Liar's Poker
Encyclopedia
Liar's Poker is a non-fiction, semi-autobiographical book by Michael Lewis
Michael Lewis (author)
Michael Lewis is an American non-fiction author and financial journalist. His bestselling books include The Big Short: Inside the Doomsday Machine, Liar's Poker, The New New Thing, Moneyball: The Art of Winning an Unfair Game, The Blind Side: Evolution of a Game, Panic and Home Game: An...

 describing the author's experiences as a bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 salesman on Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...

 during the late 1980s. First published in 1989, it is considered one of the books that define Wall Street during the 1980s
1980s
File:1980s decade montage.png|thumb|400px|From left, clockwise: The first Space Shuttle, Columbia, lifted off in 1981; American President Ronald Reagan and Soviet leader Mikhail Gorbachev eased tensions between the two superpowers, leading to the end of the Cold War; The Fall of the Berlin Wall in...

, along with Bryan Burrough
Bryan Burrough
Bryan Burrough is an American author and correspondent for Vanity Fair. He has written five books: Barbarians at the Gate , Vendetta: American Express and the Smearing of Edmond Safra , Dragonfly , Public Enemies and The Big Rich...

 and John Helyar's Barbarians at the Gate: The Fall of RJR Nabisco
Barbarians at the Gate: The Fall of RJR Nabisco
Barbarians at the Gate: The Fall of RJR Nabisco is a 1990 book about the leveraged buyout of RJR Nabisco, written by investigative journalists Bryan Burrough and John Helyar. The book is based upon a series of articles written by the authors for The Wall Street Journal...

, and the fictional The Bonfire of the Vanities
The Bonfire of the Vanities
The Bonfire of the Vanities is a 1987 novel by Tom Wolfe. The story is a drama about ambition, racism, social class, politics, and greed in 1980s New York City and centers on four main characters: WASP bond trader Sherman McCoy, Jewish assistant district attorney Larry Kramer, British expatriate...

by Tom Wolfe
Tom Wolfe
Thomas Kennerly "Tom" Wolfe, Jr. is a best-selling American author and journalist. He is one of the founders of the New Journalism movement of the 1960s and 1970s.-Early life and education:...

. The book captures an important period in the history of Wall Street. Two important figures in that history feature prominently in the text, the head of Salomon Brothers
Salomon Brothers
Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

' mortgage department Lewis Ranieri
Lewis Ranieri
Lewis S. Ranieri is a former bond trader and former vice chairman of Salomon Brothers. He is considered the "godfather" of mortgage finance for his role in pioneering securitization and mortgage-backed securities...

 and the firm's CEO John Gutfreund
John Gutfreund
John H. Gutfreund is the former CEO of Salomon Brothers Inc, an investment bank that gained notoriety in the 1980s. Gutfreund turned Salomon Brothers from a private partnership into a publicly traded corporation which started a trend in Wall Street for investment companies to go public. He became...

.

The book's name is taken from liar's poker
Liar's poker
Liar's poker is a bar game that combines statistical reasoning with bluffing, and is played with the eight-digit serial number on a U.S. dollar bill. Normally the game is played with a stack of random bills obtained from the cash register. The objective is to make the highest bid of a number that...

, a high-stakes gambling game popular with the bond traders in the book.

Overview

Liar's Poker follows two different story threads, though not necessarily in chronological order.

The first thread is autobiographical, and follows Lewis through his college education and his hiring by Salomon Brothers
Salomon Brothers
Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

 (now a subsidiary of Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...

) in 1984. This part of the book gives a first-person account of how bond traders
Trader (finance)
A trader is someone in finance who buys and sells financial instruments such as stocks, bonds, commodities and derivatives. A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them. According to the Wall Street Journal in 2004, a managing...

 and salesmen truly work, their personalities, and their culture
Culture
Culture is a term that has many different inter-related meanings. For example, in 1952, Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of "culture" in Culture: A Critical Review of Concepts and Definitions...

. The book captures well an important period in the history of Wall Street. Important figures in that history feature prominently in the text: John Meriwether
John Meriwether
John William Meriwether is an American hedge fund executive, seen as a pioneer of fixed income arbitrage.-Education:...

, mortgage department head Lewis Ranieri
Lewis Ranieri
Lewis S. Ranieri is a former bond trader and former vice chairman of Salomon Brothers. He is considered the "godfather" of mortgage finance for his role in pioneering securitization and mortgage-backed securities...

, and firm CEO John Gutfreund
John Gutfreund
John H. Gutfreund is the former CEO of Salomon Brothers Inc, an investment bank that gained notoriety in the 1980s. Gutfreund turned Salomon Brothers from a private partnership into a publicly traded corporation which started a trend in Wall Street for investment companies to go public. He became...

.

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 bond
Mortgage bond
A mortgage bond is a bond backed by a pool of mortgages on a real estate asset such as a house. More generally, bonds which are secured by the pledge of specific assets are called mortgage bonds. Mortgage bonds can pay interest in either monthly, quarterly or semiannual periods....

s that made the firm wealthy, only to be outdone by Michael Milken
Michael Milken
Michael Robert Milken is an American business magnate, financier, and philanthropist noted for his role in the development of the market for high-yield bonds during the 1970s and 1980s, for his 1990 guilty plea to felony charges for violating US securities laws, and for his funding of medical...

 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 jumps back and forth between these two threads in the book.

Biographical section

Lewis was an art history
Art history
Art history has historically been understood as the academic study of objects of art in their historical development and stylistic contexts, i.e. genre, design, format, and style...

 student at Princeton University
Princeton University
Princeton University is a private research university located in Princeton, New Jersey, United States. The school is one of the eight universities of the Ivy League, and is one of the nine Colonial Colleges founded before the American Revolution....

, who nonetheless wanted to break into Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...

 to make money. He describes his almost pathetic attempts to find a finance
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...

 job, only to be roundly rejected by every firm to which he applied. He then enrolled in the London School of Economics
London School of Economics
The London School of Economics and Political Science is a public research university specialised in the social sciences located in London, United Kingdom, and a constituent college of the federal University of London...

 to gain a Master's degree in economics.

While in England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

, Lewis was invited to a banquet hosted by the Queen Mother
Queen mother
Queen Mother is a title or position reserved for a widowed queen consort whose son or daughter from that marriage is the reigning monarch. The term has been used in English since at least 1577...

, where he was purposely seated by his cousin, Baroness Linda Monroe von Stauffenberg, one of the organizers of the banquet, next to the wife of the London managing partner of Salomon Brothers
Salomon Brothers
Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

, in the hope that his intelligence might impress her enough for her to suggest to her husband that Lewis be given a job with Salomon Brothers, which had previously turned him down. As it turned out, the strategy worked, and Lewis was granted an interview and landed the job.

Lewis then moved to New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...

 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 Wall Street in general.

From New York, Lewis was shipped to the London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...

 office of Salomon Brothers as a bond salesman. Despite his lack of knowledge, he was soon handling millions of dollars in investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

 accounts. In 1987, he witnessed a near-hostile takeover
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...

 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
Journalist
A journalist collects and distributes news and other information. A journalist's work is referred to as journalism.A reporter is a type of journalist who researchs, writes, and reports on information to be presented in mass media, including print media , electronic media , and digital media A...

. The first edition was published October 17, 1989.

Wall Street culture

The book's 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 include, but were not limited to: yelling at and insulting financial experts who talked to them, throwing spit balls at one another and at lecturers, calling phone sex
Phone sex
Phone sex is a type of virtual sex that refers to sexually explicit conversation between or other persons via telephone, especially when at least one of the participants masturbates or engages in sexual fantasy...

 lines and then broadcasting them over the company's intercom
Intercom
An intercom , talkback or doorphone is a stand-alone voice communications system for use within a building or small collection of buildings, functioning independently of the public telephone network. Intercoms are generally mounted permanently in buildings and vehicles...

, gambling
Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...

 on behavioral traits (such as how long it took certain trainees to fall asleep during lectures), and the trainees' incredible lust for money and their contempt for any position that didn't 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
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, 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 past masters at fleecing and taking advantage of an undiscerning public, which the savings and loan industry provided in abundance.

Overall economic climate of the 1980s

Lewis portrays the 1980s as an era where government deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...

 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 loans to start selling mortgages as bonds. Lewis Ranieri
Lewis Ranieri
Lewis S. Ranieri is a former bond trader and former vice chairman of Salomon Brothers. He is considered the "godfather" of mortgage finance for his role in pioneering securitization and mortgage-backed securities...

, 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
Conspicuous consumption
Conspicuous consumption is spending on goods and services acquired mainly for the purpose of displaying income or wealth. In the mind of a conspicuous consumer, such display serves as a means of attaining or maintaining social status....

. 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 hadn't 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 (a group that included Lewis himself). Because of his uncouth manners, Ranieri (along with many of his Italian American
Italian American
An Italian American , is an American of Italian ancestry. The designation may also refer to someone possessing Italian and American dual citizenship...

 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
Michael Milken
Michael Robert Milken is an American business magnate, financier, and philanthropist noted for his role in the development of the market for high-yield bonds during the 1970s and 1980s, for his 1990 guilty plea to felony charges for violating US securities laws, and for his funding of medical...

 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 raid
Corporate raid
A corporate raid is an American English business term for buying a large interest in a corporation and then using voting rights to enact measures directed at increasing the share value...

ers 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.

Catch phrases

  • Big Swinging Dick — A big-time trader or salesman. ("If he could make millions of dollars come out of those phones, he became that most revered of all species: a Big Swinging Dick." p. 52.) The opposite of this term is Geek, used to describe a just-hired trainee.
  • Equities in Dallas — A particularly undesirable job within a finance firm. ("He belonged to the dreaded equity department, the sleepy backwater in which lurked such career stoppers as Equities in Dallas." p. 49.)
  • Blowing up a customer — Successfully 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 — Term used to describe the Friday-morning meal shared by a certain clique of bond traders. At this meal, traders would order astounding quantities of take-out food. The traders would then compete with each other to see who could display the most gluttony
    Gluttony
    Gluttony, derived from the Latin gluttire meaning to gulp down or swallow, means over-indulgence and over-consumption of food, drink, intoxicants or wealth items to the point of extravagance or waste...

    , and always bought far more food than they could eat (e.g., insisting on five-gallon tubs of guacamole
    Guacamole
    Guacamole , is an avocado-based dip that originated in Mexico. It is traditionally made by mashing ripe avocados with a molcajete with sea salt. Some recipes call for limited tomato, spicy Asian spices such as white onion, lime juice, and/or additional seasonings.-History:Guacamole was made by...

     with an order of $400 dollar's worth of Mexican food).
  • The Human Piranha
    Piranha
    A piranha or piraña is a member of family Characidae in order Characiformes, an omnivorous freshwater fish that inhabits South American rivers. In Venezuela, they are called caribes...

    — Nickname for an employee at Salomon Brothers who constantly used the word "fuck
    Fuck
    "Fuck" is an English word that is generally considered obscene which, in its most literal meaning, refers to the act of sexual intercourse. By extension it may be used to negatively characterize anything that can be dismissed, disdained, defiled, or destroyed."Fuck" can be used as a verb, adverb,...

    " and its variants in his speech. A reference to Tom Wolfe's character in Bonfire of the Vanities.
  • Shorting Salomon — Steps taken by a Salomon Brothers' employee to ensure a future job if something bad happened at the home firm. Term taken from the process of short selling
    Short selling
    In finance, short selling is the practice of selling assets, usually securities, that have been borrowed from a third party with the intention of buying identical assets back at a later date to return to that third party...

    , or investing on the premise that the equity in question will soon decline in value.
  • The Arabs — A catch-all explanation for unexpected swings in capital markets. Traders blamed "the Arabs" for any trend they could not explain. As there was no reliable way to determine what Arab investors were doing at any particular time, any explanation for market behavior that mentioned them was as likely to be true as any other.

See also

  • Lewis, Michael, The End, Condé Nast Portfolio
    Condé Nast Portfolio
    Portfolio.com is a website published by American City Business Journals that provides news and information for small to mid-sized businesses. It was formerly the website for the monthly business magazine Condé Nast Portfolio, published by Condé Nast from 2007 to 2009.Portfolio.com is continually...

    , December 2008. Written by Lewis, this cover story can be read as the prologue or wrap-up of Liar's Poker.
  • David, Greg, "The Securities Industry and New York City", Financial History, Museum of American Finance
    Museum of American Finance
    The Museum of American Finance, is an American financial-history museum, located in the Financial District of the Manhattan borough of New York City, New York....

    , Spring/Summer 2009.
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