1981-1986 Since the 1979 interest rate float, rates skyrocketed and banks who loaned out mortgages at low rates are losing money. In 1981, government passed a tax break to save the thrifts (savings and loans banks) from wide-spread bankruptcy. To benefit from these tax breaks, the thrifts can sell their mortgages at significant losses. The supply for mortgage bonds increased tremendously and so did trading. Salomon had the only fully staffed mortgage department so it made a killing. New traders are hired and they presented new ideas for making money, such as buying low yield mortgage loans at discount prices that are likely to see pre-repayment. As (mortgage) traders see more discrepancies between their contribution and pay, they started leaving the company, often poached by rival firms at staggering salaries.
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