Chicago Booth Review Podcast Must You Lose Your Morals on Wall Street?

Hal Weitzman: Michael Lewis’s Liar’s Poker is a frank and ugly behind-the-scenes account of life as a young associate in the world of Wall St finance. The book is 35 years old, but the basic dilemma at its heart – whether follow your conscience or your bank balance—remains as pertinent as ever.

Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking insights in a clear and straightforward way. I’m Hal Weitzman, and in this episode we’re hearing from John Paul Rollert, an adjunct associate professor at Chicago Booth and our in-house ethicist.

Rollert uses Liar’s Poker in his Booth ethics classes, and in this essay from July of this year, he reflects on what it tells us about ourselves and our professional choices. How long can you stay in a poisonous environment before you become part of it?

It’s read for us by the author.

John Paul Rollert: This year marks the 35th anniversary of the publication of Liar’s Poker, journalist Michael Lewis’s first book and, by my lights, his most abiding.

Lewis was just 27 when he left his job at the investment bank Salomon Brothers at the beginning of 1988, the same age I was 17 years later when I first included Liar’s Poker as the last entry on the syllabus for my business ethics class. A work that alternates between bildungsroman, brief history of the bond market, and a very ’80s version of Good-Bye to All That, Lewis’s book retains its power to prick the conscience, mostly by provoking uncomfortable laughter. And after the likes of Adam Smith, George Orwell, and Ayn Rand, the recovering bond salesman still gets the final say in my classes.

Today, the events of Liar’s Poker are now closer in time to the Eisenhower administration than OpenAI, but the book is dated in ways that mostly don’t matter. Yes, there is a striking affinity for pinstripes and flashy suspenders in its pages, but the promising young man we meet there still resembles most of my students. He’s affable, enterprising, highly intelligent, and exceedingly well credentialed.

In other words, he’s a winner.

Now, some of us may cringe at that distinction, Americans especially. The impulse toward social equality that Alexis de Tocqueville thought a hallmark of the national character—We may have paupers aplenty, but no man’s a king!—keeps us from embracing such a label, at least unreservedly. The reticence makes for one of the more confounding tics of contemporary life. We are far more comfortable litigating the privilege that others enjoy than counting our own blessings accurately, a tendency that sees us routinely affirm an egalitarian commitment without ever pausing to consider the implications for our conduct and the sacrifices it might entail.

But Lewis isn’t nearly so inhibited. He knows that he’s a winner. In fact, such a self-conception is central to Liar’s Poker, for a growing ambivalence about that status is at the heart of his story, nestled as it is in a world of high-stakes financial transactions where expediency and ethics seem radically divorced.

Lewis certainly feels like a winner when he arrives at Salomon Brothers in the fall of 1987. The moment is one of sweet vindication, for as a senior at Princeton, the art history major had failed to persuade any of the investment banks that visited campus to award him a callback. “I have never seen men on Wall Street in such complete agreement on any issue as they were on my application,” he admits. “A few actually laughed at my résumé.”

While making postgraduate amends at the London School of Economics, Lewis happens to be seated at a charity event next to the wife of a Salomon Brothers managing director. She takes a liking to him, and after a sustained grilling over dinner, she assures Lewis that “she would have her husband take care of it.”

He does, and Lewis is welcomed to the Salomon Brothers training class of 1985. Its 127 members—chosen, Lewis learns, from more than 6,000 applicants—mostly hail from elite colleges and graduate degree programs. In this respect, Lewis is twice blessed, but he is sensitive to the fact that his immediate success is hardly a matter of strict meritocratic selection. “I decided to live with the stigma of having gotten my first real job through connections,” he writes. “It was better than the stigma of unemployment.”

Also better than unemployment is his first-year salary, which at $42,000 is nearly twice the US median household income. It’s quite a sum for a 24-year-old, and on his way to his first day in the training program, Lewis is downright giddy. “I didn’t really imagine I was going to work,” he says of the occasion. It was “more as if I were going to collect lottery winnings.”

“Lottery winnings” is an intriguing choice here. In my business ethics classes, I often use the example of a lottery to illustrate the idea of just deserts. There are many ways we can get the good things in life, and not infrequently, students who believe themselves to be defending free markets will instinctively resist any attempt to discriminate among them. If one is successful in getting the things one wants (so their reasoning goes), that’s all that matters, and any attempt to make distinctions is a threat to a system that depends on the pursuit of self-interest.

They may be right about this, but it doesn’t mean that any such distinctions aren’t keenly felt—or even that the students themselves don’t already make them.

Take two hypothetical tales of rags to riches.

The first involves an engineering savant. We’ll call him Boyle. Boyle comes from a working-class background—his father’s a janitor at the local elementary school; his mother takes in laundry. Boyle likes school well enough, but going to college never crosses his mind. When his mother gets sick, he drops out of 10th grade and goes to work at a local garage to help the family.

He enjoys tinkering, and he’s good with his hands. After a few years as a mechanic, he notices that the steel fasteners on the panels of the pick-up trucks that come into the shop keep rotting out. They’re hard to remove and slow down the work, which always leads to a lot of complaints. One day, Boyle gets an idea for replacing them. He drains his savings, cuts back to one beer on bowling night, and sells the antique pocket watch his grandfather left him. It’s just enough for him to buy a small injection-molding machine, which he sets up in his basement.

He starts spending nights and weekends creating a plastic clip to replace the steel fasteners, one that can be easily removed and will better weather the elements. After two years of testing, he shares his prototype with a parts supplier for Ford and persuades it to give him a shot. It’s a success. Boyle buys back his grandfather’s watch, and within a decade, he’s the owner of a small plastics company that employs almost 20 people and earns nearly $2 million a year.

The second story involves another individual. We’ll call him Barneby. On the way home from softball practice, Barneby stops at a gas station to refill his Audi. On a lark, he buys a Powerball ticket and wins $250 million.

Now, consider both men—is there any way they’re equally deserving of their riches? Of course not. In fact, to say that Barneby deserves his lottery winnings seems like a confusion of terms, one that conflates sheer luck with simple justice. In contrast to Boyle’s entrepreneurial odyssey, Barneby didn’t do anything to become a centimillionaire—nothing, at least, beyond buying a lottery ticket.

Michael Lewis certainly sees dumb luck at work in his excessive wages, but he isn’t terribly bothered by the inequity. Life is hardly fair, and between his good humor and congenital insouciance, he’s not the type to be afflicted by any great sense of guilt for a little good fortune. “There was no justice in the world,” he cheekily notes, “and thank goodness for that.”

Besides, Lewis is among the ranks of the best and brightest. Surely whatever they do is worth a prince’s ransom.

The sorry truth makes for some of the most memorable moments in Liar’s Poker. Readers are soon introduced to the sordid business of being a bond salesman, an aggressively vulgar world of “jamming bonds” (trading floor parlance for persuading clients to buy dodgy securities) and “blowing up customers” (what happened when they did so). Lewis does a bit of both during his two years in investment banking, an experience that doesn’t sit easily with him. “I’m now convinced,” he writes, “that the worst thing a man can do with a telephone without breaking the law is to call someone he doesn’t know and try to sell that person something he doesn’t want.”

Like the scenes of a slasher film, the stories Lewis shares are lurid and gripping, and one might be forgiven for wondering how exactly Salomon Brothers ever hoped to operate for very long treating its customers like garbage. Lewis wonders too. “A policy of screwing investors could lead to ruin,” he writes. “If they ever caught on, we’d have no investors. Without investors, we’d have no business raising money.”

The book offers two explanations. One involves the type of customers a junior salesman tended to draw, “small clients”—those who “if disaster struck” and a trade blew them up, “the effect on [the] overall business of Salomon Brothers would be negligible.” The other is courtesy of the firm’s president, Tom Strauss, himself a former bond salesman: “Customers have very short memories.”

Strauss’s remark is foul, but in Lewis’s telling, the sentiment supporting it is hardly exceptional. A vicious contempt for customers seasons the boorish banter of the trading floor and is central to the survival-of-the-fittest ethic that seemingly guides everyone’s behavior. For instance, early on at Salomon, Lewis is duped by a trader into helping unwind a bad position by selling $3 million of bonds to one of his clients, a trade that results in an immediate loss for the investor. Guilt-ridden and furious, Lewis knows the “best thing” he can do is to “pretend” that he had “meant to screw the customer.” Why so? “People would respect that.”

But they wouldn’t just respect him for his decision; they would pay him handsomely for the deceit. At the end of his first year, Lewis earns a $45,000 bonus, making him among the four highest-paid members of his training class and more than doubling his salary.

Hal Weitzman: If you're enjoying the discussions we're having on this show, there's another University of Chicago podcast network show you should check out. It's called Not Another Politics Podcast. Not Another Politics podcast provides a fresh perspective on the biggest political stories, not through opinions and anecdotes, but through rigorous scholarship, massive data sets, and a deep knowledge of theory. If you want to understand the political science behind the political headlines, then listen to Not Another Politics podcast, part of the University of Chicago Podcast Network.

John Paul Rollert: If the difference between the tales of Boyle’s plastic fastener and Barneby’s lottery ticket is one of simple and just deserts, the moral conundrum of Liar’s Poker is what to do about unjust deserts when they’re served up to you on a platter. “It was more than I had contributed to society,” Lewis says of his full first-year compensation. “Christ, if social contribution had been the measure, I should have been billed rather than paid at the end of the year.”

The irony only grows with Lewis’s continued success. “My father’s generation grew up with certain beliefs,” Lewis writes after his second-year compensation swells to $225,000. “One of those beliefs is that the amount of money one earns is a rough guide to one’s contributions to the welfare and prosperity of our society.”

Lewis clearly shares this belief, and the question for him is what to do when you’re presented with clear evidence to the contrary, when you find yourself playing some “absurd money game” and benefiting “out of all proportion to your value to society.”

This is the winner’s dilemma. It’s a conundrum that many of my students face, a monkey’s paw for clambering to the very top of the meritocratic heap. By the remorseless metrics of the modern educational system, they have proven themselves elite athletes of the mind, individuals capable of organizing, analyzing, and synthesizing information, of conceiving projects and leading teams. And for all of their troubles, if they succeed, they’re offered a chance to make lavish sums of money for doing things whose value to society is highly questionable if not outright injurious.

Set aside the broader implications for any community that channels its best and brightest into such infelicitous busywork. The very personal danger, Lewis discovers, is that to justify such choices, especially when the behavior required is deplorable, it’s helpful to nourish an effortless scorn for those disadvantaged by your endeavors. The reason is simple: if winning is hateful, it’s easier if the losers deserve it. Lewis recounts a moment early on at Salomon Brothers when a hapless associate gets swatted aside by a superior on the trading floor and visibly begins to panic. “What a wimp,” Lewis says he instantly thought, then he realized of his reaction, “it showed I was coming along.”

The moment captures the twisted meritocracy of Salomon’s trading floor, whose moral logic Lewis describes as “capitalism at its most raw” and “self-destructive.” Whenever I return to it, the passage puts me in mind of something I always tell my students, an existential lesson of sorts: however sturdy and self-possessed you think you are, there is not a hard kernel of you-ness that persists over time like some indestructible diamond. We are not the sum total of our experiences, but environments do tend to change us, and we are all subject to the logic of the lion’s den. Enter one, and you will quickly learn to bite or you will get bitten.

Either way, you’ll eventually be a beast.

That transformation is not immediate, however. It takes time. After two years at Salomon Brothers, Lewis admits that, when he looked in the mirror, he didn’t recognize the person he saw staring back. Some day he would, though, and then the change would be complete.

And so, before there was no turning back, Lewis describes making “as stupid a financial decision as I hope I’ll ever make.” He collected his second-year bonus and quit.

Lewis was convinced he was walking away from the “clearest shot” he would ever have at becoming a millionaire. That may have been true at the time, but his readers know he turned out all right in the end. Today Lewis is not only one of the most successful authors of his generation, but he’s also a millionaire—many times over.

Still, that doesn’t take away from the audacity of his decision to leave Salomon. A million dollars is an enchanting number at any age, and Lewis occupied a world where numbers like this mattered. Dollars were a way of keeping score—the only way of keeping score—so it took guts, real guts, for a 27-year-old to look at his swollen bank statement and say: To hell with this. I’ve got a fantastic education, opportunities galore, and a lifetime ahead of me. This is a zero sum game—I’m better than this.

Such courage is ultimately the reason I’ve assigned Liar’s Poker to so many students over so many years. There’s being a winner and then there’s acting like one. The lesson of Lewis’s book is the price of knowing the difference.

“You might say that I left the trading floor of Salomon Brothers in search of risk,” Lewis says in the closing pages of the book. He decided to bet on himself, on his highest sense of self.

Thirty-five years later, it’s still a thrilling gamble—and one too few winners make.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research.

This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman, thanks for listening.