What is the probability that a twenty four year old novice with no clue about finance will be paid millions of dollars for dishing out investment advice to grown-ups? 100% according to Michael Lewis if you can bet other peoples’ money or persuade them to bet it thereby making a killing for your firm. Liar’s Poker reveals the dark underbelly of the high priests of capitalism where fortunes are made and broken on the trading floor with every passing second.
I read Liar’s Poker for the first time on the heels of Lehman fiasco and my immediate reaction was “Holy $#^* !! If this book was published in 1990 and was such a success, why Lewis’s warning signals of a heating mortgage and junk bond market were so completely ignored? Did no one among the powers that be ever read it to realise where the profligacy and arrogance would lead us? Why the keeper of the keys were caught napping behind the wheel?”
Liar’s Poker is a mini autobiography by Michael Lewis that portrays the 80’s world of bond trading at Salomon Brothers. Lewis enumerates his own experience on the Wall Street as well as describes the creation, growth and exploitation of the bond market at the hands of shrewd bond traders. After trying desperately to land a finance job and being rejected by all for being an art graduate, Lewis entered London School of Economics and then managed to get into Salomon Brothers’ training program and from there graduated to become one of the highly successful bond salesman in its London office. He saw the building and bursting of a massive bubble in the mortgage and junk bonds.
Reading the book at a time when the world was experiencing the horrors of 2008 meltdown, I could trace the roots of current crisis. What started with Salomon Brothers’ grip over mortgage bond market led to Michael Milken’s junk bonds that facilitated many leverage buyouts (Read Barbarians at the Gate by Bryan Burrough and John Helyar). The era of easy credit and complicated financial instruments had begun and despite Enron, Worldcom and Long Term Capital Management continued to thrive.
In the murky and highly egoistic world of bond traders who vie for the tag of ‘Big Swinging Dick’, – moniker for the smartest and the richest, you quickly learn how regulatory over lapse were exploited by Wall Street. With its “Eat or Be Eaten” culture, minimum supervision of the traders and the ‘Winner takes all’ attitude, the trading floors became hunting grounds of the nifty, malevolent traders. Enormous risks were being taken with the proprietary trading desks – resembling the game that traders loved to play most – Liar’s Poker. And if you are wondering what happened to poor clients, well, they were mainly there to be ripped off, an instrument to propel the giant egos and bank balances of the traders into next orbit. This trend continues even today as shown by Greg Smith’s now infamous New York Times op-ed in which he accused Managing Directors at Goldman Sachs referring to their clients as ‘Muppets’.
Lewis is a master storyteller. He explains financial minutiae in a simple language, something he is skilled at as demonstrated by his books like The Big Short and Moneyball. Read this book to learn what transpires behind the Chinese Walls of the mighty Wall Street firms. If you are a ‘Muppet’ like me, then Liar’s Poker will serve as a grim reminder to look at risks closely while dealing in financial instruments.
Thank you for reading. I appreciate your time.
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My other reviews of Michael Lewis’s books –