One of the best things I get out of reading financial non-fiction is to experience the world through another practitioner’s eyes. In the case of the non-fiction financial book “Liar’s Poker” by Michael Lewis, it allows me to get into the world of investment banking without actually ever stepping into the world of investing banking.
The great thing about reading real-life personal stories about people in different industries is that you get to live their life (a little) through their accounts of what they felt, thought and went through in their book. In the case of “Liar’s Poker”, Michael Lewis shares the semi-autobiographical account of his days at Salomon Brothers, a US Wall-Street investment bank that was famous in the 80s and 9os in being a bonds salesman in the bank and the development of the mortgage bond trading market.
Unlike a textbook on bond trading or investment banking, “Liar’s Poker” takes you into the world through the eyes of the various key players in the market then. Interesting personalities such as Michael Milken (junk bond king) and others such as Salomon Brothers Chairman John Gutfreund, traders John Meriwether and Lewis Raineri.
What I got out of “Liar’s Poker”
I learnt more about the way investment banks operate even though this was in the 80s. The way the investment banks risked capital to make fortunes for bank’s owners and shareholders by trading in various investments especially during the mortage bond market explosion is reminiscent of how the global banking system imploded from the sub-prime situation. The 80s saw the US Savings and Loans (or Thrifts) go bankrupt as they had to pay high savings rates for deposits and yet could issue loans that covered those rates leading them to invest in higher yielding but ultimately riskier mortgage bonds or bonds securitised using mortgages as the underlying assets.
The type of financial alchemy that saw the Collateralised Debt Obligations and Mortgage Backed Securities being the instruments of mass (financial) destruction during the subprime crisis in the 2007-2009 period is basically an episode where history repeats itself. It is uncanny how the situation described by Michael Lewis who published the book in 1989 is so similar to what we see in the global financial crisis.
I truly believe that those who fail to learn from history are destined to repeat it.
The key lesson I learnt is “caveat emptor” or let the buyer beware. You need to understand what you’re buying or selling i.e. know how to value an asset in order to get a good price when you buy or sell. If not, you’re totally screwed up the market counter-party who is on the other side of the transaction. While Lewis shared the humorous part of what investment bankers did to “jam” or sell securities to clients, he also shared the ugly part about how sometimes (or many times) the client is in fact being sold securities that the investment bank wants to get rid of.
It’s truly a brutal world out there and you look out for yourself or be eaten alive.
What books have you read that helped you to have fun and at the same time profit from it?
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Be well and prosper.
One of the critical things that I’ve learnt during my 
