Liar's Poker

Salomon Brothers hired Lewis after Princeton and the London School of Economics, and he became a bond salesman in London before leaving in early 1988. The book braids that memoir with a history of the firm at its peak, when John Gutfreund ran it as the most profitable trading house on Wall Street and the mortgage traders were minting money.

The history is the part finance readers should not skip. Lewis explains how Volcker's shift in monetary policy made interest rates volatile and bonds a trading business, and how Ranieri's department packaged savings-and-loan mortgages into mortgage-backed securities that made Salomon rich.

The book made Lewis's career and led to The Money Culture, The Big Short and Flash Boys. It is an unflattering picture of traders and salespeople, and the history section relies on interviews rather than Lewis's own experience. Lewis has often noted, with some dismay, that many students read it as a guide to getting hired. The 2014 25th-anniversary edition adds a new afterword.

Read it before your first day on a trading floor, then read The Big Short to see how the mortgage machine evolved.

1. Know whose side the salesman is on. Lewis shows how firms could unload positions on customers, and why clients should ask what a dealer gains from a trade.
2. Market structure creates profits. Salomon's mortgage fortune came from being first into a market that rate volatility and regulatory change had just created.
3. Edges do not last. Competitors hired Salomon's traders and copied its business, and Drexel's junk bonds took the spotlight within a few years.
4. Culture drives risk. A firm that rewards bravado and short-term revenue will take risks its leaders do not fully see.
5. Leadership matters. Gutfreund's management, from the Perelman episode to the departure of key traders, shaped Salomon's slide as much as markets did.

The book has eleven chapters and an epilogue, alternating between Lewis's story and the firm's.

1. The game. It opens with the bar game of the title and a famous challenge between Gutfreund and the arbitrageur John Meriwether, setting the tone for a firm run on bravado.
2. Getting hired and trained. Lewis describes his lucky route into Salomon and its training program, where trainees sorted themselves into those who sat at the front of the class and the back-row cynics, and the trading floor was the only destination that mattered.
3. The mortgage machine. Several chapters step back to tell how Volcker's rate policy and the thrift crisis created the mortgage-bond market, and how Lewis Ranieri's traders came to dominate it.
4. From geek to man. In London, Lewis learns to sell, takes on a client portfolio and discovers that what is good for the firm is not always good for his customers.
5. Decline. The final chapters cover the defections of the mortgage traders, the rise of Drexel and junk bonds, the Perelman episode and Buffett's investment, and the October 1987 crash, before Lewis decides to quit.

The time was the 1980s. The place was Wall Street. The game was called Liar’s Poker. Michael Lewis was fresh out of Princeton and the London School of Economics when he landed a job at Salomon Brothers, one of Wall Street’s premier investment firms. During the next three years, Lewis rose from callow trainee to bond salesman, raking in millions for the firm and cashing in on a modern-day gold rush. Liar’s Poker is the culmination of those heady, frenzied years—a behind-the-scenes look at a unique and turbulent time in American business. From the frat-boy camaraderie of the forty-first-floor trading room to the killer instinct that made ambitious young men gamble everything on a high-stakes game of bluffing and deception, here is Michael Lewis’s knowing and hilarious insider’s account of an unprecedented era of greed, gluttony, and outrageous fortune.