Title: Liar’s Poker
Author: Michael Lewis
Liar’s Poker is a semi-autobiographical book by Michael Lewis describing his experiences as a bond salesman on Wall Street during the late 1980s. The book derives its name from liar’s poker, a game played in idle moments by workers on Wall Street, the objective of which is to reward trickery and deceit. With this as a metaphor, he describes his four years with the Wall Street firm Salomon Brothers, from his bizarre hiring through the training program to his years as a successful bond trader. His description of the firm’s personalities and of the events from 1984 through the crash of October 1987 is vivid and memorable. He gives some brilliant insights into the Alpha-male-dominated world of big investment firms, and the extremely odd and intriguing culture that still exists today. It is fast paced, shrewd and wickedly funny book.
Lewis was an art history student at Princeton University, who wanted to break into Wall Street to make money. He describes his almost pathetic attempts to find a finance job, only to be roundly rejected by every firm to which he applied. He then enrolled in the London School of Economics to gain a Master’s degree in economics. While in England, he was invited to a banquet hosted by the Queen Mother, where he was purposely seated by his cousin, one of the organizers of the banquet, next to the wife of the London managing partner of Salomon Brothers, in the hope that his intelligence might impress her enough for her to suggest to her husband that Lewis be given a job with Salomon Brothers, which had previously turned him down. As it turned out, the strategy worked, and Lewis was granted an interview and landed the job.
Lewis then moved to New York City for Salomon’s training program. Here, he was appalled at the sophomoric, obtuse and obnoxious behaviour of some of his fellow trainees and indoctrinated into the money culture of Salomon Brothers and Wall Street in general. He talked about how all of the trainees would be in one room, and an investment banker would talk to them. He gives a vivid description of the trainees.
The class involves lectures from various MDs and speeches given by upper management. Most were there to gloat about themselves and looking for ego-boosts. Rarely anything useful came out of these classes. Memorable speakers included:
- The Human Piranha – Perfect example of the fuckspeak culture on the trading floor.
- Sangroid – cold and intimidating, made a point that every trainee must live and breathe the financial world.
- Richard O’Grady – a young trader who started at Salomon as a lawyer. He told true, personal stories of various abuses at Salomon.
He describes how a trainee would go to any extent to impress the managers of the department he wanted to be in, after the completion of the training. Everyone wanted to be in the mortgage bond department because that is where the money was at, and no one wanted to be in equities. “Equity in Dallas” became the lowest of the low for a trainee to end up in.
Lewis portrays the 1980s as an era where government deregulation allowed less-than-scrupulous people on Wall Street to take advantage of others’ ignorance, and thus grow extremely wealthy. He traces the rise of Salomon Brothers through mortgage trading, when deregulation by the U.S. Congress suddenly allowed managers of savings and loans to start selling mortgages as bonds. Lewis Ranieri, a Salomon Brothers’ employee, had created the only viable mortgage trading section on Wall Street, so when the law passed, it became a windfall for the firm. However, he believed that Salomon Brothers became too complacent in their new-found wealth and took to unwise expansion and massive displays of conspicuous consumption. When the rest of Wall Street wised up to the market, the firm lost its advantage.The good times started to haze from 1986 as talents left Salomons and mortgage bonds became commoditized (partly through Salomon’s own invention of CMOs etc). Ranieri was finally squeezed out in 1988.
Michael started in the London office as a corporate bond salesman. He eventually was able to become, what the top management at Salomon Brothers would call a “Big Swinging Dick” (one who could make millions of dollars come out of those phones, he became the most revered of all species). He got a client to purchase an extremely large amount of bonds for a company that was soon to fail. He started to feel awful for the Frenchman that bought the bonds, but that is what Salomon Brothers wanted him to do.
A huge round of firing and trimming of Salomon workforce preceded one of the worst stock market crashes in history (winter of ’87).Reflecting the gross failure and lack of vision from the top management, the company summarily closed down departments and fired a thousand employees. Michael escaped the cut and was instead rewarded with a surprisingly large year end bonus. Salomon did not go under, it continued to operate, but earning much, much less than in its heydays. He quit the firm in 1989 and wrote this book, the main reason for Michael’s departure from the firm was the belief that his rewards should have reflected his contribution to welfare of the society. He could not rationalize how his job of selling bonds to customers produced much goodness.