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The mid 1980s were a once in-a-lifetime opportunity for a few thousand of America’s Economics, Mathematics and Physics graduates to make more money at age twenty-three than their parents could accrue in twenty years. Nowhere is this better illustrated than in Michael Lewis’ excellent inside account of those profligate years at Salomon Brothers, the leading investment bank of its day before it surrendered its monopoly on the mortgage bond market and allowed its traders to take over the floor.
Liar’s Poker is a vivid account of the excess that characterised the age, and is also a useful study in how an organisation that grows exponentially over a short period of time becomes less accountable to its customers and its own producers (e.g. the traders and salesman bringing in the dough). Inside this adrenaline-fuelled world of risky dealing, macho posturing, high cholesterol bingeing and frantic ‘bid’ and ‘ask’ phone trades, Lewis takes us from his initiation and training right through to the days leading up to the spectacular 1987 Stock Market Crash that plunged the financial world into chaos, but made tonnes of money for his department’s long positions on the bond market. (Unlike stocks and shares, bonds go up in price when government interest rates go down. Investors taking big losses on equity will look for a safer yield in the bond market until things calm down. Those betting on prices going up – traders – will profit from selling their bonds when the price shoot up in value.)
The money-hungry college graduates that stalk the pages of this book have become stuff of legend, but no so much as the uncouth college drop-outs from Brooklyn who go from the company post room to the trading floor and the Executive Boardroom in the space of fifteen years. These are the obese traders with rolled up sleeves, appalling manners and awe-inspiring courage, who throw telephone earpieces at new starters and hollow down any one who walks through their department with a tirade of abuse. One of the author’s classmates is so scared to enter he does nothing for three days, but ride the elevator from the ground floor to the dreaded Floor 41. He’s not seen again, but he’s not the only casualty in a war with no rules or formal guidelines. Lewis, himself, learns quickly that he will need a mentor to survive; but how do you approach a senior trader on a busy trading floor to learn the ropes? Answer: you sit invisible for weeks on end, at the same desk, next to the same person, not daring to say anything until recognised. The relief comes when you’re finally instructed to get breakfast in for the other guys. This is the closest you’ll get to a polite ‘Hello.’ You have your acknowledgment. Perhaps they might even show how to make a trade or explain the jargon – not likely.
It’s a far world from the investment banking Lewis imagined after finishing his Master's Degree at the LSE in the early 80s. Like any graduate he assumed he would be meeting with the captains of industry and lending money to blue chip companies on projects that would change the world for the better. That department exists, his new employers tell him, but it’s for wimps. The WASPs with fine-manners, blonde hair and an expensive education work in Corporate Finance – they’re also the lowest of the low in the eyes of the traders. Lewis realises this when one of them stumbles into Floor 41 wearing a jacket (a big no-no to a trader) and is instantly shoulder-charged out of the way by a fat, no-nonsense salesman. This is the moment when he realises he’s becoming like one of the traders. They’re right - the guy’s a wimp.
Every page of Liar’s Poker will make you laugh, cringe and shake your head in disbelief. You can imagine the apprehension the author felt on his first day in the training programme. Already a hierarchy is formed with the hooligans at the back of the class deciding from day one it’s their job to intimidate and bully the swots with the MBAs on the front row. You have to be savage to be a trader, right? The Harvard alumni retain their own clique, listening to each lecture and imagining where each speaker stands in the power structure of the company. They draw organisational charts and try to work out where they will be in two years’ time. Next to them sit the Japanese – six graduates brought in to persuade Corporate Japan to return some of the stockpile of US dollars building up in their huge trade surplus. These guys are renowned for one thing – falling asleep during the training. Bets on what time Yoshi will nod off are the highlight of the morning. But with the exception of the Japanese, anyone who shows weakness is earmarked for a fate worse than dismissal – being sent off to Dallas to sell Equity. The woman who asks a guest speaker about the key to his success is castigated as a brown-noser and humiliated in front of the class. This is tame compared to what awaits them upon graduation.
At the heart of the book is a fascination that will continue to intrigue us as long as the capitalist system survives. How can people make millions of dollars doing nothing but speculating on price movements? And why would most of want to do the same if we had the opportunity? Though Lewis doesn’t rehearse any of the fatuous arguments about bringing liquidity to the market, you get the impression he is never going to stay in the game for the long haul. The back-stabbing, disloyalty, and jungle mentality of those around him is an accepted fact, but the consequences can be severe. One day a trader advises him to sell $3 million worth of AT & T bonds to an unsuspecting German investor, unaware his colleague has knowingly dumped a loss of 65,000 USD onto his customer. In any other industry he’d get sacked, but not at Salomon Brothers. ‘Who do you work for, this guy, or Salomon?’ is the trader’s retort. Easier said than done; Lewis has to take daily calls from an angry client who’s close to hyper-ventilating and eventually loses his job at his Austrian bank. His peers call this ‘blowing up’ a customer, e.g. wiping out the customer’s investment. It’s all part of the training.
Lewis is also keen to expose the mismanagement at Salomon Brothers, not to mention hubris. He’s astonished to learn that one of the Directors is trying to force the British Government to take back their $100 million shares in British Petroleum, sold to Salomon 24 hours before the 1987 stock market crash, and landing them with a $700 million loss. As the (presumably Jewish) Director says to his counterpart in London, ‘Your people better damn well pull it… If it wasn’t for us, you’d all be speaking German.’ Charming.
The brutal culling of 1,000 jobs over two days is another sorry episode in the firm’s crisis management. The news is leaked to the press a day before the event, and the Municipal Bond and Money Market Departments are fired en masse. Fortunately, most of the Municipal Bond staff are hired by Dean Witter, a firm that’s happy to fire its existing department to make way for the newbies. Such is the cold nature of Wall Street. To play tough is to survive. Sentiment is for losers.
As the number one best-seller of its day and seminal account of the mid 80s excess, Liar’s Poker is a book that will testify to a unique period in the Anglo-Saxon world when for a short time millions of dollars were flowing into the accounts of men in their early twenties and managing directors not much older. There’s no doubt they had to go through a harsh boot camp to get there, and the rewards were worth it. But for Lewis, it felt like an absurdity. ‘When you sit, as I did, at the centre of what has been possibly the most absurd money game ever, and benefit out of all proportion to your value to society… When hundreds of equally undeserving people around you are all raking it in faster than they can count; what happens to the money belief?’
The banking meltdown of 2008 may hold the answer. But does anyone expect the excesses to go away? Today’s money hungry graduates have already worked out that the real wealth is now in Hedge Funds, not investment banking.
Liar’s Poker is a vivid account of the excess that characterised the age, and is also a useful study in how an organisation that grows exponentially over a short period of time becomes less accountable to its customers and its own producers (e.g. the traders and salesman bringing in the dough). Inside this adrenaline-fuelled world of risky dealing, macho posturing, high cholesterol bingeing and frantic ‘bid’ and ‘ask’ phone trades, Lewis takes us from his initiation and training right through to the days leading up to the spectacular 1987 Stock Market Crash that plunged the financial world into chaos, but made tonnes of money for his department’s long positions on the bond market. (Unlike stocks and shares, bonds go up in price when government interest rates go down. Investors taking big losses on equity will look for a safer yield in the bond market until things calm down. Those betting on prices going up – traders – will profit from selling their bonds when the price shoot up in value.)
The money-hungry college graduates that stalk the pages of this book have become stuff of legend, but no so much as the uncouth college drop-outs from Brooklyn who go from the company post room to the trading floor and the Executive Boardroom in the space of fifteen years. These are the obese traders with rolled up sleeves, appalling manners and awe-inspiring courage, who throw telephone earpieces at new starters and hollow down any one who walks through their department with a tirade of abuse. One of the author’s classmates is so scared to enter he does nothing for three days, but ride the elevator from the ground floor to the dreaded Floor 41. He’s not seen again, but he’s not the only casualty in a war with no rules or formal guidelines. Lewis, himself, learns quickly that he will need a mentor to survive; but how do you approach a senior trader on a busy trading floor to learn the ropes? Answer: you sit invisible for weeks on end, at the same desk, next to the same person, not daring to say anything until recognised. The relief comes when you’re finally instructed to get breakfast in for the other guys. This is the closest you’ll get to a polite ‘Hello.’ You have your acknowledgment. Perhaps they might even show how to make a trade or explain the jargon – not likely.
It’s a far world from the investment banking Lewis imagined after finishing his Master's Degree at the LSE in the early 80s. Like any graduate he assumed he would be meeting with the captains of industry and lending money to blue chip companies on projects that would change the world for the better. That department exists, his new employers tell him, but it’s for wimps. The WASPs with fine-manners, blonde hair and an expensive education work in Corporate Finance – they’re also the lowest of the low in the eyes of the traders. Lewis realises this when one of them stumbles into Floor 41 wearing a jacket (a big no-no to a trader) and is instantly shoulder-charged out of the way by a fat, no-nonsense salesman. This is the moment when he realises he’s becoming like one of the traders. They’re right - the guy’s a wimp.
Every page of Liar’s Poker will make you laugh, cringe and shake your head in disbelief. You can imagine the apprehension the author felt on his first day in the training programme. Already a hierarchy is formed with the hooligans at the back of the class deciding from day one it’s their job to intimidate and bully the swots with the MBAs on the front row. You have to be savage to be a trader, right? The Harvard alumni retain their own clique, listening to each lecture and imagining where each speaker stands in the power structure of the company. They draw organisational charts and try to work out where they will be in two years’ time. Next to them sit the Japanese – six graduates brought in to persuade Corporate Japan to return some of the stockpile of US dollars building up in their huge trade surplus. These guys are renowned for one thing – falling asleep during the training. Bets on what time Yoshi will nod off are the highlight of the morning. But with the exception of the Japanese, anyone who shows weakness is earmarked for a fate worse than dismissal – being sent off to Dallas to sell Equity. The woman who asks a guest speaker about the key to his success is castigated as a brown-noser and humiliated in front of the class. This is tame compared to what awaits them upon graduation.
At the heart of the book is a fascination that will continue to intrigue us as long as the capitalist system survives. How can people make millions of dollars doing nothing but speculating on price movements? And why would most of want to do the same if we had the opportunity? Though Lewis doesn’t rehearse any of the fatuous arguments about bringing liquidity to the market, you get the impression he is never going to stay in the game for the long haul. The back-stabbing, disloyalty, and jungle mentality of those around him is an accepted fact, but the consequences can be severe. One day a trader advises him to sell $3 million worth of AT & T bonds to an unsuspecting German investor, unaware his colleague has knowingly dumped a loss of 65,000 USD onto his customer. In any other industry he’d get sacked, but not at Salomon Brothers. ‘Who do you work for, this guy, or Salomon?’ is the trader’s retort. Easier said than done; Lewis has to take daily calls from an angry client who’s close to hyper-ventilating and eventually loses his job at his Austrian bank. His peers call this ‘blowing up’ a customer, e.g. wiping out the customer’s investment. It’s all part of the training.
Lewis is also keen to expose the mismanagement at Salomon Brothers, not to mention hubris. He’s astonished to learn that one of the Directors is trying to force the British Government to take back their $100 million shares in British Petroleum, sold to Salomon 24 hours before the 1987 stock market crash, and landing them with a $700 million loss. As the (presumably Jewish) Director says to his counterpart in London, ‘Your people better damn well pull it… If it wasn’t for us, you’d all be speaking German.’ Charming.
The brutal culling of 1,000 jobs over two days is another sorry episode in the firm’s crisis management. The news is leaked to the press a day before the event, and the Municipal Bond and Money Market Departments are fired en masse. Fortunately, most of the Municipal Bond staff are hired by Dean Witter, a firm that’s happy to fire its existing department to make way for the newbies. Such is the cold nature of Wall Street. To play tough is to survive. Sentiment is for losers.
As the number one best-seller of its day and seminal account of the mid 80s excess, Liar’s Poker is a book that will testify to a unique period in the Anglo-Saxon world when for a short time millions of dollars were flowing into the accounts of men in their early twenties and managing directors not much older. There’s no doubt they had to go through a harsh boot camp to get there, and the rewards were worth it. But for Lewis, it felt like an absurdity. ‘When you sit, as I did, at the centre of what has been possibly the most absurd money game ever, and benefit out of all proportion to your value to society… When hundreds of equally undeserving people around you are all raking it in faster than they can count; what happens to the money belief?’
The banking meltdown of 2008 may hold the answer. But does anyone expect the excesses to go away? Today’s money hungry graduates have already worked out that the real wealth is now in Hedge Funds, not investment banking.
