Liar's Poker (Norton Paperback)

I find it amusing that I only just discovered this book 31 years after it was originally (1989) published.Yes, Liar's Poker was the game back in the day. I remember a "going away" party for one of our guys who was transferring from our offices at 60 Broad Street to mid-town - we were at Michael's 2, near the Battery and had about 15-20 of us there all seated at a long table on the left side of the restaurant. A couple of us at my end of the table started playing Liar's Poker, and soon at least a dozen of us were in the game. Yes, we were somewhat obvious and probably somewhat loud - the game started to attract attention - guys from other companies siting at other tables started wandering over and tried to get in the game - at that point the management came over and asked that we stop the game for the sake of their liquor license. Everybody loved Liar's Poker.This book catches the atmosphere of that period and points out some of the flaws in the financial system that was in place back then. Many of those same flaws still exist today.A good read for the historical perspective, and a warning for all customers of financial services.

Liars Poker by Michael Lewis is a Story of Salomon Brothers. More specifically, it is the author's personal account of the culture within Salomon Brothers and why the company ultimately was bought out in the late 90s. Lewis details his days as a trainee in Salomon brothers and tells the story of the legendary mortgage department headed by Lewis Ranieri. Back in the 80s, mortgage backed securities were non-existent. As interest rates rose to historically high levels, savings and loans across the country were in deep trouble. The interest rate they were paying to depositors was repricing far faster than their mortgage books. They were paying 15% on deposits and making 6% on loans. In such a desperate position, there was urgency to remove these mortgages from the balance sheet, which is where Salomon Brothers enters the picture. Lewis Ranieri had been building a mortgage department for several years prior at Salomon (on a theory that it would be profitable one day), and unlike every other investment bank in the country, was ready to start buying mortgages from these distressed S&Ls. In desperation, the S&Ls would sell their mortgages for a steep discount to Salomon, who would subsequently package them into bonds and sell to their institutional investors. Michael Lewis details how this empire was built while also describing the culture on the trading floor."Lewie would say he thought the market was going up, and buy a hundred million [dollars’ worth of] bonds. The market would start to go down. So Lewie would buy two billion more bonds, and of course, the market would then go up."Accounts like these make this story--the story of the U.S. Housing market far more interesting than one may assume a finance book might be. In addition to the mortgage department, Lewis discusses the incentive compensation system at Salomon (where Traders and managers could make millions per year) and some of the events that caused Salomon to lose its competitive advantage to the likes of Michael Milken (Drexel Junk Bonds) and other investment banks.This book is a great inside look into Wall Street and for anyone in the finance industry, a must read.

The narrative is very fluid and I like the way the author swings between (i) the history of financial markets in 70/80’s, (ii) the rise and fall of Salomon Brothers and (iii) his own personal experiences inside the firm. The amplitude of the themes changes a lot, from broad to narrower topics, but the author manages to crisscross between them while holding the links and maintaining the flow. Besides, it is interesting to see how transparently the author shows that some prejudices people have about banks and financial markets professionals were intensely true. The book made me wonder how it may have been to live in such a unique work place and to regularly sleep and dine at places perhaps as impressive as some salaries mentioned: Le Périgord, Bristol, Tante Claire, Plaza Athenée, Claridge's, everything charged to the firm’s expense account. As the book mentions, some traders viewed the expense account as a soft-dollar compensation system.