The Wealth Of The Nation


I’ve visited Japan numerous times and I also have visited with many Japanese here. I suspect that the Japanese have their own type of accounting system, which is difficult for Westerners to fully comprehend. The linkages among government, labor, and business are unique. The Japanese are extraordinary planners, working with great flexibility. How they allocate profits among the financing institutions, the business corporations, and the government is very difficult for us to understand.

Well, the direction of my question was that when you say we’re missing this disciplining force, you’re suggesting a healthy adversarial relationship. After all, if you have a disciplining force, it’s adversarial in its nature.

Somebody blows the whistle.

Right. And so what you’re saying about the Japanese is that if they don’t have this system, with its discipline, they just don’t operate under the same rules of the game.

Their entire decision-making process is different from ours. Their decisions float up. Our decisions drift down. We Americans—particularly at the management level—all want to rush to make decisions. There’s something either Western or American or macho about it, and we never seem to make a decision quickly enough. The Japanese operate differently. Their decisions are made by a slow upward movement through the organization. This takes time. By its nature the management decision-making process is tedious. I know from my own organization that many of my partners would prefer to make a trading decision rather than a management decision.

I haven’t always been pessimistic, and some day I may become optimistic again. From 1974 to the present, the economic and financial patterns have not been good.

What’s the difference? What would a management decision be? How many more people to hire or what areas to move into?

What activities should we move into or eliminate, whom should we promote, the compensation structure of the firm, the measurement of performance, the limits to risk taking, et cetera. These are areas in which the consequences of your decisions aren’t forthcoming very quickly. On the other hand, if you make a trading decision, you get the answer right away. It’s clean.

It’s really two different kinds of personality, isn’t it? Good managers are not necessarily good traders?

Yes, but at the same time, good managers better know what it takes to be a good trader.

How do you define what you do?

As you know, Salomon Brothers is a very large international firm, trading and underwriting institutional securities here and abroad, advising governments and corporations, and conducting extensive research. If there’s a corporation that seeks to finance, we will buy the securities at a price, at a stated interest rate, and take the risk of selling them at that time. We will also buy or sell securities to or from investors out of and into our inventory. We carry very large positions relative to our capitalization. There is a very large turnover. Our gross value of transactions last year exceeded a trillion dollars. To back up our decisions, we probably have more proprietary information on interest-rate developments and relationships than anyone else in the country.

And your testimony before Congress always makes headlines.

I never really know ahead of time which conclusion of mine will “make headlines” and which will not. It’s mystifying. I do try to limit my testimony before Congress to no more than two times a year and preferably once a year. Appearing before Congress requires extraordinarily detailed preparations.

Is it an ordeal?

Let’s say it’s a rugged exercise. My last congressional appearance was before the House Budget Committee in March. I was the only one who testified before the committee that morning. It was a session that lasted from ten o’clock to a quarter to one. My prepared remarks took thirty-five minutes to read. Over two hours was devoted to fielding questions.

But isn’t that exciting and challenging? Isn’t it the most gratifying of all activities to be a friendly witness to a congressional committee?

“Friendly” is probably an incorrect description. I try very hard to be helpful and objective.

Some businessmen are surprised to find a Wall Streeter like you criticizing a Republican President.

I think it’s very dangerous in a society to have only a uniformity of views. I lived for a while in a society where there was also a kind of a unanimity of views.

You mean in Hitler’s Germany?