Customer Reviews

The Road to Financial Reformation: Warnings, Consequences, Reforms

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This book provided an insightful overview of the causes of the current financial "meltdown" and future strategies to avoid a recurrence. The book is well written, but not an easy read for the layman. I highly recommend this book for those involved in the finance industry or those teaching finance at the undergraduate or graduate levels.

A doctor doesn't wish his patient ill, but neither does he sugar coat the truth. Henry Kaufman has been telling the truth about the fragility of the global financial system for years. Now, with the recent experience of financial crisis still fresh in the hearts and minds of investors and regulators, this new book lays out how we got here and some possible next steps. The writing is crisp, the ideas carefully considered. All in all, a great place to start reconstructing our view of how financial markets work and what to do when they don't. Thank you.

Henry Kaufman is a PhD economist who spent 26 years at Salomon Brothers including as head of the investment bank's 4 research departments. In 1988 he became President of his own economic and financial consulting firm. So I was interested to read his take on the financial meltdown.

The first part of the book includes 4 chapters of speeches he presented in the mid to late 1980's at Federal Reserve forums. In them he identifies troubling trends in world finance likely to cause future disruptions. He calls these "Neglected Early Warnings." The themes he cites in these early chapters he repeats in later chapters but with greater macro economic evidence and reasoning. These include 1) the trend to financial concentration underscored by the "too big to fail" status of the financial conglomerates; 2) the loss of segmentation resulting in less transparency; 3)conflicts of interests; 4) reliance on the absoluteness of mathematical modeling; 5) weakening credit quality; 6) a tax code and compensation plans that result in bias towards the use of greater credit and less equity; 7) the redefining of liquidity from an asset basis to access to credit; 8) securitization defined as making marketable assets not otherwise marketable; 9)innovation of financial products with no market history; 10)the drive by financial conglomerates to avoid oversight; 11) the failure of regulatory bodies, especially the Federal Reserve, to do more than to react piecemeal to structural changes.

In covering these he discusses the impact of voiding Glass-Steagall, the elimination of economic history as part of basic business education, and the failure of the Federal Reserve-the primary regulator-to cope, and the failure of Congress to act. He disagrees with the elimination of Glas-Steagall which has the impact of mingling commercial banking with commerce, and making oversight more opaque. He advocates for a Federal Financial Oversight Authority distinct from the Federal Reserve. This organization would have specific oversight and regulaorty authority over "too big to fail" institutions.

This is an important book. Once Kaufman establishes his themes at the beginning, he provides the perspective of economic thought on financial concentration, and compares that concentration in crises beginning in 1966.

This is an important book for anyone concerned about the road the US is taking in dealing with recent crises and preparation for the future.

Kaufman does try to communicate what he feels are the impetuses for the recent economic crises. Moderately complex in finance jargon and perhaps not easily understood by a layperson, he does communicate his thoughts but the reader will get confused as Kaufman repeats himself continuously, perhaps too frequently. An interesting book, required for my class but if you have an option to read other books or others' opinions I would certainly choose those first.

If you want to know about 1970-1980s, this book is for you. If you want to know about today, it is not.