Monday, September 21, 2009

Liar's Poker: My Review

It's a guilty pleasure of mine, I guess: I really enjoy getting my hands on well-written books about Wall Street and its shenanigans.

I have to put "well-written" in there because quite a few of the financial exposÚs that hit bookstores are, from a literary standpoint, solidly pathetic. I'd offer Greenspan's Bubbles as a recent example of these, as well as Chain of Blame. The very nature of our capitalist system pretty much guarantees that great stories are out there waiting to be told — many of them not at all flattering to the characters involved — but I'll be darned if there aren't authors out there who seem to try to use the written word to outdo Wall Street's all-too-common awfulness.

Thankfully, Michael Lewis' Liar's Poker: Rising Through the Wreckage on Wall Street is not in that camp. No, Liar's Poker was a great read, fun and engaging. Liar's Poker does its author proud. Beyond that, it's also the best first-person Wall Street account I've yet read.

(For a recent sample of Lewis' work, you might wish to read "The End," a late 2008 article published in Conde Nast. If you enjoy financial journalism, it's a page-turner I heartily recommend!)

Liar's Poker: Selling Bonds For Salomon Brothers

I wasn't paying much attention to Wall Street and investing in the 1980s — heck, I was just finishing high school in 1989, while Liar's Poker was published in 1990 — but Michael Lewis was. In fact, he was living it. Lewis was a bond trader for Salomon Brothers during the mid-1980s. During this time, he worked primarily in Salomon's London office, pawning off bonds of all shapes and sizes on well-heeled clients. But from his across-the-pond desk, Lewis managed to build a mighty strong picture of 1980s Wall Street. From his preface:

I was a bond salesman, on Wall Street and in London. Working beside traders at Salomon Brothers put me, I believe, at the epicenter of one of those events that help define an age. ...That was somewhere near the center of a modern gold rush. Never before have so many unskilled twenty-four-year-olds made so much money in so little time as we did this decade in New York and London.

Lewis' story begins with his eventful ride through Salomon's training program, into which he was thrown in July of 1985. "I knew nothing about trading," Lewis writes. He had just finished up his master's degree in econ from the London School of Economics. "And next to nothing about Salomon Brothers. I knew only what I had read in the papers, and they said that Salomon Brothers was the world's most profitable investment bank."

And what was Salomon training like? Well, the classroom setting was pretty standard. You had the folks in the "front row" (brown-nosers) and you had the folks in the "back row" (jackasses). And ne'er the twain shall meet.

Over three months leading salesmen, traders, and financiers shared their experiences with the class. They trafficked in unrefined street wisdom; how money travels around the world (any way it wants), how a trader feels and behaves (any way he wants), and how to schmooze a customer. After three months in the class trainees circulated wearily around the trading floor for two months more. Then they went to work. All the while there was a hidden agenda: to Salomonize the trainee. The trainee was made to understand, first, that inside Salomon Brothers he was, as a trader once described us, lower than whale shit on the bottom of the ocean floor and, second, that lying under whale shit at Salomon Brothers was like rolling in clover compared with not being at Salomon at all.

It's all ridiculously entertaining, and yet atrocious. Tough to put down, in other words. Sure, everyone likes to slow down and check out the train wreck. But how many times do you get to look back in history and actually see the train (an unabashed and barely-regulated Wall Street) leaving the station?

Yeah, see, that's Liar's Poker.

Those of you with some knowledge of Street history will find in Liar's Poker a nice healthy smattering of famous secondary characters: Lew Ranieri (bigger-than-life mortgage bond guru), Michael Milken (the junk-bond, supposed-insider-trading guy), and John Meriwether (of later Long Term Capital Management fame), among others. Looking back, I'm almost tempted to just label the book as a really fiery first-person tale of "Who's who" interactions on 1980s Wall Street.

But doing that would leave Liar's Poker shorthanded. This is a biography of Wall Street excess, too, and as such it absolutely glows. You're pulled in via Lewis' great storytelling, yes, but it also has these nice currents (like Lewis' mental sneers at how much his Salomon peers' pay often was, and how much his own pay usually wasn't) that trail along with everything else.

Then there are the you-always-knew-it accounts of that thing that Wall Street does oh so well, and does to this very day: taking its own shitty trades and lobbing them off on an unsuspecting investing public.

Here's Lewis relating a painful phone call in which he had to tell a client ("Herman the German") that the AT&T bonds Lewis had sold him a day previous a day previous had ... well, they had depreciated. Significantly.

The kicker? By selling these bonds to his customer, Lewis had unknowingly relieved a losing position on Salomon's own trading book. "I had made the mistake of trusting a Salomon Brothers trader," Lewis writes. "He had drawn on the pooled ignorance of me and my first customer to unload one of his mistakes. He had saved himself, and our firm, sixty thousand dollars."

How could anyone be so stupid as to trust a trader? The best thing I could do was pretend to others at Salomon that I had meant to screw the customer. People would respect that. That was called jamming. I had just jammed bonds, albeit unknowningly, for the first time. I had lost my innocence.

But what did I tell Herman the German?

"I just spoke to the trader," I said to my new customer, "and he said that the AT and Ts didn't do very well overnight, but they'll definitely come around soon."

"What is dee price?" he asked again.

"Oh ... let me see ... about ... well ... about ... ninety-five," I said and felt my face wince.

"Aaaaaaahhhhhhh," he shouted, as if he had been stabbed with a knife. His primal Teutonic scream captured for all time the collective pain felt by the valued customers of Salomon Brothers.

Yeah. So let this be a lesson to you readers: When the bank (investment or otherwise) calls you a Valued Customer, make sure your backside is iron-plated.

What I didn't know but soon learned was that he never imagined in his whole life losing sixty thousand dollars. His bank had given him twenty million dollars to trade but would not let him lose sixty thousand of it. If it knew he was down that much money, it'd fire him. Actually his story was more gruesome than that. He had a baby, a pregnant wife, and a new house in London with a large mortgage. This emerged only later, however. At the moment of impact all he could do was make noises. The agony. The horror.

"Uuuuuuhhhhhh," he continued, in a slightly different key. He began to hyperventilate into the phone.

And you want to know how I felt? I should have felt guilty, of course, but guilt was not the first identifiable sensation to emerge from my exploding brain. Relief was. I had told him the news. He was shouting and moaning. And that was it. That was all he could do. Shout and moan. That was the beauty of being a middleman, which I did not appreciate until that moment. The customer suffered. I didn't. He wasn't going to kill me. He wasn't even going to sue me. I wasn't going to lose my job. On the contrary, I was a minor hero at Salomon for dumping a sixty-thousand-dollar loss into someone else's pocket.

Well. That'll make you feel good about your full-service broker, won't it?

And here's a chunk toward the end of Liar's Poker in which Lewis moves outside his bond-trading world to describe the suits handling "take-overs" for 1980s Wall Street:

There was a deep behavioral connection between bond trading and take-overs as well: Both were driven by a new pushy financial entrepreneurship that smelled fishy to many who had made their living on Wall Street in the past. There are those who would have you think that a great deal of thought and wisdom in invested in each take-over. Not so. Wall Street's take-over salesmen are not so different from Wall Street's bond salesmen. They spend far more time plotting strategy than they do wondering whether they should do the deals. They basically assume that anything that enables them to get rich must also be good for the world. The embodiment of the take-over market is a high-strung, hyperambitious twenty-six-year-old, employed by a large American investment bank, smiling and dialing for companies.

Lewis covers the decline and downfall of Salomon Brothers quite well, too. If you're interested in how venerable old Street institutions like Salomon can dissipate into the nothingness of history, you'll get a blow-by-blow helping of that as well.

In the end, I had a great time reading Liar's Poker, and can recommend it thoroughly. Be warned, though: You're going to find it very difficult to put down!


— Posted by Michael @ 8:06 AM


I loved this book! First read it 10 years ago. I had lunch w/ Mike Mortara "Fat Ankles" in NYC a year before he passed away from a heart attack I believe.

He used to fly in to 1 NYP on his helicopter.

Hope to see you at FS one day!

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