Liar's Poker

by Michael Lewis

  A complete hush enveloped the Great Hall of St. James’s Palace. As the queen mother drew near, the insurance salesmen bowed their heads like churchgoers. The corgis had been trained to curtsy every fifteen seconds by crossing their back legs and dropping their ratlike bellies onto the floor. The procession at last arrived at its destination. We stood immediately at the queen mother’s side. The Salomon Brothers wife glowed. I’m sure I glowed, too. But she glowed more. Her desire to be noticed was tangible. There are a number of ways to grab the attention of royalty in the presence of eight hundred silent agents of the Prudential, but probably the surest is to shout. That’s what she did. Specifically, she shouted, “Hey, Queen, Nice Dogs You Have There!”

  Several dozen insurance salesmen went pale. Actually they were already pale, so perhaps I exaggerate. But they cleared their throats a great deal and stared at their tassel loafers. The only person within earshot who didn’t appear distinctly uncomfortable was the queen mother herself. She passed out of the room without missing a step.

  At that odd moment in St. James’s Palace, representatives of two proud institutions had flown their finest colors side by side: The unflappable queen mother gracefully dealt with an embarrassing situation by ignoring it; the Salomon Brothers managing director’s wife, drawing on hidden reserves of nerve and instinct, restored the balance of power in the room by hollering. I had always had a soft spot for the royals, and especially the queen mother. But from that moment I found Salomon Brothers, the bleacher bums of St. James’s, equally irresistible. I mean it. To some, they were crude, rude, and socially unacceptable. But I wouldn’t have had them any other way. These were, as much as any investment bankers could be, my people. And there was no doubt in my mind that this unusually forceful product of the Salomon Brothers culture could persuade her husband to give me a job.

  I was soon invited by her husband to the London offices of Salomon and introduced to traders and salesmen on the trading floor. I liked them. I liked the commercial buzz of their environment. But I still did not have a formal job offer, and I wasn’t subjected to a proper round of job interviews. It was pretty clear, considering the absence of harsh cross-examination, that the managing director’s wife had been true to her word and that Salomon intended to hire me. But no one actually asked me to return.

  A few days later I received another call. Would I care to eat breakfast at 6:30 A.M. at London’s Berkeley Hotel with Leo Corbett, the head of Salomon recruiting from New York? I said naturally that I would. And I went through the painful and unnatural process of rising at 5:30 A.M. and putting on a blue suit to have a business breakfast. But Corbett didn’t offer me a job either, just a plate of wet scrambled eggs. We had a pleasant talk, which was disconcerting, because Salomon Brothers’ recruiters were meant to be bastards. It seemed clear Corbett wanted me to work at Salomon, but he never came right out and proposed. I went home, took off the suit, and went back to bed.

  Finally, puzzled, I told a fellow student at the London School of Economics what had happened. As he badly wanted a job with Salomon Brothers, he knew exactly what I had to do. Salomon Brothers, he said, never made job offers. It was too smart to give people the chance to turn it down. Salomon Brothers only gave hints. If I had been given a hint that it wanted to hire me, the best thing for me to do was call Leo Corbett in New York and take the job from him.

  So I did. I called him, reintroduced myself, and said, “I want to let you know that I accept.”

  “Glad to have you on board,” he said, and laughed.

  Right. What next? He explained that I would start life at “the Brothers” in a training program that commenced the end of July. He said that I would be joined by at least 120 other students, most of whom would have been recruited from colleges and business schools. Then he hung up. He hadn’t told me what I would be paid, nor had I asked, because I knew, for reasons that shall soon emerge, that investment bankers didn’t like to talk about money.

  Days passed. I knew nothing about trading and, as a result, next to nothing about Salomon Brothers, for Salomon Brothers is, more than any other on Wall Street, a firm run by traders. I knew only what I had read in the papers, and they said that Salomon Brothers was the world’s most profitable investment bank. True as that might be, the process of landing a job with the firm had been suspiciously pleasant. After some initial giddiness about the promise of permanent employment, I became skeptical of the desirability of life on a trading floor. It crossed my mind to hold out for a job in corporate finance. Had it not been for the circumstances, I might well have written to Leo (we were on a first-name basis) to say I didn’t want to belong to any club that would have me so quickly for a member. The circumstances were that I had no other job.

  I decided to live with the stigma of having gotten my first real job through connections. It was better than the stigma of unemployment. Any other path onto the Salomon Brothers trading floor would have been cluttered with unpleasant obstacles, like job interviews. (Six thousand people had applied that year.) Most of the people with whom I would eventually work were badly savaged in their interviews and had grisly stories to tell. Except for the weird memory of Salomon’s assault on the British throne, I had no battle scars and felt mildly ashamed.

  Oh, all right, I confess. One of the reasons I pounced on the Salomon Brothers opportunity like a loose ball was that I had already seen the dark side of a Wall Street job hunt and had no desire to see it again. As a college senior in 1981, three years before the night I got lucky in St. James’s Palace, I applied to banks. I have never seen men on Wall Street in such complete agreement on any issue as they were on my application. A few actually laughed at my resume. Representatives from several leading firms said I lacked commercial instincts, an expensive way, I feared, to say that I would spend the rest of my life poor. I’ve always had difficulties making sharp transitions, and this one was the sharpest. I recall that I couldn’t imagine myself wearing a suit. Also, I’d never met a banker with blond hair. All moneymen I’d ever seen were either dark or bald. I was neither. So, you see, I had problems. About a quarter of the people with whom I began work at Salomon Brothers came straight from college, so passed a test that I failed. I still wonder how.

  At the time, I didn’t give trading so much as a passing thought. In this I wasn’t unusual. If they’d heard of trading floors, college seniors considered them cages for untrained animals, and one of the great shifts in the 1980s was the relaxing of this pose by the most expensively educated people in both America and Britain. My Princeton University Class of 1982 was among the last to hold it firmly. So we didn’t apply to work on trading floors. Instead we angled for lower-paying jobs in corporate finance. The starting salary was about twenty-five thousand dollars a year plus bonus. When all was said and done, the pay came to around six dollars an hour. The job title was “investment banking analyst.”

  Analysts didn’t analyze anything. They were slaves to a team of corporate financiers, the men who did the negotiations and paper work (though not the trading and selling) of new issues of stocks and bonds for America’s corporations. At Salomon Brothers they were the lowest of the low; at other banks they were the lowest of the high; in either case theirs was a miserable job. Analysts photocopied, proofread, and assembled breathtakingly dull securities documents for ninety and more hours a week. If they did this particularly well, analysts were thought well of by their bosses.

  This was a dubious honor. Bosses attached beepers to their favorite analysts, making it possible to call them in at all hours. A few of the very best analysts, months into their new jobs, lost their will to live normal lives. They gave themselves entirely over to their employers and worked around the clock. They rarely slept and often looked ill; the better they became at the jobs, the nearer they appeared to death. One extremely successful analyst working for Dean Witter in 1983 (a friend I envied at the time for his exalted station in life) was so strung out that he regularly nipped into a bathroom stall during midday lulls and sl
ept on the toilet. He worked straight through most nights and on weekends, yet felt guilty for not doing more. He pretended to be constipated—in case someone noticed how long he had been gone. By definition an analyst’s job lasted only two years. Then he was expected to go to business school. Many analysts later admit that their two years between college and business school were the worst of their lives.

  The analyst was a prisoner of his own narrowly focused ambition. He wanted money. He didn’t want to expose himself in any unusual way. He wanted to be thought successful by others like him. (I tell you this only because I narrowly escaped imprisonment myself, and not by choice. And had I not escaped, I surely wouldn’t be here now. I’d be continuing my climb up the same ladder as many of my peers.) There was one sure way, and only one sure way?, to get ahead, and everyone with eyes in 1982 saw it: Major in ecomomics; use your economics degree to get an analyst job on Wall Street; use your analyst job to get into the Harvard or Stanford Business School; and worry about the rest of your life later.

  So, more than any other, the question that my classmates and I were asking in the fall of 1981 and the spring of 1982 was: How do I become a Wall Street analyst? Over time this question had fantastic consequences. The first and most obvious was a logjam at the point of entry. Any one of a number of hard statistics cam be enlisted to illustrate the point. Here’s one. Forty percent of the thirteen hundred members of Yale’s graduating class of 1986 applied to one investment bank, First Boston, alone. There was, I think, a sense of safety in the numbers. The larger the number of people involved, the easier it was for them to delude themselves that what they were doing must be smart. The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, be it a sstock, a bond, or a job, the commodity quickly becomes overvalued. Unfortunately, at the time, I had never seen a trading floor.

  The second effect, one that struck me at the time as tragic, was a strange surge in the study of economics. At Harvard in 1987 the course in the principles of economics had forty sections and a thousand students; the enrollment had tripled in ten yeairs. At Princeton, in my senior year, for the first time in the history of the school, economics became the single most popular area of concentration. And the more people studied economics, the more an economiics degree became a requirement for a job on Wall Street.

  There was a good reason for this. Ecomomics satisfied the two most basic needs of investment bankers. First investment bankers wanted practical people, willing to subordinate their educations to their careers. Economics, which was becoming an ever more abstruse science, producing mathematical treatises with no obvious use, seemed almost designed as a sifting device. The way it was taught did not exactly fire the imagination. I mean, few people would claim they actually liked studying economics; there was not a trace off self-indulgence in the act. Studying economics was more a ritual satcrifice. I can’t prove this, of course. It is bald assertion, based on what economists call casual empiricism. I watched. I saw friends steadily drained of life. I often asked otherwise intelligent members of the prebanking set why they studied economics, and they explained that it was the most practical course of study, even while they spent their time drawing funny little graphs. They were right, of course, and that was even more maddening. Economics was practical. It got people jobs. And it did this because it demonstrated that they were among the most fervent believers in the primacy of economic life.

  Investment bankers also wanted to believe, like members of any exclusive club, that the logic to their recruiting techniques was airtight. No one who didn’t belong was admitted. This conceit went hand in glove with the investment bankers’ belief that they could control their destiny, something, as we shall see, they couldn’t do. Economics allowed investment banking recruiters to compare directly the academic records of recruits. The only inexplicable aspect of the process was that economic theory (which is, after all, what economics students were supposed to know) served almost no function in an investment bank. The bankers used economics as a sort of standardized test of general intelligence.

  In the midst of the hysteria I was suitably hysterical. I had made a conscious decision not to study economics at Princeton, partly because everyone else was doing it for what sounded to me like the wrong reasons. Don’t get me wrong. I knew I’d one day need to earn a living. But it seemed a waste not to seize the unique opportunity to stretch your brain on something that genuinely excited you. It also seemed a waste not to use the rest of the university. So I landed in one of the least used departments on campus. Art history was the opposite of economics; no one wanted it on his resume. Art history, as an economics major once told me, “is for preppy girls from Connecticut.” The chief economic purpose of art history was clandestinely to lift the grade-point averages of the economics students. They dipped into my department for a course a term, which appeared on their resumes as only one component of that average. The idea that art history might be self-improving or that self-improvement, as distinct from career building, was a legitimate goal of education was widely regarded as naive and reckless. And as we approached the end of our four years in college, that is how it seemed. Some of my classmates were visibly sympathetic toward me, as if I were a cripple or had unwittingly taken a vow of poverty. Being the class Franciscan had its benefits, but a ticket onto Wall Street wasn’t one.

  To be fair, art was only the start of my problems. It didn’t help that I had flunked a course called “Physics for Poets” or that my resume listed bartending and skydiving as skills. Born and raised in the Deep South, I had never heard of investment bankers until a few months before my first interview. I don’t think we had them back home.

  Nevertheless, Wall Street seemed very much like the place to be at the time. The world didn’t need another lawyer, I hadn’t the ability to become a doctor, and my idea for starting a business making little satchels to hang off the rear ends of dogs to prevent them from crapping on the streets of Manhattan (advertising jingle: “We Stop the Plop”) never found funding. Probably the real truth of the matter was that I was frightened to miss the express bus on which everyone I knew seemed to have a reserved seat, for fear that there would be no other. I certainly had no fixed idea of what to do when I graduated from college, and Wall Street paid top dollar for what I could do, which was nothing. My motives were shallow. That wouldn’t have mattered, and could even have been an advantage, if I had felt the slightest conviction that I deserved a job. But I didn’t. Many of my classmates had sacrificed the better part of their formal educations for Wall Street. I had sacrificed nothing. That made me a dilettante, a southern boy in a white linen suit waltzing into a war fought mainly by northeastern prep school graduates.

  In short, I wasn’t going to be an investment banker anytime soon. My moment of reckoning came immediately after the first interview of the 1982 season, with the Wall Street firm of Lehman Brothers. To get the interview, I had stood in six inches of snow with about fifty other students, awaiting the opening of the Princeton University career services office. All through the winter the office resembled a ticket booth at a Michael Jackson concert, with lines of motley students staging all-night vigils to get ahead. When the doors finally swung open, we rushed in and squeezed our names onto the Lehman interview schedule.

  Although I wasn’t ready to be an investment banker, I was, in a funny way, prepared for my interview. I had memorized those few facts widely accepted by Princeton undergraduates to be part of an investment banking interview survival kit. Investment banking applicants were expected to be culturally literate. For example, in 1982 at least, they had to be able to define the following terms: commercial banking, investment banking, ambition, hard work, stock, bond, private placement, partnership, and the Glass-Steagall Act.

  Glass-Steagall was an act of the U.S. Congress, but it worked more like an act of God. It cleaved mankind in two. With it, in 1934, American lawmakers had stripped investment banking off from commercial banking. Investment banker
s now underwrote securities, such as stocks and bonds. Commercial bankers, like Citibank, took deposits and made loans. The act, in effect, created the investment banking profession, the single most important event in the history of the world, or so I was led to believe.

  It worked by exclusion. After Glass-Steagall most people became commercial bankers. Now I didn’t actually know any commercial bankers, but a commercial banker was reputed to be just an ordinary American businessman with ordinary American ambitions. He lent a few hundred million dollars each day to South American countries. But really, he meant no harm. He was only doing what he was told by someone higher up in an endless chain of command. A commercial banker wasn’t any more a troublemaker than Dagwood Bumstead. He had a wife, a station wagon, 2.2 children, and a dog that brought him his slippers when he returned home from work at six. We all knew never to admit to an investment banker that we were also applying for jobs with commercial banks, though many of us were. Commercial banking was a safety net.

  The investment banker was a breed apart, a member of a master race of deal makers. He possessed vast, almost unimaginable talent and ambition. If he had a dog, it snarled. He had two little red sports cars yet wanted four. To get them, he was, for a man in a suit, surprisingly willing to cause trouble. For example, he enjoyed harassing college seniors like me. Investment bankers had a technique known as the stress interview. If you were invited to Lehman’s New York offices, your first interview might begin with the interviewer asking you to open the window. You were on the forty-third floor overlooking Water Street. The window was sealed shut. That was, of course, the point. The interviewer just wanted to see whether your inability to comply with his request led you to yank, pull, and sweat until finally you melted into a puddle of foiled ambition. Or, as one sad applicant was rumored to have done, threw a chair through the window.