What Went Wrong at Citi and Merrill

Economist Henry Kaufman says senior management was caught up in frenzied pursuit of short-term gain. But "Dr. Doom" still has faith in the American economy's resilience

Senior managements and the boards of directors of major financial institutions such as Citicorp (C) and Merrill Lynch (MER) failed to perform their proper corporate governance roles, helping to precipitate the financial markets crisis of recent weeks, says Henry Kaufman, president of Henry Kaufman & Co. and a board member at Lehman Brothers (LEH). The Federal Reserve also failed to understand risks created by the proliferation of new financial instruments, says Kaufman, who previously served on the Federal Reserve Bank of New York. Here are edited excerpts from a recent conversation.

To continue reading this article you must be a Bloomberg Professional Service Subscriber.