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.
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