Liars Poker by Michael Lewis

Posted on December 29, 2007
Filed Under Books, Finance & Economics |

“Wall Street,” reads the sinister old gag, “is a street with a river at one end and a graveyard at the other.” This is striking but incomplete. It omits the kindergarden in the middle. -Frederick Schwed Jr.

Liars Poker by Michael Lewis is not only a fantastic picture of the nature of investment banking, but it also details the creation of mortgage backed securities and junk bonds during the 1980’s. This is fascinating to read about since the combination of the two gives us subprime mortgage backed securities which have been giving us a lot of trouble lately.

Lewis details his life starting as a Princeton undergrad where he studied Art History while his friends chose economics in order to get into banking. After Princeton Lewis came around and went on to the London School of Economics. While at an event with the Queen of England, he met a wife of a Solomon Brother’s executive who promised she would get Michael a job. And she did.

He recounts his journey though the training program, the competition among new hires, and the evolution of his career in selling bonds. His first sale wasn’t really a sale, but more so a ‘jam’ which meant that he sold a bad investment one of the traders at Solomon made to one of his customers: He jammed the losses into someone else’s portfolio. Eventually Lewis learned not to trust the traders, and few others at the bank, and details much of the politics and behind the scenes motives during the era (which of course still apply today). Perhaps most striking is that indeed billions of dollars were being made by 23 years olds.

The book will give you a great deal of insight into financial innovation, why bad investments are bought and sold, and a lot of perspective on banking culture. It is an easy read and well worth it if you are remotely interested in investment banking.

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