Liars Poker by Michael Lewis

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Liars Pokerby Michael Lewis
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Liars PokerPlot

• Initially man versus man - satire on the
  in-your-face Money Meritocracy on Wall Street and
  its bizarre, but not unexpected, affects on human
  behavior.
• Concluding - man versus self - a realization of
  the short-lived victory provided by money.

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Liars PokerThe Context

• Investment banking in general and securities
  trading specifically.
• At one of the oldest the biggest I-banks.
• During a transition period for Wall Street
  Capital Markets.
• With bigger than life personalities.

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Liars PokerScenario

• The 1980s. Beginning of widespread computer use
  and mass telecommunications.
• Reaganomics reigns tax cuts, massive fiscal
  spending, deregulation.
• Regulatory structural changes in banking
  (DDMCA) and financial securities.
• Baby Boomers hit the B-Schools.
• M A work spirited by industrial economic
  shifts and the markets are booming.

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Liars PokerThe Culture

• Greed is more than OK, its wonderful.
• Spending is a status symbol.
• Investment banks step out of the shadows and
  provide the perfect stage for a satire on greed
  and the manipulation of human relationships that
  follow.
• And the corporate aristocracy meets the academic
  meritocracy.

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Liars PokerThe Game

• Play for significant stakes, enough to cause
  anxiety.
• Use a common 1 bill.
• Look at the serial numbers as if this is a Poker
  hand.
• It is a zero-sum game of truth bluff.
• An analogy for how security-traders treated their
  customers.

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Liars PokerThe Meaning of the Game

• When You think you are playing the Game, someone
  is playing You.

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Liars PokerThemes

• The power of Money
• Greed sows its own seeds of destruction.
• Theres a difference between being rich and being
  wealthy (Chris Rock).
• Things can change pretty fast.

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The novels conclusion a question and answer
about value pecuniary or intrinsic wealth
happiness, loyalty
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Liars PokerBook Outline

• Chapter 1 A vignette as the introduction. 5
• Chapters 2-4 The Training Class.61
• Chapters 5-6 History The Money Machine -
  mortgage bonds. 55
• Chapter 7 Explosion at Salomon. 17
• Chapter 8 Mentoring Mr. Lewis. 32
• Chapter 9 Social Darwinism. 21
• Chapter 10 Money Madness. 23 ?
• Chapter 11 What goes around 22
• Epilogue Mr. Lewis epiphany. 3

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Mortgage Banking
3. The local bank sells the mortgages to big,
I-banks to get cash to start over again.
1. Deposits are a source of cash for local banks.
The Local Bank
4. The I-bank sells packages the local
mortgages, creates a CMO, and sells these to
investors
2. Local bank makes local mortgage loans.
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The effect of This

• Local banks become a conduit of debt paper to
  national global financial intermediaries.
• Local mortgage risk is sold away, aggregated with
  other local mortgage risk presumably reduce
  overall mortgage risk (thru diversification).
• Local banks no longer hold their own mortgages,
  they sell them, get cash, and loan-it-out again
  local markets become more liquid.
• The price of mortgages is now set outside the
  local market. Greshams Law?

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Liars PokerQuotes

• Analysts dont analyze anything they are just
  slaves to the negotiations and paperwork of new
  issues of stocks and bonds p23.
• Few people would claim they actually liked
  studying economics. Studying economics was more
  of a ritual sacrifice p24.
• Learning a new lie was easy p30.
• In any market, as in any poker game, there is a
  fool. Warren Buffet is fond of saying that any
  player unaware of the fool in the market probably
  is the fool p35.

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Liars PokerQuotes

• Equities in Dallas p47.
• He saw you and instantly knew who you were. A
  cost center p52.
• a rule of thumb about information in the
  markets those who say dont know, and those
  who know dont
• Cmon people, were not selling truth! p62.
• You survived the Human Piranha or Sir Sangfroid
  by simply knowing who you were p73.

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Liars PokerQuotes

• The rarest and most valuable asset a Wall Street
  firm can possess a monopoly p134.
• To attract new investors and to dodge new
  regulations, the market became ever more arcane
  and complex p139.
• Investors do not fear losing money as much as
  they fear solitude when they are caught losing
  money alone, they have no excuse for their
  mistake p175.
• I spent much of my working life inventing logical
  lies p187.

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Liars PokerQuotes

• Milken possessed both raw trading skills and
  patience with ideas. He had an attention span
  p214.
• It focused on the past when it should have
  focused on the future, and it was burdened by a
  phony sense of prudence p216.
• They assume that anything that enables them to
  get rich must be good for the world p222.

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