‘Liar’s Poker’ Proving to Be One Hot Commodity on Wall Street : Securities: A new book ridicules trading practices at Salomon Bros. A spokesman for the firm calls it ‘an amusing caricature.’

Before closing the 1980s annals of excess, add a book by a somewhat directionless 1982 art history graduate from Princeton who ended up working for Salomon Bros. and who makes the bond-trading business look like a cross between “Animal House” and Greed Inc.

He describes his own voyage from lowly “geek” to venerated king of the trading jungle, a perilous journey during which he avoided death in the form of flying telephones on the trading floor and a fate worse than death: selling equities in Dallas.

The author is Michael Lewis, age 28 and now retired from the world of finance, and the book is “Liar’s Poker,” which has become harder to get hold of on Wall Street than a hot stock. Lewis, who has the well-scrubbed appearance of a choirboy and the Louisiana drawl of a good ol’ boy, seems an unlikely candidate to blow the whistle on Wall Street practices.

Wall Street is taking it in stride. A Goldman, Sachs & Co. trader says he bought and read the book the first day it was in the stores, before going to the office. He soon found himself on a business trip seated between two Morgan Stanley Inc. partners who were reading the book and laughing out loud. A former Salomon Bros. employee is annotating his copy, supplying real names for the handful of pseudonyms used and adding details to stories.

The book’s title comes from a game played by as few as two people and as many as 10. Each player holds a dollar bill and uses the serial number as his “hand.” Each then bids and attempts to fool the others about his serial number. The spirit of the game is similar to the card game “I Doubt It,” a test of luck, bluff and the ability to size up your opponent.

Traders view the game as a test of their cunning and risk-taking acumen. For that reason, Salomon Chairman John Gutfreund was constantly matching himself against the firm’s master of the game, John W. Meriwether.

So this is the story that sets the tone for the book. He writes: “The code of the Liar’s Poker player was something like the code of the gunslinger. It required a trader to accept all challengers.” One day Gutfreund walked over to Meriwether’s desk and said: “One hand, 1 million dollars, no tears.”

Meriwether replied: “No, John, if we’re going to play for those kind of numbers, I’d rather play for real money. Ten million dollars. No tears.” Was Meriwether bluffing, or was Gutfreund? Gutfreund could afford such a wager, having made about $40 million when Salomon Bros. was sold to Phibro Energy Inc.

Gutfreund reportedly thought it over, then declined, saying: “You’re crazy.” The chairman slunk away in ignominious defeat.

The mere possibility of such a wager, according to Lewis, was a symptom of the madness of a Wall Street trading room where multimillion-dollar gambles were taken all the time--though usually with other people’s money.

“Large institutions can create cultures where people do things they would never do otherwise,” Lewis said in an interview. “There is a subculture on Wall Street where behavior bears no relation to conventional social behavior.”

This, said Lewis, became clear to him from the moment he entered the Salomon Bros. training program: “It resembled nothing as much as my sixth-grade class on a day we had a substitute teacher.”

Bob Baker, a public relations spokesman for Salomon Bros., begins his response to the book in diplomatic fashion. “I think it’s an amusing caricature,” he says. “I think the first half of the book is very, very funny. We all read it.”

With a little gentle encouragement, Baker elaborates. “A caricature takes certain features and exaggerates them. It’s ‘Animal House.’ Was ‘Animal House’ accurate? Is David Levine’s work accurate (referring to the New York Review of Books political cartoonist)? Well, yes and no. But if you’re Margaret Thatcher or Francois Mitterrand or Salomon Bros., you expect it comes with the territory.”

Wasn’t the book true, then?

Says Baker, “I feel Michael’s being as honest with his reader as he was with his employer.”

Now he is picking up steam. He offers a literary critique. “I think it’s very hard to write in the first person. The person who’s speaking has to be flawed or ironic. Otherwise, that person becomes a divinity. Michael writes wonderful dialogue and knows how to set a scene--and that’s not easy. But where the book fails is at the end. He loses his point of view. In the first half, he’s a greedy little (expletive) like everyone else, and at the end he’s like Jim Bakker, ‘born again,’ righteous, so full of virtue that he can’t sully his hands with comers.”

Baker now sounds like a Bible-thumping sermonizer himself. “At the end you don’t care about this little guy. He violates Rule 6: Don’t take yourself too seriously. He becomes tiresome. At the end, this little creature becomes so saccharine, you feel sorry for him.”

The spokesman for mighty Salomon Bros. concludes with a high-pitched giggle. Even Bob Baker concedes that Michael Lewis was one of the most successful members of the Salomon Bros. trading class of 1985. When Lewis joined the training program, it consisted of 127 people, from the teacher’s pets in the front row to Japanese trainees who snoozed during class to the back-row boys who howled and hooted and hurled paper missiles at the front-row nerds and, occasionally, at the firm’s managing directors. Lewis sat somewhere in the middle.

The level of maturity didn’t improve much out on the trading floor. A fearsome trader known as the “Human Piranha” uses a certain expletive as noun, verb, adjective and adverb. The traders in the mortgage-backed securities department are portrayed as Salomon’s “baddest dudes,” who play pranks such as snatching the clothes from the suitcase of a colleague headed on a vacation and stuffing the bag with soggy paper towels.

On Fridays, the department indulged in an afternoon “feeding frenzy,” putting clients on hold while traders gorged themselves from five-gallon drums of guacamole. Once, the department head, Lewis S. Ranieri, cut the bow tie off the blouse of a new female trainee with a pair of scissors, then handed her a $100 bill and suggested she buy something else.

Ranieri said through a spokesman that he has read the book but doesn’t want to comment.

If an incredulous reader wonders whether Lewis conjured up these descriptions, take heed of a former Salomon trader who confirmed the gist of the portrait, adding that: “If you fired a shotgun full of M&Ms; over the mortgage department, not a single one would hit the ground.”

What fed this bond-trading frenzy was the increase in collective borrowing by government, corporations and consumers--from $2.8 trillion in 1977 to $7 trillion by 1985. In addition, a 1979 decision by Paul A. Volcker, then chairman of the Federal Reserve Board, to maintain a steady money supply led to wild swings in interest rates--and thus in the prices of previously staid bonds.

As king of the bond market, Salomon Bros. for a time became the most profitable firm on Wall Street.

Though many Ivy League college graduates aspired to this world of high finance, the blond-haired, animated Lewis took a circuitous route.

He majored in art history at Princeton, taking only one pass-fail class in economics.

After graduation, he worked seven months as a stock clerk for a private art gallery in New York and four months as a woodcutter in Frenchtown, N.J.

Then it was off to Britain. He followed his girlfriend (now his wife) to London, where she intended to study politics at the London School of Economics. Lewis enrolled in the economics program.

While in London, he was invited to dinner with the Queen Mother, a scene described in the book. It turned out to be a fund-raising event with hundreds of other people. Seated next to him was the wife of a Salomon Bros. managing director. After cross-examining him during dinner, she urged Lewis to come to work for her husband’s firm. She subsequently arranged his admission to the Salomon Bros. training program.

“Wall Street paid top dollar for what I could do, which was nothing,” Lewis writes. He started at $45,000. “I didn’t really imagine I was going to work, more as if I were going to collect lottery winnings.”

Lewis says he decided to write the book after two years on the job, when the firm laid off 1,000 people just before the October, 1987, crash. Two entire departments were sacked; some people with 15 years’ experience were told to leave before the end of the day.

He originally planned a less personal account of Wall Street in the 1980s, but his own odyssey--”Rising Through the Wreckage on Wall Street” is the book’s subtitle--took over most of the narrative.

Lewis recounts his experience at the London bond-selling office: “My job was to get people to do things. When my advice was completely spurious, people would take it anyway.”

His first customer, disguised in the book as “Herman the German,” lost $140,000 and his job after Lewis unwittingly unloaded on him Salomon’s position in weak AT&T; bonds. Lewis said when he discovered the poor quality of the bonds and complained to the trader who urged him to sell them to the German, the trader responded: “Look, who do you work for, this guy or Salomon Bros.?”

On another occasion, Lewis “jammed”--or dumped--$86 million worth of Olympia & York bonds Salomon wanted to unload on a French client. He received calls of congratulations from New York, including one from the Human Piranha. But Lewis was uncomfortable. “As a rule, the greater the praise lavished upon a salesman within Salomon, the greater the eventual suffering of the customer.”

Far from destroying every buyable copy, Salomon’s London office is considering a bulk purchase for its employees, and Chairman Gutfreund bought copies and gave them to the firm’s managing directors.

“This is interesting for several reasons,” said a former Salomon Bros. trader. “First, it isn’t as though the other managing directors couldn’t afford to buy the book. Second, it shows that they don’t care whether the book casts them in a favorable light because they figure, ‘Hey, it’s about us.’ And finally it shows that they think customers have short memories.”

If there is a lesson in “Liar’s Poker,” it may be that another sucker, another “market fool,” is born every minute. As Lewis writes about the firm’s clients, “the truly incredible thing about them . . . was that no matter how roughly they were treated they kept coming back for more.” Or as a senior trader joked with the training class: “Some people are born to be customers.”

It is that sentiment that leads many Wall Street financiers to believe that Salomon Bros. isn’t likely to suffer a great deal from its portrayal. And despite Lewis’ protestations of his own financial naivete, many people still seek his guidance.

“There is nothing people want to believe more than that someone out there can turn their money into more money,” Lewis said. “People are more gullible in financial matters than with most other things. Salomon Bros. was profitable, so people looked to us for advice. What they didn’t realize was that we were profitable by taking money from them.

“I tried to demonstrate in the book how careful people must be about the advice they receive. Yet when I go to promote the book, people still ask me what they should do with their money!”

For the record: Lewis conservatively invests in money-market funds and in Japanese and German securities.

Despite the fact Lewis’ salary, bonus and benefits totaled $275,000 a year at Salomon, he decided to leave his job at the beginning of 1988 (just after bonus payment) because it became routine, he said in his epilogue. While he said his father grew up with the belief that money is a rough guide to one’s contribution to the prosperity of society, Lewis had learned otherwise.

“Never before have so many unskilled 24-year-olds made so much money in so little time as we did this decade in New York and London. There has never before been such a fantastic exception to the rule of the marketplace that one takes out no more than one puts in.” As a result, he says, money no longer is connected to his feeling of self-worth.

Lewis wrote that in leaving Salomon Bros. he wanted to take a risk. But he conceded that “I walked away from the clearest shot I’ll ever have at being a millionaire.”

There is, however, no need to take up a collection. Not only is Lewis’ wife a London-based investment banker, but he says almost every major studio has called to negotiate movie rights. One has offered to let Lewis do the script. The paperback rights will probably fetch six figures. The German publisher paid about $147,000, and Japanese publishers are making inquiries.