Liars Poker by Michael Lewis is a Story of Salomon Brothers. More specifically, it is the author's personal account of the culture within Salomon Brothers and why the company ultimately was bought out in the late 90s. Lewis details his days as a trainee in Salomon brothers and tells the story of the legendary mortgage department headed by Lewis Ranieri. Back in the 80s, mortgage backed securities were non-existent. As interest rates rose to historically high levels, savings and loans across the country were in deep trouble. The interest rate they were paying to depositors was repricing far faster than their mortgage books. They were paying 15% on deposits and making 6% on loans. In such a desperate position, there was urgency to remove these mortgages from the balance sheet, which is where Salomon Brothers enters the picture. Lewis Ranieri had been building a mortgage department for several years prior at Salomon (on a theory that it would be profitable one day), and unlike every other investment bank in the country, was ready to start buying mortgages from these distressed S&Ls. In desperation, the S&Ls would sell their mortgages for a steep discount to Salomon, who would subsequently package them into bonds and sell to their institutional investors. Michael Lewis details how this empire was built while also describing the culture on the trading floor.
"Lewie would say he thought the market was going up, and buy a hundred million [dollars’ worth of] bonds. The market would start to go down. So Lewie would buy two billion more bonds, and of course, the market would then go up."
Accounts like these make this story--the story of the U.S. Housing market far more interesting than one may assume a finance book might be. In addition to the mortgage department, Lewis discusses the incentive compensation system at Salomon (where Traders and managers could make millions per year) and some of the events that caused Salomon to lose its competitive advantage to the likes of Michael Milken (Drexel Junk Bonds) and other investment banks.
This book is a great inside look into Wall Street and for anyone in the finance industry, a must read.