Transcription
Lloyd Blankfein, thank you so much for joining us. You wrote a new book, Streetwise: Getting to and Through Goldman Sachs. Why?
Well, first of all, I had the time. I found I found myself retired at, got to be a little bit Covid outside. But, you know, there's there's a little bit, you know, you don't, you know, one day you're working full speed, the next day this kind of a tapering process. And so it gives you time to reflect, to think about things. Your friends are still your friends. You engage people. People start telling you this story and that story. I mean, I'd love to tell you I had some, I felt I was burning with wisdom to share with the world. But really, you get goaded into stuff. It doesn't start out thinking that you're going to write a book. You start writing about anecdotes. You start writing about what you think made things work. And then after a while, you start to structure and say, you know, there could be a book here.
But it's actually really difficult going from a high-powered job, one of the most powerful people on Wall Street, to retiring. Yes. And sometimes it's not, it's not only hard at times, but sometimes you get regret. And every time I feel, gosh, I really like I wish I was there. You know, I can pick up my, one of my, you know, one of the plastic phones of my grandkid that's connected to nothing and bark into it. But, but you get used to it. And also, when I start to miss it, I remind myself, you know something, I don't have to get, I don't have to fly to Singapore tonight to pitch for something for 15 minutes, then turn around, get on the plane and fly back and go to Germany, you know, two days later. So, yes, I had to remind myself that there are reasons why it ran its course. I did that for, I was in the firm almost 37, 38 years, and I was CEO for almost 13 of those years. So it was, it was, it was fine. It was time.
When you look at the world today, there is, you know, a big war in the Middle East. There's disruption with, I one certain where that goes. And of course, there's everything going on. Private credit. Do you wish you were still in the game? You know, I wish I was. I, I mostly wish I was still in the game in these kinds of crisis moments. Because when things are going, when things are going well, it's, you know, it's kind of easy. You get home in the end of the day. Not sure what you did. I mean, it's more fun and it's not like you volunteer for the problems. The problems come to you and find you. But at least there, at the end of the day, you know, you feel like you made a contribution that maybe somebody else wouldn't have done, done the same way. And it's more fun and you get the sense of teamwork. So it's good. And, you know, you finally look, you know, you're lucky. You live a life where the background noise of everything you do is the news of what's going on. That was my life as well. I never, you know, it's perfectly polite in my line of work, and I'm sure yours as well, where if you're having a conversation and out of the corner of your eye, you're staring at a screen and things are flashing and things are always going on. And if you have a job like mine, there's nothing that can go on anywhere in the world that doesn't affect you. Given the size of our balance sheet and our and our interests and, you know, in about 75% of the time, someone accuses you of causing whatever's going on in the world.
But because you've lived through the financial crisis, there's, and a lot of chief executives, I think, Wolf, will feel the stress of balancing speed with accuracy because things are going very fast. What did you learn during the financial crisis that made that decision apply? Sometimes speed is liberating because you have no choice but to keep going. And it's not always that, you know, you sit and you contemplate something and your anxiety takes over. And, you know, sometimes you do things. You need kind of courage because you, when whenever you make a decision, it could be, it could be, it could be wrong. And so you're taking risk. But if you, if you're under pressure and there's no time, there's a little bit of no choice, no problem. And so you go ahead. So sometimes things are unpleasant, but they're not hard because you have no choice.
Yeah, but I mean, today it feels hard because there's so much that could change. Right? It's one thing. It's three things today. You have to be today in this world. And as we sit here, right at this moment, it can change on a dime. You can go from total pessimism to total optimism back to pessimism, depending on the rhetoric that's flying back and forth. And the rhetoric is flying in addition to missiles flying back and forth. So, yes, it's like, oh, so I think today what you really aren't is a forecast or a predictor. You're really a contingency planner today. And if you contingency plan very well, when something happens, you can get off the mark so quickly that people think you predicted it, but you really didn't. You just made a lot of contingency plans. What if oil goes to 150? By the way, what if it goes back down to 70? Because that also can cause problems for people. And so you just have to have a plan for all these different contingencies that could happen. And then there are contingencies that you couldn't have contemplated that could happen. But so how do you describe markets today? Or they too, are too volatile, or are they volatile enough? Well, it is what it is. It can't be too volatile. It's, you to cope with it. It's, it's really, it's really difficult because there are a lot of contingencies and, and the possibilities are really quite wide, quite wide, quite wide across. But, you know, there'll be again, there are courses that do well in a race where it rains, he'll go slower, but it'll do better than the other horses because they're used to running in mud. And, you know, we were always, we were always used to working in, in volatile markets like this.
What are, you know, private credit? Is it the new technology like junk bonds and CDOs were back in the day? You know, history doesn't repeat, but they rhyme. It could be, it could be kind of like that. The real, I think one of the real issues is kind of, you know, it's private, a lack of transparency and a lot of an inability to know what things are worth, because by the very nature, almost definitionally, they're illiquid, so they don't transact the real way people can market themselves. You can talk to model and you can mark to an out, you can mark to an algorithm and you can, you can mark to an analogous security. But is that fair? Is that going to be right? The real way, you know, the value of what you have is if you sell some in the market, then you know what a willing buyer would pay for it. So you know that that's the price of it. That doesn't happen a lot in these instruments because they don't transact. And also sometimes in private credit, the limited size. So there's not enough of it to justify another buyer coming in to buy a little smidgen of it to test the price. So what does that mean that we're going to see a similar boost and, you know, boom and bust kind of situation? But what people are worried about is, are these things properly marked on the balance sheet of the holders? How do we know what they're worth? We have, we have your word of it, and we're not necessarily saying you're fraudulent, any way, but how do you know what somebody else would pay for it till you test the market? That was the problem in the globe. No. Going back to the analogy of the global financial crisis, people had triple triple A securities. They had the imprimatur validated by rating agencies. But if you went in to sell it, nobody wanted it, right? And so you kept going down. One of the things that was almost a religion we practiced at Goldman is that we really mark to market aggressively daily. And where we didn't know something, of course, we had to use models and had to use analogous securities, but we made people go out and sell some, and that was a discipline that gave us kind of an early warning system that something was going on here. By the way, it wasn't necessarily a prediction of which way we go, but when you have something market X and the next high and the highest bid that will come in from what you have is 0.8X, you know, there's something going on here. And so you better, you better figure out what's going on or at least B, or at least be cautious and not accumulate a lot of it.
But I mean, as we were reflecting on how, you know, the banks have changed since you were in charge of Goldman Sachs, I mean, banks have become more and more lenders to non-financial firms. Yes. That means a lot more risk. A lot more risk. Now, I don't know. I didn't even know in the financial crisis what happens because you do what you do, but you don't know what the aggregate of is. My best. My best thinking is that the banking system is not in, famous last words. Here's a prediction based upon just the intuition and all the experience that the banks are not that leveraged to these firms. In other words, they're lending to them, but they're lending to them with a lot of value. These, these instruments could go down a lot before it affects the outcome of the banks. And that's a very significant thing. This is a very big difference today versus the global financial crisis because that was a bad, bad things going on, very recessionary, but it was a banking crisis. And in a bank, know, just remember, governments don't lend money to people. Central banks don't lend money to people. Banks do. Banks are the intermediary. The instrument by which the government can get, could try to fix an economy that's in bad shape in a recession. And if the banking industry is in distress, you give money to banks. Banks accumulate money, but they don't lend it out. They have to replenish their reserves so it lasts longer. Today, we're in a where we're in a moment where the banks are doing well and we're not starting out with interest rates of zero. Interest rates are going down. The balance sheets are not great in banking, but for us, it's lower than it has been. So in other words, the official sector has a lot of tools it could use to remedy a bad economy to work on. It doesn't mean it'll be instantaneous, but there are a lot of tools that could be put into service and, and the banks themselves are in much better shape. So I'm not saying that there won't be problems, that the problems will not, will not cascade and snowballing to a bigger problem is what I think.
So you don't see anything systemic? I don't see anything systemic. But by the way, I didn't necessarily see anything systemic in the run-up to the crisis, which is why that's the nature of bubbles. Everybody sees it and hindsight, but no one sees it in prospect.
How successful have financial markets been in reining in Trump's wild impulses? Well, I think we respond. I don't think we're reining in. I mean, look, a lot of the stuff that I mean, just betraying certain, you know, platitudes here, I think some of the actual outcomes and specific policies, you know, are quite, you know, are quite defensible. It doesn't mean that every, everybody is liking it, but he's addressing some things that need to be addressed. And then on the other side, he's also, let's say, challenging some some norms and traditions and some safeguards and guardrails that, you know, that some people that I even find some, you know, alarming from time to time. And so, you know, it's a bit of a, it's a bit of a balance. It's a bit of a balancing act. But I think sometimes some of the inconsistencies and media kinds of in the statements that go out, what's the, what's the cliche that's emerged? You know, you take it, you know, you don't take it. You don't take it literally, but you take it seriously. And this is for everything that's happened in the price of oil or also tariffs and trade.
Well, things can spiral out of someone's control. I mean, you have something, it's not as if, you know, you can have somebody can only convey his intentions and you can decide whether you believe it. And that's really where where he's coming from, because maybe there's some inconsistencies. But then there's another level. What if you absolutely knew intentions, but you lose the ability to control these things? You can't manufacture more supply of energy with your intentions, so, you know, things can get out of control. And so, look, one thing when you compare crises in going back where in one that's unresolved. So it could get worse. And so, and by the way, this is the one we're in. So it's worse and it's scary in terms of our attitude on our minds. But if we went back to the same place at the same time at the global financial crisis, that was much worse. But it's hard to be scared of something that's resolved on the shelf in a can can't hurt you anymore. It's not going to get worse. You're just reading about it. And so we're living with something that you are not just marking yourself to market and how bad is it today, but we automatically extrapolate to where it could go. So we'll get through this also. Look, I joked, I said, you know, that we, we had the crisis of the century every four or five years, you know, whether it was the launch of the dot com bubble, the Asian currency crisis. We haven't had one in a long time. By the way, that itself is a reason to concern for concern, because if you haven't had a crisis, it means you haven't had a reckoning, you haven't had a sell in distress, things that have accumulated on your balance sheet that might not be marked correctly. And the more time, the analogy I like to give is you accumulate tinder on the floor of the forest and eventually a spark will come. But the longer it, the longer between intervals where there's a spark that sets it on fire, the more that accumulates. We're coming off a period where we had the highest equity markets we've ever had and a very, very favorable financing market. Yet a lot of private equity firms have accumulated a lot of inventory of deals that they've, they've, they've, they've gone into, been on their balance sheet. They're highly incentivized to sell them, but they haven't been sold. If they haven't been sold in a good equity environment, in a good financing environment, how easy it's going to be to sell them. And so why not? Maybe they're marked higher than what you can get in the market. So at some point there needs to be a forcing function or a reckoning that causes you to come to grips with what your balance sheet really is worth.
But what's the hardest leadership lesson that you've learned that we can apply now? And you talk about this a little bit in the book, is there, you know, if you know that there's going to be a spark, should chief executives look for the sparks before they're ignited? But yes, but really, I really, I would say look for the kindling, because eventually there will always be a spark. And, by the way, a spark that occurs when there's a lot of flammable material on the floor will set in a blaze, but in which you obviously have the spark which is happening go by. It'll be something that in a different moment we might not have noticed, but it would be, not to mix a metaphor, the last straw that caused it. Now you say, does the weight of the last straw really break the camel's back? No, it's just the incremental thing. So eventually, guaranteed something will happen. What could it be? Could it be the realization that, you know, there's over mark things on balance sheets and, you know, and that companies that are investors in these things have to write down certain investments? Could it be a hack, malevolent behavior in technology, a fat finger, an accident? Could it be the price of oil starts to look like it's sustained to be going into 130, 140? And the consequence, yes, it could be any one of these things. So at a different time, the market might be able to absorb that. But there's a, if there's a lot of built up, let's say, assets and situations and conflicts that have to be written down, then then it will be that kind of problem and will wash out those problems with a lot, with some disruption.
I mean, I imagine that as a chief executive, you always have to make decisions between sometimes like what's right and what's profitable. Right. Have you ever been in a situation where you've, you've stuck with someone who did something not great because they were making money? I would say if you mean by right, if you mean ethical, that's no issue at all. I mean, you go, you can't run your business that way, especially in a business where your success and people's willingness to transact with you is dependent, depends on your reputation for probity. So that's not an issue. However, some people could be difficult because they can make you, they can answer your questions begrudgingly or be difficult with their colleagues. In other words, you could be wrong, but quite ethical, but also difficult. And at times, sometimes when people are pretty, you know, you know, have been pretty good and pretty, you know, we've sort of overlooked it and say, gosh, will help this person, will reform this person, will give advice, will give mentorship, will get them a coach. And those generally work out badly because generally people's character is kind of set and you can change them a little bit, but not a lot. But if it, if it starts to move across ethics, there's no question that's easy. Unpleasant, but an easy decision.
Yeah, and I guess that's one of the questions also that a lot of these companies, right, have to grapple is what's the, what's the most important management lesson that you've learned whilst managing others? Some of these things, some of these things are not good versus evil or right versus wrong. You're just competing values. So there's value of openness. Yeah. And then there's a value of privacy and they could be in conflict. And one is not right or one is not wrong. They're just values that are in conflict with each other. And how do you want to resolve the tension between those values? Because as the chief executive, it's down to you to decide what's best. But I think some of these things that they're asking executives to do are really for the political sector to decide. In other words, if you're trying to decide between competing values, that's what the political sector for, is vote. The political sector in a lot of countries now is really can't get anything done. And so you're going down to business people and chief executives and make this decision. I always say, you know, we're not, you know, we're sitting here in London today, but I'm observing that a lot of pressures are being put in there. Companies that are be under pressure don't finance gun and gun manufacturers. Then the other half of the United States believes in the Second Amendment. And it so that's not right or wrong. There's just competing, competing values. And those shouldn't be put on those shouldn't be put on CEOs. That's for the political sector. But if you have a dysfunctional political sector, everyone goes to the CEO. I don't think you should have red companies and blue companies and everyone should pick the company you want to deal with based upon their policies. I would like to see the politic, the political sector step up and resolve these value questions for the society.
Can anyone become a leader, or are you born with certain qualities? I think everybody. My wife, my wife once wanted me to take tennis lessons so I could play with her well, because she's a good tennis player. And I said, I'll never be good at this. She said, You're right. You'll never be good at this, but you can be better than you are. And so I would say that there are some people who start with a natural DNA and they're really, really good at it and attendances and people who aren't as good, but even the people who aren't good could be better than they are.
Lloyd Blankfein, thank you so much for joining us. Okay. Thank you very much, Francine.