Sunday, October 3, 2010

Liar's Poker

Michael Lewis moved several steps up my must-read list when both Ira Glass and Jonathan Franzen raved about his work in recent interviews. Since I was all psyched for the Wall Street sequel, and since I'm a huge fan of Bonfire of the Vanities, I picked up Liar's Poker. It's Lewis's first book, written in the late 80s after he worked at Salomon Brothers, a Wall Street investment bank.
Liar's Poker is an inside look at the beginnings of mortgage trading (which had a huge part in the most recent economic meltdown), the invention of hostile corporate takeovers and the run-up in the junk bond market. It's incredibly sharp, funny and insightful. I think what I'll remember most about it is the part where a bond salesman Lewis looks up to tells him to "consider the book and the bowl" when estimating the value and predicting the future of the bank's own stock.
To mark some corporate milestone or other, Salomon Brothers gave its employees a silver-plated bowl inscribed with the firm's name and a book about the company's history. "The bowl was good for putting Doritos in," Lewis writes before adding the book was good for nothing at all. I think the phrase "clumsy piece of fascist propaganda" was used.
The other bond salesman, by bringing up the book and the bowl, was saying that Salomon had strayed from its gutsy hard-charging roots, becoming stale and corporate. To its detriment of course. The old Salomon brothers would have just given employees the money it took to produce all the crappy corporate swag. Everyone would rather have the money.
The book was a fantastic parallel to the third season of The Wire, the HBO crime drama that's really about the disasters that are modern politics and government. In The Wire, a group of police officers is investigating a wealthy, powerful and violent drug gang. Over time, the gang loses its edge. Some of its best people end up dead or in jail. The two leaders disagree on whether to cooperate with other gangs and try to stem the violence, or whether to keep trying to be more brutal and fierce than anyone else. They turn on each other, and the gang falls apart.
At Salomon Brothers, the mortgage trading department had an identity all its own, loud, uncouth, overweight men with unpretentious educations in a white-shoe world. When a change in Federal Reserve policy leads to windfalls in mortgage trading and money starts rolling in, they remain loyal to the department rather than the firm at large. Meanwhile bonds, equities and all of the other departments build their own identities as well. The firm leadership becomes consumed in turf battles. And when junk bonds and hostile takeovers come along, they're too busy squabbling to cash in on the next Wall Street windfall. A lot of the top money-makers leave the firm, because there's more money to be made elsewhere. Millions of dollars are lost. Salomon Brothers are no longer, as they say, the masters of the universe.
In both cases, nimbler, hungrier, perhaps more ruthless capitalists surpass the slow, the stubborn, the resistant to change.

Possibly unrelated note: So far as I can tell, the membership of Goodreads is largely female. But when you click on the Liar's Poker page, the first I would say 10-15 members to review it are all men. And the first woman on the list read it because her fiance told her to so she could understand what he does. She just isn't interested in finance, unless it's about figuring out whether she can afford an expensive designer dress.

I wish I was kidding.

Ladies, high finance isn't about boring columns of numbers. It's about the way the world is run and who gets to be in charge. It doesn't matter if you understand how a mortgage security is created and sold. Hardly anyone does, not even, as we have learned, members of Congress. But it does matter who has all the money in this world (hint: not women) and why they have it. It matters a great deal.

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