AEM423 - dec4 - Lairs Poker Salomon Brothers in 1985,...

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Lair’s Poker - Salomon Brothers – in 1985, salomon was considered the finest bond trading house in the world. o Really profitable, leader in MBS culture, competitive culture. o Bond market really blew up/transformed when the fed announced that money supply was going to be fixed and interest rate was going to be allowed to float. - Fatal Flaws at Salomon o Inadequate compensation plan led some of Salomon’s key people leaving. Left too much to trainees – paying them more than they actually contributed to the bottom line. o Corporate issues/malfeasance o Internal competition – traders abusing each other. o Did not manage risk well – allowed the trading mentality to take over the company. Traders acting as traders basically controlled the company. Also, they focused entirely on profit. o Limited vision of what was going on with/direction of the company and the bond market. o Traded experienced people for trainees with degrees from good schools. o
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This note was uploaded on 04/02/2009 for the course AEM 4230 taught by Professor Bogan,v. during the Fall '08 term at Cornell University (Engineering School).

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AEM423 - dec4 - Lairs Poker Salomon Brothers in 1985,...

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