Liar’s Poker was a game to prove you could handle risk. A good player made a good trader. Meriwether played before the game began, beating his superior Gutfreund by taking a million dollar one-round challenge and raising to ten million.
There is a magic moment during which a man has surrendered a treasure, and during which the man who is about to receive it has not yet done so. An alert lawyer [read bond trader] will make that moment his own, possessing the treasure for a magic microsecond, taking a little of it, passing it on. —Kurt Vonnegut on lawyers
The 1979 policy change to make the money supply fixed with floated interest rates marked the beginning of the golden age of the bond man. One trader went from moving 5 million per day to 300 million dollars per day. In October 1981, there were suddenly a thousand sellers and no buyers. Every home mortage in America seemed to be for sale.
Knowing about markets is knowing about other people’s weaknesses.
Producing in an investment bank was less of a matter of skill and more a matter of intangibles — flair, persistence and luck. This is why investment banking pay so many people with so little experience so much money.
Managing directors became interested in trainees if the trainees were desirable.
The Human Piranha hated the European work ethic — “Eurofaggots” quit work at 5pm and deserved their losses.
Problems on the 41st floor were caused by people who were tough but unfair, giving verbal/sexual/physical abuse on the job.
Cash was no problem if the investor could reinvest it at the same rate interest as the original loan, or at a higher rate. Salomon bond traders made money by putting their fingers on the pulse of the market, ignoring conscious decisions about what to do until afterwards.
Challengers took jobs by being a little more energetic, popular with clients and influential with colleagues until the current job holder became quietly obsolete.
Blackjack is the only non-independent outcome game in the casino, what happens in the past affects what will happen in the future. You make bigger bets when you have a statistical advantage. At Salomon they did the same with mortgages and statistical information on homeowners.
Investors around the world envied Warren Buffett. Buffett invested into a convertible preferred which bore an interest rate of 9% but was also tradeable before 1996 for Salomon common stock at 39$/share. Buffett was making only the safe bet that Salomon would not go bankrupt.
Becoming an investor
Although economic theory served almost no function in an investment bank, it was used as a standardised test of general intelligence for interview candidates. They were also expected to define Commercial Banking, Investment Banking, Ambition, Hard Work, Stock, Bond, Private Placement, Partnership, The Glass-Steagall Act.
Michael Lewis was interviewed by an old friend from Princeton.
A new employee was handed a pair of telephones when he reached the trading floor. If he could make millions of dollars, he became a Big Swinging Dick and the idol of other traders, irrespective of experience and tenure. “Hey, you Big Swinging Dick, way to be” was the christening from the managing director above. Big Swinging Dicks were not intrinsically evil, it just didn’t matter as long as their appendages continued to be wielded.
The Salomon firm created a training programme, filled it but let anarchy form in the back rows. These people shed their prior ivy-league intellect to become savage, as they believed traders must be, and drove out the good. Many other banks had no training programme and recommended applicants to get hold of the Salomon training programme through a friend.
Old trader lessons
God gave you eyes
An old equity traded gave three pieces of advice:
- “When I’m trading, you see, I don’t stop to pat myself on the back. Because when I pat myself on the back, the next sensation is usually a sharp kick lower down. And it isn’t so pleasant.”
- “In the land of the blind the one-eyed man is king.”
- “Those who say don’t know, and those who know don’t say.”
Never agree to anything proposed on someone else’s boat or you’ll regret it in the morning. Equity traders seduced their candidates with lavish boat rides off Manhatten. “Coyote morning” followed, full of regret for the traders who had made commitments.
I don’t do favours. I accumulate debts. —Ancient Sicilian motto
Help from colleagues
Alexander taught an attitude towards markets. He tried to do the opposite of most traders, risking losing money alone and taking the fall. He looked for secondary effects, buying oil futures after Chernobyl instead of focussing attention on nuclear power like all the other traders. He immediately shifted to potatoes considering the cloud of fallout threatening European food and water supplies. “When you arrive at six-thiry am, having had no sleep the night before, and having lost your best friend in a car accident, and some Big Swinging Dick walks over to your desk, slaps you on the back and says, ‘How the hell are you’, you don’t say, ‘I’m really tired and really upset.’ You say, ‘I’m great, how the hell are you?’”
Dash taught social skills, placing calls to clients upright but sales calls hunkered over, head under the desk as a sound-proof booth.
Attitude to customers
The worst thing a man can do with a telephone without breaking the law is to call someone he does not know and try to sell that person something he does not want. Michael called Parisians in The Euromoney Guide – “I thought you spoke French… No, that was just on my résumé.”
Whenever a trader screwed a customer the question was “Who do you work for?” Salomon. The only justification for this policy was that “Customers have very short memories.” The beauty of being a middleman was that the customer suffered and the middleman didn’t. The greater the praise lavished upon a salesman within Salomon, the greater the eventual suffering of the customer.
Relationship to money
Money was the absolute measure of one’s value to the firm. Paying one type of trader more than another made the treasury trader feel unwanted.
If your sense of self-worth it tied to money then you believe you deserve what you get and take it as a reflection of something grand inside. A self-possessed man with detachment from money would laugh himself to sleep at his good fortune. The bonus at new year was the final summing up, like meeting with the divine Creator to be told your worth as a human being.
The money game rewarded disloyalty: the people who hopped from firm to firm and, in the process, secured large pay guarantees did much better financially than people who stayed in one place.