Liar’s Poker


Liar’s Poker is a non-fiction, semi-autobiographical book by Michael Lewis describing the author’s experiences as a bond salesman on Wall Street during the late 1980s. Two important figures in that history feature prominently in the text, the head of Salomon Brothers’ mortgage department Lewis Ranieri and the firm’s CEO John Gutfreund. The book’s name is taken from a high-stakes gambling game popular with bond traders.

First published in 1989, it is considered one of the books that defined Wall Street in that era, along with Bryan Burrough and John Helyar’s ‘Barbarians at the Gate: The Fall of RJR Nabisco,’ and the fictional ‘The Bonfire of the Vanities by Tom Wolfe.’ The book captures an important period in the history of New York’s financial markets.

Liar’s Poker jumps back and forth between two different story threads. The first is autobiographical, and follows Lewis through his college education and his hiring by Salomon Brothers (now a subsidiary of Citigroup) in 1984. This part of the book gives a first-person account of how bond traders and salesmen truly work, their personalities, and their culture. The second thread is a history of Salomon Brothers and an overview of Wall Street in general, especially how the firm single-handedly created a market for mortgage bonds that made the firm wealthy, only to be outdone by Michael Milken and his junk bonds. This thread is less dependent on Lewis’ personal experience and features quotes apparently drawn from interviews with various relevant figures.

Lewis was an art history student at Princeton University, who nonetheless 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. For example, in 1982 Lehman Brothers had rejected his employment application. He then enrolled in the London School of Economics to gain a master’s degree in economics. While in England, Lewis was invited to a banquet hosted by the Queen Mother, where his cousin, Baroness Linda Monroe von Stauffenberg, one of the organizers of the banquet, purposefully seated him next to the wife of the London managing partner of Salomon Brothers. He hoped that his intelligence might impress her enough for her to suggest to her husband that Lewis, be given a job with Salomon Brothers. The strategy worked, and Lewis was granted an interview and subsequently received a job offer.

Lewis then moved to New York City for Salomon’s training program. Here, he was appalled at the sophomoric, obtuse and obnoxious behavior of some of his fellow trainees, and indoctrinated into the money culture of Salomon Brothers and the Wall Street culture as a whole. From New York, Lewis was shipped to the London office of Salomon Brothers as a bond salesman. Despite his lack of knowledge, he was soon handling millions of dollars in investment accounts. In 1987, he witnessed a near-hostile takeover of Salomon Brothers but survived with his job. However, growing disillusioned with his work, Lewis quit the firm at the beginning of 1988 to write this book and become a financial journalist.

The book is an unflattering portrayal of Wall Street traders and salesmen, their personalities, their beliefs, and their work practices. During the training sessions, Lewis was struck by the infantilism of most of his fellow trainees. Examples included yelling at and insulting financial experts who talked to them, throwing spit balls at one another and at lecturers, calling phone sex lines and then broadcasting them over the company’s intercom, gambling on behavioral traits (such as how long it took certain trainees to fall asleep during lectures), and the trainees’ incredible lust for money and contempt for any position that did not earn that much.

Lewis attributed the bond traders’ and salesmen’s behavior to the fact that the trading pit required neither finesse nor advanced financial knowledge, but, rather, the ability and desire to exploit others’ weaknesses, to intimidate others into listening to traders and salesmen, and the ability to spend hours a day screaming orders under high pressure situations. He referred to their worldview as ‘The Law of the Jungle.’ He also noted that, although most arrivals on Wall Street had studied economics, this knowledge was never used; in fact, any academic knowledge was frowned on by traders. Lewis also attributed the savings and loan scandal of the 1980s and 1990s to the inability of inexperienced, provincial, small-town bank managers to compete with Wall Street. He described people on Wall Street as masters at taking advantage of an undiscerning public, which the savings and loan industry provided in abundance.

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 loan associations 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, Lewis 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.

Another problem Lewis noticed was a large disconnect between what Salomon Brothers mortgage traders were paid, and what they believed they should have been paid. Ranieri and his fellow traders felt that, since their department generated so much money for the firm, they ought to receive considerably higher salaries and compensation. Gutfreund and other managers, on the other hand, argued that the traders were not risking their own money, but the firm’s, and noted that the mortgage department spent years losing money before succeeding. Because of this disagreement, Salomon Brothers lost many of its traders when other firms that added mortgage bonds to their business began to offer higher salaries, easily luring the Salomon Brothers mortgage bond traders away.

Likewise, Lewis argued that Salomon Brothers tried to ‘professionalize” itself. As he notes, Ranieri and his fellow traders lacked college degrees; one of the traders had not even finished the eighth grade. Despite their lack of academic credentials, the group was extremely successful financially. But in order to improve its ‘image,’ the firm began to hire graduates of prestigious business and economics programs. Because of his uncouth manners, Ranieri (along with many of his Italian American colleagues) was eventually fired.

Lewis argued that Salomon Brothers’ mortgage-bond success was based not on innate intelligence or trading skill, but on pure luck. Lewis noted that, although Ranieri was often hailed as a ‘visionary’ for creating a mortgage department before a mortgage market existed, deregulation caught him completely by surprise. The firms that lured away Salomon’s traders with higher salaries ended up losing money, as it soon became clear that the traders lacked any special skills: they just happened to be working in mortgages during a period of rising bond prices. After enough firms became involved with mortgage bonds, prices stabilized, and the bonds eventually traded like any others.

After dealing with mortgage bonds, Lewis examined junk bonds and described how Michael Milken built junk bonds from nothing to a multi-trillion-dollar market. Because the demand for junk bonds was higher than its supply, Lewis argues that corporate raiders began to attack otherwise sound companies in order to create more junk bonds. Lewis remarked in conclusion that the 1980s were a time when anyone could make millions, provided they were in the right place at the right time, as exemplified by Lewis Ranieri’s success.

Lewis creates a glossary of sorts of the lingo of bond traders at his firm: ‘Big Swinging Dick’ (a big-time trader or salesman), ‘Geek’ (a just-hired trainee), ‘Equities in Dallas’ (a particularly undesirable job within a finance firm), ‘Blowing up a customer’ (convincing a customer to purchase an investment product which ends up declining rapidly in value, forcing the client to withdraw from the market), ‘Feeding Frenzy’ (a Friday-morning meal shared by a certain clique of bond traders who competed to see who could display the most gluttony), ‘The Human Piranha’ (a nickname for an employee at Salomon Brothers who constantly used the word ‘fuck’ and its variants in his speech — a reference to Tom Wolfe’s character in ‘The Bonfire of the Vanities’).


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