Lloyd Blankfein on His Memoir Streetwise, Risk Management and Leadership

0:05I'm Allison Nathan and today we have something a bit different for you. You're about to hear an episode of our sister podcast, Talks at GS. In each episode of this show, you'll hear a conversation about leadership and industry transformation recorded in front of a live audience at Goldman Sachs. This particular episode features our former chairman and CEO, Lloyd Blankfein, in conversation with our current chairman and CEO, David Solomon. They discuss Lloyd's career, his leadership through the financial crisis, and his new memoir, Streetwise. It's a really interesting and fun conversation, and we hope you'll enjoy it.

0:43So we're thrilled to be joined today by Lloyd Blankfein. Lloyd served as our chairman and CEO from 2006 to 2018 after serving as president and chief operating officer under Hank. Lloyd played a big role in building a lot of our sales and trading businesses earlier in his career, played a huge role in shaping the firm's approach to risk management, but he's probably best known for his humor and for leading the firm through the financial crisis and its aftermath. his leadership at that extraordinary time made him one of the most respected corporate leaders, not just on Wall Street, but around the corporate world.

1:19And today, we're excited to have Lloyd here to talk about his forthcoming memoir, Streetwise, Getting to and Through Goldman Sachs. And so Lloyd, first of all, welcome back to Goldman Sachs, and it's great to have you here.

1:35Lloyd Blankfein:and um david listen thanks so much because you've been terrific through this whole process so thanks for uh thanks for the support and helping to promote it absolutely well the book really starts your childhood in brooklyn to your journey to your time at the firm and all the lessons you learned along the way and so i want to kind of walk through some of that and i you know i know a lot of people in this room don't know that the former ceo of goldman sachs used to sell peanuts at yankee stadium. I did. Yeah, you did. Not beer because you weren't old enough to sell beer. No, but I used to walk up.

2:03Lloyd Blankfein:This is the old Yankee Stadium, steep steps. You have to go and some guy and you made a commission of seven cents on a$25 item and some guy way up there would call you and actually it was Frankfurt where you had to carry like in water and stuff like you weighed about 400 pounds and you'd make a total of like, I think two and a quarter cents if you walked up there and you made the sale and you made the sale and I used to do that stuff. So you write the book that at one point escaping your childhood neighborhood was your primary ambition in life. Tell us a little bit about kind of your childhood and the journey that kind of led you not too far from the neighborhood to Goldman Sachs.

2:38Lloyd Blankfein:You know, I had two parents and relatively, you know, relatively crazy but stable background. But I did grow up in public housing in Brooklyn and it was kind of a struggle. It was always, you know, my father was unemployed for a while. And one thing I didn't have to do and one of the advantages, and the first chapter of the book I call advantages, which is I never had to source my motivation. I knew that I really wanted to get out, to get away. You know, we lived very tight quarters in the projects, you know, public housing, and always shared a room, alternately, with my sister, who was a little older than me, and she had a kid very young.

3:11Lloyd Blankfein:And for me, getting away meant going to an out-of-town college. If I got to an out-of-town college, and I got away, and I broke, I'd be able to go like, it was like watching an old TV show, like Father Knows Best, or one of those TV shows where the I have where the people live in a house and there's like grass in front of the house and stuff as opposed to concrete and broken glass. And that's what I aspire to. And then I went to a college night at a different high school because nobody from my high school went to college or very few did. You know, I went up to a booth and there was a guy from Harvard sitting behind him.

3:41Lloyd Blankfein:He gave me an application and I filled out the application like you'd fill out a landing card when your plane was coming in. You know, I'd ask the question like, what was the, you know, what was the greatest thing in your life? It's the greatest thing in my life was, you know, and I would just fill it out like that. That was easy breezy. And I got in. Did you go right to law school after Harvard? I did. But at that time, you had to take out big loans. Loans start to, you know, come into effect unless you keep going to school. So I kept going and going to school. I worked at a law firm after. So you got a job there.

4:08Lloyd Blankfein:I got a job. Yeah. You know, mid-March to partnership, if that ever were going to come, which used to be about eight or nine years, right around year four or five, which I was in. Everybody sort of looks around. And so what else do you do when you live in New York? You apply to financial firms. And I didn't know very much. And I didn't do the work that you need today. And even when I was there, you'd interview people. They'd know more about the firm than I did when they were interviewing because that's what you have to do. I didn't do that. I didn't know you're supposed to do that and got turned down by everyone, including Goldman.

4:35Lloyd Blankfein:But I did get a job at Jay Aaron while Goldman was acquiring Jay Aaron. And that's how I got into the firm. What was it like joining Jay Aaron in 1982? What was Jay Aaron like in 1982? When I got the job, I was interviewed by Dennis Suskind, who's a big personality. big guy and big personality. And he kept calling me at the interview, college boy. I realized at the time that he didn't go to college. A lot of other people didn't. I realized that the uniqueness of me is that I went to college. And you walk into a trading room today and you can hear a pin drop. People sitting next to each other, talk to each other digitally.

5:11Lloyd Blankfein:In the old days, people shouted across the room. I used to interview people later on by putting at the last interview, I'd put somebody at the opposite end of the trading floor, and I'd stay here and say, let's continue the interview to see if they can actually yell across a room. And that's what you did. And in those days, it was like this. And I remember Dennis said, hey, college boy, do you think you can work in a place like this? With those screaming around. And I said, work in it. I go home to it every night. And that's a true story. And he remembers it. And then I got the job. And I was so pleased with myself.

5:42Lloyd Blankfein:And then when I actually showed up, Somebody pointed out to me, which is appropriate for a firm that traded gold, they regarded the interviewing process as, their words, mud down a sluice. You know, a sluice. They would hire 30 people and hope out of the 30, they'd get one nugget. So the idea was that they'd hire a lot of people, and they'd see if any were left at the end of the year. I didn't know that. I thought I survived this process, and there I was. And so that was the kind of wild and woolly. You know, it was the Hunt brothers were cornering the market and gold went from like$35 to$850, which, by the way, took only about 35 years to get back to.

6:22Lloyd Blankfein:And they were doing really well. And it wasn't a terrific business. It just they got caught up in that. But the shrewd traders that they were at the tippy, tippy top of their opportunity. See, Dave Veneers shaking his head at the tippy, tippy top at the opportunity. They extrapolated that out to infinity and sold it to Goldman Sachs. thereby establishing the relative trading acumen of the two organizations. That was J.A.R.N. It was a really tough crowd. And ultimately, J.A.R.N. was saved because some of the people from, you know, Mark Winkleman and a few other people from Goldman proper got moved down and basically reshaped it.

7:00Lloyd Blankfein:Reshaped it slightly more. You talk in the book about the fact you were able to rise through Goldman Sachs because you were better at managing down than managing up. Describe what you meant by that. Yeah, and I think this is kind of a universal thing that, People should know in this firm, I can't tell you that applies everywhere. When you're rising, even as a leader or a manager in the firm, you really need the support of people under you. People can technically support you. They can comply with your request, but they could do it grudgingly, answer the narrow question that they're being asked, give you a hard time, in other words.

7:32Lloyd Blankfein:Or otherwise, they could support the heck out of you, tell you things before you ask the question, give you a real answer, see things and support you. There's kind of a contract between people that when you're a leader, you're going to advance their interest and you're going to support. I don't mean just be their agent. I mean advance their interest by teaching them, investing in people. And that gets reciprocated by support the other way. But if I had to push a button and choice between the two, I'd rather have the support of the people that were working for me, working with me, than people above me hoping that I succeeded.

8:05Lloyd Blankfein:I'd rather have the people under me wishing that I succeeded. Yeah. One of the things that you spend a bunch of time in the book that's obviously hugely important to all of us at the firm is the partnership culture. And you talk about how hard the firm fought to preserve it through the IPO. And you and I had a discussion yesterday when we were on the phone just talking about how miraculous it is, you know, 27 years after the IPO that this public company, you know, still has this deep, deep partnership culture. Yes. And what's a partnership culture? It's a sense of ownership. Somebody in investment banking in Tokyo screws up, you know, you pay the price reputationally if you're a bond trader in New York.

8:40Lloyd Blankfein:So you have big years. Being a partnership means, you know, as a leader, you're talking to people who kind of own the firm and have an expectation. They expect to know more about what's going on the firm, not just in their narrow area. They have a sense of entitlement. There's a feeling, you know, sometimes things go a little slower because when you're managing that, you know, socialize things a little bit more. It's not like lightning bolts radiate from your fingers. You tell people what you want to do. You wait for the reaction. Then you say it again. You wait for the reaction. Guess what? Maybe even change your mind and you have to adjust or you postpone things.

9:09Lloyd Blankfein:And that's not the way in a much more hierarchical corporate setting. In a partnership, almost as a legal definition, you're mutual agents for each other. It's not command and control. And in order to make that work, you actually have to believe it and you have to perform that way. And you have to really do socialize it and really do listen and really change your mind and really think you can't do something if your partners are against it. And sometimes it can be frustrating and slowly and you want to do things and you kind of know where you're going to end up, but you take the time doing it. And as a result, you get more of an ownership culture where everyone feels responsible for the whole.

9:45Lloyd Blankfein:Everybody has big ears. Everyone listens. Everyone throws in. And as a result of that you have a much better, coherent, stable organization. And Hank did that. I did that. And I know that you do that. And it's very different. If you spent your whole career here, you may not know that, how things work in other places. Where I'm in the blippity-blip division, you ask them about another division of the firm or somebody four offices down, they have no clue or are surprised that you think they might. That's not their job. Here, it's your life. You own it. And And as a result of that, a lot of things come from it, like the loyalty and commitment of people for their whole lives, even beyond your career at the firm.

10:26Lloyd Blankfein:I'm outside the firm now, and I can tell you, I always thought this, but people have been out of the firm for 20 years. And when somebody asks them, you know, sometimes your situation go around the table and somebody has to explain themselves. They start with, I'm an alum of Goldman. They were Goldman Sachs for five years. They worked somewhere after 22 years, and they self-identify as ex-Goldman. And there's value to that. There's a lot of other elements. I talk about this in the book, what I think are the elements of a partnership culture and what it takes. And again, you know this and you live it.

10:56Lloyd Blankfein:And it's just different. And the result of that is what we have here. I'd be surprised we've been able to do it because if you step back and you said at the time and you were here in 1999, that's when I arrived at the firm. It certainly was hard to imagine that 27 years later, it's very unique. There's no other firm that I can think of. you know, it's a public company that has this unique thing. Nobody rolls their eyes or acts cynically when somebody says, you know, he or she is a partner of Goldman Sachs, right? How can you be a partner of Goldman Sachs? Not really partners of Goldman Sachs, but really aren't.

11:28Lloyd Blankfein:You act that way and you live it. But it only happens because you live that way. You stepped down as CEO in late 2018. Talk a little bit about how your view of the firm has evolved with the passage of time. And also, as you've lived, you lived so intensely inside Goldman Sachs for so long. now you live not so intensely outside of Goldman Sachs or maybe just as intensely, but I don't think so. For one thing, when I left the firm, it's clear to me that the firm should increase its dividend.

11:57Lloyd Blankfein:Well, we did. Yeah. No, but all things considered, you know, I will say that you and I represent, you know, if you think of the three people associated, you know, when went in public, you know, it happened during the Hank years. I did it. Now you're here. I think, and you know, there's a way of thinking about it. You know, there was a process really by which the firm became a public company in a way. And Hank was clearly running a partnership. I mean, because even as a public company in those years, the partners controlled it. In fact, the board of directors was still a majority Goldman Sachs partners.

12:29Lloyd Blankfein:And over time, people left, people sell down. And over time, it becomes more and more real. And it kind of gets reflected. You know, private company is different than a public company. A private company, you care about your capital account. You didn't care about whether you earned the same amount of money at the firm every year. If there were 10 years and you had four super duper years and three oh so so years and two years you lost money. I don't know if that adds up to 10, but anyway, who cared? It's sort of, you work for your career, you didn't get any money until you retired and you got your capital account got emptied out and nobody cared that.

12:57Lloyd Blankfein:But in a public company, you don't own the firm. You own a little bit of the firm, but we don't control the firm. The shareholders do. It's their firm. And they want smooth earnings, smoother earnings, not totally smooth earnings, because the value of the firm to the public shareholders is the earnings multiplied by a multiple. And that multiple is affected by the predictability and the likelihood that those earnings would continue to grow. And that wasn't something that, you know, Hank Paulson wore that much. And it was something that was starting to emerge that way. And I'd say in a lot of ways, is, David, you sort of completed the IPO process in a way because you did some things that I wouldn't have done.

13:36Lloyd Blankfein:And guess what? I'm not sure the firm would have had the same multiple today if I was still there because I really was grounded in a firm that bore a lot of the risk itself, that did things on balance sheet. And I kept it there. And I thought it was a big part of the mojo with the firm. And it was. But you sort of calibrate that against what having a lot of investment assets on the balance sheet of the firm would create in terms of volatility of the firm. And so you can make spectacularly more money. But if you're trading, you know, at a multiple of 10 and your competitors are trading at 17, you give up a little bit of E for a little bit more PE.

14:09Lloyd Blankfein:And that was something that, you know, you get a little bit trapped in your own kind of worldview. And somebody once said when I was there, and they meant this to flatter me at the time, you know, things were going crazy and we had to be very risk conscious and the world was blowing up and financial crisis, you know, one of the 17 crises of the century that I lived through, they said, you know, it's a good thing you come from the risk side of the business. And isn't it wonderful that Goldman Sachs gets the leadership it needs when it needs it at the kind of time? And I said this at the end of the book, I said, I can't say that hasn't been repeated now, because I may have delivered what the shareholders wanted, but I would have done it with greater reluctance, because I was used to the private partnership where you just try to maximize the earnings of the firm over time, and it didn't care in what order and to what kind of consistency it came in.

14:51Lloyd Blankfein:And it's a much different world than running a public company. And the challenge, of course, is to run the company as a public company and still preserve all those elements of, you know, we're a risk-oriented firm and all those other things that make us good risk takers over time and not just when the sun is shining. And do that and still be responsive to the public, which, you know, kind of tends to be a little bit more short-term an amnesiac. But you started to touch on the financial crisis a little bit. I want to go there. You became CEO in 2006. The world certainly changed in 2008. Two years later, we were full on in it.

15:26I remember those days very, very well. Talk a little bit about that period. Talk a little bit about the firm during that period and just talk about some of the biggest lessons that come out of that.

15:34Lloyd Blankfein:Well, originally for us, the financial crisis really started in 07. I'm looking at David here, who had the office next to mine. We lived through a lot of this together. And I'm sitting in a movie theater, middle of 2007, doing what I'm always doing, which is scrolling through the firm's P &Ls while the movie is going on. On a Blackberry. On a Blackberry at that time, very primitive. And then I get to something, and believe me, it was a long movie. And so I went deeper into the P &L than I normally do. And I actually got to GSAM, which I never really looked at because it had its own balance sheet, its own risk, it was almost a separate firm.

16:04Lloyd Blankfein:And there was this fund that on a busy, wild day would move four basis points. And it moved 6%. And I go, whoa, that's not supposed to happen. And I said, I think it must be there with Laura, my wife. And I said, excuse me, I have to go to the bathroom. And I went out and I started calling, what the? And that was really the first, you know, the first sign. And that was sort of the moment like, you know, when you watch. It was August 07. Yes. You know, you're watching a movie, you know, Western and, you know, nothing's happened. The sun is shining. All of a sudden the horses start to whinny in the corral.

16:35Lloyd Blankfein:And, you know, some sagebrush rolls across the screen. And you say, geez, they're trying to let me know that something is going on. And so something was going on. And that was when some of those relationships and relative value trades started to go a little muck. And that was kind of an early sign. And by the way, I'm sure there were other early signs and I'm sure other people had them, but we were very good at responding early to early signs because, you know, we had this culture of mark to market, which not everybody had. And we were pretty severe about it. And we had also had a culture where the people in the control department really governed what marks to use.

17:12Lloyd Blankfein:And we would have traders arguing with controllers and controllers over one. But there was always an automatic appeal. Go out and sell something and show that they had the marks wrong and you had the marks right. And when they went out to sell them, they looked for that bottom and it wasn't there. And they started to do it. And it wasn't a function of us being so prescient and knowing what was going to happen. It was just a function of us really marking things to market. And even if we didn't have the discipline, the fact that it affected our P &Ls because we did everything mark to market forced upon you that discipline because you couldn't bear the P &L lawsuit.

17:47Lloyd Blankfein:So, it forced people to get out of things a lot quicker. The other thing we did very well is when we were in risk management mode, which is different from let's trade and make money mode, you know, we'd go around the table and, you know, we're supposed to, you know, say, not what do you think is going to happen, but what could happen? and what contingency plans did you have if any of those things happened? And you'd go around and somebody would inevitably say, well, I don't think that's going to happen. And I'd say something like, I don't care what you think is going to happen. And then they'd say, well, if you don't care what I think, what do you think will happen?

18:20Lloyd Blankfein:And I'd say, I don't care what I think is going to happen. We're in risk management mode, which is what it means. I only want to know what could possibly, even with a low probability, happen. and what are we doing to protect ourselves against that tail? We've got a whole chapter on risk on this in the book. And what are we doing? And I tell you, I think we were very, very good traders. But really what we were, we're very good contingency planners. And if you contingency plan well enough, when that remote contingency happens, you get off the block so quickly, people think you anticipated the start.

18:55Lloyd Blankfein:You anticipated the gun. When in fact, we just heard the gun and acted quicker. We were definitely off the block faster. It wasn't an easy transition in the fall of 2008, but we were definitely off the block faster. Lessons, takeaways from that period as we came out of it in 2009. Yeah, you know, if the market's going to go down, be short. I have a respect for the fact that stuff happens. I was asked today, tell me about the bubble we're in. I said, if I can tell you about the bubble, we're not in a bubble. You just have to have a respect that things come out of left field. If everybody was prepared and expecting the bubble and staring at the watch, when is that bubble going to get here?

19:32Lloyd Blankfein:It wouldn't get here. You don't know. You don't know. You don't know. We're so sure they know. The one thing that you always taught me is we don't know. We don't know. And nobody knows. And you just have to go around the table. We used to say, look around corners. You have to look around. Can you see around corners? No, you can't see around corners. The whole point of that metaphor. That's why it's a corner. That's why it's a corner. Is that you're trying to see things that you really can't see. But what you really are doing is you're appearing for things. because guess what? Low probability events, forget it, throw that out.

20:02Lloyd Blankfein:I mean, how many times during the financial crisis said, oh, this is a 13 standard deviation event? Well, guess what? There were a few of them. Guess what? It's not. It's, you know, what happens is we are now in a place and now people have gotten it. They use the language. People say risk on, risk off. Because if it's risk off, two things that in a million years you never thought were correlated, guess what? I now have a correlation of one. They're absolutely correlated because everybody's getting out of everything that isn't a T-bill. And that's the kind of thing. And so here's a funny thing.

20:36Lloyd Blankfein:As I used to tell younger people, experience is a two-edged sword. You know, if you're young and you're starting out and you're conversing in technologies that older people haven't had to rely on or get educated in, that's a huge advantage sometimes. times. That's why in a lot of businesses, the younger people have sway over the older people because they're much more conversant with the new stuff and older people, dinosaurs, such as we are, are a little bit slower and don't have that nettle. But there are just some things where experience does help. And one of those things is living through these cycles and these crises.

21:08Lloyd Blankfein:So you could read about financial history, but it just won't register to you the same way. When we were living through the financial crisis, that really registered with us. And you can read about it. And having had it register, you're much more attentive to the sound of a twig crackling because somebody's sneaking up on you and you jump higher in the air as opposed to let it go. And that's kind of what we are. Can that hurt you at times? Yeah, because you might find, you might identify six financial crises that really aren't there, but I'd rather prepare for the ones that aren't there than be underprepared for the one that is there.