Lloyd Blankfein on Risk, Crisis, and Leadership

16:41David Haber:And I think one of your mentees, or at least that's how he. I'm honored by that, but yes. I always think of myself more as a tormentor than a mentor. He said some amazing things, which I want to come back to. But, you know, he said one of the maybe cultural thumbprints from his perspective that maybe Jaron left on the firm was a culture mark to market.

17:02David Haber:One of the other things he said was you were a manager that understood losses, so you weren't afraid of them. You would often, to your point, kind of encourage people to lean in. The other thing was he said you were incredibly good at gathering information from the organization. You were both very approachable, so people wanted to come to you. And then often when you were doing maybe an audit of a division, you wouldn't just speak to the head of the division. You'd speak to like the number two.

17:25Lloyd Blankfein:I did, but I don't want to undermine, but I always did. On that score, I tried to make it so that everybody felt comfortable talking to me. One thing I never did, if somebody was calling to tell me something that was bothering them, that they saw an opportunity or a challenge, I never said I already know about it. Because I never wanted anybody to self-censor later and say, oh, he must have heard about it from someone else. I want, if a junior guy was telling me something, and three people up the letterhead told me the same thing, I would sit and listen. First of all, you find out a lot about the person who's telling it to you also.

18:00Lloyd Blankfein:So you're not just learning the content of what he's saying. You're learning a lot about the messenger. But secondly, I didn't want anybody to have an excuse to not tell me stuff. So I listened to a lot of redundant facts and circumstances. So I thought about that a lot. And about taking losses, you learn that the first day. Sure. I mean, of course, everybody. and I'll tell you one other thing that's very important on the loss side. People can lose money. You could lose money because somebody's stupid or you could lose money because somebody's wrong. Smart people are wrong. Smart people tend not to do stupid things, but they tend to be wrong.

18:41Lloyd Blankfein:You know, the old saw about, you know, the best hitters in baseball make out two-thirds of the time and that kind of stuff. But it's very important when something goes wrong and something is not right or somebody loses, it's very important not to treat somebody who's wrong like they're stupid. And people make a mistake because the big fault of risk management or bosses or managers is they let after-acquired information seep into their judgment of what they would have done at the time. And you have to be very careful about that. When you evaluate people and you engage with people, you have to show an appreciation of what people have done in the fog, which always exists because none of us know the future by the way, most of us don't even know the present totally the present is a mass of things who can sort that out but once the present turns into the past everybody's a genius nobody voted for Nixon and everybody and yet he won in a landslide it's like everybody remembers things differently I think it was your quote It's like, if you're so good at predicting the future, tell me what's going to happen next.

19:51Lloyd Blankfein:Yeah. So, you know, again, when pundits come up and said, well, I know this or that. So, look, when anybody tells me, oh, I knew this. And I said, well, if you were so prescient, tell me what happens next. And I was, oh, well, it was easy then. You know, and by the way, when somebody's telling me about the certain future, I say, you know something? Did you know that we would be doing this today? You know, if you didn't know those things, why are you so sure that you know the future? People don't know this stuff. I'd say most of what we do with respect to risk is not so much predicting and not so much forecasting.

20:31Lloyd Blankfein:It's a lot of contingency planning. And if you're a good contingent and you go around the table, what could happen? Don't tell me about the probabilities of the improbability. What could happen? And again, we said this before. or what are you going to do about it? But the act of going through that thing makes you so alert and on it when things get triggered and you so have a plan, you get off the mark so quickly that people think you did anticipate it. But when you really did is you heard the gun go off before anybody else. You know, and I don't know why I use sports analogy. I'm not the best sportsman in the world, but I know that in track and field, if you, if they shoot the gun off, but you leave within a tenth of a second after it, They call a false start because your reaction time is at least a 10, so you're not allowed to anticipate a start.

21:19Lloyd Blankfein:And they'll call it for, I said, I want everybody to be called for a false start because they hear the gun so much quicker than anybody else, they get off the mark. And so that's the exercise you can do. Now, some people are more intuitive, some people see things, but what I really do is, what I really think for most people is that they've thought about that, I think X and Y and Z could happen if this happens, this is what I'm going to do. Yep.

21:45David Haber:you know we have a lot of kind of tech entrepreneurs and just tech people in general kind of in our in our i'm curious um you know how did how did you think about technology during your time at golden and you know what role did it play kind of in evolving the firm i'm sure it changed the markets business even you know oh my god we were always the technology was always changing

22:04Lloyd Blankfein:everything and you know in the in the by the way and a lot of what we've not everything but a lot of things in finance, it's winner take all. You know, if you put your, I mean, I'm sure the world has moved on, but even, you know, even a few years ago, if you, you know, if you had a, you know, if you had a, if you had a risk, you know, an execution system that communicated digitally back to the floor of the exchange, you wanted your computers a half a block closer to the exchange than everybody else's because the milliseconds mattered. Yeah. Not only mattered, it was winner take all. You got everything.

22:36Lloyd Blankfein:You got that, you got the offer, or you hit the bid, and other people were left looking at it, you know, looking at your dust for that. So you were always, always competing for the best technology in a winner-take-all situation. And by the way, a lot of life, whether people realize it or not, is winner-take-all. I can see, you know, I know the opportunity set and the challenges and the anxiety people have about the current thing. And I think, obviously, I still, you know, invest and I still transact on the market. I think about that too. but I would say that no one is a better adopter or pays more except for obviously the hyperscalers themselves who want to be the providers of the technology but in terms of use of the technologies the financial area wants to be on top of it so interesting by the way you end up in a lot of cul-de-sacs you end up going down bad paths because you just don't know and you have to do this And I know that everybody's talking about, is looking for cost savings, but we always had to do things twice.

23:41Lloyd Blankfein:We had to use the system we were confident in and then simultaneously run the new system we had high hopes for. We didn't have a high level of confidence. In our business, and as a regulated company that we were, we weren't allowed to have mistakes. By the way, that's another schism between the Valley and finance. So you could be, you know, I looked at, you know, Robin Hood, great company. But early on, you know, they declared a kind of, they declared that they had government-insured accounts that weren't government-insured. They had some slip-ups and a lot of apologies get made. You could do that.

24:24Lloyd Blankfein:We weren't allowed to do that. We had to be right. We had to run things 50 times and had to be perfect the last 49 times before we could go that way. So we would always have the plan that we, the technology that we knew worked, inefficient as it was compared to the new, and simultaneously run. And we got confidence in the new system. We implemented that. And then there was a newer system that we were also beta testing at the same time. So technology in the first instance always augmented our costs, never detracted from it. But as we went from one lily pad to another, things got better and more efficient.

25:02Lloyd Blankfein:But we were always, always, always testing new stuff and always geared towards it and always very anxious about what would happen if somebody trumped us on something. By the way, in addition to execution capabilities and things that go to the efficiency, we also, you know, our risk systems, by the way, we had a huge technological advantage because of what we invested in early on.

25:23David Haber:Yeah, we did a similar podcast with Marty Chavez a couple of years ago and he really credits you for helping kind of drive support or maybe adoption of SECDB kind of, you know, as you took over more parts of the firm, you know, getting everybody to kind of... Yeah, I don't know if I decide,

25:36Lloyd Blankfein:whether or not, you know, except for blame, I accept anything that comes my way. But we did have very good early stage risk models. By the way, SECDB, which is, you know, which was a kind of a risk management system that we had and, you know, it was kind of modular, whereas other things were kind of rigid, you know, we can always, you know, change things. It was so good and so flexible that I think it's like the system must be between 25 and 30 years old and the core of it is still implemented. The only thing I know like that, and I once tweeted this out, because the battery, I still have my HP12C calculator.

26:13Lloyd Blankfein:And the battery went out. And I know that battery must have been hanging out for 22 years. I think I own that device for like 40 years. And I looked at that and I said, you know, I never thought of this before, but what consumer device? It's still chugging. After 40 years, not only are people still using, but looks like it could have been designed, you know, last year. Totally. It's an amazing thing. Well, RsecDB was kind of like that. It was also, but it wasn't a consumer device, but it was good like this. So I have a lot of admiration for some, you know, for design. You don't expect design to stand the test of time.

26:50Lloyd Blankfein:Fashion doesn't. Sure. But this does. I'm telling you, the original iPhone looks like an old product to me.

26:56David Haber:The A2B 12C looks pretty good. We think a lot about like systems of record and their durability. And I think, yeah, Sektivit was sort of an example of that, certainly at Goldman. You know, one of the things that I think was unique about your career as well is you spent half of your time at the firm kind of pre-IPO in a partnership and half the time, you know, post - Sure, very relevant to your entrepreneurs. Totally. And I'm curious, you know, now there's an entire generation of leaders at the firm that didn't know Goldman, you know, pre-IPO. Right, but they know the culture of Goldman Sachs, which has its roots and is committed to the principles

27:29Lloyd Blankfein:that were involved from the partnership. So they may not know it's a partnership, but they know how we work.

27:34David Haber:Yeah. I mean, maybe you could describe kind of like what were those principles kind of pre-IPO and people really credit you also for kind of, you know, carrying that culture forward, right? Ashok said this as well, which is like, we don't have a partnership, but it still feels like it's a partnership.

27:47Lloyd Blankfein:So let me just say the difference is because people aren't alert. And, you know, in a partnership, now we're a big firm, you're dealing with small firms who want to become big firms and some of them have become big firms. But there's a really big difference between a partnership culture and a corporate culture, sometimes by necessity. And it was really to go public, and I'll tell you, we can go into that direction, but we had to go public. But one of the big impediments to going public was the fear that we'd lose our partnership culture. Now, what do I mean by partnership culture? Partners own the firm.

28:23Lloyd Blankfein:The employees there, especially the senior people, are your co-owners of the partnership. To the extent that you're a senior partner, a lot of it is by consent of the government, governed. When you're looking at your senior card, they don't just work for you. They're not just subordinates. They're your co-owners of their business. They have certain expectations that come from that. For example, their fortunes rest on the success of the whole enterprise, not just their narrow silo. If you work for, you know, if you work for Amazon in the retail area, are you really raising your hand asking questions about AWS?

28:59Lloyd Blankfein:Totally. But if you owned it, you care about the whole. So one thing, they own the whole. They care about the whole. They expect as owners to have a lot of information about the whole. They expect to have influence about the whole. They expect that any sudden moves by the senior partner is going to be socialized them. They expect to have input into that. They expect the process to be slow enough for them to have that influence and input. And you have to have a certain amount of discipline when you're managing that. If you want to perpetuate that, I'll get to why you want to do that. And so you have to socialize things.

29:38Lloyd Blankfein:And maybe your decision-making, maybe lightning bolts don't come from your fingertips. You're trying to make suggestions. Maybe you slow things up and you hear complaints. And maybe you actually don't do things that you want to do or you table it for another time. when things could be more revealed.

29:53David Haber:I spoke to Esther Stetcher also, kind of leading up to this conversation. She mentioned this. She said one of your hallmarks of your leadership was it didn't feel like you were very hierarchical. Like when you wanted to make a tough decision, you would at least go socialize it with a bunch of people, you know, gather input. I'm thinking about, well, first of all,

30:09Lloyd Blankfein:generally when you're on top, people want to get in line with you, but sometimes they can't. They just think you're wrong. So socializing and talking in advance had the benefit of just enlisting support from people who otherwise might be neutral, who just, you know, just not because they're sucking up, but just naturally they want to, you know, they want to compete, you know, they're pliable. And then you had to honor the fact that they felt like owners. Now, why do you care when they feel like owners? Because you get a much more stable organization. They feel attached, they feel committed. Even people who've been there for a few years take that away with them.

30:44Lloyd Blankfein:And people who've been out of the firm for a long time still self-identify as ex-Goldman. By the way, how we treat, you know, one of the examples of that kind of ownership, we treat our alumni very specially. Goldman has an alumni office. I put that in. An alumni office. I spoke to Allison Ness. Yeah, Allison Ness is a partner and she runs our alumni office.

31:04David Haber:Yeah. Where we do things for people who've been out of the firm for 20 years. I was going to ask you about this. Like, I was only at the firm for three years. You know, not that long. But I still have a lot of affection for my time at the firm. And it's a weird thing. right? And even people who've been out of Goldman for decades, Jim Kramer, you know, you mentioned in the book, like they're so often defined by the... Oh no, he goes on TV too.

31:25Lloyd Blankfein:Like, yeah, he hasn't been in Goldman for 35 years or something like that. Where does that come from? Again, it's how, you know, it's a lot of times, it's crazy to expect a kind of loyalty if you don't show loyalty. It's crazy to expect commitment if you don't show commitment. I would say leadership, my predecessor did, my successor does. The challenge of Goldman Sachs, we had to go. I mean, I can get into this. We needed to go public. Grow the balance sheet. When they repealed Glass-Steagall, once upon a time, the lenders were separate from the investment banks and the investors. That got repealed, and all of a sudden, people who gave advice could now implement the advice by financing it.

32:03So we had to, you know, if J.P.

32:05Lloyd Blankfein:Morgan was going to become an advisor, we had to become a good lender and a good financier. So it meant that we had to have a bigger balance sheet. Couldn't run that on impermanent capital of a partnership. And so we had to go public. But the big anxiety was we'd lose the partnership culture. We went public, basically, in an instant, legally, but it's taken 25 years to get it done in a way that it wouldn't undermine the partnership culture. So we do those things that make it partner-like. We have partnership elections. We pay people based upon how the whole firm does. if your area does particularly well, you'll know it in your compensation.

32:43Lloyd Blankfein:The most important thing in compensation is how does the whole firm do? And so you get people who are bankers sourcing investment things for the merchant bank. You have people who, investment bankers who would like us to represent their client on an auction. And there are three other investment bankers who represent three different potential buyers and you have to pick one. and we sort it out together collectively what's the right place for Goldman Sachs to be or maybe we should represent the seller or maybe we should be a buyer ourselves. Totally. How do you decide that? And you explain it and you do it.

33:17Lloyd Blankfein:You let everybody have their say. Now, what should we do here? And you convince people that if they throw in with the enterprise as a whole and sacrifice in the short term, they get to use the platform and exploit it for their professional career and their personal career. So you got to get, you know, it's like, And use as a metaphor, you know, the metaphor of the 800-pound gorilla in the jungle gets his way. I'm the 800-pound. But what if you have 20 800-pound gorillas? Totally. 19 have to say, excuse me, after you. And how do you get them to do that? And that's a bit of the art. And we did that.

33:52Lloyd Blankfein:The firm did that. By the way, there were other things that we had to do in terms of reforming like a public company. In a private company, your company, your partners presumably, you know, everybody cares about making money for their investors and their clients. But as far as you're concerned, you don't care whether you make money smoothly in 5 % higher increments every year. You can have three in a 10-year cycle. You can have three fantastic years, make no money for five years and lose money two years. Totally. And it could work out well. In a private company, you care about the E, the earnings.

34:26Lloyd Blankfein:In a public company, you care about P.E. Sure. And if you have volatile earnings, your shareholders don't like that.

34:35David Haber:They reward you with a lower multiple or they punish you with a lower multiple. And we've seen that even more recently with shifting off-balance sheet into funds. And Sarah could see over time, Goldman Sachs,

34:45Lloyd Blankfein:and we didn't want to lose the risk-taking culture at Goldman, because which is very important. I'll say why in a second. Beyond the fact that it makes money, it's very important. but we shifted a lot of that to off balance sheet vehicles. And by the way, it means you have to do more of it. Sure. Because instead of earning$100, you're earning$20 with lower risk and a higher PE and a higher R return on equity as a result. But that took some time because you didn't want to lose the people who do that. Totally. Now, one of the reasons why it was very important and apparently less important for other firms who don't have those big investing arms is that we were able to approach our clients as partners and not just as supplicants trying to get good brokerage business.

35:29Lloyd Blankfein:So we spoke the same language. We did put our clients first. We would forbear if our clients wanted to do something or we'd partner them and bring them in. If we sourced opportunities that they wanted, we'd work that out. And it's not always easy to work that out. but we were able to engage with our clients as peers and not merely as supplicants looking for business. And so a little more swagger, a little more understanding of what our clients are going through because we're principals also. We didn't want to lose that culture, which, by the way, is not evident in our peers. Yep. And there are other reasons for that.

36:07Lloyd Blankfein:If you're going to be in an investing business, you know, it's a more volatile P &L. and, you know, going back to the beginning of the conversation where managers get confused between being wrong and being stooping. At times when the people on the investing side made a lot of money, they wanted to fire the firm and go off and do their own thing. And at times when they lost a lot of money, the firm wanted to disconnect from them because they couldn't bear the losses that they had been. Goldman Sachs in its view and its partnership culture was able to look through those short-term things and say, look, over psycho, great business.

36:46Lloyd Blankfein:And the people who ran those businesses stuck it out. Maybe they could have done better here or there, but there were other reasons why they stuck it out, and they did.

36:55David Haber:I think a lot about kind of firm, a lot of the alignment that you described, even in the shape of our firm, obviously we're much smaller than Goldman Sachs, but I wrote this piece where I sort of drew a distinction between firm over fund. The objective function of a fund is how do I generate the most carry with the fewest people in the shortest amount of time possible. And a firm, you know, you have to deliver exceptional returns, which is sort of a prerequisite for doing that well. But I think the second variable is like, how do you build sources of compounding competitive advantage? Like, what are your moats?

37:23David Haber:Again, orienting around not just your individual fund, but around the cold hands of the firm.

37:28Lloyd Blankfein:Well, it's also, again, you have to put your money where your mouth is sometimes. How you compensate people. Totally. And by the way, people will try to pick off your best people because if you're paying the people who are going through the doldrums, better because other people are earning more money. It could be coming at the expense of the people who made more money and someone will come in and take those. So you have to, you know, there's a practicality to this thing. So you can't pay everybody the same, you know, through good times and bad times. You have to do it, but you have to mute the effects of the cycle.

38:01Lloyd Blankfein:It doesn't mean people won't leave. And, you know, some people are just entrepreneurial and they don't want to be partners and they don't want to subordinate their own interests. and there's a certain kind of person. By the way, there are people who do spectacular in the world, have great relationships with Goldman Sachs, but we improve their lives in Goldman Sachs by them separating because they just weren't going to be that kind of people. They weren't going to be, you know, their platform was subordinate. Again, we weren't asking people to subordinate their egos forever or not, you know, hide themselves or not be, you know, famous or wealthy.

38:34Lloyd Blankfein:We just said that if you subordinate it in the short term or during, at key times, in favor of a platform, you can exploit that platform, again, professionally, because the firm would have much more heft and power and authority. Nobody, people take Goldman's calls, even for a most junior person. And also, it's good for your personal life, too, because away from Goldman, you know, saying that, you know, look, I was a partner at Goldman, I'm not saying this is exclusive to Goldman, But seeing your partner, at least people will, the presumption has shifted that you're not a dummy unless you prove you're a dummy.

39:12Lloyd Blankfein:As opposed to other people out of the presumption you're a dummy unless you tell me why you're smart. And so we made that, you know, I tried, you know, that that's a positive, that's a positive thing.

39:22David Haber:I mean, you definitely inspired a lot of loyalty during your time, you know, as CEO, I'm sure, even before that. I mean, back to the, one of the quotes that I heard from Ashok was that, you know, he said you often believed in him more than he believed in himself. and that's been the main driver for why he stayed at the firm so long despite other more lucrative opportunities along the way was sort of instilling a confidence in your I'm just curious how you thought about everything you know lucrative but you know there's a lot

39:50Lloyd Blankfein:people make a lot of money yeah he's done okay and the increment but he has a big you know he's a substantial guy as opposed to being a bigger fish in a smaller pond so you know found that attractive look You have to. I think, you know, I think I'm a good judge, you know, of people. I like people. I care about them. I empathize with them. I want to be, you know, not so much liked as appreciated. I wasn't always liked. Sure. Read my reviews. But I was always appreciated. I wanted to make people better. I didn't want to juggle for them or tell jokes or be, you know, I wanted them to think that I made them better than they otherwise would have been, that got a lot out of it.

40:35Lloyd Blankfein:And that's, you know, and I really, to the core, care about that, and I think I can read people. But I identify Ashok. By the way, it's not my brilliance for sourcing him. It's his brilliance for being brilliant. I don't want to get confused, but I knew it early. I think one of the things that I had in my time, and I tried, is that I wasn't a victim of the organization chart. You know, these firms could be very, Goldman Sachs is not very bureaucratic and not very. I remember when I was very, very early in my career, I remember I came from left field to J. Aaron. J. Aaron was acquired by Goldman.

41:15Lloyd Blankfein:Aaron wasn't doing very well. But I had this idea. I was in the precious metals business. And that made me have to deal with people from the Mideast who were investors in gold and that. I'm chatting with people on the other side. And what are you doing? What do you need? And, you know, it turns out that even though they were speculating and precious metals, what they really, really wanted to do was they wanted to be able to invest money and get an interest rate-like predictable return. But under their rules of engagement, you know, their law, they weren't allowed in those days. The real strictly religious crowd wasn't allowed to take interest.

41:55Lloyd Blankfein:It was usurious. And what they were looking for ways of making... in making kinds of investments that would read like an investment. They were allowed to make investment returns. They just weren't allowed to collect interest, but had the stability and predictability of an interest. And what they were doing, and, you know, we can go into details or not. I don't want to be complicated here. Cash and carriers, what people were doing, arbitrages between a spot market and a commodity and the forward market that, effectively, Alternatively, if you buy, if you are selling somebody, you know, buying the cash product and selling somebody a forward, in effect, you're lending that person money because you're giving him the risk of the investment, but he doesn't have to put out that much cash.

42:44Lloyd Blankfein:You're the one who's hedging it by buying the commodity and giving him a forward in it. Yep. And that has an embedded interest rate to it, but it looks a lot like an investment return. And so in chatting with them, but the markets weren't big enough to do the scale they wanted to do. And that was a few years earlier was when they came out with the S &P 500, financial commodities in effect. And those were big. And so in talking to them, they said, well, Holly, I'm at Goldman Sachs, biggest equity trader, blah, blah, blah. What if we did this in the equity market in Hatton? And we went out and they bought 500 of the S &P 500 and, you know, put out the money in the market and hedged it by selling it in the forward market.

43:30Lloyd Blankfein:Would that give them, what was the embedded rate of return? And it was very high because they were the other side of speculators who didn't have the capital. I know this is a little bit complicated, but the short story was I had the idea. I went to the then, like, number two guy in the firm, Bob Ruiz, Treasury Secretary. who I never spoke to. He was a Goldman of the whole firm, and I was tucked away in the jet, which was in a separate building at the time. We never moved. And he said, that could be interesting. He called up somebody on the equity desk, said, work with Lloyd. I didn't even have a title at that point.

44:04Lloyd Blankfein:I love that. So I remember I asked when they merged into Goldman, I said, what's my title? And the guy said, call yourself Contessa if you want. So no title. And he said, so did somebody work with me? And they did. And the first order that came in, and this was like back when this was real money, was for$100 million worth of this. That was by far the biggest trade ever. And then they was doing, anyway, so that's how, and you want to be that way in your organization. And by the way, that's an easier thing in your line of work. Yep. Where the entrepreneurs are advantaged by their lack of attachment to history and tradition and the old way of doing things.

44:45Lloyd Blankfein:Sure. where the iconoclast is the, in your business, the iconoclast and the young guy, not only celebrator, they're the, you know, they're the focus. Sure. And not so much in bigger organizations. And so we always wanted to achieve, you know, that's another thing, to try to be an entrepreneur in an institution.

45:11David Haber:Totally. Maybe I'll transition because I want to get to the financial crisis and a few other questions maybe more present day. But, you know, Goldman fared obviously incredibly well during the financial crisis, you know, and obviously earned public backlash. I would argue unfairly, you know, as a result. Yeah, that's what I agree with that. Yeah, yeah, I figured. What do you think helped the firm navigate that period so well? You know, was it risk management, technology, the fact that you didn't have a big consumer business? Risk management. The lack of a big consumer business hurt us in the back end

45:48Lloyd Blankfein:on the reputational side because people didn't know us. Right. We were a big, influential government sack. So, you know, people who left Goldman became very big officials, prime ministers, and by the way, not just in the U.S., overseas as well. And so, but in the beginning, you know, risk management culture, and maybe that stemmed from the fact that we were a partnership we had unlimited liability there's nothing that focuses your attention better than being your partnership you're investing client money and you're not leveraging your own money you know the partners not only had their capital accounts at risk, they had their homes at risk I remember when I became a partner I said should I be putting my house in my wife's name?

46:35Lloyd Blankfein:And it was very funny because then the minister of the interior, this was back when we were partnership, said, you know, Lloyd, no partner at Goldman Sachs has ever lost money because the firm, you know, because of losses at the firm. But plenty of Goldman Sachs partners have lost money because they put assets in their spouses. So that was it. And it was a funny one. But by the way, like a lot of funny lines. True. True. True. And so, but it did focus your attention and it made us very, very totally on it and risk managers are very attentive to risk. And now one of the consequences of that concern, we marked things to market rigorously, religiously, and other people didn't.

47:13Lloyd Blankfein:Yep.

47:14David Haber:They didn't have, you know, do you think if the crisis had stemmed in like the private equity ecosystem, which I imagine the firm had a lot more kind of notional exposure to, it would have navigated as well or, you know? It would have been tougher because it's hard to mark the market.

47:27Lloyd Blankfein:Now, what we did, we also had instruments that were one-off. We had a lot of loan commitments related to our M &A. We were the biggest M &A franchise. And so we made commitments. Those were outstanding. Those were commitments that had to be. But we marked them down. We made analogies. And we also had a very separate, I'm going to say this word, I hate to say it, bureaucracy in the firm away from the investors and the traders. They were partners. They got paid a lot of money to mark those things. And when there was a dispute, we always sided with that side of the house. And we said to the traders, investors, very easy way for you to challenge the marks that you're being given.

48:07Lloyd Blankfein:Go out and sell something. Sell a fraction. And guess what? And that's what got it. We had, that was, mark to market is not just a P &L system. It's a risk management system. Because we, that was our early warning that something was amiss here. We had things that were marked, things that were AAA. When we made people sell them, the bids vanished. And they weren't there, and the bids were much lower, and then much lower, and then much lower. By the way, I didn't think the market was right. I thought there was a big opportunity to accumulate it. But that would be like fighting with the tides or gravity.

48:41Lloyd Blankfein:That's the market. So guess what? We're going to keep marking it down until we mark it to a price where you could sell it. And by the way, and therefore it became easier to sell. Because it wasn't like they had big losses. The losses were already embedded in their books.

48:56David Haber:Totally, because we marked it to mark. And to your point earlier, if you're testing the market early, it's cheaper to buy insurance, I would imagine. Exactly, and what we did.

49:03Lloyd Blankfein:So one of the things, and there were a lot of things, we had a lot of exposure on paper to AIG, but we also had fully hedged. We were fully hedged because we had bought credit protection, but we also had a collab. So we, a single A credit, got a collateral agreement with AIG AAA.

49:27David Haber:I think we may have been the only ones to do that because we insisted on it. We wouldn't have otherwise transacted with them. I think you said in the book it was like one of only like five or seven companies in the country that had AAA. So who would have the to marry to ask them for a margin agreement?

49:39Lloyd Blankfein:But we had the margin agreement, so we had their collateral. And so that was because, again, it was our money.

49:45David Haber:Right, totally. And so it wasn't like other people's money, it wasn't speculative. What was interesting also, I heard this from Allison, which is, it was your money, but you also cared about relationships. She said, I'll forget the cast of characters that were in this meeting, but I think it was about your LBO financing exposure at the time. And you said, look, commitments are in the past and relationships are in the future. Go out and make sure that our clients know we're still good. Oh, I have to do it. In the financial crisis, I'll get to that.

50:10Lloyd Blankfein:Let me get to that in a second. But we, yes, I mean, there was a time we had this loan outstanding, you know, to Chrysler. I remember the CEO then at Chrysler calls me up. And are you going to honor that commitment? And I said, yes. And I think it was due at a certain, and he said, can you do that now? I said, no. I said, I'm going to honor it. And I'm not going to, it's not going to be for more than we committed to, and it's not going to be sooner than we committed. I promise you we will honor our commitment. But in this market, we're not going to do more, and we're not going to do it earlier.

50:43Lloyd Blankfein:and we did all of that stuff in the high integrity. Here's another thing that's in your head in an ownership culture. It's your reputation. It's your firm. You're going to own that. It's open-ended. And so we're going to be there when this crisis is over. So I worry sometimes about in the alternative space when it's maybe a 15-year-old firm, but I joined Goldman Sachs when Goldman and Sachs were already dead. It's an institution. By the time I got to 150 years old, we're going to be there for another 150 years. So we're not going to honor all our commitments because we have to be in business on the other side of this.

51:24Lloyd Blankfein:By the way, I think about that when I'm dealing with someone else. Are you going to stand by this? Are you going to shut down and open up a firm with a different name with three different partners later?

51:34David Haber:I mean, I think Goldman coined the phrase, like, long-term greedy. I think that was one, you know, but you're right. Like, you know, it's about relationships not being transactional. And also, you're going to go through life.

51:45Lloyd Blankfein:And I would say this to new people in the firm. You know, the dopey people that's even for the most junior person, the dopey analyst in your class. Roll the clock. You know, you can't imagine this. And believe me, looking at you, I can't imagine it either. But your cohort is going to run for all the important institutions 35 years from now or 30 years from now or 20 years from now. and you're going to make your reputation with those people 30 years from now, believe it or not, are going to be how they remember you act today in this crisis or regularly. And you must see that yourself. You came up, we were talking about before, people you knew at Goldman and they could become fixed in your mind at certain things.

52:28Lloyd Blankfein:So I said, remember, keep in mind that, again, this cohort, that you're a cohort going through this, and I thought about that in our business. The financial crisis now is old. But let me tell you, there are grudges and memories and good feelings and hard feelings that come out of that that are sticky. And, you know, the important thing is to get people, people will learn that through experience. But one of the things you could do as a leader, mentor, advisor to people is get people to appreciate that without having them go through the experience of it. So you tell them that. One of the things I used to do with people, I said, how many of you go home to your spouse, to your wife, or your boyfriend, or your girlfriend, and talk about your boss?

53:15Lloyd Blankfein:And everybody twitters and says, I do. Well, guess what? And they would do this to the people who just got newly promoted. Guess what? The people who report to you are going home to their spouse, and every night they're talking about you. Totally. Do you realize that? Totally. They don't realize that. You have to think of who you become and you have to have that sense of yourself before you can have an impact on others. You have to realize that. And so at the end of that, then I would say, what do you want them saying about you? You're not there to be. You can be their friend, but you're not there to be their friend.

53:46Lloyd Blankfein:You can also be their friend. You're there. It's like if you're a military leader, you don't want your commanding officer to be a good juggler or tell you good jokes. You want them to lead you well, worry about your safety, and not make you take risks, stupid risks for no purpose. And that's what you want. And if they like you, that's good. But you want them to appreciate you. You want them to feel they're going to be better by following your flag and not someone else's.

54:16David Haber:I think that's great advice. You know, maybe to transition more to present day, for better or for worse, I think, or maybe for worse, I would argue, but I think a lot of the technology companies are going to inherit a lot of the public flack that affirms. Oh, guaranteed. Right, right.

54:33Lloyd Blankfein:So, I mean... Once upon a time, we were you. Right. We were the investment bank and all these other commercial banks, and then it evolves, and now, you know, you're an institution now, and there's people who market themselves as a more flexible, current, now version, you know, version of what you used to be.

54:53David Haber:But even beyond, like, our firm, because, you know, But I think a lot of the AI labs, they're going to create a lot of change in the world, in our economy. Sure. And I think there'll be a lot of negative backlash to them. I guess, what advice do you have for the leaders of an open AI or Anthropic or maybe Elon for how to navigate through that, even from a communications perspective?

55:16Lloyd Blankfein:Well, I think one of the things, and I learned this the hard way, one of the things that we didn't do is we were a wholesale firm. We didn't have, you know, go get a mortgage from Goldman Sachs, go open a checking account of Goldman Sachs, go out of your local Goldman Sachs branch. It doesn't exist. So people didn't know us. Institutions knew us, companies knew us, governments knew us. We were the biggest in that world. We didn't advertise ourselves. We had a whole PR department to get up our name out of the paper. It turns out we were too important, too influential, too big to be anonymous, especially in a crisis, and especially to come out of a crisis as well as we did.

55:53Lloyd Blankfein:And so nature pours a vacuum, and the official sector pours us. What are we going to do? Kick the shit out of Lehman Brothers, which didn't exist anymore, Mayor Stearns? Or how about the big commercials banks that lost$50 billion, literally, those amounts, in the crisis? We were there, and also my predecessor at that point was Secretary of Treasury, and a lot of the government officials there, by the way, doing a great job, were going. And so we were, you know, we were that kind of target. And we had no anchor in the world. They didn't know who we were. We were, and so we were very easy, no reputation.

56:32My advice is, and then of course,

56:35Lloyd Blankfein:I wasn't necessarily picked for my being so photogenic and being such an outward, you know, person. You know, I was an inside guy, that okra. And then I had to make up for it by getting out. And when you're being defensive and people are trying to kill you, it's not the best time to try to make friends with the public. So I would say before then, and I know that people will think this is ego-driven, you don't want to do it, people are embarrassed to be out. Go out and let people know who you are, know the value of what we do. Businesses wouldn't exist today, important business, but for Goldman Sachs taking a risk.

57:07In some ways, the invisible hand that licks people with capital, with people who need capital.

57:13Lloyd Blankfein:We were early financiers at dark moments. We took, you know, we took, you mentioned Elon, we took Tesla public at a time when, and this sounds like a quaint time, when companies didn't go public until they made money. Sure. And that was a big deal at Goldman at that time to go out and do that and a million, you know, do things like that. There's Microsoft too and other companies like that. That's a very important function in the world. Guess what? It's time to explain that. And, you know, you perform a super important function. you're taking risk on entrepreneurs and companies, and risks that your predecessors took 15 years ago are manifesting today and decisions you're making are going to manifest in the future.

57:57Lloyd Blankfein:I think there's no, you know, being modest and understated carries a lot of disadvantages. And I think you have to explain the role you are in the market so that there's some appreciation of what you do. One day if people decide that you misstepped, whether you misstepped or not, they may decide that you did. and you want to have a counter argument to that and you don't want to be fumfering for one at the event.

58:21David Haber:I'd love to hear maybe your just broader perspective on AI. And you're a student of history. Does this strike you as sort of a similar technology to past product cycles? Is this time different? Where are you on the spectrum of excited, scared?

58:37Lloyd Blankfein:No, generally things never repeat, but often they rhyme. Sure. Is this like electricity, you know, the electrification of the country? Those are very big deals. Internet, very big deals. Could this be a bigger deal? I don't know. I don't think anybody knows. I don't think the people who are driving it, they have opinions that they express, but I don't know both of them. They don't think they know. So we're in the realm of contingency planning. It might be. And, you know, one of the observations I'll make is that the people who are, you know, the big hyperscalers are firms that are dominated by founding shareholders who are putting their own money where their mouth is.

59:16These aren't professional managers making bets on the future

59:21Lloyd Blankfein:with other people's money. This is their own money. This is their own ego. I'm not saying that that necessarily makes them right, but it certainly makes it seem to me that their convictions are very deeply held. And so that's another thing. will all these technologies and you could say talk about AI or anything else will all these technologies work no will the people who have technologies that work all succeed no the world may not need 10 large language models maybe it needs 4 will be winners and 2 will be very big winners and the other 2 will get by maybe it will get reduced over time to 2 who knows and so there's forks in the road where people are taking the wrong for we don't know So I would bet, and I think you do too, and obviously you want to have an idea, but there's going to have to be a lot of forgiveness down the road where people are going to come and say, how could you be so stupid?

1:00:17Lloyd Blankfein:You weren't stupid. With the information available today, you place your stack of chips on more than one possible technology and within the technologies on more than one place. Maybe you can't because maybe you have to show commitment to one and can't do the, you know, there's different considerations that leach into this. but the answer is this is going to be very very important will we go through a tech bubble kind of situation where we'll weed out the stuff that should never have been invested in, never been made again in hindsight you shouldn't have done it but at the time in prospect you didn't know what looked more speculative than Amazon sure forever I mean at the beginning reinvesting all the money and that so there'll be things, there'll be genius pundits and, you know, professors will talk about how stupid somebody was because he won't be able to put himself in the shoes without the after-acquired information.

1:01:13Lloyd Blankfein:And I'm sure there's some stupid stuff being done too. I'm sure you have better visibility on that than things that you pass that you see other people doing. But I have more forgiveness for that because I know that I don't know. But I would be making those bets today and I know that the people making the biggest bets and putting their money where their mouth and their corporate money are themselves principals and not just professional managers.

1:01:37David Haber:You know, again, I know you don't want to predict the future, but, you know, we are on the precipice of, I don't know, some of the largest IPOs ever, you know, with SpaceX, with, you know, likely opening I, Anthropic, you know, others coming. I don't know, where do you think we are kind of in this cycle or maybe what are risks that you think are underappreciated, you know, kind of in the markets today?

1:01:56Lloyd Blankfein:Oh, my gosh. You know, things will work. Things will look different. You know, somebody else in a basement is, you know, you know, is doing OpenAI 7 that everybody else knows about. Just the way, same way nobody, you know, all the stuff that's coming out today, things that happen, I'm reading with interest. I never knew this stuff and nobody else, you know, 10 people knew all that stuff. And so there's always, you know, there's always upside surprise. We may be overenthusiastic about the changes, the reliability function. You know, if it's unreliable and, you know, if you're in a business of horseshoes or throwing hand grenades, you don't have to be precise.

1:02:32Lloyd Blankfein:But if you are, you know, if you're running a big institution, you can't make mistakes and numbers really matter. You know, maybe you have to run things in parallel for a lot longer. And, you know, one of the things that Google gave you was a bibliography. You could check. You know, when you go into some of these large language models, you don't know the thought process. You lose intuition in these things. It used to be when I started out in the business, people would be shrieking at each other, noisy trading rooms, blah, blah, blah. People would be fighting with their wives or their husbands.

1:03:04Lloyd Blankfein:They were sitting at the desk. At the same time, people were transacting. But if somebody said the wrong price or did a trade backwards, bought something when you should have said sold, the whole room would come to a dead stop and you'd hear it. And today, you don't have that intuition because everything is whirring behind the scenes and you don't get the trail. or the thought process of these things, that's a problem. The leverage in these things is themselves a big problem. So before this technological age, not just AI, but in general, could you have had a mistake that could cost billions of dollars?

1:03:44Lloyd Blankfein:Not really, because your intuition, you wouldn't. But now you can leave a piece of software, could go out and do 70 ,000 transactions, or even industrially. I think the biggest industrial accident that we ever had was in Bhopal. You know, terrible, single-digit thousands of people died, horrible. But in the atomic age of Fukushima, if the wind had blown in a different direction, it could have been tens of millions of people. So these are risks. These are consequences. People may be loath. One of the big risks are governmental and regulatory, and they'd be right. We may want to have to regulatory slow some of these things up, not because it's smarter than us and it's going to turn us into pets, but because we don't have the ability to test whether it's right or not.

1:04:33Lloyd Blankfein:And so how do you build reliance on things that fundamentally you can't test, and then these things will test each other. Well, what if they're coordinating? The tests themselves are flawed. But you will think of more of this stuff than I do because you're a technologist. I'm a user. But I have, you know, again, there's a right to be anxious of it. But you might as well be turning back the tides. I'm going to waste no time in thinking about whether it's good or bad. It's happening. Totally. And you're not going to unlearn stuff.

1:05:04David Haber:And I remember when we spoke the other day, you said, you know, I mean, it's also, it is scary in many ways, but it's also an enabler, you know, in many positive ways.

1:05:12Lloyd Blankfein:Oh, positives are evident. I'm not talking, you know, I don't have to identify those. We knew it. Anything, by the way, I'm not against anything that makes us everybody more leveraged. Yep. We'll find more goods or services to provide. Maybe we'll have more massage therapists. I don't know. Turn back the clock at the beginning of the 20th century. More than half the country was in agriculture. Exactly. Guess what? A single digit percentage is today, people found stuff to do. We'll find stuff to do. And by the way, if we're generating all this wealth because of the leverage. Maybe we'll have a three-day work week, six hours a day, and we can all be poets in the afternoon or hunters or fishermen.

1:05:48Lloyd Blankfein:Read some more history. Well, that's the Marxist ideology. That's what he was striving for. But it's funny to quote Marx. But anyway, I am not mournful of the opportunities. I'm apprehensive about it, and I think it should get a lot of focus. But I'm not for, I was listening to Bernie Sanders wring his hands over, oh my God, you know something? I'm for all this stuff. Let's let the official sector get on there, you know, catch up to it. I'm not slowing down. Well, first of all, you can't. You're not going to get people to be stupider than they are or unlearn things they've already learned. You can wish that atomic, that the atom had never been split because maybe the adverse consequences of atomic bombs are worse than the benefits of nuclear power.

1:06:34Lloyd Blankfein:Sure. But guess what? You're not going to unlearn it, so don't waste any time thinking about it.

1:06:38David Haber:Totally. You know, we have a lot of, again, young people just kind of starting out in their careers, likely listening. I guess, what advice do you have for young people that want to have a fulfilling career? You know, beyond working hard and maybe becoming good at whatever you choose to do, anything else you'd? Here's one thing I would say to the young, young people,

1:07:00Lloyd Blankfein:and with all deference to the success of Peter Thiel, I think people should make themselves complete people. I think you should get a, you know, your early life is for becoming a complete person, a range of activities for your own sake, to make you appreciative of things, and also for your commercial life, because in the long run, you're going to get by and be good and get investors and have the goodwill of your colleagues and your subordinates because you're an interesting person. You're the kind of person that other people want to deal with. And if you make yourself so narrow and exalt, you know, your narrow silo, even if you make a lot of money in the first game, your life will be better and your commercial life will be better if you're a Moore and your resilience will be higher.

1:07:50Lloyd Blankfein:learning history you know it's a good thing to know that we've lived through times like this before you know everybody talks about oh my god you've never been this bad never more polarized in politics you know you say well we did have a civil war well that was a long time ago well guess what I was a sentient human being in the late 60s young but still aware when the National Guard was shooting people on campuses It was successful political assassinations. And the college-age kids were leaving the country and going to Canada to avoid the drought. I would say those were pretty... And by the way, internationally, Russian tanks in 1968 went into Czechoslovakia.

1:08:36Lloyd Blankfein:I would say that was a bit more dangerous. The country during the Cuban Missile Crisis was at DEFCON 2. By the way, the lower numbers are the more severe. DEFCON 1 is nuclear war. And we were at DEFCON 2. So it's very bad that we're fighting a regional war in Iran. We were at DEFCON 2 with the then Soviet Union stopping their ships in international waters on their way because of a blockade of Cuba. I would say that was a more polarized time and more dangerous. If our parents could get through that, we should get through this. And I think knowing that, to me, and I think it should be everybody else, is knowing that something has been done should give people comfort that it could be done again.

1:09:16Lloyd Blankfein:And so every time is different, but this is not more extreme.

1:09:20David Haber:I totally agree. I think range is going to be even more important now than ever. And, you know, one of my, I've written about this, but it's sort of a, I don't know, life and maybe business philosophy too, is that opportunities live between fields of expertise.

1:09:31Lloyd Blankfein:Yeah.

1:09:31David Haber:You know, I like living at the end of the day. And over the edge of cliffs. Totally.

1:09:35Lloyd Blankfein:And over your horizon of what you could see about the future. Totally. And so learning, you know, look, when I was growing up, Everybody wanted to learn, you know, my predecessor, Hank Paulson, spent so much of his time, as did I, in going to China. Well, at least temporarily. We're not going to be making as many investments in China as we once did. There's not none, but it's not going to be as much. Or when I was growing up, everybody wanted to learn Japanese because those were the winners in the tech stuff. And I remember a time when Silicon Valley was Route 128 in Boston. And there was no Silicon Valley.

1:10:13Lloyd Blankfein:It was around Harvard and MIT, not around Stanford. So I would say things change. And in order to be resilient, a better person, and also I hate to minimize this, for your own sake, learn humanities, learn history, learn those things. And that's what you're, you know, we're at a point now where most people who are young are going to live to be, you know, they're going to actually live longer and they seem to be in much more of a rush to be a success in your kinds of enterprises. And some people will encourage it. I don't think that your only productive years are when you're 18 through 24. I totally agree.

1:10:56Lloyd Blankfein:And everyone will learn what you need for your career afterwards. And I think it'd be, in my humble opinion, but again, this is way interesting. I'm an older guy.

1:11:04David Haber:No, I mean, it's back to kind of where we started the conversation. I don't personally believe people should drop out of school. I learned so much from my peers. It changed my life. It changed my perspective of what's possible. And yeah, I think it makes you a more well-rounded person too.

1:11:16Lloyd Blankfein:Look, here you are interviewing people from all different walks of life and not just tallying ones and zeros.

1:11:25David Haber:This was awesome. Lloyd, thank you so much for joining me. Really appreciate it. Thanks for listening to this episode of the A60Z Podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review, and share it with your friends and family. For more episodes, go to YouTube, Apple Podcasts, and Spotify. Follow us on X at A16Z and subscribe to our Substack at a16z.substack.com. Thanks again for listening, and I'll see you in the next episode. As a reminder, the content here is for informational purposes only. should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund.

1:12:10David Haber:Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16Z.com forward slash disclosures.

1:12:31Thank you.