13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page iii The Poker Face WALL of STREET Aaron Brown John Wiley & Sons, Inc. 13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page ii 13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page i The Poker Face of WALL STREET 13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page ii 13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page iii The Poker Face WALL of STREET Aaron Brown John Wiley & Sons, Inc. 13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page iv Copyright © 2006 by Aaron Brown. All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or trans- mitted in any form or by any means, electronic, mechanical, photocopying, record- ing, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specif- ically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or writ- ten sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data Brown, Aaron, 1956- The poker face of Wall Street / Aaron Brown. p. cm. Includes bibliographical references. ISBN-13: 978-0-471-77057-2 (cloth) ISBN-10: 0-471-77057-4 (cloth) 1. Stocks. 2. Finance. 3. Risk. 4. Poker. I. Title. HG4661.B766 2006 332.63'22—dc22 2005031902 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page v Contents Foreword xi Preface xv CHAPTER 1 The Art of Uncalculated Risk 1 Risk 1 Risk Rules 4 Finance and Gambling 6 An Example of the Trading Game 9 Gambling and Finance 12 Opponents 16 Hold ’Em Aces 19 Truth 22 CHAPTER 2 Poker Basics 25 Poker Hands 25 Betting 30 Limits 32 Mechanics 33 You Gotta Know When To . . . 35 v 13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page vi vi ♠ CONTENTS And He Answers: “Omaha” 36 Stud 38 Draw 42 Basic Strategies 43 Calling 46 Taxes 50 CHAPTER 3 Finance Basics 55 Econospeak 55 Commercial Banks 56 Investment Banks 57 Exchanges 58 Theory 60 Financial Challenges 63 Flashback: Wall Street Poker Night 65 The Players 66 Economics 69 The Game 71 CHAPTER 4 A Brief History of Risk Denial 75 I’m Shocked—Shocked—to Find That Gambling Is Going on in Here! 76 Hedging Bets 82 A Random Walk Down Wall Street 85 Foreign Interest 89 Futures and Options 91 The Crash of ’87 96 Flashback: Gardena and the Single Heterosexual Male 103 No Stud-Horse Allowed 103 13402_Brown_2p_fm_r1.j.qxp 1/30/06 9:30 AM Page vii CONTENTS ♠ vii The Subculture 104 Never Ask of Money Spent, Where the Spender Thinks It Went 108 A Miniature Global Economy Laid Out on a Baize Oval Table 111 Nor Tie to Earths to Come, nor Action New 113 You Took Little Children Away from the Sun and the Dew . . . for a Little Handful of Pay on a Few Saturday Nights 115 CHAPTER 5 Pokernomics 119 Law and Money 120 Dutch Treat 124 The Trouble in Scotland . . . and New Orleans 128 Savage Money 130 Networks 133 Adventurers and Planters 137 Pokerbank 140 Flashback: My First Hand of Commercial Poker 145 Cheating 147 The Betting 149 The Draw 152 CHAPTER 6 Son of a Soft Money Bank 157 The Stormy, Husky, Brawling Laughter of Youth 158 Triage 165 A Tall, Bold Slugger Set Vivid against the Little, Soft Cities 169