Salomon Brothers: The IBM Coup, Mortgage Bonds and a Treasury Bid Scandal

SPEAKER_1 (0:00)

So I want you to just picture a Wall Street trading floor back in the 1980s.

SPEAKER_2 (0:04)

Oh man, the ultimate chaotic era.

SPEAKER_1 (0:06)

Right, but I don't want you to just think of people in pinstripe suits making these polite phone calls over mahogany desks.

SPEAKER_2 (0:12)

Oh, absolutely not.

SPEAKER_1 (0:13)

No, I want you to picture an environment that is so intensely competitive, just drenched in adrenaline and raw ambition, to the point where the top performers there, they actually refer to themselves out loud as big swinging dicks.

SPEAKER_2 (0:26)

Which is just wild to think about now.

SPEAKER_1 (0:29)

It's completely wild. Picture this open plan office space where the people sitting right next to you aren't just your coworkers. They are like treated quite literally as prey in this daily game of corporate survival.

SPEAKER_2 (0:40)

It was ruthless.

SPEAKER_1 (0:41)

Truly.

Unbridled self-interest wasn't just accepted. It was actively celebrated. And you know, you might be thinking this sounds like some exaggerated Hollywood movie script.

SPEAKER_2 (0:51)

Right, like something out of a blockbuster.

SPEAKER_1 (0:53)

Exactly. But it wasn't. This was the actual day-to-day reality on the 41st floor of Salomon Brothers.

SPEAKER_2 (1:00)

It really was. I mean, it was capitalism at its absolute rawest, just completely stripped of all the usual corporate pleasantries.

SPEAKER_1 (1:08)

Yeah.

SPEAKER_2 (1:08)

And honestly, what happened in that specific room, it permanently changed human behavior in the global financial sector.

SPEAKER_1 (1:14)

It really did. And that is the mission of today's Deep Dive. Welcome, everyone. I'm your host. And today we are taking a stack of historical business encyclopedias, financial records, first-hand accounts.

SPEAKER_2 (1:25)

We've got a lot of sources to get through.

SPEAKER_1 (1:27)

We really do. And I'm thrilled to have our resident financial historian here with me to help trace the spectacular rise and, honestly, the absolutely catastrophic fall of Salomon Brothers.

SPEAKER_2 (1:38)

Thanks for having me.

SPEAKER_1 (1:40)

It's going to be a fun one to unpack.

SPEAKER_2 (1:42)

It's going to be a fun one to unpack.

SPEAKER_1 (1:44)

So we basically want to figure out how this scrappy, family-run firm that was founded all the way back in 1910, how it morphed into this terrifying Wall Street titan.

SPEAKER_2 (1:55)

Before ultimately engineering their own demise through just completely unchecked ambition.

SPEAKER_1 (2:00)

It's such a fascinating trajectory.

SPEAKER_2 (2:02)

Because, I mean, you are looking at a group of people who were true pioneers in financial engineering. They really built the modern market.

SPEAKER_1 (2:09)

Yeah.

SPEAKER_2 (2:10)

But that sheer brilliance was just constantly warring with this deeply dangerous, almost like pathological appetite for risk.

SPEAKER_1 (2:18)

So if you listening have ever wondered where the modern stereotype of the aggressive, risk-taking Wall Street banker actually comes from.

SPEAKER_2 (2:25)

You are about to meet ground zero.

SPEAKER_1 (2:27)

Exactly.

Let's just get right into it. Because I was looking through the sources. And to understand how Salomon Brothers became these apex predators, you actually have to look at their beginnings, which were surprisingly pretty quiet.

SPEAKER_2 (2:40)

Very quiet, actually.

SPEAKER_1 (2:41)

But there was this detail in the notes about their founding that completely threw me. It was something about the American Revolution. Oh, yeah. Like, how does a 1980s Wall Street firm connect to that?

SPEAKER_2 (2:50)

It's an incredible piece of historical trivia, honestly. So the firm was founded in 1910 by three brothers. Okay. Arthur, Herbert, and Percy Salomon, along with a clerk named Ben Levy. And the Salomon Brothers were actually direct descendants of a man named Haym Salomon.

SPEAKER_1 (3:07)

Wait, who was that?

SPEAKER_2 (3:08)

Well, if you dig into American history, Haym Salomon was the primary financier of the American Revolutionary War. You're kidding. No, I'm serious. He was a close associate of Robert Morris, the founding father. So raising capital, financing these massive endeavors, it was quite literally in their bloodline.

SPEAKER_1 (3:25)

That is wild.

SPEAKER_2 (3:26)

Yeah.

SPEAKER_1 (3:27)

So they have this incredible historic pedigree. Did they just leverage that right out of the gate to become power players?

SPEAKER_2 (3:33)

Not at all.

SPEAKER_1 (3:34)

Okay.

SPEAKER_2 (3:35)

And that's what's so interesting about them. Despite that deep-rooted legacy for decades, Salomon Brothers remained this very traditional quiet partnership.

SPEAKER_1 (3:44)

Oh, really?

SPEAKER_2 (3:45)

Yeah. They were essentially just bondbrokers. They weren't the flashy guys on the street doing massive corporate mergers. Right. They weren't the rock stars. Exactly. They just steadily, quietly built their business over the first half of the 20th century.

SPEAKER_1 (3:57)

Okay.

SPEAKER_2 (3:58)

And then Percy's son, William Salomon, eventually became the managing partner in 1963 And he basically kept that steady hand on the wheel.