Liar’s Poker

Book Title: Liar’s Poker
Author(s): Michael Lewis
Rating: $$$$


Author’s Bio (from the book’s jacket or elsewhere):

Michael Lewis was fresh out of Princeton and the London School of Economics when he landed a job at Salomon Brothers, one of Wall Street’s premier investment firms. During the next three years, Lewis rose from callow trainee to New York – and London-based bond salesman, raking in millions for the firm and cashing in on a modern-day gold rush.

Review:

Authors, like sell-side analysts, are always prone to exaggeration and so is Michael Lewis, but then don’t forget that it’s Wall Street, where facts, at times are much stranger than fiction.

Even though the book is set in 80s and is mainly an account of the author’s experience at Salomon Brothers, almost every aspect of the book has great cotemporary value. For instance, the recent sub-prime crises that led to the meltdown of mortgage market could be traced back to the creation of mortgage market by few creative traders at Salomon. Another familiar motif is the rise and fall of Salomon Brothers, which in my opinion is practically the case with most of Wall Street monoliths, which betrays its original character and start behaving like empires.

The author’s insights are as relevant today as they were 15-20 years back. Consider this excerpt from the book:

“And very generally, the interests of lenders in New York take a back seat to the interests of the corporate borrowers. So, in New York, bond and stock deals are driven not by whether investors (lenders) want to buy them but by whether companies want to raise the money. …….The Wall Street oligopoly that cost lenders so dearly doesn’t seem to affect the borrowers, perhaps because they are smart enough to play the few investment banks off against one other, perhaps because they are less dependent on Wall Street in the first place: after all, if they don’t like the terms on a bond deal, they can always take a loan from a bank”

Does this not remind us of the covenant-lite deals, funding most of the leveraged buyouts in current times. Except for the recent repricing of risk in wake of the sub-prime crises, were we not suffering from what Greenspan used to call “protracted periods of low risk premiums”

The authors also confronts the issue of incentive system in Wall Street, which I believe, everyone thinks it’s loaded against him/her. Not that the author’s criticism is wrong, but one hardly come across an incentive system which is seen as fair by all the parties involved. This is one such aspect which everyone who works on the Street will definitely identify with.

What’s most refreshing about the book is the author’s sense of humor (quite hilarious) and his vivid characterization of groups, individuals and all that he can lay hands on. For example, consider the sketch of Salomon trader that the author has drawn. You will immediately draw a parallel between them and any black neighborhood rapper-gangsters - aggressive, abusive, idiosyncratic, uncouth and most importantly, good at raking in moolah.

The book is as much about markets as it is about people, their emotions, their ambitions, greed and fear. It’s about men who rose to greatness (and fell too) and those who failed to take off.

Liar’s Poker is by far the most fascinating take on Wall Street by an insider. The book deserved a 5$ rating but for the lack of investment insights, which, unfortunately has lot of weightage in my rating criteria.