I picked up Liar’s Poker on Friday while wandering through Indigo. I was wandering through another section of the store and something went off in my head which said, “I wonder if they have a paperback of Liar’s Poker in here”. They did and I read it last night.
The story is of Michael Lewis’ career at Salomon Brothers as a bond trader in London but it is also a biography of Salomon Brothers during the 1980s.
Mike Todd left a comment telling me, “I must have read Liar’s Poker 10 times”. No word on whether or not Mike was a Big Swinging Dick during his time on Bay Street though. I am nine times behind Mike but I could see myself catching up. Of course I have read another book by Michael lewis, Moneyball at least a dozen times in case the Blue Jays finally get tired of J.P. Ricciardi and need my help in the General Manager’s office.
The book is interesting as it documents the planting of the seeds which would over two decades later become the foundation of the sub-prime meltdown. In March 2008, Nobel Prize laureate in Economics Robert Mundell named one of the major character in the book inserted Lewis Ranieri among the "Five Goats Who Contributed to the Financial Crisis" of 2008.
What struck me is how do companies get this large when they are managed so poorly. The book kind of answers that. They get lucky for a time in attracting brilliant managers and leaders but eventually the ineptitude of the upper managers overcomes the brilliance of those underneath them and they slide back to their state before the hot streak. As Lewis points out, they got into trading mortgage bonds at the right time combined with the problems with the Savings and Loans crisis and they won big. There was no corporate brilliance, only capitalizing on luck, timing, and some foresight by middle managers. When the timing, circumstances, or luck changed, Salomon Brothers seemed unable to be able to cope with them and the firm suffered a slow demise until later bought, sold and bought and sold again. Now it is a division of Citi Group and what was once the most powerful firm on Wall Street, doesn’t even have a logo to be found by Google Images. It’s gone.
In the end it reinforces the idea that we need to pay a lot more to the context in which success happens; on Wall Street, in a fast growing church, a fast expanding franchise… before we hold them up as an example of what to do or decide to wait and see and take a longer term view on what is going on.
The book has been re-released by Penguin and if you want to see where the crisis of 2008 started, Liar’s Poker is a good place to start.