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1/ Liar's Poker (Michael Lewis)
Thread
"Never before have so many unskilled twenty-four-year-olds made so much money in so little time. There has never before been such a fantastic exception to the rule that one takes out no more than one puts in."
https://www.amazon.com/Liars-Poker-Norton-Paperback-Michael-ebook/dp/B003E20ZRY/
Thread
"Never before have so many unskilled twenty-four-year-olds made so much money in so little time. There has never before been such a fantastic exception to the rule that one takes out no more than one puts in."
https://www.amazon.com/Liars-Poker-Norton-Paperback-Michael-ebook/dp/B003E20ZRY/
2/ "When Gutfreund was crowned King of Wall Street by the press, you could hear traders thinking: Foolish names and foolish faces often appear in public places.
"Gutfreund had once been a trader, but that was as relevant as an old womanâs claim that she was once quite a dish."
"Gutfreund had once been a trader, but that was as relevant as an old womanâs claim that she was once quite a dish."
3/ "The questions a Liarâs Poker player asks himself are, up to a point, the same questions a bond trader asks himself. Is this a smart risk? Do I feel lucky? How cunning is my opponent? Does he have any idea what heâs doing, and if not, how do I exploit his ignorance?"
4/ "Traders have no secretaries, offices, or meetings with captains of industry.
"Corporate financiers service the corporations and governments (âclientsâ) that borrow money. Because they donât risk money, corporate financiers are considered wimps by traders."
"Corporate financiers service the corporations and governments (âclientsâ) that borrow money. Because they donât risk money, corporate financiers are considered wimps by traders."
5/ "Analysts didnât analyze anything. They were slaves to corporate financiers, who did the negotiations and paperwork (not the trading/selling) of new issues of stocks and bonds.
"Analysts photocopied, proofread, and assembled breathtakingly dull documents for 90+ hours/week."
"Analysts photocopied, proofread, and assembled breathtakingly dull documents for 90+ hours/week."
6/ "The more people, the easier it was to delude themselves that what they were doing must be smart.
"The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, it becomes overvalued."
Sentiment: https://twitter.com/i/events/1075118044727279616
"The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, it becomes overvalued."
Sentiment: https://twitter.com/i/events/1075118044727279616
7/ "The economics major allowed recruiters to directly compare academic records.
"The only inexplicable aspect of the process was that economic theory served almost no function in an investment bank.
"Bankers used economics as a standardized test of general intelligence."
"The only inexplicable aspect of the process was that economic theory served almost no function in an investment bank.
"Bankers used economics as a standardized test of general intelligence."
8/ "A commercial banker was just an ordinary American businessman with ordinary American ambitions. He was only doing what he was told by someone higher up in an endless chain of command.
"The investment banker was a breed apart, a member of a master race of deal makers."
"The investment banker was a breed apart, a member of a master race of deal makers."
9/ "Any player unaware of the fool in the market probably *is* the fool.
"In 1980, even Wall Street banks didn't have a clue who the fool was in the new game.
"Salomon bond traders knew because that was their job. Knowing markets is knowing other peopleâs weaknesses."
"In 1980, even Wall Street banks didn't have a clue who the fool was in the new game.
"Salomon bond traders knew because that was their job. Knowing markets is knowing other peopleâs weaknesses."
10/ "Before Volckerâs speech, bonds had been conservative investments investors put their savings into when they didnât fancy a gamble in the stock market.
"After Volckerâs speech, bonds became objects of speculation, a means of creating wealth rather than merely storing it."
"After Volckerâs speech, bonds became objects of speculation, a means of creating wealth rather than merely storing it."
11/ More on this era of market history:
Odd Lots episode
https://twitter.com/ReformedTrader/status/1149908613118324741
From Emily Lambert's book The Futures:
https://twitter.com/ReformedTrader/status/1222720454776872965
From Nicholas Dunbar's book on LTCM, "Inventing Money": https://twitter.com/ReformedTrader/status/1275551443521466368
Odd Lots episode
https://twitter.com/ReformedTrader/status/1149908613118324741
From Emily Lambert's book The Futures:
https://twitter.com/ReformedTrader/status/1222720454776872965
From Nicholas Dunbar's book on LTCM, "Inventing Money": https://twitter.com/ReformedTrader/status/1275551443521466368
12/ "In retrospect, my arrival at Salomon marked the beginning of the end.
"That they let drifters like me in the door at all was an early warning signal. Alarm bells should have rung. They were losing touch with their identity. They had once been shrewd traders of horseflesh."
"That they let drifters like me in the door at all was an early warning signal. Alarm bells should have rung. They were losing touch with their identity. They had once been shrewd traders of horseflesh."
13/ "Any astute trader will tell you his best work cuts against conventional wisdom.
"We were painfully predictable. By coming to Salomon, we did what every sane money-hungry person would do. If we were unable to buck convention in our lives, would we be likely to in the market?"
"We were painfully predictable. By coming to Salomon, we did what every sane money-hungry person would do. If we were unable to buck convention in our lives, would we be likely to in the market?"
14/ "Rank wasnât terribly important on the trading floor. Organizational structure at Salomon Brothers was something of a joke. Making money was mostly what mattered.
15/ "Since there was no objective measure of ability, landing a good job was part luck, part âpresence,â and part knowing how/when to place your lips to the rear end of some important person.
"There wasnât much you could do about the first two, so you focused on the third."
"There wasnât much you could do about the first two, so you focused on the third."
16/ "This man was old. His attitude toward his job was, by our standards, sentimental: âI donât stop to pat myself on the back. Because when I pat myself on the back, the next sensation is usually a sharp kick lower down.â âIn the land of the blind the one-eyed man is king.â "
17/ "To get the best job, you had to weather the most abuse.
"The people in the equity department seemed happy. They felt less pressure than bond traders and bond salesmen. They had accepted their lot and were content to celebrate the simple pleasures of life."
"The people in the equity department seemed happy. They felt less pressure than bond traders and bond salesmen. They had accepted their lot and were content to celebrate the simple pleasures of life."
18/ "After two years of trading at Salomon, a young mortgage trader basked in a steady flow of offers from Merrill Lynch, Bear Stearns, Goldman Sachs, Drexel Burnham, and Morgan Stanley, all of which were desperate to bottle the Salomon Brothers mortgage magic.
19/ "These offers guaranteed at least a half million dollars a year plus a cut of trading profits. By Matty's fourth year, if he were good at his job, he would be making a million dollars before taxes. It was a good time and a great place to be twenty-two years old."
20/ "Breaks given savings and loans, such as deposit insurance and tax loopholes, lowered the cost of mortgages. Their lobbyists invoked democracy and apple pie.
"To speak against homeownership in Congress would have been as politically astute as to campaign against motherhood."
"To speak against homeownership in Congress would have been as politically astute as to campaign against motherhood."
21/ "Thrifts in the Sun Belt had small deposits and a lot of demand for money from home buyers. Thrifts in the Rust Belt held massive deposits. Dall saw a solution: Rust Belt thrifts could effectively lend to Sun Belt homeowners by buying the mortgage bonds of Sun Belt thrifts."
22/ By 1985, "you needed a résumé. You should have graduated from college. It helped to have gone to business school. It was important to look like an investment banker.
"In the mid-1970s, this was plainly not the case; Ranieri hadnât finished college and didnât have a rĂ©sumĂ©."
"In the mid-1970s, this was plainly not the case; Ranieri hadnât finished college and didnât have a rĂ©sumĂ©."
23/ "Paul Volcker had made his historic speech on October 6, 1979. Short-term interest rates had skyrocketed. For a thrift manager to make a thirty-year home loan, he had to accept a rate of interest of 10 percent. Meanwhile, to get the money, he was paying 12 percent.
24/ "He ceased to make loans, which suited the Federal Reserve, which was trying to slow the economy.
"The industry that held most of America's home mortgages on its books was collapsing. In 1980, there were 4,002 savings and loans. Over the next three years, 962 collapsed."
"The industry that held most of America's home mortgages on its books was collapsing. In 1980, there were 4,002 savings and loans. Over the next three years, 962 collapsed."
25/ "So on September 30, 1981, Congress passed a nifty tax break for its beloved thrift industry.
"To take advantage of it, thrifts had to sell their mortgage loans. That led to hundreds of billions of dollars in turnover on Wall Street.
"To take advantage of it, thrifts had to sell their mortgage loans. That led to hundreds of billions of dollars in turnover on Wall Street.
26/ "The market wasnât exploding because of the megatrends that Bob Dall had listed. It took off because of a simple tax break.
"Thrift managers didnât know the value of what they were selling. In some cases, they didnât even know the terms (maturity, rates) of their own loans."
"Thrift managers didnât know the value of what they were selling. In some cases, they didnât even know the terms (maturity, rates) of their own loans."
27/ "To do nothing spelled bankruptcy. Paying out 14% on deposits while taking in 5% on old home mortgage loans was a poor way to live.
"Many thrifts layered a billion dollars of brand-new loans on top of their disastrous hundred million dollars of old loss-making loans.
"Many thrifts layered a billion dollars of brand-new loans on top of their disastrous hundred million dollars of old loss-making loans.
28/ "The strategy was wildly irresponsible, for the fundamental problem (borrowing short term and lending long term) hadnât been remedied. The hypergrowth only meant that the next thrift crisis would be larger. But the thrift managers were not thinking that far in advance."
29/ "They were no longer trading mortgage bonds, but the raw material: home loans. Salomon was all of a sudden playing the role of a thrift and exposed to homeowners' ability to repay.
"You did not have time to check every last property in a package. Buying was an act of faith."
"You did not have time to check every last property in a package. Buying was an act of faith."
30/ "The Salomon trading floor was unique. It had minimal supervision, minimal controls, and no position limits. A trader could buy or sell as many bonds as he thought appropriate without asking. The trading floor was, in other words, a CEOâs nightmare."
31/ "Why did thrift presidents tolerate Salomonâs huge profit margins? They didnât know any better.
"The guy who sponsored the float in the town parade became Americaâs biggest bond trader. He was also (and is still) Americaâs worst bond trader. He was the marketâs fool."
"The guy who sponsored the float in the town parade became Americaâs biggest bond trader. He was also (and is still) Americaâs worst bond trader. He was the marketâs fool."
32/ "We reached 21.5% on the prime rate and 17.5% on the bill rate. Long governments peaked at 15.25% in 1981.
"Hundreds of millions in profits derived from a combination of the market going up [interest rates falling] and the blessed ignorance of Americaâs savings and loans."
"Hundreds of millions in profits derived from a combination of the market going up [interest rates falling] and the blessed ignorance of Americaâs savings and loans."
