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Liar's Poker: Rising Through the Wreckage on Wall Street (Paperback)
by Michael Lewis
| Category:
Bond trading, Investment banking, Wall Street, Financial markets |
| Market price: ¥ 168.00
MSL price:
¥ 138.00
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| MSL Pointer Review:
Poisonously insightful, hysterically funny, Liar's Poker should be required reading for all moving to the Wall Street and all investors. |
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Author: Michael Lewis
Publisher: Penguin
Pub. in: October, 1990
ISBN: 0140143459
Pages: 256
Measurements: 7.7 x 5 x 0.7 inches
Origin of product: USA
Order code: BA00089
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- Awards & Credential -
The #1 National Bestseller in North America ranking #889 in books on Amazon.com as of December 24, 2006. |
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- MSL Picks -
As described by Lewis, liar's poker is 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, Lewis 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. Lewis illustrates how economic decisions made at the national level changed securities markets and made bonds the most lucrative game on the Street. His description of the firm's personalities and of the events from 1984 through the crash of October 1987 is vivid and memorable. This book is a New York Times bestseller and one of the best written books on bond trading on Wall Street.
Liar's Poker describes life on Wall Street during the 1980's and the four years the author worked for Salomon Brothers. Lewis discusses the evolution of the bond market, how mortgaged-backed securities came to exist, and the misfortunes of missing the junk bond market. The fantastic character portrayals are absolutely hilarious and they make the book come to life. Liar's Poker depicts many business ethics issues such as gender and race discrimination, consumer and investor protection, and hostile work environments.
Lewis begins by describing John Gutfreund, Chairman of Salomon, and the Liar's Poker game. Gutfreund is portrayed as a manager that was both feared and respected. He was once a trader and managed Salomon with a trader mentality. Traders by nature are gamblers, so they are willing to take bets, or better yet, they are risk takers. Gutfreund apparently loved playing the game, Liar's Poker, because if a person was good at it, he was probably a good trader as well. The game is played predominantly by Salomon traders whereby a group gathers in a circle holding a dollar bill close to the body to hide the serial numbers. One player begins by making a bid such as "three fives," which means that all the players in the circle have at least three fives in their serial number. The player to the left can either challenge the bid or up the bid by saying three sixes or four fives. Only in a challenge do the players reveal the serial numbers on the bill. Essentially, it is game that rewards players for their ability to bluff or deceive the other players. Lewis uses the game to illustrate Salomon's corporate culture and its leadership.
Liar's Poker does a fantastic job explaining how the mortgage trading business originated and how Salomon/Ranieri created mortgaged-backed securities. Lewis also details more stories about his escapades after the training program. The book is easy and fun to read because it is presents an accurate picture of Wall Street firms. Business ethics issues are presented through the text. The issues that are identified in this report are sexual and ethnic discrimination, hostile work environments, and unethical business practices. Many more ethical issues are present in the Liar's Poker. This book should be read by anyone hoping to join a Wall Street firm or simply a trading environment.
(From partly quoting Jason Griest, USA)
Target readers:
MBAs, finance majors, and anyone else interested in bond trading, stock trading, investment banking, the Wall Street, and financial markets.
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Michael Lewis is the author of the bestsellers Liar's Poker and The New New Thing. He lives in Berkeley, California, with his wife, Tabitha Soren, and their two daughters.
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From Publisher
The time was the 1990s. The place was Wall Street. The game was called Liar’s Poker.
In this shrewd and wickedly funny book, Michael Lewis describes an astonishing era and his own rake's progress through a powerful investment bank. From an unlikely beginning (art history at Princeton) he rose in two short years from Salomon Brothers trainee to Geek (the lowest form of life on the trading floor) to Big Swinging Dick, the most dangerous beast in the jungle, a bond salesman who could turn over millions of dollars' worth of doubtful bonds with just one call.
With the eye and ear of a born storyteller, Michael Lewis shows us how things really worked on Wall Street. In the Salomon training program a roomful of aspirants is stunned speechless by the vitriolic profanity of the Human Piranha; out on the trading floor, bond traders throw telephones at the heads of underlings and Salomon chairman Gutfreund challenges his chief trader to a hand of liar's poker for one million dollars; around the world in London, Tokyo, and New York, bright young men like Michael Lewis, connected by telephones and computer terminals, swap gross jokes and find retail buyers for the staggering debt of individual companies or whole countries.
The bond traders, wearing greed and ambition and badges of honor, might well have swaggered straight from the pages of Bonfire of the Vanities. But for all their outrageous behavior, they were in fact presiding over enormous changes in the world economy. Lewis's job, simply described, was to transfer money, in the form of bonds, from those outside America who saved to those inside America who consumed. In doing so, he generated tens of millions of dollars for Salomon Brothers, and earned for himself a ringside seat on the greatest financial spectacle of the decade: the leveraging of America.
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It was sometime early in 1986. The first year of the decline of my firm. Salomon Brothers. Our Chairman, John Gutfreund, left his desk at the head of the trading floor and went for a walk. At any given moment on the trading floor billions of dollars were being risked by bond traders. Gutfreund took the pulse of the place by simply wandering around it and asking questions of the traders. An eerie sixth sense guided him to wherever a crisis was unfolding. Gutfreund seemed able to smell money being lost.
He was the last person a nerve-racked trader wanted to see. Gutfreund (pronounced good friend) liked to sneak up from behind and surprise you. This was fun for him but not for you. Busy on two phones at once trying to stem disaster. You had no time to turn and look. You didn’t need to. You felt him. The area around began to convulse like an epileptic ward. People were pretending to be frantically busy and at the same time staring intently at a spot directly above your head. You felt a chill in your bones and I image belongs to the same class of intelligence as the nervous twitch of a small furry animal at a silent approach of a grizzly bear. An alarm shrieked in your head: Gutfreund! Gutfreund! Gutfreund!
Often as not, our chairman just hovered quietly for a bit, then left. You might never have seen him. The only trace I found him on two of these occasions was a turdlike ash on the floor beside my chair, left. I suppose, as a calling card, Gutfreund’s cigarette droppings were longer and better formed than those of the average Salomon boss. I always assumed that he smoked a more expensive blend than the rest, purchased with a few of the $40 million he had cleared on the sale of Salomon Brothers in 1981 (or a few of the $3.1 million he paid himself in 1986, more than any other Wall Street CEO)
This day in 1986, however, Gutfreund did something strange. Instead of terrifying us all, he walked a straight line to the trading desk of John Meriwether, a member of the board of the Salomon Inc. and also one of Salomon’s finest bond traders. He whispered a few words. The traders in the vicinity eavesdropped. What Gutfreund said has become a legend at Salomon Brothers and a visceral part of its corporate identity. He said:” One hand, one million dollars, no tears.”
One hand, one million dollars, no tears. Meriwether grabbed the meaning instantly. The King of Wall Street, as Business Week had dubbed Gutfreund, wanted to play a single hand of a game called Liar’s Poker for one million dollars. He played the game most afternoons with Meriwether and the six young bond arbitrage traders who worked for Meriwether and was usually skinned alive. Some traders said Gutfreund was heavily outmatched. Others who couldn’t image John Gutfreund as anything but omnipotent - and there were many - said that losing suited his purpose, though exactly what that might be was a mystery.
The peculiar feature of Gutfreund’s challenge this time was the size of the stake. Normally his bets didn’t exceed a few hundred dollars. A million was unheard of. The final two words of his challenge. ”No tears” meant that the loser was expected to suffer a great deal of pain but wasn’t entitled to whine, bitch, or moan about it. He’d just have to hunker down and keep his poverty to himself. But why? You might ask if you were anyone other than the King of Wall Street. Why do it in the first place? Why, in particular, challenge Meriwether instead of some lesser managing director? It seemed an act of sheer lunacy. Meriwether was the king of the Game, the liar’s poker champion of the Salomon Brothers trading floor.
On the other hand, one thing you learn on trading floor is that winners like Gutfreund always have some reason for what they do: it might not be the best of reasons, but at least they have a concept in mind. I was not privy to Gutfreund’s innermost thoughts. But I do know that all the boys on the trading floor gambled and that he wanted badly to be one of the boys. What I think Gutfreund had in mind in this instance was a desire to show his courage, like the boy who leaps from the high dive. Who better than Meriwehter for the purpose? Besides, Meriwether was probably the only trader with both the cash and the nerve to play.
The whole absurd situation needs putting into context. John Meriwether had, in the course of his career, made hundreds of millions of dollars for Salomon Brothers. He had an ability, rare among people and treasured by traders, to hide his state of mind. Most traders divulge whether they are making or losing money by the way they speak or move. They are either overly easy or overly tense. With Meriwether you could never, ever tell. He wore the same blank half-tense expression when he won as he did when he lost. He had, I think, a profound ability to control the two emotions that commonly destroy traders - fear and greed - and it made him as noble as a man who pursues his self-interest so fiercely can be. He was thought by many within Salomon to be the best trade bond in Wall Street. Around Salomon no tone but awe was used when he was discussed. People would say,” He’s the best businessman in the place,” or ‘ the best risk taker I have ever seen.” Or “a very dangerous Liar’s Poker player.”
Meriwether cast a spell over the young traders who worked for him. His boys ranged in age from twenty-five to thirty-two (he was about forty). Most of them have Ph.D.’s in math, economics, and/or physics. Once they got onto Meriwether’s trading desk, however, they forgot they were supposed to be detached intellectuals. They became disciples. They became obsessed by the game of Liar’s Poker. They regarded it as their game. And they took it to a new level of seriousness.
John Gutfreund was always the outsider in their game. That Business Week put his picture on the cover and called him the King of Wall Street held little significance for them. I mean, that was, in a way, the whole point. Gutfreund was the King of Wall Street, but Meriwether was King of the Game. When Gutfreund had been crowned by the gentlemen of the press, you could almost hear traders thinking: Foolish names and foolish faces often appear in public places. Fair enough. Gutfreund had once been a trader, but that was as relevant as an old woman’s claim that she was once quite a dish.
At times Gutfreund himself seemed to agree. He loved to trade. Compared with managing, trading was admirably direct. You made your bets and either you won or lost. When you won, people-all the way up to the top of the firm-admired you, envied you, and feared you, and with reason: you control the root. When you managed a firm, well, sure you received your quota of envy, fear and admiration. But for all the wrong reasons. You did not make the money for Salomon. You did not take risk. You were hostage to your producers. They took risk. They proved their superiority everyday by handling risk better than the rest of the risk-taking world. The money came from risk takers such as Meriwether, and whether it came or not was really beyond Gutfreund’s control. That’s why many people thought that the single rash act of challenging the arbitrage boss to one hand for a million dollars was Gutfreund’s way of showing he was a player too. And if you wanted to show off, Liar’s Poker was the only way to go. The game had a powerful meaning for traders. People like John Meriwether believed that Liar’s Poker had a lot in common with bond trading. It tested a trader’s character. It honed a trader’s instincts. A good player made a good trader, and vise versa. We all understood it.
The Game: In Liar’s Poker a group of people - as few as two, as many as ten - form a circle. Each player holds a dollar bill close to his chest. The game is similar in spirit to the card game known as I Doubt It. Each player attempts to fool the others about the serial numbers printed on the face of his dollar bill. One trader begins by making “a bid.” He said, for example, “Three sixes.” He means that all told the serial numbers of the dollar bills held by every player, including himself, contain at least three sixes.
Once the first bid has been made, the game moves clockwise in the circle. Let’s say the bid is three sixes. The player to the left of the bidder can do one of two things: He can bid higher (there are two sorts of higher bids: the same quantity of a higher number [four fives, for instance]). Or he can “challenge" - that is like saying “I doubt it.”
The bidding escalates until all the other players agree to challenge a single player’s bid. Then, and only then, do the players reveal their serial numbers and determine who is bluffing whom. In the midst of all this, the mind of a good player spins with probabilities. What is statistical likelihood of there being three sixes within a batch of, say, forty randomly generated serial numbers? For a great player, however, the math is the easy part of the game. The hard part is reading the faces of the other players. The complexity arises when all players know how to bluff and double-bluff.
The game has some of the feel of the trading, just as jousting has some of the feel of war. The questions the Liar’s Poker asks himself are, up to a point, the same questions a bond trader asks himself. Is this a smart risk? Do I feel lucky? How cunning is my opponent? Does he have any idea what he’s doing, and if not, how do I exploit his ignorance? If he bids high, is he bluffing, or does he actually hold a strong hand? Is he trying to introduce me to make a foolish bid, or does he actually have four of a kind himself? Each player seeks weakness, predictability, and pattern in the others and seeks to avoid it in himself. The bond traders in Goldman, Sachs, First Boston, Morgan Stanley, Merrill Lynch, and other Wall Street firms all player some version of Liar’s Poker. But the place where the stakes run highest, thanks to John Meriwether, is New York bond trading floor of Salomon Brothers. (From Chapter One)
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Heather Fougnier, USA
<2006-12-24 00:00>
Michael Lewis writes a very interesting, funny account of bond trading in the eighties. While I often like to escape in fictional novels when I read, this memoir of Lewis' experiences on Wall Street are entertaining enough to keep me coming back for more.
While some reviewers found his technical descriptions of mortgage backed securities, junk bonds, etc. a bit boring, I enjoyed learning more about the various investment options and how they got started. Lewis definitely gives you an inside look at the tricks and deception that could be used by the financial services industry - hoping that we "suckers" will be prompted to buy enough to make them the big bucks.
And that's the point of the book - this game is all about making money for the trader and their employer, screw everyone else. Lewis includes hints about how the money and reputation as a "Big Swinging Dick" is enough to overcome any feelings of guilt about "blowing up" companies or clients (the nickname alone tells you about the lack of women in the industry).
I also enjoyed learning about how traders see the world - and how fear is what really controls the market. If you understand fear, you become a great seller of bonds or equities. In fact, Lewis makes it clear that no one can really predict how the market will go. The most successful people in the industry are portrayed as being either great salesmen or having a true (though rare) understanding of the big picture effects of a causative event (in other words, how people react based on fear after an event).
There is a deeper message here too, if you are reading closely. Michael Lewis decided that trading his conscience for making money was not for him. He felt that he and others in his profession were reaping benefits "out of all proportion" to their value in society. He makes no attempt to change the reader's views on the right or wrong of the system - he lets us judge for ourselves.
Anyone working for a financial services company - especially if you are in an unrelated part of the business - should read this book. It offers great insight on what can seem like perplexing aspects of the company culture. And if you don't work for a financial services company, you would still be better off reading this book, if only to learn how not to be a "sucker" for the financial gain of a "Big Swinging Dick." |
K. Fenrich, USA
<2006-12-24 00:00>
Liar's Poker is a personal account of life at Wall Street's most successful firm in the 1980s: Salomon Brothers. The novel follows the wild roller coaster ride that was Salomon Brothers; from their ascension to the top of the mortgage-backed securities market led by the charismatic Lewis Ranieri to their eventual descent into Wall Street mediocrity. The author, Michael Lewis, chronicles his personal experiences starting with Salomon's frat-like trainee program and following his career across the Atlantic to the London offices of Salomon Bros. Along the way he describes the competitive, cut-throat atmosphere of bond trading at Salomon and fills in spaces with a variety of colorful, charismatic characters.
One character that stood out to me was the "father of securitization" Lewis Ranieri. Ranieri, a college dropout, got his start in Salomon Bros mailroom in 1968 and managed, in 10 years, to become the head of their Mortgage department. At the time the rest of Salomon Bros looked down their noses at Ranieri and his blue collared group of mortgage traders. Their department made less money and was comprised of fat, obnoxious, loud traders. Lewis Ranieri personally traversed the country selling the idea of MBS to investors and politicians and ultimately lobbying in Washington D.C. His hardwork paid off as he created a market and made Salomon Brothers hundreds of millions of dollars. His hardwork and success was paid back by Salomon when they fired him in 1987. Such a shame.
Back to the story though... Lewis's retelling of the raucous, juvenile attitudes that purveyed at Salomon is hilarious. Certain portions of the book get a bit too technical when Lewis over-explains stock market intricacies. Unfortunately some parts read like a textbook. I almost put the book down about halfway through due to the boredom I found reading the ins and outs of junk bonds, MBS and other trader jargon.
Thankfully I didn't put the book down. I perservered and was rewarded with an engaging, enjoyable second half of Liar's Poker which focuses on Lewis's evolution from trading floor "geek" to his final status as the ultimate trader, a "Big Swinging Dick." Excellent book whether you're into the stock market or not. Lewis isn't the world's greatest writer, but he certainly gets the job done. |
Therosen, USA
<2006-12-24 00:00>
Liar's Poker takes the reader through the Go-Go era of Wall Street in the 80s, where banks expanded rapidly and ethics seemed to take second priority to making piles of money. (The more things change, the more they stay the same)
Three big stories are at play here. First is the creation of the Mortgage Backed Securities business at Solomon. Creating this market generated a ton of money on the street, and also highlighted both the challenges and gains from creating a new business from scratch. It also demonstrated the knives pulled out in both stopping a new business from starting, and then fighting for scraps of credit.
The second story is of junk bonds - a vehicle initially created to fund less creditworthy companies, but eventually used to finance corporate takeovers. This is the Michael Milken Drexel Burnham story. This was the other major move of finance in the 1980s, though in reality junk bonds are not as awful as the hype surrounding them. (Providing financing to less creditworthy companies is still a very valuable activity, and many funds did very well on this.)
The third story, and perhaps the most important, covers the conflict of interest between banks and their customers. Many banks, traders and salesmen take their customers long term best interest to heart. This is not neccessarily a given, and Lewis highlights his own experience in trying to walk the line.
Liar's Poker has earned it's place as required reading for all moving to Wall Street. It should also be required reading for investors. |
C. Magee, USA
<2006-12-24 00:00>
Michael Lewis launched his successful career as an author with his book Liar's Poker: Rising Through the Wreckage on Wall Street, which is both a youthful memoir and a journalistic look at the inner workings of Salomon Brothers, a Wall Street firm that grew fat trading bonds and then crashed and burned. The book takes place, roughly, between the years 1984 and 1987, and so I wasn't surprised that the book reminded me of the movie Wall Street - just replace Gordon Gecko with Salomon's head John Gutfreund. At the beginning of the book, Lewis has just been hired, quite unexpectedly, by Salomon, and he takes us through his trajectory at the company, from the cut-throat training process to his days as a bond trader in London. From this vantage point, Lewis was able to watch the company, emboldened by spectacular success in the 1980s, become a symbol of corporate gluttony. Along the way, Lewis profiles many of the company's outsized personalities. He also delves into the intricacies of the bond market in such a way that the arcane becomes pretty readable. The book is also filled with anecdotes about the conspicuous consumption of those times and the raucous, inelegant trading floor, filled with foul-mouthed traders who threw phones and insults and reveled in their gluttony. Lewis' revelation was that the company (and its competitors) made profits at the expense of its customers, and, while the period that Lewis chronicles is interesting in its own right, its impact is somewhat diminished by the many corporate scandals and Wall Street improprieties that have occurred since the book was first published. Against this backdrop, Liar's Poker is no longer an exceptional story that defined an era, it is merely another moment in the cycle of Wall Street corruption and ensuing retribution that continues today.
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