Finance
by Michael Lewis
How did a rookie get so rich?
In 1985 Michael Lewis, an art history graduate who barely knew what a bond was, joined Salomon Brothers, then the biggest name in bond trading. Soon he was a salesman in London, advising professional investors on millions. His book asks how on earth that could happen.
Hear a sample · read by Laura
In October 1979 Paul Volcker's Federal Reserve stopped holding interest rates steady and began targeting the money supply instead. Rates started to swing, and bond prices swung with them. Bonds had been a sleepy corner for cautious savers. Now they were something to trade, and Salomon traded more than anyone.
Lewis Ranieri rose from the post room to run Salomon's mortgage desk. A 1981 tax break rewarded America's savings and loans for selling home loans at a loss, and they sold in a rush. Ranieri's traders stood in the middle, turning loans into bonds and earning on each trade.
Lewis soon learned that when traders wanted to get rid of bonds, a salesman's job was to find someone to take them. Early on he talked a trusting client into bonds that promptly fell, and the traders were delighted with him. The firm's gain could be his customer's loss.
Getting in
Lewis got his job at Salomon through a lucky seat at a dinner party, with a degree in art history.
The bet
The chairman once challenged the firm's top bond trader to a game of liar's poker with $1 million riding on it.
Mortgages
Salomon made fortunes by bundling home loans into bonds that almost nobody else understood.
Customers
A salesman could be praised for selling clients bonds the firm wanted to get rid of.
Keeping score
Young traders were paid huge sums, and money came to feel like the only way to keep score.
A story from the book
Salomon's chairman, John Gutfreund, once challenged John Meriwether, his star bond trader, to a single hand of liar's poker for a million dollars. Meriwether said that if they were playing for numbers like that, he'd rather play for real money, ten million. Gutfreund turned him down.
Hot take · true or myth?
A bond salesman's first loyalty was to his customer.
Myth. Lewis learned he was often there to move bonds the traders wanted rid of. If the customer lost money on them, the firm could still come out ahead.
One thing to try
The next time someone recommends a financial product to you, whether a pension, an insurance policy or a fund, ask how they're paid for selling it. Write the answer down before you decide. Lewis found the salesman's interests and the customer's could point opposite ways.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. Liar's Poker comes with a Hot Take round to make it stick.
Get the whole book on KnotdOpen in the appHow did a rookie get so rich? In 1985 Michael Lewis, an art history graduate who barely knew what a bond was, joined Salomon Brothers, then the biggest name in bond trading. Soon he was a salesman in London, advising professional investors on millions. His book asks how on earth that could happen.
Volcker changed the game; Ranieri's mortgage machine; Whose side is the salesman on?.
The next time someone recommends a financial product to you, whether a pension, an insurance policy or a fund, ask how they're paid for selling it. Write the answer down before you decide. Lewis found the salesman's interests and the customer's could point opposite ways.
Yes. Knotd has the key ideas from Liar's Poker in a few minutes, in plain words, plus a Hot Take round to test them. It's one of 250+ non-fiction books in the app.
