On Money and Markets: A Wall Street Memoir

by Henry Kaufman, Paul A. Volcker (Foreword)

This is a memoir and an exploration of the world's financial markets of the 20th century. Dr Kaufman devotes the heart of the book to the major arenas of financial and economic life in which he has participated in for over half a century. Why has the Federal reserve gained so much power and what are the implications for investors? What patterns can be seen in the creditr crunches and other financial crisies that have rocked Wall Street and world markets in recent decades? These questions and others are answered. Dr Kaufman weaves personal anicdotes throughout the book, from fleeing Nazi Germany to his arrival on Wall Street.

Genres: Economics, Finance

388 pages, Paperback

First published April 7, 2000

Reviews

[André Morais · Rating 4 out of 5]

Dr. Kaufman's memoir ‘On Money and Markets’ rightfully deserves a place in the hall of great financiers' memoirs, alongside David Rockefeller's. In this book, we are invited to learn more about the life and thoughts of the financial analyst who, although earning the nickname of "Dr. Doom", was the one who, by crying "Buy"! in August 1982, ended a long period of bearish market.
The book is basically divided in two parts. The first one is truly biographical and contains an account of Kaufman's journey from Nazi-oppressed Germany to the United Stated, then climbing through the ranks of the Wall Street’s investment banking world, right until the top of Salomon Brothers' management.
The second part is a lucid analysis, not only of the banking and finance world, but of the economy at large. Bearing in mind that this book was released in 2000, the title of this part could well be "Told you so", given its predictive power. I will develop a few takeaways which proved insightful, given the financial and economic events which occurred in the decade following the book's release.
Talking about his conversations with government officials, Dr. Kaufman reveals how he always found them to have a bias towards "what should be rather than what will be". This is important, and it is further perused later in the book, when lecturing on the optimistic bias. It reminds everyone how official reports, data or analyses should be carefully read and not taken at face value.
Kaufman's apologetic portrait of Paul Volcker (page 165) is the basis for his wider conclusion that central bank's independence is not enough, and strong leadership must follow closely. This is a remark which goes straight to the point, particularly considering current events, when independent central banking is being put under stress and strong leadership, the ability to, namely, endure even the harshest criticism, seems not to be in abundance.
The inevitable outcome of soaring interest rates to low interest rates, long-terms mortgages (page 266). This remark flies over more than 20 years and arrives straight in 2023. A climb of interest rates cannot be 'neutral' as some nowadays expect them to be, and their impact on financial institutions' balances is inevitable. This was true more than 20 years ago and is true nowadays. This remark is complemented by the account of how marking books to market has inevitable shortcomings in periods of high volatility (page 282), such as the one we are currently living.
The behavioral bias towards inflated asset prices (page 310) or, how it ended up being commonly called, the 'Greenspan put' (although, as far as I recall, this expression was not quoted in the book). This can be seen, in my opinion, as one of the great shortcomings of central banks: when asset prices are soaring, they stand still, watching from the sideways. But if assets price plummets, then central banks jump into the field of play, namely by cutting interest rates. In my opinion, this bias should be restrained, and inflated asset prices should be tackled by central banks much earlier. The recent case of real estate is particularly clear: benefiting from a decade of ultra-low / negative interest rates, its price soared way beyond what sound fundamentals recommend and now its depreciation is a threat to the financial system.
Much more could be said about this long and intellectually stimulating book (such as Kaufman's reflections on how we tend to not take the right lessons from financial crises), but I would like to end with a quote which, although made in relation to the late-1990s euphoria, can be regarded as perennial: "I believe that sometime within the next few years, the financial euphoria will be reversed... (P)erhaps an even bigger problem than the debacle of Long Term Capital Management will surface and kill the euphoric atmosphere". Boom and bust.

[Beale Stainton · Rating 4 out of 5]

Even for someone who hasn’t really studied economics, (one class in post grad), Kaufman puts the subject into terms that are understood. He isn’t too technical. In fact he’s predominantly biographical and historical, but still, in this, his career memoirs, he analyses the subject that has been dear to his life, (and of course his heart), (I mean, what else would he wish to talk about?), outlining what worked and what went wrong. From the corporatization of Wall Street partner firms, to the formation of securities research and forecasting, to the proliferation of debt and credit markets in post war America, he even makes interest rates, (Sidney Homer), seem like a topic that one could come to be passionate about.

There was a lot about the world that always seemed a bit hazy to me, especially the relationship between America, the Middle East and Israel. Well Dr Kaufman breaks the story down into cold hard economics.

You have to wonder though. How would he feel about the negative interest rates, considering there was a section in one of his chapters that argued that the asset wealth effect had a major influence on economic mood, (almost as if he says that Government must keep the bubbles going, never to let them pop, when they deflate, lower the rate and push it back up again). What would Dr Kaufman say for the world to do next?

[Monzenn · Rating 4 out of 5]

I'm still pissed that this was sold to me as a memoir. Apart from the first two chapters this was a memoir as say a bath tub is a swimming pool. Otherwise a very informative book. Henry Kaufman, so-called Doctor Gloom / Doom depending on who you ask, lays out the economic history that he has learned and witnessed. I wish he were a little more personal about it, to justify the term "memoir," nonetheless I came out of the experience understanding his thought process.

[Carson · Rating 4 out of 5]

- His memories of the ravages of inflation in post-WWI Germany sure make one question the "looseness" of our current Fed. Reserve.
- He stared the first research shop on Wall Street.
- His warning about derivatives is even more appropriate today. He wrote this in ~2000. Derivative notional values and volumes are multiple times higher today than 8 years ago.