Lloyd Blankfein on his memoir 'Streetwise' and broader economic concerns

The markets had their worst day today since the war in Iran began and oil prices saw another

big jump.

I spoke about the broader concerns around these latest events yesterday with Lloyd Blankfine,

the former CEO of Goldman Sachs.

He's also the author of a new book called Streetwise, Getting Two and Through Goldman Sachs.

And I began by asking him about the potential economic impact of the war in Iran.

Generally, these kind of geopolitical events, as long as they're not long in duration and

no big surprises, they generally don't affect markets other than in the short term.

What would be a problem that would affect the longer term, I suppose, if they close the

streets of her moves, oil prices stayed up, that would feed into inflation, and that would

create other kinds of dislocation.

I personally don't expect that, but as somebody in the risk management business, I would

be prepared for those eventualities.

It's certainly possible and certainly a concern.

So there's a lot of worries, but everything could actually work out.

If it's a shorter conflict, you're saying that's what you're saying.

If it's a shorter conflict, well, if it's a long conflict, but it doesn't, but there's

no great effect.

We're not dealing in a part of the world that's a really big part of the global economy.

Other than the fact that it sources a lot of energy.

There are so many wonderful insights in your book about you navigating both good times

and really tough times, running Goldman Sachs, and you've talked to about how everything

has cycles.

And you said something about how we're getting close to the end of the late stages of

this, meaning the good market cycles were due for a kind of reckoning, caught my attention.

Are you worried about a recession?

One has to, but I would say my base case is that things are going pretty well.

For example, GDP is pretty good.

We have inflation is getting under control.

It's not where exactly the Fed would like it, but kind of almost, almost where would

like it.

Into a world where there's employment is very good.

Growth is pretty good.

Always concerns, inflation, a concern, but pretty, pretty tame.

Into this pretty good market, pretty good economy.

We are probably going to lower rates, for sure we're going to lower rates, a question

of how much and when.

And we have a lot of fiscal stimulus coming in.

The big, beautiful bill or whatever you'd like to call it has to come.

And by the way, the stimulus only to big expenditures by the hyperscalers who are investing

in AI and AI itself is kind of stimulative if it creates more productivity.

So I'd say all the signs are good and usually when all the signs are this good, I really

worry.

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 that

kid from Brooklyn is always kind of in you, whichever room that you're in.

And I wanted to ask you about another tough time that I know you helped to navigate

at Goldman Sachs, which was the 2007-2008 financial crisis.

And there was a sense that the crisis ended with financial institutions being bailed out.

And homeowners who ended up in foreclosure not being helped.

And there was a sense of sort of unfairness to it all, right?

People who were still very much reckoning with it.

I think that's a major contribution to the polarization we feel to this day.

Well, I want to ask you more about that too, but in terms of that kid from Brooklyn,

when you're in that room, does that sense of unfairness speak to you?

Do you get why people saw that as unfair?

Sure.

And I understand why it happened.

And again, not to challenge the predicate about bailouts and who got helped and who got

that, and all these institutions were all different from all the difference from each

other.

Yeah.

But certainly, we had a financial bubble.

Those were buying houses they couldn't afford in multiple houses and making investment.

There was a relaxation of discipline.

It felt like to people that trees were growing to the skies.

Certainly, as between consumers and retail and the financial institutions themselves,

the government should want to help out the individuals and the people and let the big

institutions fend for themselves.

But we were into a recession and a banking crisis.

The government never wanted to bail out or even help the banks.

The problem with a banking crisis is that the banks themselves, when they get money,

they have to husband it, they have to restore their reserves.

And unless you put the banking system in better shape, you weren't going to be able to do

anything for the real economy.

And that's really what happens.

And unfortunately, one of the consequences of that was to disproportionately help what

people would have regarded as less deserving financial institutions at the expense of the

general public.

And that's a situation that we're still wrestling with this today more than 15 years later.

Yeah, and that people are very much still grappling with, right?

And just taking out a financial balance.

We just talked about the tailwind that we have in the economy.

That has been very good for people with assets because assets have been going up in value,

assets including stock, one form of assets, but all assets have been going up in value.

But if you're part of the economy that doesn't have assets, you're, you haven't been

participating.

And so the gap between the people with assets and the people without assets have widened

out.

And again, there's the polarization.

So you can ask two people to comment about the economy.

One will say it's fantastic.

And another one say, what are you talking about?

Fantastic.

I'm barely scraping by both the right because we really do have a bifurcated economy at

this point.

I do posit this question in the book that had been not lived through that crisis.

We may not have had as polarized as society and maybe would not have elected Donald Trump.

You really believe that?

Well, I don't know.

There's other thing.

You never know the, you take one path, you never know what would have been the other.

I would say it is a contributor to the overall malaise that we seem to have.

There is this expectation of additional rate cuts coming from the Fed.

And we've also seen this president really assail the Federal Reserve.

And go after Chairman J. Powell in a very personal way.

He's made clear he really wants to exert more political pressure on the institution to

see the policy he wants to see in place.

I believe you know Kevin Warsch, right, his nominate to replace Powell in May.

What is Warsch up against in this whole house?

How would you guide him in this moment?

Did you give him a hug?

He's a big, he can guide him.

He's very capable, very capable.

Are you worried about the political pressure he'll face?

Oh, yes.

And those are two different things.

So let me just say, I think it's absolutely crazy to be assaulting the Fed.

It does no good.

Look, we are a debtor country.

We need creditors to finance our deficits by our treasury.

If you, if you, if people think you're going to default, they're even not going to lend

to you or they're going to charge a higher interest rate.

They may think, how could the US default?

We borrow in dollars and we print dollars.

How could we default?

The way the US could default is by inflating our currency, inflating the dollar, ruining

the purchasing power of our currency.

That's how the United States default.

Who protects our creditors against the default, against the US, inflating its currency to

the point where it loses its purchasing power?

That's the Fed.

By attacking the independence of the Fed, by going at the Fed, you're telegraphing to

your creditors that, you know, they may not be protected, that the dollars that they

lend to you, that they hope to get back in 10 years, won't be worth what they thought

it was worth.

So maybe they won't lend to us at the current rate.

So I just think it's very, very bad practice to undermine the independence of the Fed because

it's not just the Federal Reserve who hears that you're doing that.

It's the people who lend to us that are hearing that you're doing that.

Lloyd Blankfein, former CEO of Goldman Sachs, and now author, that's street wise, getting

to and through Goldman Sachs.

Thank you so much for being here.

Well, thank you very much, Amna.