Book report part 5

            For this section of my book report on “Liar’s Poker” by Michael Lewis, I will discuss chapters nine, ten, and eleven.  I chose to group these three chapters because they all deal with how Solomon brothers crumbled.  Again, I also feel that these chapters relate to the organizational behavior topics of culture and motivation that we have discussed in class.

            In chapter nine, we find the author on a major client who loved to take risk.  As a result of this desire for risk, the author and another individual created a call option, which basically means that other investors who were risk-averse would sell their risk to Solomon.  In this situation, the investors were selling high-risk German bonds to the author.  This transfer of risk put Solomon in an ideal position, because since they were merely the middleman who was transferring the risk from the sellers to the client, Solomon brought no risk upon themselves.  Of course, due to the cut-throat competitive culture that exists within Solomon, this success the author was having caught the interest of another individual within the firm.  Once this individual became aware of this transaction, he decided that he would get a piece of the action in any way he could.  This individual, whom the author called “the opportunist,” pulled the rug right out from underneath the author, and stole all the credit for the extremely successful deal the author made.  Enraged by this, the author succumbed to the cut-throat Solomon culture and sought revenge.  As a form of retaliation, the author put together another very successful deal involving the sale of Japanese government bonds.  The author knew there was no way the opportunists could steal the credit for this deal, because he was not able to explain the deal to his peers and superiors.  This angered the opportunist, and he then sought revenge and threatened to have the author fired.  In defense, the author outsmarted the opportunist by going to the syndicate manager, who handles the deals the author makes.  The syndicate manager knew that the author and his partner was responsible for the deal, and with a few phone calls, the opportunist’s opportunity success had been squashed.

            I think this chapter provides another good look at the culture that exists within Solomon Brothers.  This firm is one of the most competitive in the business world, and this chapter proves it. In comparison to the employee-friendly culture we read about within SAS, Solomon’s culture is the polar opposite.  At any given time, an employee is willing to throw a fellow co-worker under the bus so that they would be the only one that would reap the reward.  Also, if one is thrown under the bus by another, their main goal becomes revenge, which is a good indication of the cut-throat, conceited culture that exists within Solomon Brothers.  I personally do not know how someone could work in such an environment when such positive environments such as SAS’s exist.

            In chapter 10, Solomon Brothers became the target of Drexel Burnham, a long time rival of Solomon Brothers on Wall Street.  Drexel Burnham had gained an abundance of success as of late because of their sly leader, Michael Milken.  Michael created a new way to finance corporate take-over’s.  He decided to start financing these take-over’s by issuing junk bonds.  Since the firm Michael ran was targeting to take-over Solomon Brothers, he planned on financing this acquisition with junk bonds.  The leaders of Solomon wanted to avoid this situation at all costs, but the deal materialized as Solomon’s executives were too ignorant to realize what was actually going on.  As a result, Solomon management had to cut a deal with Warren Buffet to avoid being taken over by Michael and Drexel Burnham.  Of course, Warren Buffet does nothing for free, so he performed his services at the expense of the shareholders.

            This chapter again reinforces the greedy, self-centered culture of Wall Street.  First, Michael was executing shady junk bond financing techniques, which were frowned upon in the investment banking world.  However, he did not care how moral his actions were.  The only thing he was concerned about was how much money he was going to make as a result of his shady transactions.  Also, no one else around him cared about his new financing strategy.  Solomon executives didn’t want to believe that he was using junk bonds because they were concerned about their reputation, and not loosing client revenue as a result of a tarnished reputation.  In the end, Solomon’s own greed came back to bite them when they had to pay a huge expense to Warren Buffet to avoid the take-over.

            In chapter 11, Solomon Brothers reaches the climax of its demise.  The stock market crashed in the winter of 1987.  This occurrence resulted in the firing of a thousand employees and the shutting-down of several departments.  As a result, Solomon could not operate at the level it once did because they lost some of the departments that used to earn revenue for the firm.  This means that the firm will earn less revenue in general, and this is like the end of the world to Solomon executives.  Due to this fact, management lost their vision because of the amount of money they would no longer make.  The firm did not completely shut down.  It continued to operate, but it did not earn anywhere close to what it did when it was in its prime.  The author ended up leaving the firm, but not because his paycheck was going to suffer due to the downsizing of Solomon Brothers.

Case 2

As a junior who was evaluating which company I wanted to inter with this spring, I had a special interest in the SAS case.  As I realized, a company's culture and management are a major factor to consider in terms of employer evaluation.  If I was an employee and SAS was one of my potential employers, I would choose them in a heartbeat.  While reading the case, I found numerous employee-friendly benefits such as a campus that offers several amenities such as fitness and healthcare facilities, job autonomy, and constant interaction with other employees (and activities to encourage this).  The company also has an extremely low turnover ratio, which is very encourage to any individual who is considering the company for employment.  As I was evaluating firms for internships, I found myself looking for many of the same amenities that SAS offers (except for the thing like fitness and childcare centers).

Book Report Part 4

            For this section of my book report on “Liar’s Poker” by Michael Lewis, I will discuss chapters six, seven, and eight.  I chose to group these three chapters because they all deal with the rise and fall of the mortgage bond market.  I also feel that these chapters provide insight on what motivated Solomon Brothers’ employees to do the work they do, which relates to the our class discussion on motivation.

            In chapter six, interest rates rose to an all-time high, and those savings and loan banks (thrifts) that made mortgage loans to individuals found themselves on the verge of bankruptcy because their borrowers were not able to pay the increased interest.  As a result, Congress passed a tax break to save these thrifts from going under.  In order to take advantage of this tax break, the thrifts had to sell their mortgage loans at a significantly lower price, which resulted in dynamic losses for the thrifts.  These losses, however, were a more attractive option than bankruptcy.  This sale of mortgage loans drastically increased the mortgage loan market, which was a godsend to Solomon Brothers because they were the only firm on Wall Street with a brand new, fully staffed mortgage loan department.  Solomon Brothers took full advantage of the mortgage loan market, and bought and resold mortgage loans like crazy, which resulted in mind-blowing revenues for the firm.  The main goal of mortgage loan traders was to make as much revenue as possible from trading these mortgage loans, which resulted in a “ready, fire, aim” philosophy.  Normally, the philosophy is “ready, aim, fire,” but to the traders, all they cared about was the profit to be made, so they saw a profit-yielding trade opportunity (ready), and often made decisions (fire) without actually thinking about or planning them (aim). The author then went on to relate this hunger for money to their physical hunger, and how they ate so much food every day that it was considered borderline gluttony.  Finally, several mortgage traders left the firm because they felt there was a huge discrepancy between what they earned for the firm, and what the firm paid them.  One individual made $20 million for the firm, but was only paid $90,000 for that year because it was the most his earnings bracket would allow.  This individual, along with many of the others who left, assumed a new role with another firm that offered to guarantee at least $1 million in compensation a year.

            In chapter seven, times got even worse for Solomon Brothers.  Since employees chose to leave the firm in chapter six, executives had to hire new employees to replace them.  These new hires were motivated to work for Solomon Brothers for the same reason (money) as the employees who left, but lacked the experience and training of those before them.  This resulted in constant disputes between employees, which lead to such events as taking screws out of the swiveling chairs of others, to dumping numerous trash cans on a certain individual’s desk.  This also led to employees taking actions to steal profits from other traders. 

            Money is clearly the key motivational factor for any employee in the mortgage trading department at Solomon Brothers.  Each individual does not get out of bed in the morning and look forward to work because they love the job or the firm they work for.  Instead, they only think about how much money they will make that day for both the firm, and themselves.  A video we watched in class explained that money is not one of the three key motivating factors.  In addition, the video mentions that those who are motivated by money will not have a very long-lived and enjoyable career in their field of employment.  This is represented in the book by the traders who left their jobs at Solomon because they were not getting paid enough.  They clearly did not like the work they did for any other reason other than their compensation, so when they realized how little they were getting paid, they had no motivation at all to continue doing what they were doing, which resulted in them taking higher-paying positions with other firms.  Again, they made their new employment choice based solely on money, which I feel will result in the same situation they just went through.  If employees were motivated by factors other than money, they would not have left when they found out how little they were being paid in relation to the amount they were making for the firm.  If the employees never left, the turmoil that occurred in chapter seven would have been less likely to occur.  In essence, you can say the lack of motivation led to the beginning of the end of Solomon Brothers Mortgage Department.

            Finally in chapter eight, the author deviates from the New York office and finds himself as a corporate bond salesman in the London Office.  The author was motivated by factors other than money, and felt that he was not a fit for the greedy New York office culture.  In the London office, employees were more focused on establishing relationships with clients, as opposed to getting the most money they could out of them.  Once he arrived in London, the author was taken under the wing of two of the best salespeople in the office.  These individuals instilled in him confidence in himself that the New York office had previously crushed.  With this new confidence, he executed a deal where he sold $86 million worth of Olympia and York bonds (Olympia and York was a property development company).  As a result, everyone benefited from the deal.  Solomon Brothers made money from the sale, and Olympia and York (the customer) also made money, which was a very rare occurrence.

            This chapter shows that the author was motivated by factors other than money.  If he was just motivated by money, he would not have had the desire to leave the New York office.  However, he was motivated to do his work by the fact that if everything was done in a fair and proper manner, everyone could benefit from the sales and trades he makes.  This was his purpose as a bond salesman, and according to the video we watched in class, purpose is one of the three factors that best motivate an individual, and the author is living proof of that.    

Lincoln as a Leader

In his letter we discussed in class, Lincoln discussed how he his leadership is characterized by him acting to satisfy those he represents.  He states that he is merely an agent for the people he represents, and that his actions a direct result of the interests of those he represents.  Compared to the other two leadership styles, I feel that Lincoln's is the most practical.  Plato's style is ideal, but it is way too impractical.  Also, I feel that Machiavelli's style is not sufficient enough to stand on its own.  Instead, I think that it is a part of Lincoln's style. By acting as an agent for those a leader represents, the leader's self- interest is to satisfy the interests of those he or she leads, which incorporates Machiavelli's style into Lincoln's.  I also think that Lincoln's leadership style is the most common in both the business and non-business worlds.  In the corporate world, CEO's act as an agent to the shareholders (owners of the corporation), and makes decisions based on the shareholders’ best interests.  In the non-corporate world, doctors and attorneys act as agent to their clients, and makes decisions that are to their clients' best interests.  Even here at Shippensburg University, club presidents act as an agent to their club members, making decisions that are for the good of the club members.

Magic Cable Case

I thought the Magic Cable case we discussed in class was very interesting, and that a lot can be learned from it.  I thought the case presented a situation that is a very common occurrence in the working world.  Gary Roberts was not satisfied with his current position at Tile-Elite, and therefore frantically started to search for other means of employment.  The main reason he chose to do this was because he was looking for something that provided future opportunities for advancement; where he could be promoted to a higher, more managerial position.  This motivational factor showed that he was focused more on the long-term than the short-term.  He then took a job with Magic Cable, and everything was going very well for him in the early stages of his employment with magic cable (short-term).  However, things quickly crumbled, and he eventually became disgusted with Magic Cable and left for another company.  I feel that when he chose to work at magic cable, he ignored his goal of focusing on the long-term as opposed to the short-term.  He was so worried about finding another job and getting away from Tile-Elite, that he did not evaluate the future pros and cons of working at Magic Cable.  As a result, the spur-of-the-moment decision he made to join Magic Cable put him right back in the situation he was in before he joined Magic Cable.

I think this same mistake is also very common in the business world.  Individuals are so motivated to find a job just so they have a steady source of income that they forget to evaluate their future with the company.  Sure getting a job will suffice for the short-term, but usually the individual becomes miserable in the long-term because he or she did not consider the long-term effects when they took the job, which is the same mistake Gary made.

"It Could be Worse" video

After watching the video about how a CEO handled complaints, I can totally relate to how that executive handled these complaints.  I do not in any way condone his tactics, but I can see how they have a practical application.  He handle's mostly every problem by saying "It could be worse."  In a sense, he is right.  While his employees did not have the optimum work conditions, they could have had headsets that did not function at all.  By handling complaints this way, he is cutting the costs of having to replace the headsets.  In this economy, this saved amount could be the difference between life and death of his company.  If he keeps applying his complaint-handling tactics, his employees are going to eventually get frustrated to the point where they may quit.  Since the position seemed like a basic call center position, he should not have a problem bringing in a new employee to do the job; one who is less likely to complain as much because he or she just started and does not want to start off on the wrong foot by making a negative first impression.  Again, I would never use such tactics as the CEO did, but I can understand why he chose to act like that.

Google Video

I found the Google motivational video that we watched in class on Monday to be very interesting and informative.  I really never thought about how giving employees a day to work on whatever they want could impact their motivation.  Many individuals seem to be motivated by money, which in my eyes is the wrong thing to be motivated by.  Yes while money may be a means of encouragement in the short term, its effect will eventually wear off.  However, is one is motivated by the fact that occasionally he or she can go to work and work on whatever they want, I feel they are being motivated by a better reason.  Individuals who use this as motivation will get more enjoyment out of their job, which is something money can't provide.  Also, using a free day as a means of motivation is also very beneficial to Google as well.  If employees work on whatever they want, who knows what kinds of new ideas or projects will arise.  Google can then implement these ideas and end up using them as a source of profit; and it's because they know how to motivate their employees.