40 pages • 1 hour read
Liar’s Poker
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Chapters 3-4Chapter Summaries & Analyses
Chapter 3 Summary: “Learning to Love Your Corporate Culture”
Lewis learns that his starting salary will be double that of a professor at his graduate school. He is told repeatedly that Salomon is, on a per-employee basis, the world’s most profitable company. It dominates bond trading, which has ballooned from an neglected investment practice into a huge marketplace since a 1979 Federal Reserve ruling that allows interest rates, and thus bond prices, to fluctuate. This prompts investors to vastly increase their bond portfolios. Meanwhile, borrowing by governments, firms, and consumers swells from $323 billion in 1977 to $7 trillion by 1985, and “a much greater percentage of the debt was cast in the form of bonds than before” (44). Speculators, encouraged by traders, buy and sell rapidly: “Overnight the bond market was transformed from a backwater into a casino” (43). Salomon normally takes one-eighth of 1% of each sale as its fee; given an average salesperson’s daily transactions of $300 million, such fees quickly add up.
Because Salomon traders know the bond market better than most investors, they can maneuver buyers and sellers into making more trades. This knowledge also gives them insight into a bond’s real worth: “And a fool, they would say, was a person who was willing to sell a bond for less or buy a bond for more than it was worth” (42).
On the first day of training at Salomon’s Wall Street offices, Lewis finds a hallway filled with 127 new hires already trying to get ahead. Cliques have formed, and politicking has begun; one young woman shouts into a phone as she works a deal for office attire to sell to her cohorts; a small group stands in a corner, playing Liar’s Poker. Lewis suspects his class is too large, a sign of a hiring frenzy: “They had once been shrewd traders of horseflesh. Now they were taking in all the wrong kinds of people” (46).
The first three months of training involve long and sometimes tedious classroom lectures. Trainees in the back rows tend to be boisterous while those in the front try to get in the good graces of the lecturers. Department managers bargain with one another over the more desirable recruits in a process somewhat similar to bond trading. Lewis befriends a manager, which in turn makes him more desirable to other managers, until the one he wants to work for shows interest.
Not all trainees will survive at Salomon, and competition for the best jobs is fierce. Trainees can be clannish and cruel to one another. Nonetheless, “the training program was without a doubt the finest start to a career on Wall Street” (59) and could double a trainee’s value elsewhere.
The final two months of training put recruits on the forty-first floor, the bond-trading floor, to observe. The floor is huge, 100 feet long, jammed with desks topped with glowing green computer screens and manned by traders who shout into phones: “Salesmen talked to investors, traders made bets, and managers smoked cigars” (63). The most important rule, considering the high stakes and pressure on the floor, is never to bother the traders, lest you get a sharp reprimand. The trainee must simply watch, listen, and learn—“the Invisible Man” (63).
Chapter 4 Summary: “Adult Education”
After a few weeks of lectures, some of Salomon’s top executives come by to speak. Jim Massey, who is in charge of sales, reminds the trainees never to boast in public about their earnings. He calls for questions, but the trainees are too cowed to speak. On another day, Dale Horowitz, a member of the executive committee, informal and friendly, drops in and invites questions. A student asks, “‘Why […] is Salomon blacklisted by the Arabs?” (72). Horowitz becomes angry. A second question, this one about corporate ethics, is similarly rebuffed. Horowitz’s sudden anger puts the trainees on edge: “We had been lulled into a false sense of security” (72). Yet when Gutfreund—as chairman, the most intimidating executive—visits, questions flow, and he answers them thoughtfully.
The head of bond research, Henry Kaufman, has a genius for calling the market’s ups and downs, but he’s “known as Dr. Gloom” for his worries about America’s increasing indebtedness (75). He also fears that Salomon’s hard-driving speculative investment style “had helped create the problem” (75). Lewis suspects that Salomon’s success makes the firm overconfident.
Though it is the Wall Street leader in new-stock issues, Salomon’s real money comes from the explosion in bond trading. Stocks are no longer king, and the equities department has trouble attracting recruits to their floor, the fortieth. On the other hand, equities traders suffer less pressure and stress, and “if you joined the equity department, your mother would know what you did for a living” (80). Lewis is one of six trainees targeted by equities for recruitment. They dragoon the six into a boat excursion and a softball game, trying to corner them, but Lewis manages to sidestep any commitment.
Lewis learns that the women trainees will end up in sales rather than trading: “It kept women farther from power” (84). Salespeople convince customers, mainly institutions, to invest in bonds, while traders execute the orders. Salespeople need stellar social skills, while “[g]ood bond traders had fast brains and enormous stamina” (85). It doesn’t matter if people on the trading floor are nice or ruthless, as long as they generate money. Lewis struggles: “I found imagining myself as a bond salesman only marginally more plausible than imagining myself as a bond trader” (86). A trainee must focus on surviving the apprenticeship: “Like a kid mysteriously befriended by the schoolyard bully, you tended to overlook the flaws of bond people in exchange for their protection” (87).
Each instructor is as unusual as the next. The Human Piranha curses liberally, sprinkling F-words into every sentence, but he knows more about bonds than nearly everyone else at Salomon. Sangfroid, tall and vaguely British, terrifies the students with his demanding questions. Lewis nonetheless likes them both for their fairness and brutal honesty. Richard O’Grady, a young lawyer turned trader, explains to the class that the way “to deal with those assholes” (93) on the forty-first floor is to curse and intimidate louder than they do.
The final class is taught by three traders from the mortgage department, the most profitable and nastiest group at Salomon. Rotund and arrogant—one smokes a huge cigar—the traders merely laugh at the students’ questions. Of the mortgage department, Lewis discovers that “not only were they the soul of the firm, they were a microcosm of Wall Street in the 1980s” (98).
Chapters 3-4 Analysis
Chapter 4’s title, “Adult Education,” suggests a hit 1980s pop tune of the same name by Hall & Oates. The song is about a teenage girl who tries to grow up in a high school where all that matters is how good you look. Becoming a grown-up is of no importance, both at school and at Salomon.
The trainees in the back row behave like rowdy teenagers, yet the sense is that they are the most likely to succeed at the aggressive, macho, and cynical job of bond trading.
Training at Salomon is a sort of boot camp, toughening students for the battles ahead. This battle, however, will sometimes be waged against the firm’s own clients, as the sales force must convince customers to purchase whatever investments the firm wants to sell, whether or not those investments are actually good for the customers. As one manager puts it: “‘C’mon, people, we’re not selling truth!’” (77).
There is a tremendous emphasis on becoming not merely tough minded but attitudinal and macho. Salomon is a men’s club, and men can be brutal toward one another as well as toward the outside world. Women rarely become traders; instead, they are assigned the more social job of selling. This can be lucrative, but it has the effect of keeping them away from the full power that the trading desk commands.
Juvenile behavior, if confident and macho, clearly pays off in the bond market. It’s almost as if real adults would never be willing to participate, nor would they likely be hired. Maturity, with its calmer and more principled ways, might interfere with the process of maximizing profits at any cost.
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