Liar’s Poker by Michael Lewis

CHAPTER ONE
Liar’s Poker
It was sometime early in 1986, the first year of the decline of my firm,
Salomon Brothers. Our chairman, John Gutfreund, 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.
Gutfreund 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. Gutfreund seemed able to smell money being lost.
He was the last person a nerve-racked trader wanted to see. Gutfreund
(pronounced 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: Gutfreund! Gutfreund! Gutfreund!
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 turdlike ash on the floor beside my chair, left, I suppose, as
a calling card. Gutfreund’s cigar droppings were longer and better formed
than those of the average Salomon boss. I always assumed that he smoked a
more expensive blend than the rest, purchased with a few of the $40 million
he had cleared on the sale of Salomon Brothers in 1981 (or a few of the
$3.1 million he paid himself in 1986, more than any other Wall Street
CEO).
This day in 1986, however, Gutfreund did something strange. Instead of
terrifying us all, he walked a straight line to the trading desk of John
Meriwether, a member of the board of Salomon Inc. and also one of
Salomon’s finest bond traders. He whispered a few words. The traders in
the vicinity eavesdropped. What Gutfreund said has become a legend at
Salomon 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. Meriwether grabbed the
meaning instantly. The King of Wall Street, as Business Week had dubbed
Gutfreund, wanted to play a single hand of a game called Liar’s Poker for a
million dollars. He played the game most afternoons with Meriwether and
the six young bond arbitrage traders who worked for Meriwether and was
usually skinned alive. Some traders said Gutfreund was heavily
outmatched. Others who couldn’t imagine John Gutfreund as 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 Gutfreund’s challenge this time was the size of
the stake. 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 Meriwether instead of some lesser managing director? It seemed
an act of sheer lunacy. Meriwether was the King of the Game, the Liar’s
Poker champion of the Salomon Brothers trading floor.
On the other hand, one thing you learn on a trading floor is that winners
like Gutfreund always have some reason for what they do; it might not be
the best of reasons, but at least they have a concept in mind. I was not privy
to Gutfreund’s innermost thoughts, but I do know that all the boys on the
trading floor gambled and that he wanted badly to be one of the boys. What
I think Gutfreund 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
Meriwether for the purpose? Besides, Meriwether was probably the only
trader with both the cash and the nerve to play.

Liar’s Poker by Michael Lewis