Liar's Poker
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Liar's Poker is a non-fiction, semi-autobiographical book by Michael Lewis describing the author's experiences as a bond salesman on Wall Street during the late 1980s. It was first published in 1989.
Along with the fictional The Bonfire of the Vanities by Tom Wolfe, Liar's Poker is considered one of the books that define Wall Street during the 1980s.
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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 in 1986. This part of the book gives a first-person account of how bond traders and salesmen truly work, their personalities, and their culture.
The second thread is a sort of history of Salomon Brothers and overview of Wall Street in general, especially how the firm single-handedly created a market for mortgage bonds and made the firm wealthy, only to be outdone by Michael Milken, the creator of junk bonds. This thread is less dependent on Lewis' personal experience.
Lewis jumps back and forth between these two threads in the book.
The name is taken from Liar's poker, a gambling game popular with the bond traders in the book and played for high stakes.
Biographical section
Lewis was a art history student at Princeton University who nonetheless wanted to break into Wall Street to make money. He describes his almost pathetic attempts to find a finance job, only to be roundly rejected by every firm he applied to. He then enrolled in the London School of Economics to gain a Master's degree in economics.
While in England, Lewis was invited to a banquet hosted by the Queen Mother, where he was accidentally seated next to the wives of two Salomon Brothers managers. While the managers and their wives proved to be extremely uncouth and rude, especially in the presence of royalty, Lewis managed to get a job interview through them and get his first job.
For his job, Lewis moved to New York City for Salomon's training program. Here, he was appalled at the sheer bravado of most of his fellow trainees, and "indoctrinated" into the money culture of Salomon and Wall Street in general.
After New York, Lewis was shipped to the London office of Salomon Brothers as a bond salesman. Despite his lack of knowledge, he was soon handling millions of dollars in investment accounts. In 1987, he witnessed a near-hostile takeover of Salomon Brothers but survived with his job. However, growing disillusioned with his work, he eventually quit to write this book and become a financial journalist.
Wall Street culture
The book's main contribution to literature and history is its unflattering, but accurate, 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 and insulting financial experts who talked to them, gambling on every perceivable thing (including how long it took certain trainees to fall asleep during lectures), and their incredible lust for money and contempt for any position or job that didn't make that much.
Lewis attributed their 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, intimidate other people into listening to you, and generally 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 studied economics, this knowledge was never used - in fact, any academic knowledge was frowned on by traders. Lewis concluded that economics is not really a science, but rather a means by which financial firms sifted through potential candidates to hire.
Lewis also attributed the Saving and Loans Scandal to the inability of small-time, provincial bank managers to compete with Wall Street. He noted that people on Wall Street are experts at fleecing and taking advantage of ignorant people, which the Savings and Loan banks provided in adundance.
Overall economic climate of the 1980s
Lewis portrays the 1980s as an era where government deregulation 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 Savings and Loans managers to start selling mortgages as bonds. Lewis Ranieri, a Salomon Brother's employee, had created the only viable mortgage trading section, so when the law passed, it became a windfall for the firm.
However, Lewis believed that Salomon Brothers became too complacent in their newly-found wealth and took to unwise expansion and massive displays of conspicuous consumption. When the rest of Wall Street wised up to the market, the firm lost its advantage.
Likewise, Lewis argued that Salomon Brothers improperly tried to "professionalize" itself. As he notes, Ranieri and his fellow traders lacked college degrees (one of the traders only had an eigth-grade education). Despite this lack of credentials, the group was extremely successful financially. However, the firm, in order to improve its "image," began to hire graduates of prestigious business and economics programs (a group which included Lewis himself). Because of his uncouth manners, Ranieri was eventually fired. By relying more on diplomas than on raw entrepreneurial skill, Lewis argued that Salomon crumbled.
After mortgage bonds, Lewis examined junk bonds and how Michael Milkin 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 raiders began to attack otherwise sound companies in order to create more junk bonds.
In conclusion, Lewis remarked that the 1980s marked a time where anyone could make millions, provided they were at the right place at the right time, as exemplified by Ranieri's success.