurance, he took a job at the city’s Emory university entering computer data so that she could be treated, successfully, at its world-class clinic. It was from here, in his-mid 20s, that he fell into the software-writing world.
In 1985, aged 30, Mr Osinski and the woman who was now his wife moved to New York, and he landed his first job on Wall St with Salomon Bros as a programmer. “In the pecking order, the computer guys were slight above the typing pool, figuratively and literally,” he said. “We were a necessary annoyance for the traders.”
But that was all about to change. Just two years earlier, finance firms had started experimenting with “securitisation”, the process of turning mortgages into securities designed to spread the risk to lenders and investors.
When Mr Osinski asked his manager how these securities worked, he was told: “You put chicken into the grinder and out comes sirloin.” His boss added perceptively that the bonds were also a guarantee of employment for computer programmers.
As traders indulged in the sort of excess and loutish behaviour that was captured in Tom Wolfe’s portrayal of “masters of the universe” in his 1987 epic Bonfire of the Vanities, Mr Osinksi was making a reputation for himself streamlining the process for turning home loans into bonds. His rewards were less dramatic than his colleagues – bonuses in the low hundred thousands rather than the millions thrown around on the trading floor – but generous nonetheless.
Securitisation is now one of the dirtiest words in the lexicon as blame is doled out for the fall of Wall St, but Mr Osinski says the technique used rightly and cautiously is sound. “Securitisation is a good thing when it allows firms correctly to price risk into their calculations,” he said. “If people are re-paying their mortgages, then the process works fine. But if you put garbage in, you’ll get junk out.”
Mr Osinski bounced around various Wall St firms and ended up in 1995 with the company that supplied the software for nearly all the big finance houses. It was also around now that a client asked him to enhance his software to include a new ingredient – “subprime” debt. Mr Osinski’s reaction was excitement at the prospect of both new customers and new challenges.
The loans were so-called because they were made to people who failed to meet standard, or prime, borrowing requirements, presenting a higher risk that was covered by charging much higher interest rates than for borrowers with good credit histories.
With house prices rising year after year, the theory was that people could simply refinance their properties at higher values and take out new loans as their repayments increased. The laws of house price cycles were collectively forgotten or ignored, and lenders and borrowers alike were caught up in the wave of hubris, greed and naivety.
In 2001, aged 45, Mr Osinski retired from Wall St with a comfortable pay-off. Burned out, he applied for permits to farm oysters in the waters off his summer house on the North Fork of Long Island, nearly 100 miles east and a world away from the cauldron of Manhattan’s financial world.
Just a few months later, al Qaeda terrorists attacked the World Trade Centre. The economy tottered but the housing market, driven by the booming world of subprimes, continued to flourish and ensured the good days continued for the denizens of Wall St. The financial institutions developed ever more complex, mysterious and risky financial instruments, but still relied on the industry standard programmes Mr Osinksi developed.
In the meantime, he and Isabel raised a family, a son now aged nine and daughter, 10, and developed a thriving oyster business. But for more than a year, he has watched the wheels come disastrously off the bandwagon that he helped to fine-tune.
“It is certainly unnerving when you see the world crumbling around you and you have an intimate knowledge about how that process came about,” he said.
He has regrets every day, but they are tempered with the belief that others misused, sometimes fraudulently, his work. “One thing, don’t portray me as a monster,” he said, before going back to emptying the oyster cages he had just recovered from the sea-floor.
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