Liar’s Poker: Rising Through the Wreckage on Wall Street
by Michael Lewis
WW Norton (1989)
Like many of Lewis’s post-collapse books, this early memoir is simultaneously funny and educational. As with The Big Short and The Flash Boys (see Wall Street: More Deeply Corrupt than We Thought), my favorite aspect was the colorful personalities of the investment bankers Lewis worked with at Saloman Brothers between 1985-1988.
Like Lewis’s more recent books, Liar’s Poker teaches us a lot about the seamy side of Wall Street and investment banking.
Theoretically Saloman Brothers specialized in selling bonds, ie corporate bonds to finance corporate debt, Treasury bonds to finance federal debt and in their latter years mortgage bonds (bonds that enabled savings and loan associations to raise money to finance mortgages). In reality Saloman Brothers made most of their money “trading” mortgage bonds, ie encouraging investors to speculate in purchasing bonds in the hope their value would increase.
As Lewis describes it, he worked in a totally immoral environment in which traders routinely screwed over their clients to increase Saloman profits and their personal bonuses.
The chapter I found most enlightening concerns the role of the Federal Reserve in the collapse of the savings and loan industry in the late eighties.
I also enjoyed the chapter about junk bond* king Michael Milken. Despite Lewis’s obvious admiration for Milken, the latter would be indicted in 1990 for insider trading and racketeering. In return for testifying against former colleagues, the junk bond king was allowed to plead guilty to securities and reporting violations. Sentenced to ten years in federal prison, he only served two.
*Junk bonds are bonds issued by corporations determined to be high credit risks (unlike to repay their debts) by credit rating agencies, such as Moody’s and Standard and Poor.