henry kaufman TECTONIC SHIFTS IN FINANCIAL MARKETS People, Policies, and Institutions www.ebook3000.com Tectonic Shifts in Financial Markets Henry Kaufman Tectonic Shifts in Financial Markets People, Policies, and Institutions www.ebook3000.com Henry Kaufman New York, USA ISBN 978-3-319-48386-3 ISBN 978-3-319-48387-0 (eBook) DOI 10.1007/978-3-319-48387-0 Library of Congress Control Number: 2016959962 © The Editor(s) (if applicable) and The Author(s) 2016 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Cover illustration: © Brothers_Art, iStock / Getty Images Plus Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland For Sidney Homer and Marcus Nadler www.ebook3000.com Preface by Paul Volcker1 Former Chairman of the United States Federal Reserve I have known Henry Kaufman for nearly six decades As I thought about my relationship with Henry during all these years, I thought that I brought certain advantages to our friendship I am older than Henry by six weeks I am taller than Henry by twelve inches And to my memory—maybe his memory is different—when we first met, at the Federal Reserve Bank of New York fifty-nine years ago, in my opinion, I outranked him by a little bit But if that is true, I also know that Henry is smarter, because he came to the Federal Reserve with more degrees than I had He had a Ph.D in economics before that degree became a mathematical degree It was real economics at that stage He has reflected his interests and his scholarship in writing four books, including this one I once wrote half a book, so he has generated eight times what I’ve generated Mr Volcker originally delivered a version of this text as “Henry Kaufman: Speaking his Mind, Making the Country Better” at the Foreign Policy Association in New York on Dec 2011, when I was presented with the Foreign Policy Association Statesman Award It is reprinted here with the permission of the Foreign Policy Association vii viii Preface by Paul Volcker I know he is a generous man He supports more educational institutions than I have attended, with a professorship here, and a building there, and all the rest The most important fact that I can tell you is that Henry knows more about interest rates than I Now that may surprise you How I know this? There is a small book—696 pages—called A History of Interest Rates that covers Babylonian times through Wall Street No, Henry did not write this book, but Henry has read it I know Henry has read it for two reasons: He wrote a Foreword to the book I have the new edition, and I know Henry and I know that he would not write a preface to a book if he had not read the new chapters And Henry was very familiar with the first edition, which goes back some years It was only 394 pages at that point But in reading the preface to the book, I want to tell you why I know he knows all about interest rates He himself said, “My first examination of the history of interest rates was at the first edition.” He had just taken a new job with Sidney Homer, who was the principal author of the book, at Salomon Brothers Henry was instructed by Sidney to read the book, and I quote Henry, “in a meticulous way I read every page out loud to my secretary, and it has made an imprint on my career.” Truer words, I suspect, were never spoken You may know in many ways we have followed parallel careers for fifty-nine years We actually grew up quite close together, about five miles apart geographically, but it was a lot more than five miles apart culturally I grew up in a nice, white, suburban New Jersey My family was the epitome of middle class Americana at that point Henry and his family, who ended up only five miles away across the George Washington Bridge, were refugees from Nazi Germany His experience was quite different from my experience, a little more exciting if truth be told He ended up in Washington Heights, which was kind of a hotbed of talent at www.ebook3000.com Preface by Paul Volcker ix that point, fertilized in considerable part by refugees from Nazi Germany Henry went, I think, to the same high school as Henry Kissinger This was a place where refugees and their children somehow became citizens of the United States of America Back when I was in grammar school, we learned about George Washington, silver dollars thrown across the Rappahannock, cherry trees cut down, log cabins for Abe Lincoln, and on and on—all part of our kind of mythical history Henry and his compatriots in Washington Heights must have missed all that But what is interesting is that in a very short time, they became Americans I don’t know why Henry ended up with a true blue New York accent and Henry Kissinger never got over his German accent But be that as it may, I think that it is really a source of pride for America that these people could be absorbed into the society of New York and make the contributions they have made I have to say, looking at Henry’s career and some of the parallels we’ve had, that he no doubt loves his country But he is also aware of its faults, not least in financial markets, and not so coincidentally in recent years Henry is a man who grew up in our financial markets He started out in the Federal Reserve, went to Salomon, left after several years there, and has been an entrepreneur in the financial world He is very aware of what has been going on, and he is as concerned as anybody about defaults and distresses in our economy and in our financial system I think it is fair to say that, cognizant of all those problems, Henry wants to something about it He is aware of the problems: that’s part of the reason he wrote his books One of the important lessons of Henry’s books is the degree to which those in financial markets have lost their way Have they lost their sense of fiduciary responsibilities? Where is a sense of responsibility to the customer? Where is a sense of responsibility to an institution—the kind of institution and partnership x Preface by Paul Volcker that he grew up in—whether private or public? And where is the sense of personal responsibility among all the mechanistic, mathematical markets that exist in financial markets these days? I don’t know the answer to all those questions, but I know that Henry Kaufman is still at it He is speaking his mind and doing what he can do—intellectually, publicly, privately—to make this country better as a great American citizen www.ebook3000.com Acknowledgments As with two of my previous two books, David Sicilia, a professor of business and financial history at the University of Maryland, played an indispensable role as developmental editor on this project He contributed to its conceptualization and cohesiveness I continue to marvel at his erudition—the vast scope of his knowledge in the history of economics, business and financial markets His thoughtful demeanor and encouragement helped rescue me from occasional blockages in thought and writing For all of this I am very grateful Helen Katcher, my chief assistant for half a century, helped see me through this project and every other since my early days at Salomon Brothers I cannot imagine a more loyal, steady, and patient right-hand woman I am also grateful to Peter Rup and Tom Klaffky for their help in compiling data for several of the figures in this book xi 166 Bibliography Sanford, Charles S., Jr “Financial Markets in 2020.” Address, August 1993a Sanford, Charles S., Jr “The Social Value of Financial Services.” Address, October 1993b Sanford, Charles S., Jr “Managing the Transformation of a Corporate Culture: Risks and Rewards.” Address at the Wharton School, University of Pennsylvania, November 14, 1996 Shane, Scott 2008 The Illusions of Entrepreneurship New Haven, CT: Yale University Press Silber, William L 2012 Volcker: The Triumph of Persistence New York: Bloomsbury Press Sobel, Robert 1993 Dangerous Dreamers: The Financial Innovators from Charles Merrill to Michael Milken New York: John Wiley & Sons, Inc Sovich, Nina “Could You Pass Sixth-Grade Economics?” Wall Street Journal, March 1, 2016 Suskind, Ron 2012 Confidence Men: Wall Street, Washington, and the Education of a President New York: Harper Perennial Temin, Peter 1989 Lessons from the Great Depression Cambridge, MA: MIT Press Thatcher, Margaret 1993 The Downing Street Years New York: HarperCollins “Tough Rules Threaten Banker Pay.” Wall Street Journal, April 22, 2016 Treaster, Joseph B 2004 Paul Volcker: The Making of a Financial Legend Hoboken, NJ: John Wiley & Sons Turner, Adair 2016 Between Debt and the Devil: Money, Credit, and Fixing Global Finance Princeton: Princeton University Press U.S. House of Representatives, Committee on Oversight and Government Reform “Hearings on the Financial Crisis and the Role of Federal Regulator.” Washington, D.C., October 23, 2008 Vanasek, James G “Statement of Former Chief Credit Officer/Chief Risk Officer 1999-2005.” Washington Mutual Bank, Before the Senate Permanent Subcommittee on Investigations, April 13, 2010 Volcker, Paul A “Central Banking at a Crossroad: Remarks by Paul A. Volcker Upon Receiving the Economic Club of New York Award for Leadership Excellence.” Address before the Economic Club of New York, May 29, 2013 Wigglesworth, Robin “Henry Kaufman says Trump will help kill 30-year bond rally.” Financial Times, November 11, 2016 Wolfe, Martin 2014 The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—from the Financial Crisis New York: Penguin Press Zweig, Phillip L 1995 Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy New York: Crown Publishers, Inc Index A Adelphia, 119 Enron-era scandals Africa, 142 Age of Revolution, The, 159 Amazon, 122 American Depository Receipts, 118 American International Group (AIG), 44, 47, 121 ancient Greece, 14 AOL, 122 Apple, 2, 14 automobile industry, 122 B Bache & Co., 75 Ball, Laurence report Lehman Brothers bankruptcy balloon payments, 145 Bank Holding Company structure, 150 Bank of England, 88–89, 123, 134 Bank of Japan, 25 bank reserve requirements, 32 Bankers Trust Company, 24, 53 after Sanford’s retirement, 64 financial downturn under Charles Sanford, 59 fine, 60 founding, 54 International Credit Group, 58 International Department, 58 performance under Charles Sanford, 57 Resource Management Department, 56 Banking Act of 1933, 102 New Deal © The Author(s) 2016 H Kaufman, Tectonic Shifts in Financial Markets, DOI 10.1007/978-3-319-48387-0 www.ebook3000.com 167 168 Index Banking Act of 1935, 104 New Deal Bear Stearns, 70, 75 behavioral economics, 11 Ben-Shahar, Haim, 82 Berkeley University, 92 Bernanke, Benjamin, 37–47, 125 Adam Posen assessment of, 43 background before Fed chairmanship, 41 encounters with Henry Kaufman, 42, 43 Essays on the Great Depression, 41 handling of 2008 financial crisis, 41–44 handling of Lehman Brothers collapse, 44–48 “Helicopter Ben,” 41 Berner, Richard, 109 “blue sky” laws, 99, 104 BNP Paribas, 43 Boer War, 114 Boesky, Ivan, 93 branch banking, 32 Brazil, 140 BRICs BRICs, 14, 140 weaknesses of, 140 Brittain, Alfred, III, 54 Brown University, 66 B-shares, 118 Buffet, Warren, 121 Burns, Arthur adjusting the consumer price index, 21 “The Anguish of Central Banking” speech, 21 failure to control hyperinflation, 21 Fed chairmanship, 20–21 personal style, 20 relationship with President Nixon, 20 Burns, Arthur F., 20, 27 Bush, President George W., 40, 41 business and economic history, 115, 124 decline in business schools, 115, 116 Business Council, 68 business cycle analysis, 138 limitations of, 138 business ethics courses, 116 business start-ups, 12 Business Week, 59 C California, 92, 94, 119, 132 Canada, 87 Carney, Mark, 123 Carter, President Jimmy, 12, 22, 27, 28, 81 relationship with G. William Miller, 22 relationship with Paul Volcker, 26 CCP Research Foundation (UK), 77 cell phones, 142 “Central Banking at a Crossroad,” 131 Volcker, Paul Index central bank restructuring, 33 chaos theory, 58 Chicago, 133 China, 140 BRICs Citi, 7, 66, 67, 68 Citibank Citibank, 32, 65–71, 105 annual earnings targets, 66 Automatic Teller Machines, 66 capital requirements, 67 credit card business, 66 disagreements with Henry Kaufman, 68 interstate banking, 66 Latin American lending, 67 lending to Latin America, 66 shortcomings, 71 Citicorp, “The Class of 1927,” 25 Clayton Antitrust Act, 101 Clinton, President Bill, 81 collateralized debt obligations, 146 Columbia University, 19, 20 Comments on Credit Kaufman, Henry Commission on Money and Credit, 33 Commodities Futures Trading Commission (CFTC), 106 Comptroller of the Currency, 104 Consumer Price Index, 138 limitations of, 138 Conti-Brown, Peter, 44 Converse, Edmund C., 54 Corporate Bond Quality and Investor Experience, 92 169 Hickman, W. Braddock corporate bonds, corporate credit quality, 154 corporate debt, 147 corporate raiders, 93 Council of Economic Advisers, 11, 20, 81 Countrywide Financial Corporation, 62 Cox, Christopher, 46 credit cards, 77 credit crunch, 11 credit default swaps, 74, 76, 146 credit rating agencies, 107 Cross, Sam, 25 CVS, D Dean Witter Reynolds, 75 deposit insurance, 102 Federal Deposit Insurance Corporation deregulation, 27 derivatives, 2, 10, 18, 76, 128 Deutsche Bank, 56, 64 Dodd-Frank legislation, 33 Dodd-Frank Wall Street Reform and Consumer Protection Act, 98, 107, 151 shortcomings, 108, 110 dot.com bubble, 122 Dow 36,000, 122 The Downing Street Years, 84 Thatcher, Prime Minister Margaret www.ebook3000.com 170 Index Douglas, Senator Paul, 33 Drexel Burnham Lambert, 75, 91, 93, 94 Dutch tulip craze, 116 E E. F Hutton, 75 Economic Club of New York, 43, 131 Paul Volcker speech, 131 economic democracy, 79 economic fashions, 14 Enlightenment, The, 159 Enron Corporation, 119 Enron scandal, 106, 107, 119 Enron-era scandals, 106 US House of Representatives hearings on, 107 US Senate hearings on, 107 Essays on the Great Depression Bernanke, Benjamin Euro CD market, 29 Euro dollar market, 86 Europe, 139 tectonic shifts in, 139, 140 European Union, 140 weaknesses in, 139 Eurozone, 107 Export–Import Bank, 19 F Fannie Mae, Federal Deposit Insurance Corporation (FDIC), 44, 103, 149 Federal Energy Regulatory Commission (FERC), 106 Federal Open Market Committee (FOMC), 6, 18, 28, 31, 104, 133, 153 membership, 133 Federal Reserve, 11, 17–22, 38, 40, 54, 78, 101, 104, 105, 108, 25, 33, 109, 123, 125–135, 145, 150, 158 balance sheet of, 152 Board of Governors compensation, 133 ceilings on bank deposits, 18 and controlling inflation, 18 Federal Supervisory Oversight Committee, 131 forward guidance, 28, 49, 51, 132 founding, 17 geographical configuration, 132 independence of, 131, 153 leadership of William McChesney Martin, 20 member bank reserve requirements, 151 member bank reserves, 152 mission, 17 politicizing of, 125–135 quantitative easing, 152 record since World War II, 125 regional presidents, 153 Federal Reserve Act, 101 Federal Reserve Bank of Cleveland, 92 Federal Reserve Bank of Dallas, 24 Federal Reserve Bank of New York, 23, 24, 25, 26, 54, 121, 133 Research Department, 23 Federal Reserve Operations in the Money and Government Securities Markets, 23 Index Fed-Treasury Accord, 18 Feldstein, Martin, 138 financial concentration, 73–79, 98, 130, 131, 149 lessons to be learned about, 76–79 and liquidity, 77 and rule breaking, 77 financial crises, 97–111 lessons of, 116 financial deregulation, 18, 69, 75 financial derivatives, 57, 74, 120 financial history, 115–124 decline in business schools, 115, 116 lessons from, 117–124 financial intermediation, 123 “Financial Markets in 2020,” 58 Sanford, Charles S financial regulatory reform, 97–111 Financial Stability Oversight Council (FSOC), 108 Financial Times, 67, 70 financial volatility, 61, 79, 155, 158 First Bank of the United States, 99 First Boston Corporation, 24, 75 First National Bank of New York, 100 First National City Bank, 24 Fletcher School of Law and Diplomacy (Tufts University), 65 floating exchange rates, 129 floating-rate financing, 11 Ford, President Gerald, 38, 81 forecasting, 9–15, 138 bias against negative predictions, 11 171 growth bias, 13 long-term, 13 negative forecasts, 12 Foreign Policy, 43 “the Foursome,” 24, 55 Fortune, 119 Fortune 500, 74 The Fortune Tellers, France, 87 Freddie Mac, Friedman, Milton, 32, 41, 159 Friedman, Walter, Fuqua Industries, 93 fuzzy logic, 58 G Gardner, Richard, 25 General Electric, 110 Gibson Greetings Inc., 60 Giuliani, Rudolf, 93 Glassman, James K., 122 Glass-Steagall Act, 40, 54, 74, 75, 77, 102, 103, 106, 130, 151 Global Crossing, 119 Enron-era scandals globalization, 141, 142 in the nineteenth century, 141 gold standard, 102 Goldman Sachs, 45, 75, 121, 150 gold window, 27 Google, 14 Gramm-Leach-Bliley Act of 1999, 40, 106 Grantham (Lincolnshire, UK), 83 great bull market (1920s), 103, 119, 121 www.ebook3000.com 172 Index Great Depression, 9, 25, 65, 73, 74, 102, 141 “great moderation,” 139 Great Recession, 149, 154 Great Society, 19, 27 Greenspan, Alan, 29, 37–41, 123, 125, 128 background before Fed, 38 Congressional testimony, 39 Glass-Steagall Act repeal, 40 inactions, 40 stock market during Fed chairmanship, 39 “Greenspan put,” 40 Greenwell & Company, 82 Greenwich, Connecticut, 120 Gross Domestic Product, 137, 146 limitations of calculations, 137 Group of Thirty, 25 Guaranty Trust and Bankers Trust, 100 Guill, Gene, 56, 61 H Hanley, Tom, Hanover Trust Bank of Boston Ponzi, Charles Harvard Business School, 119 Hassett, Kevin A., 122 HealthSouth, 119 Enron-era scandals hedge funds, 120 Henry Kaufman & Company, 92 herding, 10 Hickman, W. Braddock, 92 history, 113 business and economic, 115 financial, 115 and management studies, 114 value of, 113–124 A History of Interest Rates (by Homer, Sidney), Hodges, Luther, 115 Holmes, Sherlock, Homer, Sidney, 4, 155 holocaust victims, 25 Hoover, President Herbert, 81 household debt, 146, 148, 154 I IBM, 14, 29 ImClone, 119 Enron-era scandals IMF-World Bank, 89 immigration, 141 backlash against, 141 Import–Export Bank, 18 India, 140 BRICs industrial corporation finance, 100 inequality, 138, 142 inflation-indexed government bonds, 86, 87 Henry Kaufman view of, 92 Margaret Thatcher view of, 91 use in United Kingdom, 87 information revolution, 137 inside traders, 94 Institutional Investor, insurance companies, 146 insured deposit institutions, interest rate ceilings, 127 Interest Rates, the Markets, and the New Financial World, 68 Kaufman, Henry Index interest rates, 155 long-term, 155, 157 secular swings, 155 interlocking directorships, 101 international financial networks, 15 International Monetary Fund, 21 Internet, 122, 142 investment banking, 146 Iraqi Oil for Food program, 25 Italy, 25, 87 J J.P. Morgan & Co., 100 Japan, 14, 94, 140 “zombie” banks, 141 anti-immigration policies, 141 lending binge, 141 tectonic shifts in, 140 Johnson, President Lyndon B., 19, 27, 81 relationship with William McChesney Martin, 18 junk bonds, 91, 94, 128 government encouragement of, 95 K Kansas City, Missouri, 133 Kaufman, Elaine, 82 Kaufman, Henry, Comments on Credit, 29 departure from Salomon Brothers, disagreements with Citibank, 68 173 disagreements with Paul Volcker, 33 as “Dr Doom,” 12 early career (before Salomon Brothers), education, encounters with Benjamin Bernanke, 43 Executive Committee membership (Salomon Brothers), 13 at Federal Reserve Bank of New York, 23 “Fed watching,” first encounter with Paul Volcker, 23 meeting with Shimon Peres, 81 meetings with U.S presidents, 81 positions at Salomon Brothers, 3, possible deal with Michael Milken, 92, 94 stance on Lehman Brothers bankruptcy, 46 start at Salomon Brothers, views on negotiable certificates of deposit, 67 “What your step in the liquidity polka” article, 70 “Will Bankers Need to Adjust to a Harsher Climate over the Longer Term?” speech, 67 Keynes, John Maynard, 159 Kidder Peabody, 75 Knesset, 82 Kohlberg Kravis Roberts (KKR), 91 Kreuger, Ivar, 117, 118, 119 www.ebook3000.com 174 Index L Lanston, Aubrey G., 24 Latin American debt, 32, 126 Lawrence College, 66 Lay, Kenneth, 119 Lazarus, Emma, 141 leadership life cycle, 14 Lehman Brothers, Henry Kaufman as board member, Lehman Brothers bankruptcy, 44, 46 Ball, Laurence report, 48 lessons, 47, 48 Leigh-Pemberton, Gordon, 89 Lerner, Alan, 55, 60 leveraged buyouts, 93 liquidity, 86, 128 concentration of, 149 liberalization in the concept of, 128 London, 140 London Interbank Offered Rate, 129 scandal, 129 Long-Term Capital Management, 120, 121 collapse of, 121 Los Angeles, 93 Louisiana, 100 Lowenstein, Roger, 121 LTV, 93 M mainframe computers, 122 Manhattan Trust Company, 54 Mao Tse-tung, 113 Marcus Nadler, Martin, William McChesney, 18, 19, 123 career before Fed chairmanship, 19 commencement speech at Columbia University, 19 Federal Reserve leadership, 20 relationship with President Johnson, 18 “trip to the woodshed,” 19 Marx, Karl, 97–98, 159 McCabe, Thomas B., 18 Mercantile Trust Company, 54 mercantilism, 142 Meriwether, John, 120 Long-Term Capital Management Merrill Lynch, 75, 105 Merton, Robert C., 120 Long-Term Capital Management Metropolitan Life, 110 Microsoft, 14 Milken, Michael, 3, 91–96 “highly confident” letters, 91 possible deal with Henry Kaufman, 92, 94 prosecution of, 95 Miller, G. William, 21, 27 career before Fed chairmanship, 22 relationship with President Carter, 22 Minsky, Hyman, 98 “Minsky moment,” 98 Missouri, 133 molecular biology, 58 monetary normalization, 151, 152 Index Federal Reserve money supply targeting, 85 “money trust,” 100 Morgan Guaranty, 24 Morgan Stanley, 75, 150 Morgan, J. Pierpont, 54 Morison, Elting, 114 mortgage-backed securities, 42, 74, 76, 146 Mullins, David W., Jr., 120 multinational corporations, 14 Museum of American Finance, 115 mutual funds, 2, 150 N Nadler, Marcus, 5, 24 National City Bank, 24 Citibank National Commission on Social Security Reform, 38 National Commission on the Causes of the Financial and Economic Crisis in the United States, 45 Negev, 82 Netscape, 122 neural networks, 58 New Deal, 65, 98 banking reforms, 102–105 financial reforms, 74, 98, 110 “New Economy,” 122 “new normal,” 158 New York, 99, 140 insurance industry scandal, 99 New York Federal Reserve, New York Stock Exchange, 19 175 New York Times, 60, 121 New York University, 4, 5, 24, 42, 55, 116 1984 (George Orwell novel), 113 1987 Wall Street crash, 126 1951 Accord, 18 Fed-Treasury Accord 1997 Asian financial crisis, 126 Nixon, President Richard M., 20, 27, 81 bond ratings of, 147 closing the gold window, 21 liquid assets, 148 relationship with Arthur Burns, 20 wage and price controls, 21 non-financial debt, 2, 139 nostalgia, 145 Noyes, Alexander Dana, 121 O Obama Administration, 111 Obama, President Barak, 107 Occupy Wall Street, 111 off-balance-sheet assets, 56, 76 Office of Financial Research (OFR), 109 Office of Financial Stability, 109 Ogata, Sadako, 25 Ogata, Shijuro, 25 oil embargos, 27 O’Rourke, Kevin H., 141 Orwell, George, 113 1984 (George Orwell novel) Oxford University Conservative Association, 83 www.ebook3000.com 176 Index P Paine Webber, 75 Palestine, 82 Palmer, Edward, 68 Pan Am, 93 Panic of 1907, 54 Paulson, Henry, 45 Pecora hearings, 102 Pepper, Gordon, 82, 88 Per Jacobsson Lecture, 21 Peres, Prime Minister Shimon, 81 career, 81 erudition, 82 meeting with Henry Kaufman, 81 Phibro, Poland, 81 Ponzi schemes, 118 Ponzi, Charles, 118, 119 Posen, Adam Bernanke, Benjamin Prince, Charles “Chuck,” 70 Procter & Gamble Co., 59 productivity, 138 limitations of calculating, 138 Pujo Committee investigations, 100 outcome of, 101 Pujo, Arsène, 100 Q quantitative easing (QE1), 42 quantitative easing (QE2), 42 quantitative easing (QE3), 42 quantitative economic analysis, 159 quantitative risk analysis, 76 quantitative risk management, 53 Charles Sanford as pioneer, 53 Risk Adjusted Return on Capital, 56 quantum physics, 58 R Racketeering Influenced and Corrupt Organizations Act (RICO), 94 railroad finance, 100 Reagan, President Ronald, 12, 38, 81, 83 recessions, 139 Red Guard, 113 Mao Tse-tung Reed, John, Regan, Donald, 81 Regulation Q, 18 Richmond (Virginia) Federal Reserve District, 133 Risk Adjusted Return On Capital (RAROC), 56 quantitative risk management The Road to Serfdom, 83 robber barons, 140 Rockefeller, Happy, 25 Rockefeller, Nelson, 25 Roman Empire, 14 Roosa, Robert V., 23 Rubin, Robert, 40 Russia, 121, 140 S Sacks, Rabbi Jonathan, 124 Salomon Brothers, 2, 13, 23, 29, 55, 75, 89, 92 Charles Simon, Index departure of Henry Kaufman, Executive Committee, founding and early history, Henry Kaufman key positions, independence of research, John Meriwether, 120 junk bond involvement, 96 leadership of William “Billy” Salomon, Office of the Chairman, research department, 6, rise of, Salomon, William “Billy,” Sidney Homer, Salomon, William, leadership at Salomon Brothers, Salomon, William “Billy,” 5, 13 Salter, Malcolm S., 106 S&P stock index, 148 San Francisco, 133 Sanford, Charles, 24, 53 Sanford, Charles S., 3, 53–64 background, 55 Bankers Trust losses, 59 “Financial Markets in 2020” speech, 58 hired at Bankers Trust, 55 “particle finance,” 58 personality, 55 retirement, 53 “Social Contract” speech, 61 Santa Monica, California, 95 Santow, Leonard, 24 Savings and Loan crisis, 105 Scholes, Myron S., 120 Long-Term Capital Management 177 Second Bank of the United States, 99 Secretary of the Treasury, 104 Securities Act (1933), 104 Securities and Exchange Act (1934), 104 Securities and Exchange Commission (SEC), 46, 60, 93, 106 Securities and Exchange Act (1934) securitization, 128 sell-side research, 13 Shearson Lehman, 75 silver crisis of the 1970s, 126 Simon, Charles, 5, 13 personality and interests, Skilling, Jeffrey, 119 Smith, Adam, 142, 159 South Africa, 140 South Sea Bubble, 116 Spain, 14, 25 Spencer, William Ira, 68 “spread banking,” 128 St Louis, Missouri, 133 stagflation, 27, 105 State Street Bank, 64 statistics, 137 limitations of, 137 Statue of Liberty, 141 Strong, Jr., Benjamin, 54 Suez Crisis, 82 Summers, Lawrence, 40 supply-side economics, 69, 81 sustainability, 138 Sweden, 87, 117 synthetic derivatives, 146 derivatives systemic risk, 151 www.ebook3000.com 178 Index T Teaneck, New Jersey, 25 Tel Aviv University, 82 television, 142 Ten Commandments, 108 Textron, 22 Thatcher, Prime Minister Margaret, 81 early career, 83 knowledge of economics, 85 Theory of Moral Sentiments, The, 142 Smith, Adam thirty-year fixed mortages, 145 too-big-to-fail, 73, 78 too-big-to-fail financial institutions, 86, 109, 131, 151, 152 trade and investment zones, 142 Travelers Group, 96 Treasury bills, 42 Treasury Inflation-Protected Securities (TIPS), 87 Truman, President Harry S., 18 Trump, President Donald J., 50–52 “truth-in-securities” act, 104 Securities Act (1933) Tufts University, 65 2008 financial crisis, 15, 39, 41, 57, 69, 73, 75, 78, 79, 96, 111, 116, 123, 125, 131, 151 Tyco, 119 Enron-era scandals U US banking history, 99 US Congress, 21, 74, 131, 151 US Constitution, 108 US debt, 146 growth of, 146 quality of, 147 US Executive Branch, 21 US Federal Trade Commission, 104 US government debt, 2, 140, 154 US Government Office of Financial Research, 150 US House Committee on Banking and Currency, 100 US Senate Joint Economic Committee, 33 US Senate Permanent Subcommittee on Investigations, 62 US Supreme Court, 22 US Treasury, 11, 24, 55 US Treasury Secretary, 108 United Kingdom (UK), 142 United Nations, 25 United States (US), 141 immigration restrictions, 141 University of Georgia, 55 V Vanasek, James G., 62 variable rate mortages, 145 Verizon, Vietnam War, 19, 27 Volcker Alliance, 25 Volcker, Barbara, 26 Volcker, Jimmy, 26 Volcker, Paul, 23–35, 38, 125, 131 academic critics, 32 anti-inflation policies, 28 Index “Central Banking at a Crossroad” speech, 131 at Chase Manhattan Bank, 24 chairman of Wolfensohn & Co., 25 decision to become Fed chairman, 26 father, 25 first encounter with Henry Kaufman, 23 impact of policies, 34 opponents within the Fed, 29 opposition of Walter Wriston, 32 personality traits, 26, 33 positions since Fed chairmanship, 25 protest by bricklayers, 32 relationship with President Jimmy Carter, 26 Saturday Night Massacre, 29 Volcker, Paul A, Sr., 25 Volcker Rule, 34, 110 von Hayek, Friedrich, 83, 159 W wage and price controls, 27 Waldorf-Astoria Hotel, 18 Wall Street, 146 Wall Street Crash of 1929, 102 Wall Street Journal, 68, 111, 129 “Watch your step in the liquidity polka,” 70 Kaufman, Henry Washington insiders, 111 Washington Mutual Bank, 62 179 Washington, D.C., 66, 89 Waxman, Henry, 39 Wealth of Nations, The, 142 Smith, Adam Weatherstone, Dennis, 24 Western Europe, 14 Wharton School of Business (University of Pennsylvania), 55, 59 Whitney Museum, Wilde, Frazer B., 33 “Will the Bankers Need to Adjust To a Harsher Climate Over the Longer Term?,” 67 Kaufman, Henry Williamson, Jeffrey, 141 Wojnilower, Al, 24, 138 early career, 24 Wolfe, Thomas, 145 World War I, 141 World War II, 15, 18, 54, 65, 66, 74, 114, 125 World Wide Web, 137 WorldCom, 119 Enron-era scandals Wriston, Walter, 3, 7, 32, 65 core beliefs, 66 education and early career, 65 elected CEO of Citibank, 66 father, 65 influence on commercial banking, 69 legacy at Citibank, 70 opposition to Paul Volcker, 32 personality and leadership style, 66 www.ebook3000.com 180 Index Wriston, Walter (cont.) review of Interest Rates, the Markets, and the New Financial World, 68 Yellen, Janet, 38, 49–50 You Can’t Go Home Again, 145 Wolfe, Thomas Y Yahoo, 122 Z Zapata Corporation, 93 .. .Tectonic Shifts in Financial Markets Henry Kaufman Tectonic Shifts in Financial Markets People, Policies, and Institutions www.ebook3000.com Henry Kaufman... DOI 10.1007/978-3-319-48387-0_1 2 Tectonic Shifts in Financial Markets: People, Policies boundaries within which they had been confined for several decades Credit and financial institutions stood on the brink of inconceivably... postwar decades ushered in unprecedented and dramatic changes—akin to the geological tectonic shifts that reshape continents in financial markets and institutions The financial environment then