Software and Moral Hazard

Michael Osinski, now a Long Island oyster farmer, revisits his past as the programmer who did more than anybody else to enable the Collateralized Mortgage Obligations (CMOs) that brought down world markets, ultimately splitting income from sales of his $500,000-per-copy program when he worked with a Boston company that had bought it from a former employer.

Some cynical quotes from bosses are worthy of Wall Street and Liar's Poker, but my favorite is his observation of the effect of his product on the trading floors:

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.

But earlier in the story there's another model of the process, and an observation of the glass ceiling for programmers on the old Wall Street:

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 traders' eventually fatal style wasn't a set of bad habits they picked up from using the software; it was the rationale for writing it in the first place, to get an edge by not having to think about decisions. Greed and automation in the mortgage business were like a binary explosive. No wonder even Osinski's friends called him "the Facilitator."

Presented by

Edward Tenner is a historian of technology and culture, and an affiliate of the Center for Arts and Cultural Policy at Princeton's Woodrow Wilson School. He was a founding advisor of Smithsonian's Lemelson Center.

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