Real Estate Seminar
November 10, 2011
Liar’s Poker, by Michael Lewis, is a book that thoroughly looks into the author’s life as a broker on Wall Street working for Salomon Brothers, the most profitable firm in the 1980’s. Michael Lewis graduated from The London School of Economics and decided to take his career into trading when offered a job by the top- trading firm. At this time, the mortgage market started booming, and money was flowing all over Wall Street.
The secondary mortgage market was on the up-rise when Michael Lewis accepted a job at Salomon Brother’s. The secondary mortgage market was the selling of bonds, with a promise to be paid back with mortgage loans. The lender, whomever that may be, groups together the bonds and sells them. These are called CMO’s, Collateralized Mortgage Obligations. The risk of these loans in fully diminished because it is no longer an individual loan security. These securities can also be referred to as Mortgage Backed Securities (MBS). CMO’s can be grouped into mortgage- backed securities. The purpose of all of this is to reduce the risk of the lendee not paying back their loans. It gives more flexibility for people obtaining mortgages. They get lower interest rates, and don’t have the pressure of feeling like they cannot pay.
Dall, a partner at Salomon Brother’s recommended to Gutfreund to form a mortgage department with Ranieri as manager. Ranieri, a man in the Salomon Brother’s company, took the job. At this time, mortgage markets exceeded the U.S. stock markets and were the worlds largest capital market. In “Liar’s Poker,” the mortgage department was referred to as fat men who throw weight around and eat up all the time. In other words, they are lazy, fat men, who have their trainees get them food all throughout the day. Home mortgages are made and serviced by local thrifts. Individual mortgages are too small for Wall Street to even handle. Thrifts have bad...