Coming of Age Among the Greedheads : LIAR’S POKER Rising Through the Wreckage on Wall Street<i> by Michael M. Lewis (W.W. Norton & Co.: $15.95.; 265 pages) </i>
The year was 1985, and Salomon Bros., Wall Street’s mightiest trading house, was riding for a fall. A series of questionable management decisions opened the door to wholesale defections. The firm’s monopoly-like grip on the mortgage securities market had been broken. And the unprecedented bull market for bonds that had fueled the firm’s growth was about to evaporate.
At this pivotal moment, in steps Michael M. Lewis, wide-eyed Princeton graduate from Louisiana, ready to launch a career that took him from callow trainee to high-flying bond salesman in London at the ripe old age of 25. “Liar’s Poker” tracks the stories of Lewis’s rise and the firm’s decline; it is meant to be a sort of pilgrim’s progress through the land of avarice.
Lewis is one of the first to emerge in print from among the 1980s generation of greed-heads who swarmed out of America’s best universities into investment banking, unable to conceive of any other career. Fortunately for us, he doesn’t let his evident sense of self-importance interfere with his wit or sense of irony; the mostly first-person account roars along like a manic comic novel. One is even tempted to believe that he treats us to some Dickensian hyperbole, although several of the senior personnel at Salomon--such as the band of corpulent mortgage securities traders who routinely began their day with the 8:30 a.m. arrival of bags of onion cheeseburgers--seem sufficiently eccentric to make caricature unnecessary.
Despite its iconoclastic tone, the book is an informative insider’s description of the peculiar macho culture of investment bankers, something general readers really only got a glimpse of in Tom Wolfe’s “The Bonfire of the Vanities” (in which the bond salesman character was loosely based on a real executive at Salomon.)
Lewis at age 27 quit his successful career to become a writer, and this affords him the luxury of freely criticizing his former workplace. One of the main targets of his criticism is John Gutfreund, Salomon’s flamboyant chairman, whose decisions Lewis blames for most of the ills that befell the firm.
Something of a controversy exists over the book’s central anecdote, from which the title is drawn. During lulls at the end of the day, top bond traders sometimes played a game called liar’s poker, involving serial numbers on dollar bills. According to Lewis, Gutfreund one day approached John Meriwether, one of the firm’s top bond traders, and with the astonishing proposal to play “one hand, one million dollars, no tears.” A Salomon spokesman, Bob Baker, strongly denies that this actually happened. He charges that Lewis confused this story with a real incident that involved not Gutfreund but the late Salomon bond salesman John O’Grady. Meriwether and Gutfreund themselves, however, declined to be interviewed on the subject for this review, and several former Salomon executives who used to work in close proximity to Gutfreund claim, off the record, that it did happen as Lewis describes it.
Lewis’ education about investment banking, and the occasional hypocrisy of investment bankers, began with unsuccessful job interviews at Princeton. He learns the hard way that it’s a no-no to tell interviewers that he is interested in investment banking because--perish the thought--he wants to make money. (One is supposed to talk about the thrill of doing deals, working with smart people, “but never, ever mention money.”)
And later, as a novice salesman, he discovers that a client’s best interests aren’t always an investment bank’s main concern. Smallish clients (such as small banks and other minor institutional investors), he writes, are turned over to new salesman such as himself, so that the inexperienced investment banker may learn by doing. This occasionally involves “blowing up” (financially ruining) unwary customers as an accepted part of the learning process. He tells us that one key to success as a salesman is to “jam” bonds, moving bad investments made by the firm off its own books and into the hands of gullible customers.
Baker, the Salomon spokesman interviewed for this review, strongly denies that the firm took any steps that intentionally harmed clients. Still, apparently eager to avoid a public fight that might draw more attention to the book, he avoided criticizing it directly. “We think it’s an amusing caricature,” he said.
It is important to note that while Salomon has been in something of a decline since the mid-1980s, with heavy departures of senior personnel and loss of its pre-eminent position as an underwriter of corporate bonds, the firm is still a prosperous concern. Lewis clearly exaggerates when he states that “In retrospect it is clear to me that my arrival at Salomon marked the beginning of the end of that hallowed institution.”
Lewis is at his best when he describes the sophomoric behavior that, as he tells it, permeated all levels of the firm, and not least his own training class. Consider his account of the day when his fellow trainees’ enthusiasm was ignited by a speaker who recommended raw jungle tactics for survival on Salomon’s trading floor:
“The speaker had found the secret to managing the Salomon Brothers Class of 1985: Win the hearts and minds of the back row. The back row, from about the third day of classes on, teetered on the brink of chaos. Even when they felt merely ambivalent about a speaker, back-row people slept or chucked paper wads at the wimps in the front row. But if the back-row people for some reason didn’t care for a speaker, all hell broke loose. Not now. Primitive revelation swept through the back of the classroom at the sound of the jungle drums; it was as if a hunting party of Cro-Magnon men had stumbled upon a new tool. The guys in the back row were leaning forward in their seats for the first time all day. Ooooooo. Aaaahhhhh.”
Lewis makes a serious attempt to analyze what went wrong at Salomon Brothers, and to give a history of its rise and decline in the 1980s. What went wrong, he says, was the transformation of the firm from a partnership of senior employees to a corporation in which changes in the compensation system drastically diminished loyalty. There was a failure to keep tabs on costs, and the firm, which previously had emphasized trading, missed out on the explosive growth of mergers and acquisitions as well as other elements of investment banking that accounted for the growth of Salomon’s competitors in the mid-1980s. Damaging above all, Lewis writes, was the firm’s runaway hiring of hordes of youngsters such as himself, all anxious to make instant fortunes, without the loyalty or experience of an earlier generation of traders who had painstakingly worked themselves up from the mail room, or its equivalent. Although Lewis himself was a prime beneficiary of this overexpansion, he rues the day when traders “had more hair on their chests than on their heads.”
The book suffers to some extent from its divided nature, part first-person account of Lewis’ experiences, part third-person history of what went on in the higher echelons of the firm. There is a long chapter on Salomon’s invention of mortgage-backed securities, an area that the firm created and dominated, and which contributed a huge portion of its revenues.
But if anyone can make mortgage-backed securities entertaining, Lewis can. Interspersed in the saga of packaging home mortgages into securities that could be traded like corporate bonds, Lewis describes the Pickwickian characters at Salomon who built the market. Chief among them was Lewis Ranieri, the pizza-scarfing, rumpled-looking genius who turned the department into a thriving concern while occasionally, according to the author, prankishly holding a lit cigarette lighter beneath the crotch of a distracted underling.
There is plenty of implicit criticism of the investment banking culture, but little real soul-searching in this book. Lewis himself admits to having been deeply disappointed when, at the end of his first year of selling bonds, he is paid a measly $90,000. Still, the book stands on its own merits as an insightful and extremely readable sort of non-fiction satire.
