- First read this excellent blog item:
http://www.boingboing.net/2008/10/03/liars-poker-a-timely.html
From the above: - I've just read (finally!) Michael Lewis's Liar's Poker: Rising Through the Wreckage on Wall Street, the classic 1989 memoir of life at Salomon Brothers investment bank in the run-up to the Wall Street crash of 1987. Lewis was hired to trade mortgage bonds (yes, the mortgage bonds that precipitated the crash of 2008) fresh from the London School of Economics, dispatched to Salomon's legendary training program in NYC, then shipped back to London.
Lewis was a gifted salesman who made millions for the firm, but he was also deeply skeptical of the whole enterprise. This is an unbeatable combination, as it situated him perfectly to critically examine the culture, economics and ethics of the overheated bubble as it expanded, expanded, and, finally burst.
It doesn't hurt that Lewis is a fantastic writer with a particular talent for explaining the minutae of investment banking without making you want to gouge your own eyes out. Through vivid portraits of the movers and shakers on Wall Street, Lewis recounts the origin stories of junk-bonds, corporate raiding, mortgage bonds, the S&L crisis, and the founding of Fannie Mae and Freddy Mac (both founded at the behest of Salomon in order to backstop the mortgage bond market).
It's been 20 years since this was published, but there's never been a better time to read it. The hairy-knuckled, hyper-competitive, pirahnoid Wall Street and City traders he describes here could be the same hedge fundies who're poised over the tub with razors at their wrists today. Liar's Poker: Rising Through the Wreckage on Wall Street - I found the above blog after writing what follows:
Exactly what animals exist on Wall Street? Main Street wants to know! And now, damnit!
Without comment, one of my most-used categories on this blog is Michael Lewis's "Liar's Poker." You will see why I evoke this book so often (without explanation) and why this book is is a necessity when you read my dictated quotes from my copy of this pawed- and markered-over book.
I got the book off the shelf after walking Tuesday and having my neighbor Frank, during a discussion of our mutual loss of net worth, say: "What is a derivative?" I used to buy up all copies of "Liar's Poker" just to remind me how quinticential it is, and Sissy works at Friends of the Library! with books aplenty! Then when we moved into our present house two blocks away I threw all copies out except the one. Nevertheless I am going to try to give Frank a clean book, not mine which is marked up for future references.
Enjoy --
[Dictated with Nuance; omitted material and spelling errors not necessarily indicated or corrected; playing around with the "outline" and "quote" icon on Blogspot and do not know how to "undo"] "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."
"It was
sometime early in 1986, the first year of the decline of my
firm, Salomon
Brothers."
"At Harvard in 1987, the course in the
principles of
economics had 40 sections and a thousand students; the
enrollment had tripled in
10 years. At Princeton, in my senior year, for
the
first time in the history of
the school, economics became the single
most
popular area of concentration."
"Economics was practical. It
got people
jobs."
"Economics alowed
investment banking
recruiters to compare
directly the academic records of
recruits. The
only inexplicable aspect of
the process was that economic theory
(which
is, after all, what economics
students were supposed to know) served
almost no function in an investment
bank."
"Glass-Steagall was
an act of
the U.S. Congress, but it
worked more like an act of God. It
cleaved mankind in
two. With it, in 1934,
American lawmakers had
stripped investment banking off
from commercial
banking. Investment
bankers now underwrote securities, such as
stocks and
bonds. Investment
bankers, like Citibank, took deposits and made
loans. The
act, in
effect, created the investment banking profession, the single
most
important event in the history of the world, or so I was led to believe."
"After Glass-Steagall most people became commercial bankers. A
commercial banker was reputed to be just an ordinary American businessman
with
ordinary American ambitions. He lent a few hundred million dollars
each
day, to
South American countries. But really, he meant no harm....
He had a
wife, a
station wagon, 2.2 children, and a dog that brought him
his slippers
when he
returned home from work at six."
"The
investment banker was
a breed
apart, a member of a master race of deal
makers. He possessed fast,
almost
unimaginable talent and ambition. If
he had a dog, it snarled. He had
two little
red sports cars yet wanted
four. To get them he was, for a man in
a suit,
surprisingly willing to
cause trouble."
"Man for man,
Solomon Brothers
was, in 1985 the
world’s most profitable corporation. Wall
Street was hot. And
we were
Wall Street's most profitable firm."
"Wall Street traffics in
stocks
and bonds. At the end of the 1970s,
Salomon Brothers knew more about
bonds than any firm on Wall Street: how to
value them, how to trade
them, and
how to sell them.... The rest of Wall
Street had been content
to let Salomon
Brothers be the best bond traders as
the occupation was
neither terribly
profitable nor prestigious. What was
profitable was
raising capital (equity) for
corporations. What was
prestigious was
knowing lots of corporate CEOs. Salmon
was a social and
financial
outlier."
"In part this is due to the absence
from the
bond
market of the educated classes, which in turn reinforces the point
about how
unfashionable bonds once were. In 1968, the last time a degree
count
was
taken at Salomon Brothers, thirteen of the 28 partners hadn't been
to
college, and one hadn't graduated from the eighth grade. John Gutfreund
was, in
this crowd, an intellectual; though he was rejected by Harvard,
he
did finally
graduate (without distinction) from Oberlin."
"The
biggest myth about
bond traders, and therefore the greatest
misunderstanding
about the
unprecedented prosperity on Wall Street in
the 1980s, are that
they make their
money by taking large risks. …Most
traders act simply as
toll takers. The source
of their fortune has been
nicely summarized by Kurt
Vonnegut (who, oddly, was
describing lawyers):
"There is a magic moment,
during which a man has
surrendered a treasure,
and during which the man who
is about to receive it has
not yet done so.
An alert lawyer [read bond
trader] will make that moment his
own,
possessing the treasure for a magic
microsecond, taking a little of it,
passing it on."
"In other words,
Salomon carved a tiny fraction
out of
each financial transaction. The
Salomon salesman sells $50
million worth of new
IBM bonds to pension fund X.
The Salomon trader,
who provides a salesman with
the bonds, takes for
himself an eighth (of
a percentage point), or $62,500. He
may, if he wishes,
take more. In the
bond market, unlike in the stock market,
commissions are
not openly
stated."
Now the fun begins.
[Doorbell; to be continued]
Pages
▼