{"id":109405,"date":"2023-07-30T11:30:00","date_gmt":"2023-07-30T15:30:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=109405"},"modified":"2023-08-10T08:52:21","modified_gmt":"2023-08-10T12:52:21","slug":"bond-trader","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/bond-trader\/","title":{"rendered":"What It Was Like Being a Bond Trader for Salomon Brothers"},"content":{"rendered":"\n

How hard was it being a bond trader in the 1980s? How did Salomon Brothers take over Wall Street?<\/p>\n\n\n\n

Salomon Brothers investment bank was founded in 1910 by Arthur, Herbert, and Percy Salomon. It wasn’t until the 1980s that the firm found its niche within the growing bond market.<\/p>\n\n\n\n

Keep reading to learn how the Salomon Brothers controlled the bond market, according to Liar\u2019s Poker<\/em> by Michael Lewis.<\/p>\n\n\n\n\n\n\n\n

The Rise of the Salomon Brothers<\/strong><\/h2>\n\n\n\n

Originally founded as a private partnership, Salomon Brothers became a publicly traded corporation in the \u201970s before being acquired by Phibro<\/a> in 1981, with chairman John Gutfreund personally making $40 million on the deal. Lewis writes that Salomon Brothers\u2019 profits weren\u2019t as important to Gutfreund as the power and prestige he received as CEO. Under Gutfreund\u2019s leadership (or lack thereof) there was absolutely no oversight of what the company\u2019s traders were doing or how they did it. All that mattered was that they made the firm money. Neither was there any sense of moderation from Gutfreund or his fellow executives. According to Lewis, every action a bond trader at the firm took was either full-throttle or nothing at all.<\/p>\n\n\n\n

(Shortform note: Lewis\u2019s history of Salomon Brothers begins after Gutfreund had already become a Wall Street tycoon, but his position wasn\u2019t the result of a lifelong ambition.<\/a> Gutfreund was born in 1929, studied English and acting at Oberlin College<\/a>, and served in the US Army during the Korean War. His hometown was Scarsdale, New York, where he was introduced to the Salomon family<\/a> via connections at the local country club. Gutfreund joined Salomon Brothers in 1953<\/a> and worked his way up to become a full partner by the age of 34.)<\/p>\n\n\n\n

At the start of the \u201980s, the all-or-nothing approach paid dividends, because when the bond market began to take off, Salomon Brothers had already fought for a controlling monopoly of bond trades on Wall Street.<\/strong> They\u2019d been allowed to do so because other trading firms had always disparaged bonds as second-class investments. Once the tide turned, Salomon cornered the market, and its dealers encouraged all of their clients to leverage debt in the form of more bonds, which they\u2019d trade from investor to investor while charging a fee on every transaction. Bond traders used every sales trick in the book to hike up the number of transactions their clients made, always increasing Salomon\u2019s cut of the pie. <\/p>\n\n\n\n

(Shortform note: Lewis isn\u2019t the only one to suggest that frequent trading enriches investment banks at the expense of individual investors. In The Essays of Warren Buffett<\/em><\/a>, Buffett makes clear his dislike of Wall Street traders, brokers, and salesmen. Instead of serving the best interests of their clients, they work to create a transfer of wealth away from investors<\/a> and into the coffers of investment firms. Buffett says that investment banks do this by encouraging investors to trade as often as they can while claiming that their clients\u2019 frequent trades will allow their investments to outperform the market. During each transaction, firms charge fees<\/a> that Buffett describes as financial \u201cfriction\u201d curtailing investors\u2019 ability to make money.) <\/p>\n\n\n\n

Salomon\u2019s bond traders saw themselves as financial entrepreneurs and viewed everyone else in the banking world as timid, cowardly sheep. The trading floor was very much a boys\u2019 club. Women were allowed to sell products to clients, but only men were allowed to join the upper echelons where trading took place. Lewis recounts that bond traders constantly fought to prove their alpha-male status<\/strong> by aggressive trading, excessive self-indulgence, and elaborate pranks that bordered on abuse. Their chief entertainment was a game called \u201cLiar\u2019s Poker\u201d\u2014a version of \u201cI Doubt It<\/a>\u201d played with dollar bills instead of cards. The point of the game was to read other people<\/a>, call out bluffs, and learn how to lie\u2014all useful skills in the world of high finance.<\/p>\n\n\n\n

(Shortform note: While Lewis depicts the posturing of Wall Street traders in a negative light, others in the financial industry see some of these attributes as essential skills to master. In The Way of the Wolf<\/em><\/a>, former stockbroker Jordan Belfort explains his tactics for landing sales, which include asserting your authority<\/a> over that of the buyer, using tone and body language<\/a> to influence the buyer\u2019s decisions, and increasing any fears the buyer might have<\/a> about what might happen if you don\u2019t make the sale<\/a>. While Belfort was a highly successful stockbroker, it must be noted that in 1999 he pled guilty to defrauding his investors of over $200 million<\/a>.)<\/p>\n","protected":false},"excerpt":{"rendered":"

How hard was it being a bond trader in the 1980s? How did Salomon Brothers take over Wall Street? Salomon Brothers investment bank was founded in 1910 by Arthur, Herbert, and Percy Salomon. It wasn’t until the 1980s that the firm found its niche within the growing bond market. Keep reading to learn how the Salomon Brothers controlled the bond market, according to Liar\u2019s Poker by Michael Lewis.<\/p>\n","protected":false},"author":14,"featured_media":2733,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[81,39,31],"tags":[1115],"class_list":["post-109405","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-history","category-money","tag-liars-poker","","tg-column-two"],"yoast_head":"\nWhat It Was Like Being a Bond Trader for Salomon Brothers - Shortform Books<\/title>\n<meta name=\"description\" content=\"The Salomon Brothers took full advantage of the flourishing bond market in the 1980s. 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