Liar's Poker
Liar’s Poker caught my attention from an HN comment I believe—it was among a list of books that described different Wall St. eras. It describes some of the business and financial evolutions during the 1980s.
It reveals a lot of what was deemed important at the time—bond traders able to make risky and profitable trades. The culture sounds both fratty and political, with an overwhelming focus on bringing in money for the firm.
At the same time, compensation and even hiring philosophy was different. The best traders found themselves keeping a relatively trivial cut of the profits they brought in. The trading force brought in most of its new heads through college recruiting. Interestingly, that practice is also pretty common for software today.
There’s also a lot of mismanagement—most notably, upper management seemed unable to understand ground level forces and the sentiment of its employees. While not as egregious as it sounds in the book, this also seems pretty widespread today.
Financially, the book focuses on bonds. I don’t understand enough finance to really understand what was going on, other than traders taking on seemingly poorly-reasoned risk and dumping that risk on their clients.
The 80s are also when the CMO was invented. Mortgages were previously ignored by Wall St. because they weren’t predictable—a borrower who paid off their mortgage early could be a boon or a burden, depending on your initial assumptions. CMOs helped to fix this, aggregating risk across multiple mortgages and allowing investors to buy the level of risk they were interested in.
It’s probably a good read for those interested in Wall St. history or who know a bit about financial markets. While an interesting read, I think I would have appreciated some of the stories more had I known more about trading.