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Michael Lewis's first book, Liar's Poker, is the ultimate case study of misaligned incentives. The book covers the rise of Salomon Brothers as the king of bond trading in the 80s, and the many perverse incentives that later lead to their downfall. Throughout this episode, we learn what NOT to do when running a business, and as Charlie Munger likes to say, invert always invert! We'll discuss how Salomon Brothers built a thriving monopoly in mortgage bonds only to lose it all within 5 years, how traders were always incentivized to screw over their customers first, and how the money game rewarded disloyalty within the firm. Get excited for the wild Wolf of Wall Street-esque debauchery in Liar's Poker!
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Liar's Poker - Michael Lewis
What NOT to do episodes: Bull! A History of the Dotcom Bust, A Short History of Financial Euphoria, Zeckendorf, The Liar's Ball
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The Web of Ideas: Liar's Poker (my notes on the book)
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Show Notes:
3:59 - Michael Lewis joins Salomon Brothers
8:38 - They have PhDs in man's ignorance
12:31 - Fraternal Wolf of Wall Street-esque culture
18:04 - Dog-eat-dog world of the trading floor
21:09 - Lewis Ranieri: The Father of the Mortgage-Backed Security
28:06 - From laughingstock to a thriving monopoly
35:38 - A stamp from the government quells all fears
39:15 - Feeling on top of the world but not getting paid like it!
43:05 - The disintegration of the Salomon mortgage department
48:54 - History never repeats but man always does
51:01 - Customers have short memories, they'll forget about it!
54:48 - Selling him something I probably wouldn't touch with a barge pole...
57:50 - Salomon turns to a friendly savior
1:04:44 - The money game rewarded disloyalty
