Henry Kaufman Quotes

[G]ood bankers understand the shortcomings of accounting and know how to correct for them.

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.

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.

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.

[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.

[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 , 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 ... That episode inspired Congress to begin... plans for a central bank. After all, Morgan couldn't live forever.

What fascinated me about Drucker, and still does, is how he infuses his broad perspective on business issues with philosophical and historical considerations.

[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.

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.

[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.

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.

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.

[F]inancial markets have evolved at least as dramatically as... manufacturing, work, technology, education, and business regulation since the turn of the previous century.

[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.

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.