On Money and Markets: A Wall Street Memoir

On Money and Markets: A Wall Street Memoir

by Henry Kaufman

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Product Details

ISBN-13: 9780071376624
Publisher: McGraw-Hill Education
Publication date: 05/21/2000
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 388
File size: 4 MB

About the Author

Henry Kaufman (New York, NY), former vice chairman of Salomon Inc, is the president of Henry Kaufman & Co, a financial management and consulting firm. One of the world’s most influential economists, Kaufman has written for The New York Times, Newsweek, The Economist, and The Washington Post.

Read an Excerpt

Chapter 1
From Nazi Germany to the New World
We knew what we had to do. As my father had warned, Germany no longer was a place for Jews.
F
For some, life flows with a peaceful and predictable rhythm. Born into well-situated families, they know their career paths at an early age. Some follow the footsteps of their parents to become doctors or lawyers or enter the family business. They live for the rest of their lives in the same community. A few even marry childhood sweethearts. Enduring bonds are formed with neighbors, friends, and others that contribute to the stability of everyday life.
That was not to be my lot. Although I was born in a small German village, called Wenings, where everyone knew each other, the stability of living that often accompanies such a setting was to be short-lived. Born in 1927, I enjoyed a quiet boyhood for a time, until my family and I were swept up in the greatest human tragedy of the twentieth century: the Holocaust. Fortunately, we managed to escape with our lives by fleeing Wenings when I was 9, and continued on to the United States 11 months later. It was a jarring transition, not merely from one nation to the next, but also from a tiny farming hamlet to the world's greatest metropolis, New York City. When we arrived, Wall Street meant nothing to me, and, of course, I meant nothing to Wall Street.
My Childhood in Rural Germany
Wenings was a remote farming village of some 1,200 people in the upper Hessen district of Germany. The farmers lived in town, tending their fields on the outskirts and moving their harvests by horse and buggy back into town. The nearest railroad was a town away, and only a few local people owned automobiles. Even travel by bicycle was arduous, for the countryside was hilly and most roads were in poor condition.
We lived in an extended family, with my mother's parents and one of my grandfather's brothers. My father and grandfather were butchers and cattle traders, who often traveled into the region to buy and sell livestock. On occasion, they brought cattle home for slaughter, a messy event that I sometimes witnessed but never welcomed. Since my family ran a kosher butcher business, the cow had to be slaughtered by ritual, with one swift stroke of a large knife. The torrent of draining blood and the carving up of the carcass was a startling sight for a young boy, and I never grew accustomed to the ritual.
Ours was a modest house. On one side was the butcher shop and slaughterhouse; on the other, a living room and my grandparent's bedroom and kitchen. Upstairs were several bedrooms, including that of my parents, as well as a second living room, which for some reason sat unused. Heating and cooking were by potbellied stove, and our house—like most in the town—had no indoor toilet. But we did have two modern conveniences: electric lighting and a telephone. The conditions of my boyhood home stand in stark contrast with those of my New Jersey residence today—with its six bathrooms, central air conditioning, four televisions, and telephones in nearly every room. But in the 1920s, we were reasonably prosperous and knew no other lifestyle.
My grandparents' roots in this little town went back a century or more. My grandfather, Daniel Rosenthal, was an extremely hard-working man with a straight, tall bearing and an aura of dignity. Opa, as I always called him, normally was a quiet man, but could erupt like a volcano when he lost his temper. Unfortunately, the hyperinflation of the early 1920s devastated him financially and emotionally. Prior to the great inflation, he was worth about 200,000 marks, which gave him a good measure of comfort and security, or so he thought. The problem was that most of his money was in deposits and loans to farmers that were secured by mortgages or land. After the great inflation hit, borrowers came with bushel baskets of worthless money to pay off their debts. These episodes, which my grandfather told again and again, were my first lessons in economics and finance.
My grandmother was very protective of my grandfather. She hovered over him, regulating his diet to reduce his high blood pressure; some days were meatless, others were restricted to fruits, and garlic was a staple. Judging by modern nutritional standards, this diet most likely prolonged his life. He died in 1945 at the age of 79. Whereas Opa had 2 brothers, my Oma—grandmother in German—was the oldest of 11 brothers and sisters. She became the matriarch of her large family. Although I was an only child, I was never alone, in part because my Oma also hovered over me. Whatever the vicissitudes of everyday life, even in our extended household, I could do no wrong in her eyes. She prepared special dishes for me. She presented me with my first bicycle. Even in the last few years of her life in New York, when I was going to college and sleeping late on weekends, she served me breakfast in bed.
My father came from a larger town, Niederrodenbach, near Hanau, which today is virtually a suburb of Frankfurt. He was one of four brothers. I saw my paternal grandparents only infrequently. Several members of my family—including my paternal grandmother, an aunt, an uncle, and two cousins—were victims of the Holocaust. My father was an engaging man, a keen observer of human behavior, and generous in his dealings with others. I could never find fault with him or my mother as parents, or with their warm marital relationship. My mother had been born in Wenings in 1901, the only child in her family. A beautiful woman, she had an outgoing personality that allowed her to make friends easily. She was always there when I needed her, and was very devoted and close to her parents.
My mother's devotion to me came to the fore when I was struck with polio at the age of 4 in 1931. I still recall coming home on a summer day, dragging my deadened left foot along and complaining of a severe headache. My mother quickly took me to Frankfurt, where I underwent my first operation. To my great disappointment, the surgery overcorrected the bend in my left foot, so a second operation was required 2 years later. During the painful weeks I was hospitalized each time, my mother remained at my bedside from in the morning until in the afternoon, often reading popular German children's stories aloud. Some of my favorites—including Max and Moritz and Der Strupfelpeter—I could recite from memory.
When I left the hospital, I remained immobilized for weeks, forced to wear a cast on my leg and largely confined at home. This prevented me from socializing with children my own age or attending school regularly. For years, I was required to wear a leg brace, and to this day I wear a specially made arch and tend to drag my left foot when I'm tired. It is difficult to judge what role this early disability may have played in shaping my character. I am certain it made me more dependent on my family, especially my parents, than I would have been without the need for such care and nurturing. Although I believe I later overcame whatever negative effect the illness had on me, there is no way of knowing this for certain.
Apart from the hardships of polio, my early childhood in Wenings lives on today in pleasant memories. Often, I accompanied my grandfather to synagogue on Friday evening or Saturday morning. There were about 60 to 70 Jews in town, and all were Orthodox. I recall the delicious assortment of fresh foods that inevitably accompanied the major religious holidays such as Rosh Hashanah (the Jewish New Year)—the apple, plum, and crumb cakes, piled high and even served at breakfast time. When apples were in season, Oma made a tasty apple shalit (similar to deep-dish apple pie) especially for me to eat with the Sabbath meal. The pace of life was leisurely. Trips to nearby towns with my father or grandfather were by horse-drawn buggy or sled. And there were neighborhood children to play with and, presumably, grow up with in our tranquil village.
Gathering Clouds
That vision of a tranquil village began to cloud over with the rise of the Nazis after 1933. Despite the quiet of my very early years in Wenings, the Germany of my youth was quite unstable. The Treaty of Versailles, imposed on a defeated Germany by the Allied Powers, contained a "war guilt clause"that blamed Germany for starting the war. It also required Germany to pay huge reparations—132 billion gold marks—to the Allies, whose high tariffs in turn made it virtually impossible for Germany to garner sufficient funds with exports to meet its reparations payments. The result was enormous resentment and economic chaos. In 1914, the ratio of the mark to the dollar had been 4.2 to 1; by early 1921, the mark traded at the rate of 64 to the dollar. Soon thereafter, as the German government ran the printing presses, the mark spiraled into near worthlessness. When Germany failed to meet a reparations payment in 1923, France seized the Ruhr. Meanwhile, Germany was plagued with assassinations and attempted assassinations, as well as attempts to overthrow the new Weimar government.
In 1924, under the terms of the Dawes Plan, the reparations amounts were lowered and the French occupation ended. Reforms followed, and the German economy stabilized and resumed growth. Germany was readmitted into the European community. But the resentments remained, not far from the surface, and could be seen in the growth of both the Communist and National Socialist (Nazi) movements; the latter group was headed by Adolf Hitler, who blamed the Jews for the defeat in World War I and whose anti-Semitism would become more obvious over time. In this period, however, the historic sites for anti-Semitism were Russia and France. The great wave of Jewish migration to America before World War I originated in East-_ern Europe, where Jews were made the objects of pogroms, not in Germany.
A number of German Jews did go to America, but rarely because of religious intolerance. Rather, they tended to be businesspeople. Some of them went to Wall Street, where they organized what became some of the Street's most powerful investment banks. During the post-Civil War period J. & W. Seligman funneled German money to American railroads, much like the blue-blooded Drexel, Morgan had done for English investors. The firm had offices in New York, San Francisco, New Orleans, London, Paris, and Frankfurt, presided over by the eight Seligman brothers. Kuhn, Loeb, Lehman Brothers, and Goldman Sachs had all become major Wall Street investment houses by the time I arrived on American shores, though I knew nothing of this at the time.
This is not to say that Jews were accepted fully in German society. There was anti-Semitism there, too. Nevertheless, quite a few German Jews achieved great prominence in science, the arts, business, and even government. German Jews had joined the German armies in the war, my father among them. In fact, Jews were integrated more thoroughly into German society than into most other European nations.
During the late 1920s, Germany was struck by the Depression, which in time would affect the entire world. In March 1930, 2.3 million Germans were unemployed, and the figure rose to more than 6 million just 2 years later. Although the Nazis had captured only 12 seats in the Reichstag (and the Communists 54) in the 1928 election, 2 years later the Nazis won 107 seats, the Communists 77. Of the two totalitarian movements, the Nazis clearly were surging ahead. They attracted many of the unemployed, who joined the party's paramilitary organizations. By 1932, more than 1 million Nazi storm troopers marched in the streets, stiffly uniformed and menacing.
In July 1932, when the Nazis received 37 percent of the popular vote and won 230 seats in the Reichstag, Hitler demanded to be named chancellor, but President Paul von Hindenburg refused. Another election was called in November, and in this one the Nazi vote declined to 33 percent and the number of seats the party received was 196. For a brief period it appeared the democratic forces in Germany might stage a comeback, but this was not to be. The difficulties in ruling Germany obliged von Hindenburg to ask Hitler to form a government, which he did, becoming chancellor on January 30, 1933. There was yet another election in March, and in this one the Nazis received nearly 44 percent of the vote. Hitler's power was now secure. It seems providential, in retrospect, that Franklin D. Roosevelt was sworn into office in Washington that same month (March 1933). The two great antagonists in the greatest war of the twentieth century appeared on the historical stage at almost the same time.
I was just 5 years old when Hitler became chancellor, still in the midst of my trials and tribulations with polio. Even at that young age I sensed something was amiss. My father and grandfather started to have difficulties in buying cattle from farmers. Slaughtering cows according to the Jewish tradition became illegal. These were foreboding signs, but none of us anticipated the horrors that were to come.
Hitler's power and popularity grew as Germany recovered from the Depression, largely due to his militarization efforts. As time went on, the virus of Nazism seeped into the minds of almost all Germans, even the children. By 1935, few of my classmates would play with me. Fortunately, my teacher was a very righteous man, who prohibited anti-Semitic outbursts in class. He also was very helpful to me during my absence from school because of my second polio operation.
But the anti-Semitic disruptions continued to grow in size and scope as time went on. More and more local men donned the Nazi uniform. Some of the young boys in town wore the uniform of the Hitler Youth organization. Members of the small Jewish community began to stay indoors at night. Farmers who were indebted to us delayed payments. The words "dirty Jew"were heard more frequently.
My father was arrested and held for a short time by the Nazis. They somehow heard that he had a small pistol, which he had brought back with him from World War I. Ironically, in 1934 he had been awarded the "Ehrenkreuz Für Fronthampfer"(an honor cross for being in the advanced forces during the war). He actually was among those who, with his cavalry battalion, had crossed the Marne River. It took a bribe of 10,000 deutsche marks to free my father. On another occasion, my father was nearly arrested by the Nazis during army maneuvers, but an army officer interceded in my father's behalf. The World War I papers that my father always carried impressed this officer sufficiently to force the Nazis to back off.
It was my father who urged my grandparents and mother to leave Wenings early on. He would raise the topic during dinner conversation, more frequently and urgently after Hitler took power. My grandparents, however, would not budge, so deeply were their roots planted in the little town. Then in their sixties, they couldn't imagine what life would be like elsewhere. But my father was much closer to the grim realities of the situation through his travels and association with others of his age, and continued to advocate that we leave.
The climactic end to our life in Wenings occurred during the evening of Saturday, January 30, 1937. Snow and ice covered the ground on that bitterly cold night—the anniversary date of Hitler's coming to power. A few people in town told my father of plans for a torchlight parade, and warned him to expect some trouble. Late that evening, sometime perhaps between 10 and midnight, we heard marching. Even though it was bedtime, we were all fully dressed. Knowing that the Nazis were targeting young Jewish men, my father told us he was going to hide in the woods and return later, and then jumped from the first-floor back window and disappeared into the night. Huddled upstairs in my parents' bedroom were my grandparents, my mother, my grandfather's older brother, and I. The parade stopped in front of our house. (I never learned the size of the mob.) Our shutters were tightly closed. Within moments, we heard the crash of the door being smashed in, the sound of breaking glass and smashing furniture, followed by the sickening thud of footsteps on the stairs. This was followed by another crash, as someone in the second-floor hallway threw my mother's sewing machine down the stairs.
As I cowered in the darkened room with my family, who now seemed pitifully powerless in the face of the menacing horde, I counted the seconds before the inevitable. The door would burst open_._._._and then what? It was difficult for my childish mind to imagine the details, but the terror that gripped me was almost overwhelming. Then, the most unexpected happened. No one entered my parents' bedroom. We were not forced to confront the racist intruders. Instead, the rabble faded away, leaving behind quite a bit of destruction—and an unmistakable message. That night, no one lifted a finger in our defense—not the presumably friendly neighbors, not the mayor, not a single member of the small community where my family had lived for generations.
Sometime past midnight we heard voices from the backyard calling my mother and grandparents. It was an elderly Jewish couple, standing in their night clothing, each bleeding from wounds to the head and wanting to come into our house. They stayed until morning, when my father returned from his hiding place in the forest.
We knew what we had to do. As my father had warned, Germany no longer was a place for Jews. Somehow that night—for reasons that perplex me to this day—we had been given a reprieve. My family was not about to bet on a second chance. Like the thousands of German Jews fortunate enough to outrun the concentration camps (as they would later learn), we sold our house and other properties under duress for a fraction of their real value. The day after the attack, we left Wenings and headed for Frankfurt, home to several of my grandmother's brothers and not far from my father's family.
An Aside—Returning to Wenings in the Future
I returned to Wenings three times later in my life. The first was in 1959, just 22 years after we fled the town. My wife, Elaine, and I took a _4-week holiday through Western Europe. The town seemed smaller than I remembered, as did the house in which I had lived as a child. One of our neighbors, who had been friendly with my family, welcomed us as if nothing had happened. She marched my wife and me through a good part of the village, introducing us to people whom my grandparents and parents probably knew, but who were nearly all strangers to me. The synagogue was still standing. It had been converted to a Catholic church, with a plaque stating its former status. We also visited the Jewish cemetery to pay homage to my great grandfather whom I vaguely remembered from my early childhood. I felt out of place and strange in Wenings. While I could still speak conversational German, I wanted to speak only English.
The second time I returned was in 1978, when, following a family trip to Israel, our three teenage sons wanted to see my birthplace. When we drove into the town, I stopped at the school that I attended for a few years, and suggested that we walk through the schoolyard and perhaps visit the school itself. Suddenly, there was a roar of fighter planes overhead. Tanks and half-track vehicles rumbled along the road. It was the American army on maneuvers. I experienced a flashback that glued me to the spot for a minute or so. It took me back to the time in 1935 when the German army was on maneuvers. The schoolchildren, myself among them, lined the street to watch Hitler pass through the town. He passed no more than 6 or 7 feet from me, his right arm outstretched in the Nazi salute as he stood in the open Mercedes that was so often pictured in the newspapers. The people were jubilant.
I have visited Germany often since then. In 1990, I returned to Wenings, following an invitation from the mayor, who had read about me in the German press. I had been visiting Frankfurt frequently, giving speeches at conferences and meeting with some of the German business and financial leaders. The mayor hoped I would go to Wenings to accept an invitation to become an honorary citizen. After some hesitation, I accepted. But there was a slight misunderstanding. I thought the ceremony would take place on that visit, but the mayor wanted to discuss the event with me first. It turned out that he also wanted to apprise me of some recent developments in the town. Apparently, a Jewish doctor from Israel settled in the neighboring town of Gedern, married a gentile woman, and started to practice medicine. Thereafter, swastikas appeared on his house, and one day the doctor's house burned down. Shocked by the story, I never returned to accept the mayor's invitation. Sadly, part of the community's dark experiment with the Nazis seemed to have lived on.
More recently, while I was on a speaking engagement in Europe in October 1999, my wife and I stopped over in Frankfurt for the specific purpose of trying to locate the grave of my paternal grandfather. I had a death certificate dated July 1940, well after the start of World War II and the Holocaust. Perhaps my grandfather was still buried in Frankfurt's Jewish cemetery. Fortunately, the cemetery's ledger contained the information I sought. I found my grandfather's grave in a far corner of the deserted cemetery, and as I brushed aside the fallen leaves that partially covered his very modest, weathered headstone, childhood memories of my father's parents came rushing back. As I stood there I realized that I was the first person in 59 years to visit this forgotten grave. Neither my father nor his brothers had a chance to fulfill the Jewish tradition of visiting the grave of their parents each year—Hitler had seen to that. While most of us are lost in history after a few generations, I was there that day in Frankfurt to say, "That time had not yet come for my grandfather."
Even so, my childhood malice toward Germany has mostly faded away. Germany staged an extraordinary recovery in the aftermath of World War II, with considerable support from the U.S. It has become the dominant country in Europe, and seems to have put in place a democratic political system with strong footings. In my career, I have met with many very talented German business and financial leaders. A new generation of Germans is taking hold, a generation of the post-World War II era. The question that used to pop into my mind when I met Germans—"Where were you and what were you doing during the Hitler years?"—no longer seems relevant.
From Frankfurt to the United States
To go back to our plans to emigrate to the United States, we planned to stay with our relatives in Frankfurt until our visas were approved, and then continue on to the United States. We spent the first night en route to Frankfurt in the nearby town of Buedingen. After struggling to fall asleep, I was later awakened by my mother, who was shaking me to bring me out of a nightmare in which I relived the frightening events of the night before.
Soon we moved into a rental apartment in Frankfurt, and I began attending a well-known Jewish school called Philanthropin. Anti-Semitism was on the rise, although at that time it was not as noticeable in Frankfurt as it was in the smaller communities and in some other cities. My father became even more insistent on leaving Germany. There was no work for him there and my grandfather's business life ended the day we left Wenings.
Fortunately, we were relatively well positioned to make the voyage. Two of my grandfather's sisters lived in the United States, having emigrated there at the turn of the century. I suspect they had made the move in order to increase their chances of marriage. Although both were attractive and intelligent women, tradition held that daughters should bring dowries to their mates. Since my grandfather's parents were not wealthy, their daughters' possibilities for marriage in a small German town were much more limited than in the sprawling and "modern"United States.
The plan apparently worked. One sister married a butcher who came to own a large meat processing plant and became very prosperous. When the couple returned to Germany for a visit in the 1920s, they brought along their large chauffeur-driven automobile, which of course made quite a splash in Wenings. The other sister married a man who owned a sizable delicatessen. So they had more than sufficient financial capacity to sponsor us. Their affidavit to the American authorities even included a letter of support from New York Senator Robert Wagner.
My father left Germany before us, because by the latter part of 1937 younger Jewish men were being arrested frequently. He first went to Amsterdam, where he stayed with his brother for several months before sailing to New York. It was then up to my mother to shepherd her parents, my grandmother, an aging uncle, and me to the United States. We could take very little with us. The most portable assets were Leica cameras and Zeiss field glasses, which were quite marketable in the United States.
New American Ways
On December 10, 1937, we departed Germany from Hamburg aboard the German passenger ship Deutschland (sunk in World War II by the Allies). After 7 stormy days at sea, we arrived at the port of New York. It was a murky, blustery afternoon, and to a 10-year-old boy from the German countryside, Manhattan looked overpowering. But family was there to cushion the shock and take us in—not only my grandfather's two sisters, but also their families, my grandfather's brother and his family (who had left Wenings for New York several years before us), and several of my mother's cousins.
Within a few weeks, we moved into a two-bedroom apartment on Forrest Avenue in the East Bronx, a habitat dictated by our meager financial situation and by the close proximity of several relatives. Now that we had an official residence, my mother accompanied me to P.S. 23 just a few blocks away. I was 10, but when the principal of the school realized that I knew very little English, he assigned me to the first grade. That demotion meant that a lot of what I was being taught was redundant—the alphabet, math, even reading, except for the English language. It took about a year or so before I entered my rightful grade. After a while we moved into an apartment on nearby Jackson Avenue. We settled into our new home, and I was becoming adjusted to school in America.
Making a living was another matter. It was, after all, 1938. The beginning of mobilization for World War II was helping to lift the economy out of the Depression, but the recovery was erratic. The unemployment rate was 19 percent, and fears of another economic setback still ran deep. But while these uncertainties were acute, my family and other recent German immigrants were hardly discouraged; the news from those who remained behind was bleak and getting worse by the day. German Jews on both sides of the Atlantic spent much of their time finding sponsors willing to write affidavits for those left behind.
My father and mother found jobs, even though they were not doing what they preferred. For a while, my father delivered milk for 25 cents an hour, but he was forced to give up that job after falling off the milk truck one day. He then went to work at the meat processing plant owned by my grandfather's brother-in-law, the same man who had provided the affidavit that allowed us to come here. Workers at the plant put in 6 long days per week. A 60-hour workweek for my father was not unusual.
My mother began doing housework for a number of families, and eventually took a job in a brassiere factory in the garment district in Manhattan. Although my grandmother did the cooking and some of the housework in our family, my mother still had plenty to do when she came home from work at night. Rising at 6, she often finished her day around midnight. She finally quit her wage job around 1945.
How we all managed, adjusted, and got along together in the extended household is still difficult for me to fathom. By the time we moved to the larger apartment on Jackson Avenue, our family had grown to 8, thanks to the addition of two of my mother's cousins in their early twenties whom we had helped bring to the U.S. just before World War II broke out. We all shared a single bathroom. But no one really complained. We had escaped the clutches of Hitler, and saw assimilating into American life as a challenge.
The members of our extended family met that challenge with varying degrees of enthusiasm and success. For my grandparents, language was the greatest of several challenges. Then in their late sixties, they found it difficult to adjust to some of the new ways, although they took enormous comfort in the fact that they escaped the Holocaust and were with their family and some of their friends.
My parents had little time for themselves in those early days in this country. Besides having to work long hours, they often played host to an apartment full of visitors. Friends and relatives frequently showed up unannounced, as was common in the German-Jewish community. Many stayed for afternoon coffee and cake and some even for dinner. It was a kind of intimacy and spontaneity in family living that has largely disappeared in modern life.
Unlike my grandparents, for me the language barrier came down rather quickly. Like many a New Yorker, I learned to play stoopball, stickball, and softball. Unfortunately, the vestiges of polio had left me with a weakened left foot, which slowed down my running. That handicap demolished my childhood ambition of becoming a great major league baseball player, although the fantasy comes back to me occasionally when I watch a baseball game. Still, I became an avid New York Giants baseball fan. When my friends and I couldn't get into the Polo Grounds (the stadium in Manhattan where the Giants played their home games) on free Police Athletic League passes, we would go up to Coogan's Bluff, a vantage point from which most of the outfield and a good part of the infield were visible. I also discovered the public library and became an avid reader, especially of American and English literature.
Shortly after my bar mitzvah at the age of 13, we moved to Washington Heights, a section in upper Manhattan that had become a major enclave of middle-class German-Jewish families. I attended George Washington High School, having been preceded there by Henry Kissinger and Alan Greenspan, among others. I did quite well academically and made the honor society. As I approached graduation, the big question in my family was: Where would I go to college? I had no real inkling about a career path. But my mother and grandmother did; they wanted me to become a doctor, a typical hope at that time for a Jewish boy.
I enrolled at New York University's campus at University Heights in the Bronx, where nearly every student either was pre-med or pre-law or was enrolled in the engineering school. Unlike NYU's Washington Square campus, which was coed, the University Heights campus consisted of all males, many of whom were former servicemen just returned from World War II. They tended to be more serious and goal-oriented than the young recent high school graduates. I required no additional prodding to work hard and perform well. It was never said to me directly, but my family expected me to be an achiever and to persevere in my studies. I sensed their ambition for me, and understood their sacrifice on my behalf.
Actually, there were many things unsaid in my family, but I believe that they were understood. My family, as I suspect was true of other German Jews, was rather stoic, so that expressions of personal endearment were rarely heard. I wasn't taught to say to my parents or grandparents "You're the greatest,""I love you,"and the like. No matter how much I believe that these unspoken words were not necessary in our intimate family life, I still wish that I had spoken them to my parents.
The unspoken words of my family concerning my future path prodded me to enroll in summer classes, taking the maximum of 12 credits, including 8 credits of a chemistry class in quantitative analysis. I struggled through that summer, realizing that a career in medicine might not be in my future. In contrast, I enjoyed history and literature. After an introductory course in economics, which I liked immensely, I took a course in money and banking. Among other assignments, we were asked to read Frederick Hayek's 1944 book, The Road to Serfdom, a defense of free markets. Hayek saw economic planning as a major step on the way to totalitarianism. The book resonated with a generation that had just endured Hitler, Stalin, and Mussolini, but was not very popular among stalwart New Dealers. An abridged version was published in Reader's Digest, and it was in vogue for a while, which was rather interesting in view of the popularity of the ideas of John Maynard Keynes and Alvin Hanson, who had very different opinions about the proper role of the state.
By my junior year, I continued to enjoy and do well in history and literature, but knew that I would follow a career path in some aspect of economics or finance. Those subjects appealed to me because they brought me into the realities of life as I had experienced them, while the sciences seemed to me much more abstract.
In looking back at my formative years, I have no doubt that the experiences of my youth left a deep imprint on both my personal behavior and my economic and financial thinking later in my professional career. After all, I was a child who was brought up in the aftermath of the German hyperinflation, in the period and in the country where Hitler came to power, and also in the pluralistic and democratic United States. My strong anti-inflationary views, which in later years I expressed in writings and press interviews, were rooted in the stories told over and over again by my grandfather about the devastation that the hyperinflation inflicted upon him and his homeland. In those desperate times, barter more and more became the medium of exchange, and debts were paid off by worthless currency. The financial system could not carry out its fundamental function, the efficient allocation of resources.
These stories also suggested to me that it is dangerous to disenfranchise the middle class, which inflation certainly does. The very poor lose very little from virulent inflation in the short term. Over the longer term, inflation forces them to remain destitute. Debtors actually do very well during an inflationary period. The very rich can escape some of inflation's hardships, except in circumstances like Germany's, where it was the incubation of political and social upheaval. My professional training confirmed what I observed directly during my early years: that financial institutions and markets play a unique and special role in our society. They are essential if the economy is to allocate savings efficiently; and for that to happen, as I will explain in more detail later, there needs to be a balance between entrepreneurial drive and fiduciary responsibility.
Having found refuge in this country at an early age, yet still old enough to understand the perilous place from which I escaped, I am perhaps more sensitized than many native-born Americans to economic developments that might endanger this country. Such a background probably heightened my concern as an economist about the destabilizing influence of the inflationary spiral in the 1970s, the rapid growth of debt in the 1970s and 1980s, the fiscal policy excesses of the 1980s, and the lack of fiduciary responsibility displayed by many financial institutions in recent decades. I take great pride in being an American. Consequently, when financial excess threatens our economic moorings, and thus our extraordinarily dynamic and pluralistic nation, I have often spoken out for saner behavior and more effective policies.
Nevertheless, I've never declared any strong political preferences for one or the other party or its candidates, until this past year, when I have actively supported Senator Bill Bradley for the Presidency. In my discussions with him, I have continually been impressed by his integrity, his probing questions, and his understanding of the complex issues facing our increasingly interrelated economic and financial world. Bill Bradley achieves a rare balance in his commitment to both fiscal and social responsibilities.
In my early years in the U.S., my idol was President Franklin Delano Roosevelt. Many Jewish refugees identified with him. He understood early the Hitler menace, and tried to rally the country to oppose him. I also idolized FDR because he did not let polio stand in the way of his ambitions. Indeed, he suffered far more from polio than I did. That suffering was, of course, well hidden from the public. All I ever saw from newspapers or newsreels was this tall and broad-shouldered man with an infectious smile, his extraordinary voice exuding confidence over the airwaves. What an inspiration and a great leader he seemed to us, having just escaped the evilness of Hitler!
Since that time, historical research has revealed that FDR—and many others, including some Jewish leaders—could have done more to help the Jews in Europe. In later years, I also realized some of the legislation passed in the Roosevelt era to prevent the occurrence of another depression was overzealous. The National Recovery Administration was a mistaken attempt to substitute central planning for market economics. The Glass-Steagall Act that separated commercial and investment banking was an overreaching effort to punish the bankers that figuratively closed the barn door after the horses had escaped. Many other laws forged in the New Deal era were misguided as well. That should not be surprising, however. Many times in the past when the economic and financial pendulum swings to one extreme, the swing away is to the other.
All this helps explain how the historical context of my youth influenced me to become an economist. Economics brought me in touch with some of the concerns my father and grandfather had expressed to me about their experiences in Germany after World War I. It also helped me to understand the Great Depression that plagued the world as I was growing up. Economics seemed like a promising career, a means to attain upward mobility. And if I were successful, I might contribute in my own small way to solving some of the nation's economic problems. As I embarked on my career, however, I did not have a clear idea of how I might accomplish any of this.
In choosing that career path as an undergraduate at NYU, I should add, I was not inspired by any individual teacher. Rather, the subject itself captivated me. Influential mentors appeared later, in graduate school and in my employment. But I did have some inspirational teachers in other subjects. There was Theodore Jones, who taught history; Professor Robert Fowkes, a German teacher; and Professor John Knedler in English literature, who introduced me to Geoffrey Chaucer in a stimulating way.
In the ongoing debate in higher education about whether teaching or research is more important in the making of faculty members, I weigh in for teaching. The great teachers I had stirred my thoughts by their presence in the classroom, not through what they wrote. I will be writing about giants I met in graduate school such as Marcus Nadler and Peter Drucker, who wrote some very influential books and articles that have remained influential for decades. But their teaching was if anything more influential. In saying this I do not mean to minimize the importance of research. In the process of their research for publication, Drucker and Nadler obtained the information and developed the ideas they brought to the classroom. This is certainly important. But as teachers they had a talent for making very complex subjects comprehensible and interesting. There are hundreds, perhaps thousands, of men and women, ranging in age from their thirties or forties to their seventies (like me), who were affected by Nadler, and even younger students by Drucker; we, in turn, influenced others, and so it went, down the line.
My junior and senior years came and went quickly because I continued to take the maximum number of classes allowable during the summer, permitting me to graduate in 21/2 years, in January 1948.
At that time, working experience was not essential for entering a graduate business school. I was accepted at Harvard, Columbia, and the University of Michigan. Harvard did not accept new students for entry at midterm, and I did not want to wait nearly 8 months to begin my graduate work. I registered at Columbia for a 1-year master of science degree, hoping to eventually begin a career in banking or in the securities market. I did well in most courses, especially banking and economics.
But I struggled in security analysis, taught by Professor David Dodd. A legendary figure, Dodd, as is well known, was the coauthor with Benjamin Graham of Security Analysis, a standard in its field for many years. I now realize my problem was due to inadequate preparatory course work in accounting and finance—a realization that became clear only in retrospect. However, at the time I simply stumbled along, hoping that I was doing the right thing to prepare myself for a career with a Wall Street firm or with a bank.

Table of Contents

Foreword by Paul A. Volcker, former Chairman of the Federal Reserve. From the Nazi Germany of the New World. The Road to Wall Street. The Growth and Transformation of Markets. The Derivatives Revolution. The Corporatizing of Wall Street. Salomon's Growing Pains. The Americanization of Global Business and Finance. The Rise of Financial Forecasting. Forecasting and the Great Bull Market. The Fed's Rise to Dominance. Shortcomings of Fed Policy. The Urgent Need for REgulatory and Supervisory Reform. Learning from Financial Crises. Learning from the Financial Excesses of the 1980s and 1990s. The Role of Bias in Economics and Finance. Neglected Financial Lessons. Financial Institutions in the New Century. Looking to the Future. Bibliography. Speeches, Articles, and Published Interviews by Henry Kaufman. Index.

What People are Saying About This

George Soros

On Money and Markets could not have come along at a better time. With penetrating insight and a wealth of experience, Henry Kaufman makes a powerful case for what is important and what is ephemeral in business and finance. Investors, policymakers, and business leaders would do well to take notice.

Henry A. Kissinger

Henry Kaufman's On Money and Markets is a fascinating journal with one of the financial community's most successful and respected figures. It is also a warmly human memoir of a young German immigrant who became a Wall Street icon.

Paul A. Volcker

On Money and Markets should be prescribed reading for all those whose future and fortunes are tied to the performance of our financial system. But more than that, the book is an absorbing story, a saga of how one man, starting as a butcher's son in a German village and thrust as a refugee into the citadel of capitalism, could make an important contribution to the world of finance and to the eductaional and cultural life of the city at the center of the world.

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