Sidney Homer - A history of interest rates

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SUMMARY CHARTS

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers professional and personal knowledge and understanding.

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Photo of Sidney Homer by George E. Joseph

Copyright 1963, 1977, 1991, 1996, 2005 by Rutgers University Press.

All rights reserved
First edition published 1963. Second edition 1977. Third edition 1991, 1996.
Fourth edition 2005.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada

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Library of Congress Cataloging-in-Publication Data:

ISBN-13 978-0-471-73283-9

ISBN-10 0-471-73283-4

FOREWORD

This revision of A History of Interest Rates by Richard Sylla is exceedingly timely. It updates, evaluates, and puts into historical perspective a highly dynamic period in the financial markets from the start of the 1990s to the present. In this recent period, financial markets have become much larger and more complex. In addition, new credit instruments have come onto the scene, bringing with them new interest rates, and interest rate relationships in domestic and international markets.

During the past fifteen years, several dramatic upheavals also left their imprint on financial markets and on interest rates. Early on there was the debacle of the thrift institutions and severe credit pressures on several large commercial banks. Later in the 1990s, a speculative bubble manifested itself not only in the high-tech market but also in the highyield fixed-income market. The use of excessive leverage by prominent hedge funds posed a serious systemic risk.

The scope and encompassing coverage of the subject make this book unique. There is no other study like it. It traces interest rates from their early beginnings in Babylonia, Greece, and Rome through the Medieval and Renaissance periods, right through to modern times.

This book was originally published in 1962 and written by Sidney Homer, a classical and remarkable man. Sidney Homer called himself a bond man, but he was far more than that. It is true that he ran his own bond firm early in his career and later on became a senior bond portfolio manager for Scudder, Stevens and Clark, but this only scratches the surface of his accomplishments and talents. Sidney Homer did pioneering work in fixed-income analysis. He labored for a good part of his career when bonds were not as popular as they are today and when interest rates were not in the forefront of the financial press.

Sidney Homer spearheaded the use of such analytical tools as the analysis of relative values, the yield curve, and the linkages of the financial world to the economy. He was among the first to utilize the analysis of flow of funds in the financial markets, well before the Federal Reserve formalized this approach.

When he came to Salomon Brothers in 1961, he organized and managed the first in-depth research department devoted strictly to fixed-income markets. This was an extraordinary undertaking for Sidney and for Salomon Brothers. Bill Salomon and Charles Simon were responsible for hiring Sidney. While they were completely unlike this very classical man, they realized that Sidney had a mine of untapped knowledge that could benefit Salomon Brothers. They were right. By the time he retired as a general partner in October 1971, he had built the leading fixed-income research department. It had no match and included a quantitative group, which only became popular elsewhere much later on.

His frequent writings clearly showed that he was more than just a bond man. They had a current relevance with great historical perspective and insights and ranged from technical aspects in the money and bond markets to the broad underlying economic and financial issues of the day. To him, interest rates were more than just statistics. As he stated so well in this book, It seems fair to say that free market long-term rates of interest for any industrial nation, properly charged, provide a sort of fever chart of the economic and political health of that nation.

My first examination of A History of Interest Rates was of the first edition, and it was a most detailed one. During my early weeks at Salomon Brothers, Sidney Homer asked me to read the galleys of the book, but, as was typical of him, he wanted it done in a meticulous way. I read the entire book, then encompassing 594 pages and 81 statistical tables, out loud to my secretary. It apparently left an imprint on my career.

This revision and updating has been accomplished by a prominent scholar, Professor Richard Sylla. His grasp of markets and historical background fits well into the Sidney Homer mold. In particular, Richard Sylla not only captures the new developments exceedingly well but he places them in historical perspective in the way that Sidney Homer would heartily approve.

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