Liar’s Poker, by Michael Lewis

Michael Lewis’s Liar’s Poker explains to the lay reader such arcane subjects as mortgage and junk bond markets. As an employee with Salomon Brothers during the mid-eighties, Lewis gives a mildly amusing insiders account of his time with the firm. The more substantial sections of the book provide a well researched financial history of mortgage bond markets, the same financial product that would play a pivotal part in the 2007 subprime crisis.

Michael Lewis goofed his way into an entry level position with the prestigious Salomon Brothers in the mid-eighties. Within a couple of years he had managed to join that elite of traders known as the ‘Big Swinging Dicks’. But the buzz of making huge amounts of money soon left him cold, and Lewis quit the firm.

Liar’s Poker is Lewis’s memoir of that period during the eighties when junk bonds, collateral debt obligations and other dubious financial products made their debut, wreaking eventual economic havoc. This was a period of fierce financial innovation. New, dazzling financial products were being brought onto the market so quickly that only young bond traders could really understand them.

Lewis’s memoir covers the cocky attitudes of young trainees, the high testosterone environment of aggressive finance, and the almost pointless and self-defeating greed of the industry. The autobiographical sections of the book are interesting enough, but feel a bit dated and thin when reading them today (the book was originally published in 1989).

The most interesting section (and I’m guessing the reason the book is still published today), is the chunky middle part that details the rise of the mortgage bond market and the invention of the collateralised mortgage obligation, or CMO. This is where the debts of a whole lot of mortgages are pooled together and sold off as an investment. Fast forward to the 2007 sub prime melt down, and you can see where the problem originated. How this bond market came into being and flourished makes for fascinating reading.

Lewis also provides an interesting chapter on how junk bonds were born. For anyone interesting in financial history, Lewis has a knack for explaining complex financial transactions in a down to earth language.

By and large Liar’s Poker is interesting enough. Personal memoirs of working life in big and powerful institutions can tend to lean to the dull side. Students of junk and mortgage bond markets would probably be better to go for a straight financial history of the period. The big laughs promised on the cover blurb by Tom Wolfe didn’t really materialise for this reader.

Liar’s Poker, by Michael Lewis. Published by Hodder. ISBN: 978-0-340-83966-6