The Seamy Side of Wall Street: An Insider’s View

Liar’s Poker: Rising Through the Wreckage on Wall Street

by Michael Lewis

WW Norton (1989)

Book Review

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.

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*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.

 

The Billionaires Who Helped Destroy Democracy

The Mayfair Set: Four Stories About the Rise of Business and the Decline of Political Power

Directed by Adam Curtis (1999)

Film Review

The Mayfair Set is a four part documentary series profiling the right wing financiers responsible for the financialization of the British-American economy in the seventies and eighties. It also explores the simultaneous transfer of real power away from elected representatives to banks and financial markets. “Mayfair Set” refers to a private London gambling club – the Clermont Club – where many of these future billionaires were members.

Part 1 – concerns British aristocrat Colonel David Sterling, founder of the British SAS (Special Air Service). In the sixties and seventies, Sterling created a series of private mercenary armies to fight independence movements in Africa and elsewhere. In addition to secretly fighting Egypt’s invasion of Yemen in 1962, he also set up numerous arms deals for Saudi Arabia,* with the assistance of notorious Saudi arms dealer, Adnan Khashoggi.** He also created the Saudi air force.

Part 2 – concerns two right wing Clermont Club members John Slater and Tiny Rollin. Slater was a corporate raider who almost singlehandedly wiped out Britain’s manufacturing sector in the seventies and eighties. He did so by targeting specific companies for hostile takeover, stripping their assets, sacking thousands of workers, and investing the proceeds in the share market. Rollin was responsible for bilking newly independent African nations of their mines, factories and plantations.

Part 3 – concerns Slater’s fellow corporate raider, Michael Goldsmith, who emigrated to the US in 1980 and paired up with junk bond guru Michael Milken to destroy America’s manufacturing base by initiating dozens of hostile takeovers of US companies. In 1990 Milken was sentenced to 3 ½ years prison on 94 counts of fraud, racketeering and insider trading.

Part 4 – concerns the rise to power of Clermont Club darling Margaret Thatcher and her (controversial) embrace of Egyptian businessman Mohamed Al-Fayed. Al-Fayed saved her government when currency speculator George Soros led a vicious attack on the British pound in 1992. Al-Fayed would subsequently blow the whistle to the Guardian on all the British MPs who accepted bribes from him. Al-Fayed was father to Dodi, the boyfriend killed in the car crash with Princess Diana.

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*British arms sales to Saudi Arabia, which continue to the present day, have become extremely controversial owing to the Saudis’ carpet bombing of Yemen and the resulting humanitarian crisis.  See Shelve UK arms sales to Saudis over Yemen, say two MPs’ committees

**Khashoggi first came to public attention for his role in the Iran-Contra scandal, in which George Herbert Walker Bush and other members of the Reagan administration illegally sold weapons to Iran to finance their illegal war against Nicaragua’s Sandinista government. Khashoggi also had direct links with the alleged 9-11 terrorists (see Spike the News) and was the uncle of Dodi Al Fayed, the boyfriend killed in the car crash with Princess Diana.