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.
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