Liar’s Poker describes a dog-eat-dog world of investment banking - to survive and thrive you need to be the best or get out!
In this book, the author Michael Lewis describes his journey from London School of Economics to getting one of the most sought after jobs in America in Salomon Brothers.
Salomon Brothers was a Wall Street investment bank founded in 1910 by three brothers which got involved in financial scandals that tarnished its reputation.
As a young bonds salesman and trader he was involved in what is known as ‘blowing up a customer’ which is swindling a customer, by making clients buy a bond which constantly depreciates in value.
All that mattered was company profits, which made Lewis realize that he has to fight for his own and his client’s survival. He learned a valuable lesson to keep his client as far as possible from Salomon’s junk bonds.
Michael’s book talks about the most thriving investment bank of America in that era, its rise and how their policy led to their downfall. This bank paid the highest salary in the world to its CEO John Gutfreund! It promoted traders instead of leaders and ran the company with only one motto of profits, profits and nothing but profits!
The book also revolves around creation of mortgage bond market of US and of MBS (Mortgage Backed Securities) and gives insights into the foundation of bond market.
The book’s name “Liar’s Poker” refers to a game. Like black-jack it involves calculation, bluff, probability and big stakes which can run as high as several million dollars. In fact, it is believed that a good player shows an instinct of a good trader. The book opens with the CEO of Salomon Brothers, John Gutfreund betting $1 million in the game Liar’s Poker against Salomon’s best trader. But the trader outbluffs Gutfreund by rising stakes to $10 million in the game or nothing, which shows how confident they were about their trades and skills.
While Salomon might have out bluffed many, ultimately they failed to out bluff themselves. Lewis believes they lost their path, had no real long term vision or goals and were over-expanding and spending.
This book might leave many disheartened and many excited but I can tell you one thing for sure that after reading the book you will realize that the foundation of mortgage bonds was so weak that the 2008 fall was evident.