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Liar’s Poker by Michael Lewis

  • June 18, 2016

LiarsPokerAfter reading about the much publicized demise of Conde Nast’s two year old $100 million experiment called Portfolio, I stumbled across an article titled “The End” by Michael Lewis on Portfolio.com. Contrary to my initial reaction, this lengthy but brilliant article was about the end of Wall Street as we knew it and not the end of this two year old business magazine. Reading through this article reminded me of Liar’s Poker, a funny insider account of Michael’s four years at Salomon Brothers that helped put him on the map.

Folks who might be wondering if a book written in 1989 about a now defunct investment firm has any relevance in the world we live in now would find of great interest the detailed explanation of how an instrument called the Collateralized Mortgage Obligation (CMO) was invented by Salomon Brothers in June 1983. When I read Liar’s Poker a few years ago, little did I realize that this one instrument, would wreak such havoc more than two decades later when the housing bubble burst in 2006.

Unlike the book we reviewed last month, A Random Walk Down Wall Street by Burton G. Malkiel, Liar’s Poker is not dripping with data from academic studies, graphs or theories but is an easy read peppered with colorful language and anecdodes like the one below that painted a vivid picture of a culture brimming with greed and excess,

If a new employee, dubbed a geek, could make millions of dollars for the company, he became the most revered of all species: a Big Swinging Dick. And nothing in the jungle got in the way of a Big Swinging Dick.

As equity investors many of us have very little exposure to how bonds markets function. Liar’s Poker does a great job of providing us a fun and light hearted glimpse into the world of bond trading as it existed at a Wall Street firm during its peak and is a must read in my opinion.