Amna Nawaz:
Markets had their worst day today since the start of the war in Iran, and oil prices saw another big jump.
I spoke about the many concerns surrounding recent events yesterday with Lloyd Blankfein, the former CEO of Goldman Sachs. He is also the author of a new book called “Streetwise: Getting to and Through Goldman Sachs.”
And I started by asking him about the potential economic impact of the war in Iran.
Lloyd Blankfein, former CEO, Goldman Sachs:
In general, these types of geopolitical events, as long as they are not long in duration and without major surprises, rarely affect the markets except in the short term.
What would be the problem that will affect it for a long time? I think if they closed the Straits of Hormuz, oil prices would remain high, which would feed into inflation, and that would create some kind of cycle. I personally don’t expect that, but as someone in the risk management business, I would have been prepared for that eventuality. It is possible and certainly a concern.
So there’s a lot of stress, but it can all work out.
Amna Nawaz:
If it is a short fight, you are saying. That’s it…
(Crosstalk)
Lloyd Blankfein:
If it is a short fight. Well, if it’s a long argument, but it won’t — but there’s no big result. We are not dealing in a part of the country that is a major part of the country’s economy except that it provides a lot of energy.
Amna Nawaz:
There’s a lot of interesting insight in your book about you going through good and really tough times running Goldman Sachs, and you also talked about all the cycles.
And you said something about how we’re getting to the end of the last stages of this, meaning a good market cycle. We deserve to be counted. That caught my attention. Are you worried about the recession?
Lloyd Blankfein:
One has to, but I would say my story is that things are going well.
For example, GDP is very good. We have inflation coming under control. It’s not exactly what the Fed would like, but it’s the kind of demand that it wants, in a country where you have – where jobs are very good, growth is good, there’s always concern, inflation, concern, but it’s good.
In this good market, good economy, we will lower the prices. Of course we will lower the prices. The question is how much and when. And we have a lot of financial incentives coming up. The Good Bill or whatever you want to call it, should come. And, by the way, there is an incentive to have two big investments by hyperscalers who are investing in AI.
And AI itself is a form of development when it creates increased productivity. So I’d say all the signs are good, and usually when all these signs are good, I’m really worried.
Amna Nawaz:
You write in the book about growing up in East New York, in Brooklyn, about growing up in the projects there, about your very humble beginnings. And you talk about how a Brooklyn kid is always in you, whatever room you’re in.
And I wanted to ask you about another difficult time that I know you helped navigate at Goldman Sachs, which was the financial crisis of 2007-2008. And there was a sense that the crisis was over with the financial institutions being bailed out and the homeowners ending up in foreclosure without help.
And there was a sense of kind of unfairness to it all, right?
Lloyd Blankfein:
Right.
Amna Nawaz:
People still think too much of themselves.
Lloyd Blankfein:
I think that is the biggest contribution to the polarization that we feel to this day.
Amna Nawaz:
Well, I want to ask you more about that again, but in terms of that kid from Brooklyn, when you’re in that room, do you — does the sense of injustice speak to you? Do you see why people thought that was wrong?
Lloyd Blankfein:
Indeed. And I understand why it happened.
And, again, not to challenge the predicate about the bailouts and who benefited and who got what – and all these organizations were different from – all different from each other.
Amna Nawaz:
Yes.
Lloyd Blankfein:
But, of course, we had a financial bubble. People were buying houses they couldn’t afford and more houses, making money. There was a penalty break. To the people it looked like the trees were growing up to the sky.
Certainly, as between buyers and sellers and financial institutions themselves, the government should want to help the people and the people and let the big institutions fend for themselves. But we were in a recession and a banking crisis.
The government has never wanted to bail out or bail out the banks. The problem that is bothering the banks is that the banks themselves, when they get money, they have to hold it, they have to restore their reserves. And unless you put the banking system in better shape, you won’t be able to do anything to the real economy.
And that’s exactly what happens. And, unfortunately, one of the consequences of that was to disproportionately benefit what people would have viewed as inappropriate financial institutions at the expense of the public. And that’s a concerning situation — that we’re still fighting this today more than 15 years later.
Amna Nawaz:
Yes, and that people are still struggling with that, right, in terms of digging out of the money pits.
Lloyd Blankfein:
And it works. We just talked about the tailwind we have in the economy. That has been good for people who have assets, because assets have been going up in value, assets including stock, one of the types of assets. But everything was rising in value.
But if you’re a part of the commodity economy, you’re — you weren’t participating. So the difference between people who have property and people who don’t have property has widened. And, again, there is polarization. So you can ask two people to talk about the economy. One will say the best, and the other will say, what are you talking about the best? I’m already itching.
Both are good, because we have a busy economy at the moment.
Amna Nawaz:
And you put this question in the book that, if we hadn’t lived in that crisis, we wouldn’t have had a privileged society and maybe we wouldn’t have elected Donald Trump. Do you believe that?
Lloyd Blankfein:
Well, I don’t know. There are other things. You never know that – you take one way. You don’t know what would be next.
I would say that helps with the overall malaise we seem to have.
Amna Nawaz:
There is this expectation of further rate cuts from the Fed.
Lloyd Blankfein:
Yes.
Amna Nawaz:
And we’ve also seen this president bash the Federal Reserve and go after Chairman Jay Powell the right way. He made it clear that he really wants to force the political organization to see the law he wants to see exist.
Lloyd Blankfein:
Yes.
Amna Nawaz:
I believe you know Kevin Warsh, right, is his candidate to replace Powell in May.
Lloyd Blankfein:
Yes.
Amna Nawaz:
What is Warsh’s focus on this job? How would you guide him at this time if you could give him advice?
(Crosstalk)
Lloyd Blankfein:
The elder– can guide him. He is very capable, very capable.
Amna Nawaz:
Are you worried about the political pressure he will face?
Lloyd Blankfein:
Oh yes. Those are two different things.
So let me just say, I think it’s really crazy to attack the Fed. It doesn’t help. Look, we are a nation in debt. We need borrowers to finance our deficit, to buy our property. If you – if people think you’re going to default, they won’t lend to you or they’ll charge a higher interest rate. They may think, what can the US do?
We borrow dollars and print dollars. How could we fail? The way the US can fail is to increase our currency, to increase the dollar, to affect the purchasing power of our currency. That is the United States default. Who protects our creditors from those who have stopped, from the US raising its money to the point where it loses its purchasing power?
It’s the Fed. By attacking the independence of the Fed, by going to the Fed, you are sending a telegraph to your borrowers that they should not be protected, that the dollars they lend you, which they expect to return in 10 years, will not be worth what they think they are worth. So maybe they won’t lend to us at the current rate.
So I just think it’s a very, very bad practice to undermine the independence of the Fed, because it’s not just the Federal Reserve that feels you’re doing that. The people who lend to us are the ones who are hearing that you are doing that.
Amna Nawaz:
Lloyd Blankfein, former CEO of Goldman Sachs and now author…
Lloyd Blankfein:
He is now a writer.
Amna Nawaz:
… for “Streetwise: To and through Goldman Sachs,” thank you very much for being here.
Lloyd Blankfein:
Well, thank you very much, Amna.
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