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Overall, it was a good book on the subject.
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Dr. Kaufman's influence has evolved through his studies of the credit markets, role in developing them as head of research at Solomon Brothers, commentator on the credit markets and Federal Reserve policy, and forecaster of financial market trends. He is well respected, even by those who do not agree with him. Perhaps his most influential moment came on August 17, 1982 when he called the turn in the interest rate environment that kicked in the bond and stock market boom in the United States that has lasted ever since.
Let me briefly describe each part of the book. The first nine chapters are primarily a biography of Dr. Kaufman. Despite the fact that I have been following his thinking closely for over 20 years, much of this was new to me. He is modest in speaking about his accomplishments, which makes the story more appealing. The story of how Dr. Kaufman became "the" Henry Kaufman is well worth your time. Born in a small rural town in Germany, violence against Jews in his own town caused his family to emigrate to the United States in the 1930s. During the time in Germany, he suffered from polio, and had two operations as a result. Speaking almost no English when he arrived in New York, he was back to grade level performance within a year . . . after the humiliation of being put back into the first grade. You will get many interesting glimpses of how important mentors and families are to the accomplishments of any one.
Chapters three through fifteen also serve as a partial history of the world (and especially the U.S.) financial markets. The length of the period covered and the breadth of view make his perspective very valuable for the casual observer of the subject. Most will be surprised by how great the changes have been in the last two decades, for example.
But, to me, the most valuable parts of this book were the prescriptive elements of what needs to be done now that build from material in chapters eleven through eighteen. I agree with him that regulation is falling behind the shifts in the financial markets. For example, new types of financial institutions are being created that have essentially no regulation, yet contain great risks for the whole society. CitiGroup is an example. The banking part is regulated by the Federal Reserve but the Travelers insurance portions are regulated by the states. The investment banking part of the company is primarily regulated by the SEC.
He also warns against the excessive use of derivatives, financial leverage, and decreased care in overseeing these practices compared to their size and importance. In good economic times, this works well. How well will they work in bad economic times? Probably not very well. The near collapse of the bond market during the Russian debt crisis in 1998 is an important warning here.
More significantly, although the Federal Reserve knows that there is a stock and real estate speculative bubble in the United States, it is at a loss to know how to handle that bubble. Dr. Kaufman predicts tough times and greater volatility in the markets ahead that will make the one-day fall in October 1987 look like a walk in the park. The collapse will be abetted by the low savings rate, the growing importance of other strong currencies, high debt levels, incomplete regulation of speculation, and greater growth abroad while the Fed fights back by only being able to lower interest rates.
These are sobering words and thoughts, and I hope that policy-makers, policy-influencers, as well as ordinary citizens will take them seriously. The time to fix the dike is before it breaks.
If Dr. Kaufman is right, how will you protect the financial security of your organization, business, career, and family? Without knowing what the risks are, you won't know what to prepare for. I suggest you read this book as part of your preparation.
The only people who will be disappointed in this book are those who would like a more detailed and technical explanation of these points. Dr. Kaufman is clearly capable of providing more, but did not want to limit his audience. Despite its general nature, I found the chapter on forecasting to be quite interesting and valuable.
After you have read this book, also ask yourself if you have taken full advantage of your opportunities in life as Dr. Kaufman has. If you have not, ask yourself what you could learn from his example. I suspect that you will start asking for and getting more advice from outstanding people as a result.
Live long and prosper!
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