Henry Kaufman (born October 20, 1927) is President of Henry Kaufman & Company, Inc. and is known, by some critics of his economic analyses and prognostications, as "Dr. Doom." Kaufman worked in commercial banking and served as an economist at the Federal Reserve Bank of New York. After the Federal Reserve, he spent 26 years with Salomon Brothers, where he was Managing Director, Member of the Executive Committee, and in charge of the Firm’s four research departments. He was also a Vice Chairman of the parent company, Salomon Inc. He also served as a director of Lehman Brothers Holdings Inc. and as chairman of the Lehman board's finance and risk committee.
Interest Rates, the Markets, and the New Financial World (1986)
- The proliferation of credit instruments, financing techniques, and vast matrices of trading and investing opportunities requires highly objective evaluations of risks and rewards, and a sense of historical perspective, if excessive risk taking is to be avoided.
- The current plethora of instant interpretations tends to emphasize the near-term without adequate regard for longer-term objectives. The problem is compounded by the compressed time scales within which business and government function.
- Judgements on the performance of our economy require a clearly defined objective. Too often... there are multiple and contradictory objectives. Unless we are clear on our... objectives, we are not able to evaluate performance as good or bad...
- Often the real value of management decisions does not become apparent until many years later.
Perhaps what we should do is try to analyze the impact of decisions in any one period on longer-term performance. In the political arena, for example, why should we emphasize the skill and acumen of national policy-makers only on the new initiatives they introduce and legislate? Sometimes the events that do not materialize are more important than those that do. We should try to ascertain what decisions political leaders are undertaking that will benefit their nations subsequent to their terms in office.
On Money and Markets (2000)
- I take great pride in being an American. Consequently, when financial excess threatens our economic moorings, and thus our extraordinary dynamic and pluralistic nation, I have often spoken out for saner behavior and more effective policies.
- The credit approval process began with the analysis of balance sheets and profit and loss statements. For those who know how to unlock their secrets, these documents can contain hidden traps, as I soon discovered—and was later reminded by some of the more spectacular credit problems of recent decades. Balance sheets tend to overstate assets and understate liabilities. Inventories commonly are assigned a large cash value after they have become obsolete, while receivables that are ostensibly current are quite often in arrears. Inadequate reserves constitute yet another common weakness that is poorly reflected... A receivable is a current asset, but it could be a slow asset.
- [A] balance sheet is a snapshot of one moment in time, and thus presents a very limited view... To be a good banker, therefore, a business is much more than its balance sheet.
- [A] profit and loss statement is not simply a collection of figures, but rather—for the perceptive banker—a window into the nuts and bolts of the business, from its method of operation to its management philosophy.
- [G]ood bankers understand the shortcomings of accounting and know how to correct for them.
- What fascinated me about Drucker, and still does, is how he infuses his broad perspective on business issues with philosophical and historical considerations.
- The professor that had the most influence on me was Marcus Nadler. ...As a teacher he had a rare ability to break down complex subjects into more palatable and understandable points. ...[H]e had a great capacity to simplify, to turn abstract ideas into practical applications. ...His lectures helped shape my belief that financial institutions and markets must balance entrepreneurial drive with fiduciary responsibility. And his fairness and openness to opposing points of view influenced me to conclude that no one school of economic thought has a monopoly on wisdom.
- Billy Salomon... along with Charles Simon and Sidney Homer predicted... that research would become a critical function of the firm. ... Sidney was given a free hand in creating a bond market research operation. Years later, he wrote a... memoir... Fun with Bonds. Sidney was taken into the firm as a general partner when he was nearly 60 years old. ...such a step would be impossible today ...Sidney wrote with great clarity. ...I later came to appreciate his great historical sensibilities when he asked me to review and edit a draft of a book... A History of Interest Rates... covering 40 centuries and 40 nations.
When Sidney and I met... he was looking for an assistant to help him build a research department devoted solely to money and bond markets.
- Salomon's growth over the next generation would astound even its most optimistic partners. ...And as we would all see to our amazement, Salomon's rise was reflected in broader and equally dramatic transformations in the financial markets—as credit burgeoned, financial crises occasionally rocked the markets, prices and interest rates moved with new volatility, institutions underwent massive shifts, and monetary policy emerged as the dominant force in sustaining economic growth.
- In 1900, two-thirds of the nation's... citizens still lived in rural communities... But that was changing rapidly (by 1920 more than half of all Americans lived in cities), thanks in large part to the explosive growth of manufacturing. ...[T]wo-thirds of the nation's output was in manufactured goods, even though manufacturing employed less than a quarter of the work force. The average plant producing petroleum, iron and steel, and textiles (the three leading industries)... were belied by the behemoth factories... Carnegie... christened the new century by selling his sprawling steel interests to J. P. Morgan, who promptly assembled the $1.4 billion United States Steel Corporation in 1901, the nation's first billion-dollar industry.
Still, American manufacturing was then churning out a tiny fraction—roughly 1 percent...—of what today's cleaner and enormously more efficient plants produce.
- In 1900, industrial workers toiled 10 hours a day, 6 days a week and earning an average of $375 dollars a year. ...[W]orking conditions were typically unsanitary, unsafe, and often fatal, and there were few protections—whether from unions (...a meager 5 percent of industrial workers), employers, or government. ...[S]tate and federal governments frequently trotted out their armed militias to help suppress striking laborers. ...[W]hites lived an average of only 47 years, blacks a mere 33.
- [T]he nation's middle class was about to embark on an educational revolution that would help boost incomes to unimagined levels over the next three generations. ...Along with the obvious benefits to... individuals, education yielded enormous social and economic returns. Economists have found universal public education in America to be one of the leading engines of economic growth.
- In the 1890s and 1810s corporate consolidation inspired an enormous public outcry against the "trusts" (...big business). Newspapers overflowed with editorial deriding... "robber barons," and for the first time in American history the federal government stepped in to regulate... First came the Interstate Commerce Act of 1887... designed to limit discriminatory railroad rates, and then the Sherman Anti-Trust Act of 1890—Congresses' first attempt to constrain monopolistic practices. In practice, both acts proved to be weak against the predominant power of big business. For decades, the courts in effect made regulatory policy in how they interpreted... these two...
- [D]uring the Progressive Era... the federal government took large strides to regulate corporate America. ...[T]he federal government managed to break up several trusts (including the Northern Securities Company, American Tobacco, and Standard Oil) and to establish the Federal Trade Commission and the Federal Reserve.
In our time, business consolidation is evoking no similar reaction.
- [F]inancial markets have evolved at least as dramatically as... manufacturing, work, technology, education, and business regulation since the turn of the previous century.
- [T]he most striking feature of America's Gilded Age banking and financial markets is their lack of regulation. Wall Street was periodically upended by... colorful figures such as Daniel Drew, Jim Fiske, and Jay Gould to manipulate prices and corner markets. The only force countervailing against such panics was a handful of more responsible investors, most notably J. P. Morgan... [who] engineered a successful rescue operation after the Panic of 1907... That episode inspired Congress to begin... plans for a central bank. After all, Morgan couldn't live forever.
- The federal made some efforts at regulation in 1900, by passing the Gold Standard Act, which allowed state banks to set up branches in small towns and ended the bimetalism debate by establishing gold as the only redeemable metal. Still, the vast majority of banks were local, single unit operations, and access to capital and credit... increasingly difficult as... business enterprises expanded rapidly.
- [R]icher nations have larger stock and bond markets than poorer ones, and the assets of financial intermediaries are much larger in relation to GDP.
- [A]n economy cannot grow and thrive without a strong commercial and investment banking infrastructure. Without the ability to create debt and equity instruments, the world's economies would not have advanced beyond their most rudimentary forms.
- [F]inancial markets can be considered one of the great wonders of the world.
- [F]inancial markets are... a microcosm of the people and societies they serve. ...The extremes of market movements reflect the extremes of human nature and human emotion—from optimism and elation to pessimism and despair. In financial markets—as in life—rationality prevails most of the time.
Quotes about Kaufman
- Dr. Doom is back—and age has done nothing to soften his views. ...In a speech on Wednesday evening to the National Economists Club in Washington... Kaufman argued that efforts to stabilize the financial system following the financial crisis may actually have heightened risks by encouraging more debt and increasing concentration among too-big-to-fail institutions. .. that financial innovations, such as securitization, have mainly spurred an explosion of debt, much of it for speculative purposes. ...As the quantity of credit has exploded, its quality has fallen... Deregulation fundamentally changed... from the era of clear divides between commercial and investment banking and government-set interest-rate caps. Regulation has been insufficient to balance “entrepreneurship and fiduciary responsibility,”... which was checked when Wall Street firms were partnerships, with partners’ net worth on the line.
- Randall W. Forsyth, "Dr. Doom’s Latest Warning Should Not Go Unheeded", Barron's (Oct. 18, 2018)
- Besides his business activities, Dr. Kaufman is active in a number of public and educational organizations, including New York University, Tel-Aviv University, the Institute of International Education, the Norton Museum of Art, the Jewish Museum, the UJA Federation, the Animal Medical Center, the Economic Club of New York, and the International Advisory Committee of the Federal Reserve Bank of New York. He is also a fellow of the American Academy of Arts and Sciences.
- "Henry Kaufman", Institute for New Economic Thinking (2019)