Later that day, the last day I clearly recall of my time at Salomon Brothers, I spent an uneasy hour in the training class talking to 250 blank stares. The trainees had reached that state of high despair that resembles accounts I have read of the Black Death of the fourteenth century. They had lost all hope and decided that since they were going to be fired anyway, they might as well do whatever they please. So they all became back-row people. I dodged a paper wad as I entered the room and an impressive amount of apathy as I spoke. It was an audience only Rodney Dangerfield could have appreciated. They didn’t care what I had to say on my assigned topic: “Selling to Europeans.” But they were vaguely curious if there were any job opportunities in the London office and if I knew when they would be fired. They were sure that they were alone in not knowing what was happening to our company. How blissfully naive! They were, in particular, angry and frustrated that Jim Massey (who had made the same gung ho speech to them as he had to us) hadn’t made at least a token appearance before them. Did they still work for the Brothers, or what?
They were left to wonder for only two hours more. The speaker who followed me was interrupted by the entrance of Jim Massey, flanked by two men who looked like bodyguards, but were only traders. He bore the fate of the 250 trainees. Before making it known, however, he explained in merciless detail how difficult the firings had been on senior management, how ultimately they would make the firm stronger, and how these sorts of decisions were always painful to make. And then:
“We have made our decision regarding the training program… and we have decided… [long pause]… to maintain our commitment.” You can stay! A handful of people scrambled back into the front row as soon as Massey had left. But the news wasn’t as cheery as it sounded. There were no vacancies on the trading floor. At the end of the program most of the trainees became clerks in the back office.
December 17, 1987:
Bonus Day • A strange and glorious day. The firm, for the first time in its history, broke the compensation bands. It was lucky for me. My bonus was meant to fall within the band, which would have limited it to about $140,000. Instead, it paid me $225,000 (275 with benefits, but who’s counting?), which is more than it has ever paid any employee two years out of the training program, or so I have been told. I am now the highest-paid member of my training class. But that means less than it did. More than half my class has either quit or been fired.
It is now clear that given time, and only time, the firm would make me a rich man. Doing the same level of business, I would be paid 350 or so next year, 450 the year after that, and 525 the year after that. And so on, with lesser increases but higher totals each year until I did or did not become a managing director.
But it was sad, and a bit ridiculous, to break the bands and pay selected employees more than ever before in the worst year in the recent history of the firm. The firm cleared $142 million, an abysmal return on $3.5 billion in capital. The numbers looked even worse when you considered that the firm for most of the year had been twice the size of three years before. Why was it paying me now?
I had an idea. When the head of sales presented me with my bonus, he tried to ensure that I appreciated what a monumental gift was being made to me (and he told me not to tell anyone). The clue to the large sum was in his eyes: panic. Salomon Brothers, in a sense, made a trade by putting a price on the services of an employee, and now, having lost a great number of people, it was less composed than usual as it traded. One thing is for sure: It did not pay me a premium because it thought it was the right and proper thing to do. A few good men at the top of the Brothers did what was right and proper, including, I am proud to say, my rabbis, but most did only what was necessary. It paid me more because it thought that would compel me to stay, seal my loyalty.
What loyalty I had was already sealed. I felt loyal to a handful of individuals: Dash; Alexander; my jungle guide; my rabbis. But how can you speak of loyalty to the firm when the firm is an amalgam of small and large deceptions and riven with strife and discontent? You can’t. And why even try? But now it was abundantly clear that the money game rewarded disloyalty. The people who hopped from firm to firm and, in the process, secured large pay guarantees did much better financially than people who stayed in one place.
Salomon’s senior management had never before tried to purchase the loyalty of its people. The managers weren’t much good at the game. They could have seen, had they looked at me with the eyes of a Liar’s Poker champion, that I would never leave or stay because of money. I’d never have gone to another firm for a higher paycheck. I’d leave Salomon Brothers for other reasons, however. And I did.
Epilogue
I LEFT Salomon Brothers in the beginning of 1988, but not for any of the obvious reasons. I didn’t think the firm was doomed. I didn’t think that Wall Street would collapse. I wasn’t even suffering from growing disillusionment (it grew to a point, still bearable, then stopped). Although there were many perfectly plausible reasons to jump ship, I left, I think, more because I didn’t need to stay any longer. My father’s generation grew up with certain beliefs. One of those beliefs is that the amount of money one earns is a rough guide to one’s contribution to the welfare and prosperity of our society. I grew up unusually close to my father. Each evening I would plop into a chair near him, sweaty from a game of baseball in the front yard, and listen to him explain why such and such was true and such and such was not. One thing that was almost always true was that people who made a lot of money were neat. Horatio Alger and all that. It took watching his son being paid 225 grand at the age of twenty-seven, after two years on the job, to shake his faith in money. He has only recently recovered from the shock.
I haven’t. When you sit, as I did, at the center of what has been possibly the most absurd money game ever and benefit out of all proportion to your value to society (as much as I’d like to think I got only what I deserved, I don’t), when hundreds of equally undeserving people around you are all raking it in faster than they can count it, what happens to the money belief? Well, that depends. For some, good fortune simply reinforces the belief. They take the funny money seriously, as evidence that they are worthy citizens of the Republic. It becomes their guiding assumption—for it couldn’t possibly be clearly thought out—that a talent for making money come out of a telephone is a reflection of merit on a grander scale. It is tempting to believe that people who think this way eventually suffer their comeuppance. They don’t. They just get richer. I’m sure most of them die fat and happy.
For me, however, the belief in the meaning of making dollars crumbled; the proposition that the more money you earn, the better the life you are leading was refuted by too much hard evidence to the contrary. And without that belief, I lost the need to make huge sums of money. The funny thing is that I was largely unaware how heavily influenced I was by the money belief until it had vanished.
It is a small piece of education, but still the most useful thing I picked up at Salomon Brothers. Almost everything else I learned I left behind. I became fairly handy with a few hundred million dollars, but I’m still lost when I have to decide what to do with a few thousand. I learned humility briefly in the training program but forgot it as soon as I was given a chance. And I learned that people can be corrupted by organizations, but since I remain willing to join organizations and even to be corrupted by them (mildly, please), I’m not sure what practical benefit will come from this lesson. All in all, it seems, I didn’t learn much of practical value.
Perhaps the best was yet to come and I left too soon. But having lost my need to stay at Salomon Brothers, I discovered a need to leave. My job became nothing more than showing up every morning to do what I had already done, the reward for which was simply more of the same. I disliked the lack of adventure. You might say that I left the trading floor of Salomon Brothers in search of risk, which was as stupid a financial decision as I hope I’ll ever make. In the markets you don’t take risk without being paid hard cash at the same time. Even i
n the job market it’s a handy rule, and I have broken it. I am now both poorer and more exposed than I would have been had I remained on the trading floor.
So, on the face of it, my decision to leave was an almost suicidal trade, the sort of thing a customer might do if he fell into the hands of a geek salesman at Salomon. I believe I walked away from the clearest shot I’ll ever have at being a millionaire. Sure, Salomon Brothers had fallen on hard times, but there was still plenty of gravy on the tray for a good middleman; that is the nature of the game. And if Salomon turns itself around, the money will flow even more freely. As it happens, I still own shares in Salomon Brothers because I believe it will eventually recover. The strength of the firm lies in the raw instincts of people like John Meriwether, the Liar’s Poker champion of the world. People with those instincts, including Meriwether and his boys, are still trading bonds for Salomon. Anyway, business at Salomon simply couldn’t get much worse. The captains have done their level best to sink the ship, and the ship insists on floating. In leaving, I was sure I was making the beginner’s mistake of selling at the bottom, which I could only partially offset by buying a few shares in the company as I walked out the door. If I made a bad trade, it’s because I wasn’t making a trade. I was given pause, however, after I had decided to vamoose, to think that maybe what I was doing wasn’t so foolish after all. Alexander insisted at our farewell dinner that I was making a great move. The best decisions he has made in his life, he said, were completely unexpected, the ones that cut against convention. Then he went even farther. He said that every decision he has forced himself to make because it was unexpected has been a good one. It was refreshing to hear a case for unpredictability in this age of careful career planning. It would be nice if it were true.
About the Author
MICHAEL LEWIS grew up in New Orleans and holds degrees from Princeton and the London School of Economics. Before joining Salomon Brothers he worked with various degrees of success as a stockboy for a New York art dealership, a cabinetmaker, and a tour guide for teen-aged girls in Europe. His journalism appears in many periodicals including The New Republic, The Economist, The Wall Street Journal, The Spectator, and Manhattan Inc. He now lives in a cottage in London with his wife, an investment banker.
[*] In the interest of variety, thrift will be used interchangeably with savings and loans throughout the text, as it is on Wall Street.
[*] The tax break allowed thrifts to sell all their mortgage loans and put their cash to work for higher returns, often by purchasing the cheap loans disgorged by other thrifts. The thrifts were simply swapping portfolios of loans. The huge losses on the sale (the thrifts were selling loans for sixty-five cents on the dollar they had originally made at par, or a hundred cents on the dollar) could now.
[*] Shorting Salomon’s stock would indeed have been a lay-up, no, a slam dunk. The share price declined in almost a straight line from fifty-nine to thirty-two dollars before the crash of October 1987, in spite of the predictions of other brokerage houses, notably First Boston and Drexel Burnham, that Salomon stock was a great investment. After the crash it fell to sixteen dollars.
[*] One of Alexander’s financial heroics found its distorted way to the center of Tom Wolfe’s Bonfire of the Vanities Wolfe describes his protagonist, Sherman McCoy, getting himself in trouble with the gold-backed French government bonds, the so-called Giscard bonds It was Alexander who had first discovered the Giscard was mispriced, and far from getting himself in trouble he made many millions of dollars exploiting the mispricing.
[*] As Wasserstein, who was advising Perelman, worked for our competitor, First Boston, it seems incredible that a deal might have been struck whereby he would quit First Boston to manage Salomon Brothers if Perelman won the day. It seems more believable once you know how unhappy Wasserstein was at First Boston. He resigned the following January to start his own firm, Wasserstein, Perella & Co. There I had a chance to ask him directly about the incredible rumor. He is a forceful man who doesn’t often stare at his shoes and mumble his answers, but upon hearing the question, he lowered both his eyes and the tone of his voice. Then he gave the following answer: “I don’t know how these rumors get started. How could it be true? I was in Japan at the time the bid was announced.” Hmmm.
[*] Control passed back to Gutfreund in 1984, when, on the back of Salomon’s strong performance and Phibro’s near collapse, he persuaded the board of directors to fire David Tendler, Phibro’s CEO. Gutfreund then ascended from CEO of the subsidiary, Salomon Brothers, to CEO of the parent, Phibro Salomon, subsequently to be named Salomon Inc.
[*] Most of the municipal bond staff was later gobbled up by Dean Witter, which then fired its own people.
[*] Deep Throat was never found. I was told, as late as October 1988, that the search for the man was still on.
[*] It was certainly true. At the end of the year no senior manager resigned. Tom Strauss was paid $2.24 million. Bill Voute was paid $2.16 million, and perhaps most amazingly Dale Horowitz, who was both head of a department that had disappeared and largely responsible for our involvement in Columbus Circle, was paid $1.6 million. Gutfreund, however, did forgo his own bonus and allowed himself only a $300,000 thousand salary and $800,000 more in deferred compensation. In lieu of his bonus, he received three hundred thousand share options, which, at the time of this writing are worth in excess of $3 million.
[*] Ironically, Southland, I later learned, should have been a smashing success and was eventually revived. But my skepticism of our skills in junk bonds was not unjustified. In the middle of 1988 the first two multibillion-dollar leveraged take-overs in America sponsored by Wall Street went bankrupt. The drugstore chain Revco, which had been purchased by its management with junk bond money, filed for Chapter 11, as did TVX, a chain of television stations. Both deals were created by Salomon Brothers. Since by default we were forced to assume a management role in TVX, it marked Salomon’s entry into the television industry.
[*] It didn’t work As John Gutfreund explained to our beleaguered shareholders in our 1987 annual report, “By honoring our commitment to our client and proceeding with our underwriting of British Petroleum in the wake of the crash, the firm incurred a $79 million pre-tax loss.”
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