Liar's Poker

by Michael Lewis

  As the training program neared its conclusion, the back room game of Liar’s Poker grew. Bond trading had captured the imaginations of more than half the men in the class. Instead of saying “buy” and “sell” like normal human beings, they said “bid” and “offer.” All aspiring traders were making markets in anything that could be quantified, from the number of points the Giants would score to the number of minutes before the first of the Japanese fell asleep to the number of words on the back page of the New York Post. At the front of the classroom each morning a young hopeful shouted, “I’ll bid a quarter for your bagel.”

  Bonds, bonds, and more bonds. Anyone who did not want to trade them for a living wanted to sell them. This group now included several women who had initially hoped to trade. At Salomon Brothers men traded. Women sold. No one ever questioned the Salomon ordering of the sexes. But the immediate consequence of the prohibition of women in trading was clear to all: It kept women farther from power.

  A trader placed bets in the markets on behalf of Salomon Brothers. A salesman was the trader’s mouthpiece to the most of the outside world. The salesmen spoke with institutional investors such as pension funds, insurance companies, and savings and loams. The minimum skills required for the two jobs were quite differemt. Traders required market savvy. Salesmen required interpersonal skillls. But the very best traders were also superb salesmen, for they had to persuade a salesman to persuade his customers to buy bond X or selll bond Y. And the very best salesmen were superb traders and found customers virtually giving their portfolios over to them to manage.

  The difference between a trader and a salesman was more than a matter of mere function. The traders ruled the shop, and it wasn’t hard to see why. A salesman’s year-end bonus was determined by traders. A trader’s bonus was determined by the profits on his trading books. A salesman had no purchase on a trader, while a trader had complete control over a salesman. Not surprisingly, young salesmen dashed around the place looking cowed and frightened, while young traders smoked cigars. That the tyranny of the trader was institutionalized shouldn’t surprise anyone. Traders were the people closest to the money. The firm’s top executives were traders. Gutfreuntd himself had been a trader. There were even occasional rumors, probably started by the traders, that all the salespeople were going to be fired, and the firm would simply trade in a blissful vacuum. Who needed the fucking customers anyway?

  Good bond traders had fast brains and enormous stamina. They watched the markets twelve and sometimess sixteen hours a day—and not just the market in bonds. They watched dozens of financial and commodity markets: stocks, oil, natural gass, currencies, and anything else that might in some way influence the bond market. They sat down in their chairs at 7:00 A.M. and stayed put until dark. Few of them cared to talk about their jobs; they were as reticent as veterans of an unpopular war. They valued profits. And money. Especially money, and all the things that money could buy, and all the kudos that attached to the person with the most of it.

  As I had arrived at the firm with no conccrete plans for my future, I was willing to consider almost anything. Nevertheless, I quickly came to the conclusion that I could never be a bond trader from having met a great number of them and not finding one who bore the slightest resemblance to me. We had, as far as I could tell, nothing in common, and I thought as seriously of being a trader as I thought of being Chinese.

  That made me, by default, a salesman. I found imagining myself as a bond salesman only marginally more plausible than imagining myself as a bond trader. I was experiencing the same clumsiness making the transition from school to work inside Salomon as I had outside Salomon. And much to my distress the whole idea of working on the trading floor, rather than growing familiar, became more daunting as the training program progressed. The bond salesmen from the forty-first floor who spoke to us were by definition leaders in the firm, and they might have provided me with a role model, but their smooth metal surfaces offered nothing to cling to. They expressed no interests outside selling bonds, and they rarely referred to any life outside Salomon Brothers. Their lives seemed to begin and end on the forty-first floor; and I began to wonder if I wasn’t about to enter the Twilight Zone.

  More different types of people succeeded on the trading floor than I initially supposed. Some of the men who spoke to us were truly awful human beings. They sacked others to promote themselves. They harassed women. They humiliated trainees. They didn’t have customers. They had victims. Others were naturally extremely admirable characters. They inspired those around them. They treated their customers almost fairly. They were kind to trainees. The point is not that a Big Swinging Dick was intrinsically evil. The point is that it didn’t matter one bit whether he was good or evil as long as he continued to swing that big bat of his. Bad guys did not suffer their comeuppance in Act V on the forty-first floor. They flourished (though whether they succeeded because they were bad people, whether there was something about the business that naturally favored them over the virtuous are separate questions). Goodness was not taken into account on the trading floor. It was neither rewarded nor punished. It just was. Or it wasn’t.

  Because the forty-first floor was the chosen home of the firm’s most ambitious people, and because there were no rules governing the pursuit of profit and glory, the men who worked there, including the more bloodthirsty, had a hunted look about them. The place was governed by the simple understanding that the unbridled pursuit of perceived self-interest was healthy. Eat or be eaten. The men of 41 worked with one eye cast over their shoulders to see whether someone was trying to do them in, for there was no telling what manner of man had levered himself to the rung below you and was now hungry for your job. The range of acceptable conduct within Salomon Brothers was wide indeed. It said something about the ability of the free marketplace to mold people’s behavior into a socially acceptable pattern. For this was capitalism at its most raw, and it was self-destructive.

  As a Salomon Brothers trainee, of course, you didn’t worry too much about ethics. You were just trying to stay alive. You felt flattered to be on the same team with the people who kicked everyone’s ass all the time. Like a kid mysteriously befriended by the schoolyard bully, you tended to overlook the flaws of bond people in exchange for their protection. I sat wide-eyed when these people came to speak to us and observed a behavioral smorgasbord the likes of which I had never before encountered, except in fiction. As a student you had to start from the premise that each of these characters was immensely successful, then try to figure out why. And so it was, in this frame of mind, that I first watched the Human Piranha in action.

  The Human Piranha came to tell us about government bonds, though he was so knowledgeable about the handling of money that he could have spoken about whatever he wished. He was the only bond salesman who made traders nervous, because he generally knew their job better than they did, and if they screwed up by giving him a wrong price, he usually made a point of humiliating them on the hoot and holler. It gave other salespeople great satisfaction to watch him do this.

  The Human Piranha was short and square, like the hooker on a rugby team. The most unusual thing about him was the frozen expression on his face. His dark eyes, black holes really, rarely moved. And when they did, they moved very slowly, like a periscope. His mouth never seemed to alter in shape; rather it expanded and contracted proportionally when he spoke. And out of that mouth came a steady stream of bottom-line analysis and profanity.

  The Piranha, that day, began by devouring the government of France. The French government had issued a bond known as the Giscard (yes, the one described by Tom Wolfe in Bonfire of the Vanities. Wolfe learned of the Giscard from a Salomon trader; in fact, to research his fictional bond salesman, Wolfe had come to 41 and sat spitting distance from the Human Piranha). The Piranha was troubled by the Giscard, so dubbed because it had been the brainchild of the government of Valery Giscard d’Estaing. The French had raised about a billion dollars in 1978 with the bond. That wasn’t
the problem. The problem was that the bond was, under certain conditions, exchangeable into gold at thirty-two dollars an ounce—i.e., the holder of, say, thirty-two million dollars of the bonds, rather than accept cash, could demand one million ounces of gold.

  “The fuckin’ frogs are getting their faces ripped off,” said the Piranha, meaning that the French were losing a lot of money on the bond issue now that the bond had indeed become convertible and the price of gold was five hundred dollars an ounce. The stupidity of the fuckin’ frogs disgusted the Piranha. He associated it with their habit of quitting work at 5:00 P.M. The European work ethic was his bete noire, though he put it differently. He had once derided a simpering group of Salomon’s Englishmen and Continental Europeans who had complained of being overworked by calling them “Eurofaggots.”

  Once he’d finished with France, he whipped out charts to show the way a government bond arbitrage trade worked. As he spoke, the people in the front row grew nervous, and the people in the back row began to giggle, and the people in the front row grew more nervous still, fearing that the people in the back row would cause the Piranha to feed on us all. The Piranha didn’t talk like a person. He said things like “If you fuckin’ buy this bond in a fuckin’ trade, you’re fuckin’ fucked.” And “If you don’t pay fuckin’ attention to the fuckin’ two-year, you get your fuckin’ face ripped off.” Noun, verb, adjective: fucker, fuck, fucking. No part of speech was spared. His world was filled with copulating inanimate objects and people getting their faces ripped off. We had never before heard of people getting their faces ripped off. And he said it so often, like a nervous tic, that each time he said it again, the back row giggled. The Human Piranha, a Harvard graduate, thought nothing of it. He was always like this.

  Dozens of salesmen and traders from each of the three bond groups (governments, corporates, and mortgages) passed through our program. I recall only a few. The Human Piranha came from governments and was typical not so much of the department as of the entire Fuckspeak movement on the Salomon trading floor. A man from corporates came at verbal expression from a more novel angle. This man took a different, more thoroughly intimidating approach to us. The Human Piranha had rattled the front-row people, but to the back-row people he was just weird. The man from corporates rattled everyone.

  He arrived early one morning unannounced, about nine weeks into the program. His name was… well, let’s call him Sangfroid, for the ice water that coursed through his veins. A mild British accent heightened the chill that shot through the air when he spoke. He was sufficiently tall to see out over the entire classroom, which was twelve seats across and extended back perhaps fifteen rows. An aisle of steps ran through the room, front to back. For a minute after he arrived, he said nothing. A minute seems longer when it belongs exclusively to a tall, chilly man in a gray suit staring at 127 wired trainees.

  Sangfroid then walked up the aisle. At times like this the back row inclined to craven panic. You could hear them whispering: “Why’s he coming back here? He can’t do that. What… is… he… doing: But he stopped before he reached the back. He picked out someone sitting on the edge of his seat in the middle of the room and asked, ”What is your name?“

  “Ron Rosenberg,” said the trainee.

  “Well, Ron,” said Sangfroid, “what is LIBOR today?”

  LIBOR? LIBOR? A dozen back-row people whispered to the person next to them, “What the fuck is LIBOR?” LIBOR is an acronym for London interbank offered rate; it is the interest rate in London at which one bank lends to another; and it is available at 8:00 A.M. London time, or 3:00 A.M. New York time. That gave the trainee four whole hours to find out the LIBOR rate before class began at 7:00 A.M. Along with every other fact in the bond markets, Sangfroid expected us to have LIBOR on the tips of our tongues.

  “This morning,” said Ron, “LIBOR is seven-point-two-five percent, which puts it up twenty-five basis points from yesterday.” Amazing. Sangfroid had called on the one person in the class who actually knew the LIBOR rate. At least half the class couldn’t have told you what LIBOR meant, much less where it had traded that day.

  Nevertheless, Sangfroid took the answer in stride; he did not even congratulate Rosenberg. He resumed his stroll toward the back of the class, and the tension rose with each step.

  “You,” he said to a back-row person, “what is your name?”

  “Bill Lewis,” said the trainee.

  “Bill, where is the TED spread this morning?” Sangfroid said, turning up the heat. The TED spread was the difference between the LIBOR rate and the interest rate on three-month U.S. treasury bills. The bill rate became available only a half hour before class started. It didn’t matter. Lewis hadn’t a clue to anything. With Lewis, ignorance was a matter of principle. He reddened, bit his lip, and looked defiantly at Sangfroid. “I don’t know.”

  “Why not?” shot back Sangfroid.

  “I didn’t look at it this morning,” said Lewis.

  Contact! This is exactly what Sangfroid had ventured into the back of the room to find. Ignorance. Sloth. Lack of commitment to the cause. This was unacceptable, he told us. A Salomon trainee had to be current and competent, as Gutfreund liked to say. No wonder a very poor impression of us was being formed on the trading floor. And so on. Then he left, but before he did, he let us know that he would be stopping in from time to time.

  Sangfroid and the Human Piranha turned out to be two of my favorite people on the forty-first floor. There was no bullshit about them. They were brutal, but they were also honest and, I think, fair. The problems on 41 were caused by people who were tough but unfair, otherwise known, under the breath of many a trainee, as flaming assholes. You survived the Human Piranha and Sir Sangfroid by simply knowing what you were about. How, though, did you survive a trader who threw a phone at your head every other time you passed his desk? How did a woman cope with a married managing director who tried to seduce her whenever he found her alone? The training program wasn’t a survival course, but sometimes a person came through who put the horrors of 41 into perspective. For me it was a young bond salesman, just a year out of the training program and at work on 41, named Richard O’Grady.

  When O’Grady entered the classroom, the first thing he did was to have the video that usually recorded events shut off. Then he closed the door. Then he checked for eavesdroppers on the ledges outside the twenty-third-floor windows. Only then did he sit down.

  He began by telling us how he had come to Salomon. He had been one of the firm’s lawyers. The firm’s lawyers, when they saw how good traders had it, often ended up as traders themselves. The firm had actually invited O’Grady to apply. He interviewed on a Friday afternoon. His first meeting was with a managing director named Lee Kimmell (at this writing a member of the executive committee). When O’Grady walked into Kimmell’s office, Kimmell was reading his resume. He looked up from the resume and said, “Amherst Phi Beta Kappa, star athlete, Harvard Law School, you must get laid a lot.” O’Grady laughed (what else do you do?).

  “What’s so funny?” asked Kimmell.

  “The thought that I get laid a lot,” said O’Grady.

  “That’s not funny,” said Kimmell, a viciousness coming into his voice. “How much do you get laid?”

  “That’s none of your business,” said O’Grady.

  Kimmell slammed his fist on his desk. “Don’t give me that crap. If I want to know, you tell me. Understand?”

  Somehow O’Grady squirmed through this interview and others, until, at the end of the day, he found himself facing the same man who had given me my job, Leo Corbett.

  “So, Dick,” said Corbett, “what would you say if I offered you a job?”

  “Well,” said O’Grady, “I’d like to work at Salomon, but I’d also like to go home and think it over for a day or two.”

  “You sound more like a lawyer than a trader,” said Corbett.

  “Leo, I’m not making a trade; I’m making an investment,” said O’Grady.

  “I don�
�t want to hear any of that Harvard Law School clever bullshit,” said Corbett. “I’m beginning to think you would be a real mistake… I’m going to walk out of here and come back in ten minutes, and when I come back, I want an answer.”

  O’Grady’s first reaction, he said, was that he had just made a catastrophic error in judgment. Then he thought about it like a human being (what was so refreshing about O’Grady was that unlike the other men from 41, he seemed genuinely human). Salomon had invited him to interview. Where did these butt-heads get off issuing ultimatums? O’Grady worked himself into an Irish rage. Corbett was gone far longer than he promised, making O’Grady even angrier.

  “Well… ” said Corbett, upon his return.

  “Well, I wouldn’t work here for all the money in the world,” said O’Grady. “I have never met more assholes in my entire life. Take your job and stick it up your ass.”

  “Now I am finally beginning to hear something I like,” said Corbett. “That’s the first smart thing you’ve said all day.”

  O’Grady stormed out of Salomon Brothers and took a job with another Wall Street firm.

  But that was only the beginning of the story. The story, O’Grady said, resumed a year after he had told Leo Corbett where to stick his job offer. Salomon had called him again. It had apologized for the way it had behaved. It had been smart to do so because O’Grady became not only an excellent bond salesman but also a rare and much needed example of goodness on the trading floor (I think I once even saw him give spare change to a beggar). The surprise was not that Salomon called him, but that O’Grady had agreed to listen. The only thing history teaches us, a wise man once said, is that history doesn’t teach us anything. O’Grady took a job with Salomon Brothers.