July 1994 –“The mortgage-backed securities market has been providing an expensive tutorial for seasoned and neophyte investors alike,” Institutional Investor wrote in its July cover story, “Mortgage-Backed Mayhem.” The reason: Too many investors simply did not seem to understand the nature of the securities they had purchased. “On the whole, the most complicated bonds are sold and not bought,” said one mortgage securities manager who used to structure mortgage-backed deals but had come to describe his former business as “evil.” Institutional Investor predicted that the heavy losses sustained in the market would drive away amateurs and reduce the professionals’ appetite for some of the more complex instruments, including some collateralized mortgage obligations and derivatives. It did — but only for a while before the structured products reemerged under a brace of different names and acronyms.
