Other People’s Money: Jacob Goldstein and the Bonds of Wall Street

of boxes I kept in storage for three decades. I brought them into the studio here in Berkeley, California, not sure what i'd find inside, and I asked my editor Julia Barton to listen in as I opened them up. This is promising at the top. Here you're looking at a banker's box that says liars Poker, scribbled in messy black ink on the top. And sure enough you open it and here is I have here a tattered Manila

folder with working titles. A list of all the titles I considered, Oh, let's hear it fast and loose in the Golden Years, bond Fever, spell Bound, no spell bonds. I guess I thought that was a upon burnout the empire builders disposable assets, other people's money. But it gets better, actually get better. Bonds of Passion in the end, I just called it Liar's Poker. I was twenty seven years old when I wrote the book in twenty nine when

it came out. It's all about my first real job out of college, three years working at an investment bank called Solomon Brothers. I don't think I had any idea at the time what was going to happen after it was published. But when it landed, it landed like a giant stink bomb in the middle of Wall Street. At twenty seven, Michael Lewis was making in two hundred and twenty five thousand dollars a year as a bond salesman

at Solomon Brothers during the Go go nineteen eighties. His friends thought he was crazy when he quit in nineteen eighty seven to write a book. They were wrong. The book, Liars Poker, hit the New York Times Best seller list, and Michael Lewis never went back to work on Wall Street. That first book I wrote, Liars Poker, set me up, and it's meant that I've never had to do anything with the rest of my life. But right. But the funny thing about the book is that I never really

read it. I mean, obviously I wrote it, but I never went back and looked at it again, and then about a year ago, out of nowhere, the audio rights reverted back to me, and I realized that they had never actually been a full length audio book of Liars Poker. Back then, the publishers shortened the audio version so it would fit onto a few cassette tapes. So I thought, let's try it. You can now hear the whole of Liars Poker for the first time, read by me, and

we've released it along with this companion podcast. And the point of the Pike asked, is that while I was reading the book, all these questions came up, Questions like, what's happened to the people I wrote about? It was a good time for you to write that book and me to be forced to leave. Did you feel like you were forced to leave by the book? Absolutely? What's

happened to Wall Street? The notion that men will say today they will not be in a room alone with a woman has been an enormous setback for the advancement of women on Wall Street. How do other writers feel about revisiting their early work. It's like didactic, It's like do gooderie, It's trying to teach a lesson of how did this even end up on the air and what's happened to me? So welcome to other People's Money. A

Liar's Poker Companion Podcast, Episode one, Bonds of Passion. Now, obviously we can't start without me giving you some sense of the book. We're going to drop a whole chapter for you at the end of this episode, but here's a short clip from the very beginning of Liars Poker. I was a bond salesman on Wall Street and in London, so Jan New York down the Paris in twenty two cable dres Frank. First, somebody asked me what intact do

you do? And I realized and I spent most of my time on the phone, and in order to make people think I was professional, I had to figure out what it was I did. Working beside the traders at Solomon Brothers put me, I believe, at the epicenter of one of those events that helped to define an age. Traders are masters of the quick killing, and a lot of the killings in the past ten years or so have been quick, and Solomon Brothers was indisputably the king

of traders. But I've tried to do here without, as it were, leaving my seat on the Solomon Trading floor, is to describe and explain the events and the attitudes the characterize the era. The story occasionally tails away from me, but it's nonetheless my story Throughout the money I didn't make, the lies I didn't tell, I still understood in a personal way because of my position that was somewhere near

the center of a modern gold rush. Never before have so many unskilled twenty four year olds made so much money in so little time as we did this decade in New York and London. There's never before been such a fantastic exception to the rule of the marketplace that one takes out no more than one puts in. Now, I don't object to money. I generally would rather have more than less. But I'm not holding my breath waiting

for another windfall. What happened was a rare and amazing glitch in the fairly predictable history of getting and spending. A couple of things about that passage. First, it's not exactly me, but me after I've read Henry Adams, The Education of Henry Adams, That's what I was reading to get myself all warmed up at the beginning of the book.

I hear his voice there, just like I hear George Orwell's voice a few chapters later, and Charles Dickens's voice somewhere in there, and Tom Wolfe's voice every now and then. I was still trying to figure out who I was there.

But the other thing is how wrong it is. I mean, I really did think at the time that I was writing a story that was a message in a bottle for a hundred years from now, when they wanted to look back and ask, like, what had happened in the nineteen eighties, How did Wall Street ever get that crazy? Because I assumed it was all going to end. I assumed that I represented a kind of a market top.

It turned out that wasn't true. It turned out that I was at the beginning of something that would go on and on and on, and is in some ways still going on. Wall Street just keeps getting bigger and bigger in relation to the rest of the American economy, or anyway. That's how it seems to me. But what do I know. I'm just a writer now, So to check my hunch, I called up someone whose job is

to know this sort of thing. Gary Gensler, the current head of the Securities in Exchange Commission, and here's how he put it. In the nineteen eighties, finance including banking and ensure in Wall Street and so forth. But finance was about five and a half percent of our overall economy the nineteen fifties, actually three and a half percent.

Now we're at eight percent. If you would have asked me back in nineteen eighty nine what Wall Street would look like in two twenty one, I would have said that the society would have gotten its arms around Wall Street and it would have kind of stuck it back in its box. But it hasn't. If you'd asked me back in nineteen eighty nine, what would happen to Liars Poker? I would say, well, it's nice it had this little run, but this world of Wall Street changes so fast there's

no way it will remain current in any way. So flash forward to twenty twenty one, and I have a daughter who's a junior in college, who has told me now three times about friends who returned from Wall Street internships and been made by their bosses to read Liar's Poker because they view it as a description of how Wall Street really works, which is I think nuts. I mean, I think it's actually very different now how it was then.

But this also raises the question of, like, what is it that's going on, What is it that was in my experience that still feels relevant to the experience of the people who are there now? I mean, why on earth are people still reading my book? To get at this, I asked Pushkin's Jacob Goldstein to come to have a chat with me. Jacob was a longtime host of NPR's Planet Money, and he's also the author of a book called Money, The True Story of a Made Up Thing.

And I figured if anyone can help me work out while Liar's Pokers still around after thirty years, it was going to be him. So stick around, Welcome back. I'm here with Jacob Goldstein, who's now an executive producer at Pushkin, and he's written and reported for years on the worlds of finance and money. The question I'm here we're here to talk about is why, right, Why is Liar's Poker still so relevant many decades after it was written? Yeah, And I've got two ideas I want to talk about

with you for why right? So one is you captured something about life on Wall Street, just about like what it's like to work there. And then two is you basically wrote the origin story of modern finance and its role in American life, the sort of broader invention of modern finance moment. Do you want to just start out talking with that? Let's just start out wonky and then

get like less wonky as we go. Yeah. Yeah. So it is true that a lot of the things that we've come to just assume about Wall Streets started back in kind of the late seventies eighties. And when I think in no particular order of what those things are, the first thing it pops to mid is the nature of the financial enterprise slash corporation. That the world I walked into was a world filled with partnerships. Goldman Sachs

was a partnership, Morgan Stanley was a partnership. Solomon Brothers had very controversially just stopped being a partnership and become a corporation, a public corporation, and was growing with incredible speed, going from a place with just a few hundred people to a place with eight thousand people over six or seven years, and risk that had been managed in a partnership by people who knew that if they got it wrong, it wasn't just they didn't get a big bonus at

the end of the year, they might lose their houses that they had liability for. The risks they were taking were all of a sudden going to be managed by a public corporation whose shareholders were basically on the hook, and the shareholders, of course, weren't in the room when the risk weren't being taken. So it was all of a sudden other people's money in a whole new way. That was like the first thing that happened, and that's

a big one. It's a big one. That one is wonky, and just on a really kind of basic structural level, that is a profound change, right because in the older partnership model, the partners, the senior people at the firm, have their money in the firm, right, So if the firm gets bigger, they get rich. But if the firm goes under, if they make stupid bets, they lose their money. They don't get to stay rich. So it becomes their attitude.

The attitude of that person towards risk is different from the attitude of the trader who if the corporation goes kaboom and blows up. Can walk across the street and work for somebody else and keep all his money. Right. The old world is symmetric, right, your firm does well, you do well. Your firm does poorly, you do poorly. This new world, the world you're walking into, just as it's being born, is asymmetric. The firm does well, you get rich, the firm blows up, you walk away, get

another job, get rich at your next exactly right. And it's a world in which not only is it asymmetric, but it's much more fluid. In this new world. If you don't get paid at the end of the year, you walk across the street and work for somebody else. You aren't working so much anymore for a company. You're working for the whole system. And what you're trying to maximize the value of is your value to the system

rather than to any particular company. Okay, so that's one big and I do think underappreciated shift that just happened to happen right when you got there, the shift from partnerships to publicly traded corporations. What else? I feel like you were rattling off a list, what's next? On the list. Well, Number two would be the way money got made, broadly speaking, even at a place like Solomon Brothers, which was famelessly a bond trading shop when it was a partnership. These

businesses were service businesses. There were fat fees associated with everything they did. When stocks changed hands, they were big commissions that were fixed. The spreads in the bond market were big enough does moving bonds around on behalf of customers from one pension fund to the other. You could take out quite a bit advising big mergers and acquisitions transactions, or raising a whole bunch of money for IBM. People

made a very comfortable living providing a service. In a very short order, the firms turned into trading shops where the way they made money was by taking big risks, and their fees were eroded by competition and changes in rules. I mean, we got to the point now where there

are no stock market commissions basically, right. And that is one example of something that's happened across the financial sector where you don't get paid as much for providing services, and so the firms themselves at the same time they're becoming other people's money. They become more risk taking enterprises. So I think that's a great, big change. And the book Liars Poker is largely about this change, right, about

how they become risk taking enterprises. And in fact, you write at great length about this very specific thing, which is the trading of what are called private mortgage backed securities. And these securities sort of amazingly, they wind up decades later at the heart of the two thousand and eight financial crisis. And I go back and I read this book, and I think, like, how did he know, you know, how did he know in the eighties to write all

these pages about private mortgage back securities. But but there it is. It's like this this weird key to the financial crisis. Well, it's one key. You need a couple of keys to get to the finanti crisis, right, And the other key is it's the introduction of a new kind of complexity into finance. All of a sudden, there is some benefit to having higher math skills on a trading floor, not just being able to add and subtract

really fast. And all of a sudden, there are instruments that are be invented, and I invented some of them, I helped invent some of them that are as good as opaque to the wider world because the wider world doesn't understand how they work and what they do. And that complexity got to the point where, I mean, I found myself in a room with John Goodfriend, the CEO of the firm, trying to explain to him what it was I'd just done with an option trade, and he

clearly didn't understand it. The rapid innovation has this other effect. It's an effect that you see in Silicon Valley too. It's to shift power from older people down to younger people, because the younger people are the engines of innovation. The younger people are inventing this stuff and the older people don't understand it. As you describe the sort of older generation of traders, it was basically a blue collar job, right. I mean not only were they not, you know, physicists. Yeah,

they weren't even college graduates. Right. These people who are essentially running the trading desk came up through the mail room. That's right. There were essentially blue collar jobs that were being transformed before your eyes into very complicated white collar jobs. And there was a friction. And the book describes this friction between this old world and this new world. And I can remember there was a guy and it was

a trader, an old trader named Donnie Green. People would refer to Donnie Green types, and Donnie Green type was a guy who hadn't graduated from high school, who traded bonds by his gut, which is very ample, but also you know, well educated in the marketplace, who was loud and profane. And there was this moment where Donnie Green himself had this interaction with a new young guy who had just come out of like Mit or Harvard, and

who was near him. And the young guy was had his bags and he was on his way off the trading floor, and Donnie Green stood up and shouted, hey, kid, where are you going? And the guy kind of stopped in his tracks and looked over and big old Harry Donnie Green was like staring at him, and he was scared.

And everybody could hear the interaction. And guy says, I'm I got a cloud of Chicago on my way out, and Green says, come here, and the guy walks over to him, and Donna Green pulls out like twenty bucks from his wallet. He says, when you get to the airport, you know those machines where you can buy the crash insurance. Not if you remember, you used to be able to

buy airplane crash insurance at the airports. Yeah, And he says, when you get to the airport, take this money and buy some crash insurance and put it in my name. And the guy goes like he's like sweating. He goes why, And Donnie Green says, I feel lucky, And I just thought that. I remember hearing this story and thinking, that's sort of like the moment these old guys who kind of thought the world was one way, or watch these new guys roll in and they're they're smart, alex and

they know things that Donna Green doesn't know. And pretty soon they're gonna take Donnie Green's job. And Donna Green, the Donnie Greens of the world just hated it. That moment is like the last stand of Donnie Green, the

last stand of Donna Green. And so that's right. And the new guard you know, had all gotten eight hundred on their SATs, had been told they were the brightest kid in the class for their whole lives, had gotten into Harvard or Mit, had succeeded there, and thought that when they got to the Solomon But this is my natural reward for being the smartest person. So you have an arrogance, and it's a quieter arrogance. Where do you fit?

Where do you you know, young Michael Lewis arriving at Solomon Brothers fit in that map you just laid out on the surface. I'm very much part of the problem, right I went. I go to Princeton and they have a Masters in economics from the London School of Economics. I don't have a lot of body hair. I appear to be part of this meritocratic machine that's spitting out this new kind of person who's going to overwhelm Wall Street.

The truth was that I was always a little bit of a renegade inside my own life that I didn't I was an art history major at Princeton. I studied economics because I thought I needed to learn this language so I could wouldn't be buffaloed by people for the rest of my life by people who understood economics. I thought of myself when I arrived there as a writer who is just, you know, trying to make some money so I could house myself but also have experiences that

I might write about one day. So I was what was I I was both insider and outsider, and that is both a It's kind of a character trait I think probably of me that I do tend to kind of join and not join at the same time every group I watched a writer move right, Yeah, that's right. It's kind of like who I am. I've always kind of like, I've never been completely in anything, but I'm uncomfortably being completely out. I kind of like to be

in and out at the same time. Their culture was based on food, and as strange as that sounds, it was stranger still to those who watched mortgage traders eat You don't die it on Christmas Day and you didn't die it in the mortgage department said one every day was a holiday. We made money no matter what we looked like. They began with a round of onion cheeseburgers fetched by a trainee from the Trinity Delhi at eight am.

I mean he didn't really want to eat him, recalls trader Gary Kilberg, who joined the trading desk in nineteen eighty five. You were hungover, you were sipping coffee, but you'd get winded. That smell everyone else was eating them. See you grab one of those suckers. So you have this kind of insider, outsider perspective, and this perspective is what lets you tell the story of this profound drama

that's happening inside your firm when you're there. And the key character really in this drama is a guy named Louie Ranieri who's actually going to be a big deal in the whole history of modern Wall Street. Can you just talk about him a little bit? So, Louie Ranieri, who is at the kind of the heart and soul of Solomon Brothers. When I joined and three years later we'll be run out of the firm, had joined as

a mail room clerk. I think he eventually got a college degree, but he was at that point, he was just a high school graduate and worked his way up into a position on the trading floor where he sees this opportunity. And the opportunity is to create a new market. And the new market is going to sort of finance home buying in America in a completely different way than

it's been financed up till then. I mean, up to that point, the savings and loan or the bank lent the home buyer money to buy the house and then sat on the loans, and Louis saw that if you could bundle up a lot of these loans together into a big pool and sell sort of like the rights to the pool off, you essentially could create an investment that anybody could buy, and you could let anybody, not just banks and savings and loans, into the business of

lending money to the American homeowner. And so he essentially invents the market from mortgage backed securities. And the end result, you know, twenty years later, as Louis Ranieri, I guess was among the first to admit, is that the market got so complicated that it didn't track the risk anymore proper and only through like great diligence could you figure

out how screwed up the market was. And just to state it clearly right, that these very mortgage backed securities that your colleague Louis Ranieri invented were at the center of the two thousand and eight financial crisis. Like that's correct. It starts in Liar's Poker and it blows up in two thousand and eight. In this story, Louie's role is the role of doctor Frankenstein. That he creates the monster he didn't mean for the monster to do what it did.

Louie didn't make the very bad loans that blew up, but the world took his invention and used it to create a catastrophe. That's true. Take a funny thing. When I really thought when I wrote Liars Poker, I'm done with Wall Street, I thought, when am I ever going to get the inside view again? No one's ever gonna let me let me back in, right, I mean, I'm never gonna have such good materials, So why go back

ever again to this subject? And when the world old did blow up in two thousand and seven and two thousand and eight, it surprised me but delighted me that Liars Poker ended up being my ticket back into the world. That one. It was pretty clear that the catastrophe in two thousand and eight had its origins and stuff I'd written about in Liar's Poker, so that there was a natural reason for me to be come back. That there was this kind of a bookend to write, which became

the big short. And when I started calling around and trying to talk to the traders who had made the catastrophic bets inside Morgan, Stanley and Merrill Lynch in city group, the people who had not seen that they'd built this doomsday machine. Instead of them saying no, I will never talk to you, they'd all go have a beer with me and they'd all say the same thing over the beer. But the first thing they say, this wasn't my fault.

Nobody say it was the other guy. Yeah. But the other thing they all said was the reason I'm having this off the record beer with you to explain to you what happened is you're the reason I'm in the business. I read Iyars Poker and it made me want to be a bond trader, and I thought, like the fourth time I heard that, I thought, Jesus Christ, I created this crisis that I created that the book. Books have

the funniest effects on the world. When you think you've written one thing, but you've in fact, it's turned out you've written something entirely different the reader. You write your book, but the reader reads his her book. And they'd read this thing as college students, and there was this dog whistle coming out of the book, and the dog whistle was, huh.

This is a story of a young man, Michael Lewis, who persuades the reader that he really doesn't know much about anything, and certainly nothing about money, and yet if he goes to Wall Street, they start giving them hundreds of thousands of dollars just to be there, and it's exciting and it's fun. And so all these guys, and it was always guys, they read it and they said, ah,

it's made for me. I don't know anything either, you know. Yeah, yeah, you've said you're writing it as like a cautionary tale, but like you make it sound so fun. Like I don't want to say I don't believe you. It's not that I don't believe you, but like you're clearly very skilled as a writer. I feel like you should. You should know how fun it's going to sound. I don't know. I'm not quite saying it the way I want to

say it, But do you know what I mean? Yes, I know what you mean, because various people have said the same thing to me over the years. And it is absolutely true that that the literary strength of the book turns out to be a moral weakness. And the literary strength of the book was that I did not muscle the reader around to make them think one thing

or another about the story. I was telling that. Mostly I just told the story, and I just left it to the reader and the reader's sensibility to make sense of the story. And I assumed that the reader would make sense of the story in just the way I made sense of the story. I thought the book would sort of cause young people in college who had a sense of purpose to say, Oh, that's what that is. It's silly, it's of no real value. I'm going to go do what I was meant to do. And sometimes

it did that, but mostly it didn't. On the other hand, if you don't really know what to do with yourself, and the idea of getting a job where you can eat cheeseburgers at nine in the morning and scream into the phone and make hundreds of thousands of dollars a year when you're twenty four sounds good. You can read

the book and say, oh, this sounds great. Yeah. I thought since then that the price you pay for writing a living story is that you lose some control about how the story is going to be interpreted or used or read, and that actually, a good piece of writing leaves a hole for a reader to walk into it and exercise judgment about what this all means, and Liars Poker did that kind of inadvertently, but it did do that, and I think that I think that's the only reason.

If it was a more moralistic track, it would not have survived. Thank you so much to Jacob Goldstein. Other People's Money is just getting underway. We have four more episodes, and coming up in the next one, the author of Liars Poker finds out what happened to the people who were in Liars Poker. It was a good time for you to write that book and me to be forced to leave. Did you feel like you were forced to leave by the book. Yeah, yeah, I didn't know that. Really,

It's okay. I don't blame Other People's Money is a production of Pushkin Industries. If you like the show, please remember to share a rate and review. You can buy our new Liars Poker audio book, unabridged and read by me the author at Pushkin dot fm, slash Liars Poker, and also at Audible define more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts, or wherever you listen to podcasts. Okay, now, as promised, here's a chapter from the new audiobook version

of Liar's Poker. I hope you like it. Chapter one, Liar's Poker, South Ja, New York down the Paris of twenty two. Somebody asked me, what in fact do you do? And I realized and I spend most of my time on the phone in order to make people think I was professional. I had to figure out what it was I did. Wall Street reads a sinister old gag. Is a street with a river at one end and a graveyard at the other. This is striking, but income it

omits the kindergarten in the middle. Frederick Schwed Jr. Where are the customers yachts? It was sometime early in nineteen eighty six, the first year of the decline of my firm, Solomon Brothers. Our chairman John good Friend left his desk at the head of the trading floor and went for a walk. At any given moment on the trading floor, billions of dollars were being risked by bond traders. Good Friend took the pulse of the place by simply wandering

around it and asking questions of the traders. An eerie sixth sense guided him to wherever a crisis was unfolding. Good Friends seemed able to smell money being lost. He was the last person a nerve racked trader wanted to see. Good Friend liked to sneak up from behind and surprise you. This was fun for him, but not for you. Busy on two phones at once trying to stem disaster, you had no time to turn and look. You didn't need to.

You felt him. The area around you began to convulse like an epileptic ward people were pretending to be frantically busy and at the same time staring intently at a spot directly above your head. You felt a chill in your bones that I imagine belongs to the same class of intelligence as the nervous twitch of a small furry animal at the silent approach of a grizzly bear. An alarm shrieked in your head. Good Friend, good friend, good friend, often as not our chairman just hovered quietly for a bit,

then left. You might never have seen him. The only trace I found of him on two of these occasions was a turred like ash on the floor beside my chair. Left. I suppose as a calling card. Good Friend's cigar droppings were longer and better formed than those of the average

Solomon boss. I always assumed that he smoked a more expensive blend than the rest purchased with a few of the forty million dollars that he cleared on the sale of Solomon Brothers in nineteen eighty one, or a few of the three point one million dollars that he paid himself in nineteen eighty six, more than any other Wall Street ceo. This day in nineteen eighty six, however, good

Friend did something strange instead of terrifying us all. He walked a straight line to the trading desk of John Merryweather, a member of the board of Solomon Ink and also one of Solomon's finest bond traders. He whispered a few words. The traders in the vicinity eavesdropped what good Friends said has become a legend at Solomon Brothers and a visceral part of its corporate identity. He said, one hand, one million dollars, no tears, one hand, one million dollars, no tears.

Merriweather grabbed the meeting instantly. The King of Wall Street, as Business Week had called Goodfriend, wanted to play a single hand of a game called Liar's Poker for a million dollars. He played the game most afternoons with Merryweather in the six Young Bond bitrage traders who work for Merriweather,

and he was usually skinned alive. Some traders said good Friend was heavily outmatched, others who couldn't imagine John Goodfriend is anything but omnipotent, and there were many said that losing suited his purpose, though exactly what that might be was a mystery. The peculiar feature of good Friends challenge this time was the size of the steak. Normally his bets didn't exceed a few hundred dollars. A million was

unheard of. The final two words of his challenge, no tears, meant that the loser was expected to suffer a great deal of pain, but wasn't entitled to whine, bitch or moan about it. He'd just have to hunker down and keep his poverty to himself. But why, you might ask, if you were anyone other than the King of Wall Street, why do it in the first place, Why in particular challenge Merryweather instead of some lesser managing director. It seemed

like an act of sheer lunacy. Merryweather was the king of the game, the liars poker champion, of the Solomon Brothers trading floor. On the other hand, one thing you learn on a trading floor is that winners like good Friend always have some reason for what they do. It might not be the best of reasons, but at least

they have a concept in their mind. I wasn't privy to John good Friends innermost thoughts, but I do know that all the boys on the trading floor gambled, and then he wanted badly to be one of the boys. What I think good Friend had in mind in this instance was a desire to show his courage like the boy who leaps from the high dive. Who better than Merryweather for the purpose. Besides, Merriweather was probably the only trader with both the cash and the nerve to play.

The whole absurd situation needs putting into context. John Merriweather had, in the course of his career, made hundreds of millions of dollars for Solomon Brothers. He had an ability, rare among people and treasured by traders, to hide his state of mind. Most traders divulge whether they are making or losing money by the way they speak or move. They're either overly easy or overly tense with Merriweather. You could

never ever tell. He wore the same blank, half tense expression when he won as he did when he lost. He had, I think, a profound ability to control the two emotions that commonly destroy traders, fear and greed, and it made him as noble as a man who pursues his self interest can be. He was thought by many within Solomon to be the best bond trader on Wall Street. Around Solomon, no tone but awe was used when he

was discussed. People would say he's the best businessman in the place, or the best risk taker I have ever seen, or a very dangerous liars poker player. Meriweather cast a spell over the young traders who work for him. His boys ranged in age from twenty five to thirty two. He was about forty. Most of them had PhDs in math, economics, and or physics. Once they got on a Merryweather's trading desk, however, they forgot they were supposed to be detached intellectuals. They

became disciples. They became obsessed by the game of liars poker. They regarded it as their game, and they took it to a new level of seriousness. John Goodfriend was always the outsider in their game. That Business Week put his picture on the cover and called him the King of Wall Street held little significance for them. I mean that was, in a way the whole point. Good Friend was the King of Wall Street, but Merryweather was the king of

the game. When good Friend had been crowned by the gentleman of the press, you could almost hear Trader's thinking. Foolish names and foolish faces often appear in public places. Fair enough, good Friend had once been a trader, but that was as relevant as an old woman's claim that she was once quite a dish. At times, good Friend himself seemed to agree. He loved trade compared with managing. Trading was admirably direct. You made your bets and either

you won or you lost. When you won, people all the way up to the top of the firm admired you, envied you, and feared you, and with reason you controlled the loot. When you managed a firm, well, sure you received your quota of envy, fear, and admiration. But for all the wrong reasons you did not make the money for Solomon. You did not take the risk. You were hostage to your producers. They took the risk. They proved their superiority every day by handling a risk better than

the rest of the risk taking world. The money came from risk takers such as Merriweather, and whether it came or not was really beyond good Friend's control. That's why many people thought that the single rash act of challenging the arbitrage boss to one hand for a million dollars was good Friend's way of showing that he was a player too, and if you wanted to show off, Liar's Poker was the only way to go. The game had

a powerful meaning for traders. People like John Merriweather believe that Liar's Poker had a lot in common with bond trading. It tested a trader's character, It honed a trader's instincts. A good player made a good trader, and vice versa. We all understood it. The game. In Liar's Poker, a group of people as few as two as many as ten form a circle. Each player holds a dollar bill close to his chest. The game is similar in spirit

to the card game known as I Doubted. Each player attempts to fool the others about the serial numbers printed on the face of his dollar bill. One trader begins by making a bid. He says, for example, three sixes. He means that all told, the serial numbers of the dollar bills held by every player, including himself, contain at least three sixes. Once the first bid has been made, the game moves clockwise in the circle. Let's say the bid is three sixes. The player to the left of

the bidder can do one of two things. He can bid higher there are two sorts of higher bids the same quantity of a higher number three sevens, eights, or nines, and more of any number four fives, for instance. Or he can challenge, which is like saying I doubt it. The bidding escalates until all the other players agree to challenge a single player's bid. Then and only then do the players reveal their serial numbers and determine who is bluffing whom. In the midst of all this, the mind

of a good player spins with probabilities. What is the statistical likelihood of there being three sixes within a batch of, say, forty, randomly generated serial numbers. For a great player, however, the math is the easy part of the game. The hard part is reading the faces of the other players. The complexity arises when all players know how to bluff and double bluff. The game has some of the feel of trading, just as jousting has some of the feel of war.

The questions a Liar's poker player asks himself are up to a point, the same questions a bond trader asked himself. Is this a smart risk? Do I feel lucky? How cunning is my opponent? Does he have any idea what he's doing? And if not, how do I exploit his ignorance? If he bids high? Is he bluffing but does he actually hold a strong hand? Is he trying to induce me to make a foolish bid? Or does he actually

have four of a kind himself? Each player seeks weakness, predictability, and pattern in the others and seeks to avoid it in himself. The bond traders of Goldman, Sachs, First Boston, Morgan, Stanley, Merrill Lynch, and other Wall Street firms all play some version of liars Poker, but the place where the stakes run highest, thanks to John Merryweather, is the New York bond trading floor of Solomon Brothers. The code of the Liars poker player was something like the Code of the Gunslinger.

It required a trader to accept all challenges because of the code, which was his code. John Merriweather felt obliged to play, but he knew it was stupid for him. There was no upside. If he won, he upset good Friend. No good came of this. But if he lost, he was out of pocket a million bucks. This was worse than upsetting the boss. Although Merriweather was by far the better player of the game, in a single hand, anything

could happen. Luck could very well determine the outcome. Merryweather spent his entire day avoiding dumb beets, and he wasn't about to accept this one. No, John, he said, if we're going to play for those kind of numbers, I'd rather play for real money. Ten million dollars, no tears, ten million dollars. It was a moment for all players to save her. Meriweather was playing liars poker before the game even started. He was bluffing good Friend. Considered the

counter proposal. It would have been just like him to accept, merely to entertain. The thought was a luxury that must have pleased him. Well, it was good to be rich. On the other hand, ten million dollars was and is a lot of money. If good Friend lost, he'd have only thirty million or so left. His wife, Susan, was busy spending the better part of fifteen million dollars redecorating

their Manhattan apartment. Meriweather knew this, and as good Friend was the boss, he clearly wasn't bound by the Merriweather code. Who knows, maybe he didn't even know the Merriweather code. Maybe the whole point of his challenge was to judge Meriweather's response. Even good Friend had to marvel at the king in action. So good Friend declined. In fact, he smiled his own brand before smile and said, you're crazy. No thought, Merriweather, just very, very good