Liars Poker
Just read Liars Poker...
I want to know why bond traders-especially mortgage traders-were the most profitable groups for the banks back then. I also noticed that Lewis makes fun of corporate finance people. However, according to everything I've read on this website, corp. finance is better on your resume than S&T. Does top IB talent aim to be part of the most profitable group, whichever it may be at the time?
-confusedprospectivemonkey
The ABS markets, specifically Mortgage Backed (MBS), exploded in the mid 80s. It was just the hot sector at the time as securitization grew at an exponential pace. Keep in mind that Lewis hasn't worked on the street in 25 years.
Not only did MBS explode in the 80's but also it was a time of stubornly high interest rates. So bond bankers were making a killing because any release had to be 15% plus higher than what was needed due to interest rates. (the 15% is a conservative number I am not sure what corporate rates were back in this time)
Securitized Products made some much money back in the 80's because of demand and a lack of transparency which is common when you are building a new market from the ground up. It was a different market dominated by Salomon Brothers, the other IB banks weren't nearly as strong (as you read in Liar's Poker).
IB is better on a resume only when you want to do something besides banking. People who get into trading plan on staying with trading/markets related position for their career. A trader can't go get a VP at a F500 company; a banker can.
Did you even read the book? Half the book is about the answer to your question...
Lewis didn't directly make fun of bankers. He basically said that traders saw bankers as pussies because of their relatively genteel behavior. On the other hand, traders (in particular the mortgage traders) were seen as uneducated, gluttons by bankers. The mortgage bond trading department was the most profitable in Salomon Brothers because Lewis Ranieri was considered to be the pioneer of securitized mortgage trading. Some journalists even blame him for the current credit crisis, which is commonly accepted to be started from housing.
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