Moral outrage attends the probe of the U.S. bond-market scandal






Martin Mayer

Simon & Schuster

256 pages; $23

Memory on Wall Street can be quite short. The venerable firm of Salomon Brothers, traders extraordinaire, holds steady in the firmament of the markets, if not quite in the august place it held before news broke in 1991 of Treasury bond auction scandals. Still, it's hard to believe, given the rapid rehabilitation of Salomon, that in the wake of the revelation that traders made illegal bids for government bonds -- which led to the dumping of top management and the temporary takeover by folksy billionaire Warren Buffett -- that many questioned the firm's very viability.

That's at the crux of the difficult set of circumstances with which the multi-talented business writer Martin Mayer has to work in putting together this book. He has a scandal that, except for the fates of a few individuals, didn't rock Wall Street. (After all, the much more widely known legal troubles of Drexel Burnham Lambert, that overused symbol of 1980s excess, sank the firm, and junk-bond king Michael Milken is still of enough interest to rate an interview with Barbara Walters.)

Mr. Mayer has to probe the not widely understood, though critically important, world of the government securities market and has to explain and illuminate things such as "short squeezes" and "when-issued trading." In general, stocks are sexier than bonds.

He's right in asserting that the transgressions of Salomon in the early 1990s in the U.S. government bond market were significant ones. And his moral outrage seems on target when he dissects the firm's original assertions that the devious doings were solely the work of traders and that upper management of the firm bore no responsibility.

Mr. Mayer cites one unnamed government investigator as maintaining that the Salomon case was worse than anything that Drexel did. Using language far too salty for a daily newspaper, this person asserts that junk-bond financing took on only corporate America, while arrogant Salomon Brothers thought it could have its way at the expense of the U.S. government.

Through a notable career in book and newspaper writing, the author has rightfully won renown for casting a critical and knowledgeable eye on our financial markets and institutions and, more important, for explaining clearly the inner workings and importance of those markets.

While that talent is on display on occasion here (especially in discussing the risks of such off-balance-sheet transactions as interest-rate and foreign-currency swaps), Mr. Mayer fails in the larger task of bringing life to Salomon Brothers and the bond-auction scandals.

Most of this book is devoted to a comprehensive history of Salomon, presumably to show the changes that led to an environment in which the alleged transgressions could take place.

But Mr. Mayer's tale of Salomon's evolution into a public company, and then into possibly the biggest force on Wall Street in the 1980s, can't compare with "Liar's Poker," Michael Lewis' 1989 best seller on Salomon, in providing a vivid picture and almost visceral feel for what it was like amid all that power, money and arrogance.

To be sure, Mr. Lewis' iconoclastic account doesn't have the comprehensiveness of Mr. Mayer's history, and Mr. Lewis didn't have to cope with reporting on an ongoing legal morass. But if an important criterion for judging a book on financial topics is the ability to make the informed reader appreciate the life and blood of an organization or individual, Mr. Lewis was equal to the task and Mr. Mayer was not.

What of John Gutfreund, once called the "king of Wall Street," who was knocked from the top of Salomon by the bond auction mess? Mr. Mayer seems to have a mixed opinion, at one point seeing him as a victim of the "Peter Principle" -- a talented trader and underwriter with instincts that "had nothing to do with managing people or making policy decisions."

And Mr. Mayer places the problems at Salomon in the larger context of the 1980s ethos, when "the practice of all professions in the United States . . . moved from a context of relationships to a context of transactions. . . . This is not the real world, and if it were the real world, one would wish to change it."

Mr. Lipschutz is a writer who lives in New York.

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