Former Goldman Sachs CEO Lloyd Blankfein Says the Market Is Due For a Reckoning

19:25Lloyd Blankfein:And we thought they surely won't want to immiserate their people by taking interest rates in a slow growth environment. Guess what? They immiserated their people in a slow rate environment. So we did poorly. We lost money. That was a moment in time also where the firm was a private partnership. And in a private partnership, and by the way, a private partnership with unlimited liability for the partners. So you could not only lose all the money you had in your firm, in the firm, but they'll come around and take out, take away your home and how, you know, and so that really makes you really focused.

19:58Lloyd Blankfein:And in our business, if you're afraid to lose money, it's very hard to make money, not because people are betting wildly, but we intermediate the other side of what people want to do. People want to sell blocks of something. People want to hedge big positions where there's no other side, where we would have to position that risk until we could cut it into little pieces and sell it off. But that's a lot of risk. And so people were very, very loathe. So it's not just what you lose in the moment. It's all the opportunities that you inevitably let go by that you otherwise would have taken advantage on.

20:32Lloyd Blankfein:And that could go for a long time. And what you have to do there is leadership has to be, you know, kind of sober about the fact that you really don't want to lose more money. But at the same time encourage people to go ahead and you have to have the discipline your own organization to let people know by your behavior that you're not going to punish or kill people for having legitimate losses that were not that were you know people you're not supposed to be stupid but even smart people are wrong a good percentage of the time if you punish people for being wrong as if they were stupid you'll lose them you'll even if they don't walk away you'll lose their mind and you lose their ambition.

21:15Lloyd Blankfein:So that's a very, very delicate management problem after a crisis like that to get people up in front of foot again. And by the way, what they're feeling, you're feeling too. You know, you're a little bit about, you're a little like the flight attendant going through turbulence, you know, and the engine may sound a little bit different and you kind of wonder, is it supposed to sound like that? And if you're the flight attendant, you better have a big fat smile pasted on your face because if you look like you're terrified. Guess what the passengers, guess how the passengers are going to respond.

21:47So I would say, you know, in a crisis, put the oxygen mask on you first before you put it on

21:53Lloyd Blankfein:your kids, because you're not doing your kids any favors if you pass out. And the other thing is, try to look like you're not scared to death.

22:01David Gura:Goldman's special sauce, as you put it, is that heritage you're talking about, the fact that it was a partnership for as long as it was. How has it post-IPO been able to retain a lot of that? Maybe the special sauce isn't as strong as it was before. But it does have a unique flavor. How does it retain that? The thing that we would have least predicted that we were the most nervous about, that most

22:21Lloyd Blankfein:came up into the debates about whether we should go public or not, which, by the way, I thought was inevitable given we needed a balance sheet and stable capital. But the thing that I thought would have been the biggest surprise if I could look forward to where we are today is how well Goldman Sachs preserved the partnership culture 25 years, more than 25 years after we've been a public company. Now, what does that mean, a partnership culture? It's, you know, people don't necessarily understand it. You know, when I, and by the way, I spend half my tenure in the private firm, half my tenure in the public company.

22:57Lloyd Blankfein:In a private company, the people that report to you are your co-owners of the business. They have a set of expectations. They act like owners. They expect to know everything that's going on. A Japanese bond salesman wants to know what's going on in investment banking in London. If somebody screws up somewhere in the world, it affects everybody around the firm. They're not just in their own cylinder. It's not considered rude to be a busybody and look around and see what's going around the whole firm. It's their expectations, their sense of entitlement to have that. People expect to be consulted as owners.

23:33Lloyd Blankfein:People think if they object, you'll listen to them. And you may be slow in implementing a decision that you thought was the right thing to do, but people are objecting. And so you socialize things more. People in the firm get paid based upon how the firm as a whole did, not their little cylinder or not their little space. There's a lot of differences between a partnership culture and a regular corporate. And I think the firm did a good job in protecting that, even though nobody's been a partner for a long time. but they call themselves partners.

24:04David Gura:So use the name, yeah.

24:05Lloyd Blankfein:And it's real. And I'll tell you another thing. There's an economic difference. When I was in a private partnership, you care about your capital account. You don't have stock. At the end of your, you know, and you leave your capital in the firm because that's the, you know, your money is the working capital of the firm. You care about how money accretes into your capital account, but you don't care if it's a smooth accretion every year or if it rises 5 % every year. you care what it looks like after 20, 25, 30 years. And so if in a 10-year cycle, you make money four years, lose money in two years, break even four other years, that's perfectly fine as long as it's enough.

24:44Lloyd Blankfein:In a corporation, a public company, it's not just your earnings. It's your earnings times a multiple. And the multiple is governed by people's sense of the stability of your earnings and the growth of your earnings. So all of a sudden, you care about your E, your earnings, but you really care about your P.E. And maybe you'd forego some of your earnings in order to have more stability in those earnings so you get a higher multiple. And so I think over time, the real test was, how do you function, recognize that you have different ownership base, i.e. public shareholders, versus the partnership?

25:21Lloyd Blankfein:How do you satisfy your public owners who care about a share price and still have all those partnership culture elements, you know, the risk profile, everything? I'd say that process started with my predecessor, Hank. Paulson, yes. Hank Paulson, who was CEO in the firm, went public. It certainly continued threading that needle with me. And I tell you, I think my successor, David Solomon, has done a good time. And in some ways, he's completed that transition to a great extent. because what I didn't do so much and what he did, I kept a lot of our investing opportunities on balance sheet, which was a very big source of E, P, and L, but it was somewhat sometimes a burden on our P, multiple, because it would be much more volatile.

26:10Lloyd Blankfein:He's moved a lot of that off balance sheet, which frankly was what our real owners at this point really would want to have happen. You know, for a long time in Hank's tenure and my tenure, we were a public company, but most of the shares were owned by insiders, by partners. Over time, partners retire, they sell their stock. And so over time, it becomes more and more like a traditional public company where the public owns the vast majority of shares and the insiders own a small amount. Early in my tenure, the partners, you know, the traditional older partners still own most of the stock. And it was reflected in a board of directors where we had sometimes four or five Goldman people, Goldman employees were on the board of directors.

26:55Lloyd Blankfein:That wouldn't happen today.

26:57David Gura:After the break, Lloyd Blank finds thoughts on Kathy Rumler's resignation following the latest Epstein Files release and his perspective on how companies should engage with politics.

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29:46David Gura:there is a as i see it a very vibrant alumni network in part thanks to you and and your work kicking that off and organizing it um how actively are you engaged with what the firm is doing you and you and other alums of the firm watching what's happening what's so all the time i mean

30:00Lloyd Blankfein:it's a very important thing it's very important to the core of goldman sachs that we care about our alumni and in return the alumni care very much about the firm you if you go went to somebody who'd been at Goldman Sachs for five years, 25 years ago, had a great career, and you ask them to, oh, tell me about yourself. First thing they'll say is, I'm ex-Goldman. A lot of people at Goldman Sachs go into public service after their tenure at the firm. And in fact, people refer to sometimes revolving doors. R wasn't a revolving door. Government took from Goldman. We didn't hire, principally, we didn't hire people from government.

30:36Lloyd Blankfein:It was the other way around. But we get people that were public servicing minded. We care about our alumni. If somebody is going into government 15 years after, guess who they asked to help them with their process of getting through the Senate process of confirmation or other things. But having been there is highly valuable. It's a very important recruiting tool and it's a very important morale lift. And part of the perks of being at the firm is that you get to have been at the firm. There are always going to be people who think they're going for 30 years to Goldman, they stay three, and there are people who only intend to stay three and they stay 30.

31:17Lloyd Blankfein:But whether it's three or 30, it's a good place to get your training, start your career, and to maintain the relationship with.

31:25David Gura:I suspect that you as a Goldman alum have followed the scandal that erupted around Kathy Rumler, the general counsel who came into that job after you'd left, a scandal that was brought about by the fact that many emails between her and Jeffrey Epstein were made public. She effectively became a reputational risk herself. And I'm curious how you think the firm, again, as an alum, how you think they've handled that?

31:50Lloyd Blankfein:You know, I tell you, I don't shy away from, you know, provocation, but I just don't know. I hadn't met Kathy she came in after I left I don't know what the calculus was I'd say in general one of the ways in which you're a good partnership is if you think and again this is a big if I don't know I really don't know I don't know what was exchanged I don't know Kathy I don't know the situation but I'll say gin as a generic matter apply to other situations like the financial crisis or a big loss I prefer to talk about that and you can draw your own analogy where something goes wrong or we're doing M &A and in M &A transaction as people here you know you have a TV station people here well know sometimes your opponents in an M &A will use the media against you and it make accusations and try to gin up hate will try to gin up support for themselves by slandering the opposition in some way or another if you even if the pressure on you in that kind of a context gets severe.

32:53Lloyd Blankfein:If you cut and run on somebody in your fund that you think, whether you're right or wrong, you think is unfair and you really think it and you really think they did nothing wrong. You really think that somebody is just picking on them and you really think it's caught kind of get caught up because there's some hostile M &A situation, not real. And if you add badly to your own people, that's not just a specific costly thing to do with respect to that person, but that's a signaling that goes on to the rest of the organization. And so one, you know, one doesn't do that. So you're asking me a specific question about a specific person.

33:31Lloyd Blankfein:I don't know enough to comment on that, but I will say what people are neglecting in looking at these situations is I don't think that people who, you know, I look in the mortgage crisis, you know, there are a lot of people, you know, You had people at other firms that blew up certain things. They got fired. Did anybody ever hear, ever know the name of somebody, the person who was running the mortgage business at Goldman Sachs during that era? No, it was all me. I was the symbol. I was the guy in charge. Everyone did this. I promise you, I never sold a mortgage in the firm. First of all, we didn't do mortgages.

34:03Lloyd Blankfein:It was secondary markets in that. But if they were doing their job and did nothing wrong and hedged appropriately and didn't lose money and did everything right, we didn't fire those people because there was a clamor for that to happen. And if I had done it, we wouldn't have been Goldman Sachs anymore. We wouldn't have the people. We wouldn't be able to recruit. We wouldn't be able to retain. The firm wouldn't have its relationship with the people. So I am intentionally not asking the specific question you're asking because I don't know about it. It's not like I'm shying away from it. It would be unfair.

34:30Lloyd Blankfein:But I will say what doesn't get talked about is the support that a firm should show to its people if they believe that there's unfairness in the world. And by the way, we're seeing some of this stuff where people get merely cited, I'm not saying in this situation, where in a cancel culture world, and again, I'm talking more generically, people are cunning and running on people, not just in this context, but, you know, every day you can read in the paper, somebody's getting fired for something that maybe three years from now, they'll look back and saying, was that really, was that really a capital offense?

35:06Lloyd Blankfein:and why are people overreacting to it? So, again, I shy away from the specifics of this because I don't know enough, and it wouldn't be right to comment, but I do say that the world, more generally, is in a bad, the polarized world we're in today is in a bad place with respect to penalties and accusations for question, you know, for, you know, every crime is a felony, every felony is a capital offense, And I'm not sure that that's warranted.

35:36David Gura:One more question on this note. You write about a mantra that you used and read out to colleagues of yours at Goldman. You said there shouldn't be any tolerance for bad behavior you observe at your company. Is that not applicable here? I think through sort of what's happened, which is the board clearly vetted her and asked about her relationship. You keep wanting to talk about this.

35:54Lloyd Blankfein:I don't really have much to say about it. I know in a trial, the prosecutor informs the jury about how bad the victim suffered. But at the end of the day, the jury has to find out whether the person under trial was the perpetrator or did anything wrong. So at the end of the day, you can appeal to people's emotion about how bad the outcome and the consequence of something was. But you still have to decide whether the person who's on the dock did something wrong. And so, you know, if you want to talk about what happened in any given situation, I'd probably agree with you. But at the end of the day, the ex-lawyer in me wants to focus.

36:36Lloyd Blankfein:This is all I am with you on the severity and the difficult of the outcomes. And you want people who are responsible to suffer what they deserve to suffer. But at the end of the day, you still have to decide if these are the right people and if what they did was caused the problem. And so that's all, you know, we can go around about it, but I don't know the situation.

37:00David Gura:Let me pull back and ask just about the moment.

37:02Lloyd Blankfein:By the way, I got called by press people to comment on my mentions in the Epstein file. There are five mentions of his office trying to get in touch with me to invite me to specific dinners. And I kept being out of town. And by the way, I have no memory of it, but when people I didn't know call my office and invited me to stuff, I never said no, but I didn't say yes if I didn't know them. And so the fifth time, the memo went back internal to Epstein's organization. Should I keep trying with Lloyd or should I give it up? And the answer came back, I think at this point, give it up. And I didn't know that because if somebody had asked me, did I ever meet him?

37:45Lloyd Blankfein:No. Did I ever engage with him? No. But it was, you know, sidebar third parties discussing how I was responding. And I frankly have no memory of not being responsive. But that didn't stop reporters before I knew how I was mentioned calling me up and asking me if I wanted to comment on my mentions. Just saying.

38:05David Gura:You characterize yourself as a moderate globalist. And I wonder how you see the way that corporate America is interacting with Washington today. What do you think as you watch your contemporaries, other CEOs, interact with this White House in the way in which they are?

38:23Lloyd Blankfein:Look, you have to do what you have to do. Look, I say somewhere else, look, I don't want to do this. I don't want to do that, blah, blah, blah. But if somebody puts a gun in your head, you're going to do stuff you otherwise wouldn't like to do. I think we shouldn't have blue companies and red companies. And it feels that way to you. Yeah, it's starting to feel that people are being asked and expected to take positions on controversial issues that, by the way, are properly left to the political sector. I'm not saying that people shouldn't have positions on them, but not in terms of your platform because you're a consumer company and you're selling toothpaste.

39:06Lloyd Blankfein:taste, but people are shoving microphones in people's faces and say, you really should take a position here. I mean, so you could take a position as an individual, but recognize the reason why they're shoving the microphone in your face is because you have the platform of your company. And since the interest in you is coming from people's interest in that platform, I think you have a duty to do what's in the interest of the company. Now, I think there are times when you not only can, but maybe you should take a position. And that is specifically where the issue that's being debated is in the core of your expertise.

39:39Lloyd Blankfein:So if there's a government shutdown looming because the government can't pass a budget, I think you can ask Goldman Sachs, what do you think the consequences will be? And somebody at Goldman Sachs who knows about this stuff should comment upon it, take a view and explain it to the public why they have the view that they have. I think there are cases where the issue affects your people in a way that otherwise wouldn't allow them, may or may not allow them to do their jobs like marriage equality. I took a very strong position on marriage equality. I was the chairman of the New York City Partnership, which is like kind of the local chamber of commerce, but only for very big, but for very, very big companies in New York.

40:19Lloyd Blankfein:And we were very strong on that issue and we lobbied for it. But, you know, in that respect, I'm the champion of the people who work at Goldman Sachs. As individuals, you can vote, you can make statements, you can carry a placard and march, but I'm not sure it's right to use the prestige of your corporation. And certainly I don't think you should be required to do that. And there are people who would want to require companies to do that. It makes no sense. Why should we divide? Countries polarize enough. Why should we divide our economy in half?

40:49David Gura:On that issue of polarization, we've seen companies have to go to the White House, the U.S. government taking stakes in companies. What do you make of that in the year 2026 to see a Republican president heading down that path? Look, I think, you know, one shouldn't defend the extreme of anything.

41:05Lloyd Blankfein:So generally, I think the economy does well without centralized control, centralized management of government dictates. I'm glad that Al Gore never built the information superhighway and laid all that cable five minutes before the Internet and the cloud took over and made it vestigial. The strength of the U.S. economy is that we have millions of decision makers. and the real strength of the economy is that when those decision makers are wrong, you build an airport in the wrong place, planes don't land there, fees don't get paid, the bank loans don't get paid off, they repossess, they plow it over and they build a Walmart quicker than any other country would.

41:45Lloyd Blankfein:That's the strength of our economy. Having government as a decider or having government owning a stake such that it slows down the processes that I just described is not a good thing. Is there room for government sometimes? Yes. Orphan drugs that otherwise wouldn't be made where we have a social thing. Delivering rural mail where nobody would. The electrification of the Tennessee Valley in the 30s when nobody would have spent that money. Supply chain where no individual company has the wherewithal or the incentive to pay that money where they have to invest some infrastructure as a matter of public policy or national security, a lot of opportunities for government.

42:27Lloyd Blankfein:Maybe they've hit all the right ones. But I think there are a lot of wrong ones that are possibly to be hit. And if the government is involved in it, it may get too much capital, and it may have that capital much longer than it needs to do. And the incentive structure is just, you know, discombobulated. So there's not no time for it. But it's not a lot.

42:49David Gura:Lloyd Blankfein, thank you very much.

42:51Lloyd Blankfein:Thank you.

42:56David Gura:This is The Big Take from Bloomberg News. I'm David Gurra. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. You can watch this episode on YouTube. If you like this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

43:46David Gura:We'll see you next time.

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