NYT Book Review on Liar's Poker -- 1989

October 29, 1989
BOOK & BUSINESS; OVERPAID AND GUILT-RIDDEN
By RICHARD L. STERN; RICHARD L. STERN IS A SENIOR EDITOR AT FORBES MAGAZINE.
LEAD: LIAR'S POKER Rising Through the Wreckage on Wall Street. By Michael Lewis. 249 pp. New York: W. W. Norton & Company. $18.95.
LIAR'S POKER Rising Through the Wreckage on Wall Street. By Michael Lewis. 249 pp. New York: W. W. Norton & Company. $18.95.
In 1984, through an improbable set of circumstances, Michael Lewis, a 24-year-old Princeton University graduate studying at the London School of Economics, turned up in a rented tuxedo at a dinner given by the Queen Mother. He found himself seated next to the wife of a managing partner of Salomon Brothers. Mr. Lewis soon landed a job with the company - one of the most sought-after opportunities for the money-minded college generation of the 1980's.
''Liar's Poker'' is the very funny account of his three-year, dog-eat-dog climb there. Starting as an overpaid $48,000-a-year trainee, Mr. Lewis, by 1987, was on his way to triumph as an institutional bond salesman in Salomon's London office, earning $225,000.
This is a story with much irony. Here is one of America's top investment banking and securities trading firms, an adviser to the largest corporations and money managers, unable to run itself. Its management style is one of warring individuals and factions. While its chairman, John Gutfreund, moaned about underlings demanding too much money, he turned out to be the highest-paid chief executive on Wall Street. The message from the top down was contagious: Every man for himself.
In London, a naive Mr. Lewis was talked into selling some bonds from Salomon's inventory by a trader who had to get rid of them or face a loss. It didn't matter that the bonds quickly collapsed, that the company lost a new client or that the money manager who bought the bonds lost his job. Mr. Lewis performed nobly for Salomon Brothers.
But Mr. Lewis soon learned a valuable lesson. The only way to keep his clients - and perhaps assuage his growing feelings of guilt - was to protect them. So with an anxious junk bond trader standing over him and pressuring him to sell a new issue of bonds that everyone knew would go bad, Mr. Lewis cryptically told a grateful client not to touch them with a 10-foot pole.
The book's title, ''Liar's Poker,'' refers to an after-hours game played by Salomon's bond traders and arbitrageurs. The stakes can run as high as several hundred dollars a bet. The game, combining bluff and calculation, is based on guessing the serial numbers of dollar bills. In fact, Mr. Lewis notes, a good player combines all the skills of a good trader. One day, according to Mr. Lewis (Salomon Brothers has denied this story), Mr. Gutfreund walked into the New York trading room and challenged Salomon's top trader to bet $1 million on a single game. But the trader was better than Mr. Gutfreund at this: ''No, John,'' he said. ''I'd rather play for real money. Ten million dollars. No tears.'' Mr. Gutfreund declined, outbluffed before the game began.
Ultimately, Mr. Gutfreund and Salomon Brothers may have outbluffed themselves. With no real long-term game plan, no grasp of overhead and a tendency to live for the next deal, the company had vastly overspent and overexpanded before the 1987 market collapse. Afterward, it was forced to make major personnel cuts and to eliminate whole departments. Its huge expenditures for growth in Europe were unhinged by a number of major miscalculations. Not the least of these, according to Mr. Lewis, was that while many American institutional clients believed they had no choice but to deal with the company, European customers regarded Salomon Brothers as not only crass, but just one of hundreds of brokers. They were not as willing as the Americans to forgive or forget.
Yet the author believes Salomon will survive and prosper. As for Mr. Lewis, having survived the company's staff cuts because of his moneymaking ability, he says that he left Salomon Brothers not out of disillusionment but ''more because I didn't need to stay any longer.'' Whatever the case, he's obviously as good a writer as he was a bond salesman. Perhaps that's because both jobs involve being able to tell a good story.