In half a century of speaking, teaching, and consulting I have given a lot of advice and made many predictions. Sometimes I was on the money, but much of what I said still embarrasses me when I think of it.
My father was often quoted as saying, "If you have to make predictions, predict often." I never heard him say that, but it is good advice, no matter who thought it up.
I guess my worst prediction was one I made in Denver in December 1963, when I said that the major banks would not cut their prime rate even though President Johnson wanted them to. Seven minutes later the rate was cut. I guess I won a speed record on that.
I also struck out with a statement I made frequently when the banks practiced liability management to such a degree that they did not worry about funding the loans they were making. Many bankers felt - and I said it too - that if you paid enough for CDs you could attract all the money you needed to avoid a liquidity crisis.
Boy, was I wrong! After one or two notorious bank failures - I think one was the collapse of Franklin National in New York - holders of short-term funds became so cautious that at one point money-center banks had to pay as much as 500 basis points over the T-bill rate to attract money into their CDs, if they could attract it at all.
Fear conquered desire for profit, and many banks learned to their sorrow how wrong we were to think that money would always be available if you just paid enough for it.
I still smile when I think of how I straightened out a Swiss banker at a meeting in Zurich.
As usual, the United States was operating with a huge balance-of-payments deficit and was financing it with short-term investment funds from abroad.
"When are you Americans going to get your balance of payments in order and stop relying on our money?" the Swiss banker asked me.
"When we have to," I said. "Look at my students. If I announce the exam will be October 29, they will open the text for the first time on October 28, or maybe even the next morning. Similarly, as long as nobody else wants short-term funds and they have to flow to the American money market for investment, we can do as we please and count on the funds we need showing up."
Then I went for the kill. "Do you want this short-term money?" I asked.
That silenced him. He well knew that Switzerland didn't want any hot money coming in. At the time the Swiss paid minus-10% per quarter on short-term funds from abroad. Yes, that's right, they paid minus-40% a year to keep money from flowing in and causing Swiss inflation.
Here is a suggestion I made that had a lot of merit even though no one, including myself, took it seriously.
I was on the board of Great American Mortgage Investors, a troubled real estate investment trust that later went into Chapter 11. We were being audited by Arthur Andersen, which was charging us $300,000 a year for the audit - and then would not certify it.
My suggestion: "Let's not have an audit."
"We have to have an audit!" our managing trustee responded. "Every annual report has to have numbers."
"That's a snap," I replied. "Let's just put a statement like this in our annual report: 'We don't know what we have, but we do know it is $300,000 more than we'd have if we knew.' "
Mr. Nadler, an American Banker contributing editor, is a professor emeritus of finance at Rutgers University Graduate School of Management in Newark, N.J.
