A superior course in economics (with a glimpse of biography) from “Dr. Gloom,” the famous monetarist, financial forecaster, and bond guru who earned his sobriquet with his infallably honest, level, and sometimes unwelcome economic pronouncements.
Kaufman’s life began in a small town in Germany, continued as a young refugee of the Nazi regime and ends with this, the accumulation of a life’s study of the way money works. And reasonable and clear-headed it all is, too. Here’s how economies rise and fall: it all hinges on credit-risk evaluation (often improperly assayed or, in the midst of profit lust, not done at all). Hence, Mexico, Penn Central, the Savings and Loan debacle, and a host of other financial dark days. The more risk out there, the more instruments will be created to hedge against that risk, Kaufman maintains, and the more volatile markets become. That’s us. Now. The efficient and careful allocation of credit precludes disaster. Not too much debt; not too much regulation; not too much of much. What’s needed is a re-tooling of the IMF and the World Bank, and the creation of something Kaufman calls a “Board of Overseers of World Markets,” which would serve as a finger-shaker rather than a regulator. Decency has always been a hallmark of Kaufman’s and, thanks to it, he saved his (and the firm that bore his name’s) neck by withdrawing from a collaboration with the ill-fated Drexel Burnham (when he heard that Michael Milken was to be involved). The market isn’t human, he insists, and it doesn’t have human characteristics. “It is the sum total of thousands of largely uncoordinated decisions, many of which are based on little or no analysis.” Nothing in the recent economic climate has happened to improve his rainy mood. The apocalypse is nigh, so look out. “I am confident that sometime within the next few years, the financial euphoria will be reversed.”
Not exactly cheery, but definitely worth knowing. (Introduction by Paul A. Volcker)