Fmr. Goldman CEO Lloyd Blankfein: “I’ve Always Been in the Worry Business”

WALTER ISAACSON: Thank you, Christiane. And Lloyd Blankfein, welcome to the show.

LLOYD BLANKFEIN: Thank you, Walter. Happy to be here.

ISAACSON: In your great new memoir, “Streetwise,” you talk about 17, 18 years ago, the great financial crisis, how you got Goldman Sachs through it, but you also say, we’re due for another one, maybe. And you talk about kindling being on the ground and a spark could set it off. Is $90 barrel oil and $4 of gasoline at the pump, is that the spark that could set it off?

BLANKFEIN: You know, I don’t think so, but one never thinks so. That’s the nature of a spark. You know, the point is, we haven’t had a reckoning for a long time, which to me means people, the discipline that one applies after you have a crisis stays with you for a while, and then it starts to ebb over time. And usually the crisis of the century in financial markets happens like every four or five years. But this has been an exceptional period. We haven’t had it for a while. So usually discipline relaxes, assets appear on people’s balance sheets. At some point there has to be kind of a reckoning. And the longer it takes, sometimes the worse it is. 

Now, what, by spark, I mean, sometimes there’s a triggering event that if the kindling wasn’t on the floor, the forest, it would’ve just passed unnoticed. But as you build up all these things, maybe something comes along that triggers it. The nature of a bubble, the nature of a spark is that you don’t always predict when it is. So it’s hard to tell, but I don’t think so. The war itself, which of which $90 hour maybe a part of, could be it in the long run. But again, I don’t necessarily think so. That’s not my base case. In fact, the very severity of the situation means that it’s not gonna be born for a long time, which means one way or another, this situation won’t be allowed to pertain. And by the way, it’s not $90 oil. $90 oil – if this does pertain for a long time, you may be talking about $130 oil.

ISAACSON: And could that, what would happen if you got to $130 a barrel for oil?

BLANKFEIN: Well, it raises very difficult questions for people because something like that is just all bad, all around, because higher oil prices, when it seeps into the supply chain is inflationary on the one hand and kind of recessionary on the other hand, as the cost burdens rise for people. And so, you know, the most dreaded term, if you’re a central banker, is probably stagflation, which means the two aspects that you’re supposed to accomplish – and usually they’re in opposition to each other – are on the same wrong side.  Higher inflation and lower growth together is a kind of a very, very bad situation. What do you do? Do you try to remedy the inflation part by raising rates? Or do you try to remedy the low GDP side by lowering rates in response to the crisis, or–? And so that’s a very poor situation to be in and one tries to avoid that.

ISAACSON: You know, there’s been about 4% growth in the economy in the past, but half of that does seem to be, from AI, AI infrastructure and the complex investments. How much does that worry you?

BLANKFEIN: Well, it’s, again, I’m in the worry business. I’ve always been in the worry business. I think it’s something to be concerned about, but I think it’s – if you ask me what my base case is, I think it’s absolutely terrific. I think, I know, there’s a lot of concern about AI, whether the expenditures will be justified by the revenue. There’s a lot of concern about AI because there’s a worry that it’ll reduce employment in the country. Look, first of all, once the genie’s outta the bottle, it’s like, you can’t unlearn stuff. So we’re gonna go forward with this, so we might as well reconcile to it. But on the whole, I can’t be negative about anything that’s making everyone more productive. 

I understand there’ll be dislocation in the short term. Maybe there’ll be a lot of software jobs that AI can do very, very efficiently without the, without the numbers of people that have dedicated themselves to learning that. There’ll be dislocation, they’ll have to learn other things, get retrained. Maybe some people won’t be able to be retrained, and we’ll have to, the political sector will have to deal with the ramifications of that. It’ll be up to the political sector to smooth out the difficulties and see that that incremental wealth that gets created gets distributed in a way consistent with our values.

ISAACSON: You title your book “Streetwise,” and I think it sort of has a double meaning, meaning the really rough street you grew up on in Brooklyn. And then of course, Wall Street happens. But let me start in Brooklyn. You grow up in a housing project, a school that’s pretty unsafe. You’re scared to go to the bathroom at times. And yet you call that chapter, I think you call it “advantages.” What were the advantages? 

BLANKFEIN: Well, there’s some irony in that, in that name. I did grow up in public housing. I did go to a high school that they shut down shortly after I left as a failed high school. Because, you know, not very many people were graduating. And I would say the advantages of that are low expectations by me and of me and for me. And so it was also produced a lot of motivation to get out. And frankly, my earliest motivation that I can recall – nobody in my family, and even my sibling hadn’t gone to college. And I didn’t know anybody. None of the parents that I knew of other kids went to white collar – in fact, nobody had, I didn’t remember anybody having a suit. Very, you know, very blue collar. Not necessarily that different from, you know, a lot of people. But it was very motivating. It was very motivating. 

ISAACSON: Wait, so how’d you get to Harvard?

BLANKFEIN: My, the thing that I was reaching for, the carrot that I was reaching for was to go to an out of town school. And I wasn’t contemplating an Ivy League school, frankly, I wasn’t even sure, you know, I can’t even recall whether I even knew what that was. But I did go to a college night at a high school in a nicer neighborhood. I went in, nobody was checking IDs, there was no metal detector in those days getting into New York City public schools. And I went in and there were various booths, and I crossed a booth that was occupied by, I thought it was a grownup. It was probably a young guy, but to them, to me it looked like an old guy. And he, you know, he was from Harvard. There were other people there from other Ivy League schools. I took an application from him and we chatted. He couldn’t have been nicer. And I think I filled out that application, like you’d fill out a landing form if you got off an airplane. In other words, I didn’t, you know, there were questions and I wrote answers to them. I didn’t approach it like I would a test today knowing what I know today. And somehow they, you know, they took me, which is why I’m always great– by the way. I didn’t get into every school, but I did get into that one, and that was a good one to get into. 

And it was culture shock. When I get there. I really, I’m not sure – it was a great place for me to go, given the adjustments I had to make. But I’ll tell you, it was a great place to have gone for all that, for all the doors that got opened to by the – but by the time I was done with four years, I should have started then. I was then prepared to first get into Harvard as a result of my four years there. But there was some, you know, acculturation and difficulty. But I label it advantages because, I don’t know, it was a, I don’t know, I didn’t have to source my motivation. I know a lot of, obviously at this point in my life, I know a lot of comfortable and wealthy people who have kids, and there’s a lot of to be or not to be, anxiety about what should I do? And those are people who have choices. I didn’t really have a choice. It was go forward. If somebody paid me 25 cents an hour more than another person, I took that job. I wasn’t sitting there wringing my hands about fulfillment and who am I and where do I wanna go with this? You know, there’s some advantages to having no choice. 

ISAACSON: You talk about your dad being a mail sorter in the book, and there’s a wonderful scene when he retires and there’s a machine wrapped in plastic behind him, which is a machine that can sort the mail better. What did you think at that moment when you saw the machine that could replace what your father had done?

BLANKFEIN: You know, by then, when my father was retiring, by then, I was, you know, I may have even been in graduate school at that point. So I’d gone on and seen, I’d seen more of the world. I’d never seen his place of business, but I knew, you know, he sat with a battery of people sorting mail out. My dad would always, you know, at home, he would practice that he knew the name of every village, you know – this is even pre zip code – every village in Connecticut. And he would memorize these so he could sort the mail. And I never saw it. And he was retiring, and so we snuck into the post office. I don’t think they have the apparatus for having, you know, going away parties in that part of the government. And, you know, he went in, saw his colleagues, was there only not that long, but I said hello to this one and that one, and I turned around.  I said, what is this? This big hunk of metal behind them that seemed to still be wrapped up. And it was an electronic mail sorter that would’ve done everything efficiently, quicker, never make a mistake. And they just kept it there because it was the government, they didn’t lay people off, which is by the way, why my father liked that job. Because earlier in his life, he had been in private sector and had been laid off and looked for a job. But what a, what a soul crushing thing that must be to be doing your job in front of a machine that could have done it much better, faster, mistake free. And so I kind of felt, I kind of felt sad for my dad.

ISAACSON: You know, when I listen to you talk about your dad, it makes me think of a really large question we sometimes don’t ask, which is, what is the purpose of an economy? And some people would say, you know, like ourselves, maybe it’s to create wealth and to create growth, but others might say, no, it’s to create dignity. It’s to create a good society.

BLANKFEIN: What the economy has to do is two things. It has to create wealth. And a good economy has to distribute that wealth in a sensible way, in a fair way, according to the values of that community. 

I would say at this point, we have done a very good job of creating wealth. We are the biggest economy in the world, usually size and bigness is the enemy of sprites and speed and resilience. And yet our economy – which may have been the ground zero for a lot of problems – no one recovers faster, realizes their mistakes quicker, and reallocates investment dollars to more productive things. And so we are very good at creating wealth, but at the same time, it’s been poor and distributing in that because the wealth that has been created has been mostly because of the accretion and value of asset prices. So people with assets are getting richer, and those without assets are at best standing still, but they’re not getting wealthier because they don’t have the assets that are growing in value. So the gap between the richer and the not rich is expanding and it’s creating the polarization that we see in the economy that’s also has infiltrated the political economy and the politics of our country. So both of those aspects are true. So I would say the – and I’d say the latter part is more a function for the political sector to figure out how to distribute, obviously –

ISAACSON: Okay. So what would you do to have wealth inequality reduced if you were in the political sector?

BLANKFEIN: Well, obviously the way to do that always is to increase the things that get distributed for free. It could be healthcare, it could be childcare, it could be educate, you know, education, you know, for younger kids that some people pay for, but that otherwise could be something that’s just distributed. You pay for that by a progressive system. The people who don’t have big incomes can’t, don’t pay a lot of taxes. And the people who have big incomes – and I think most people are for that. And a lot of the debate that takes place that’s antagonistic to that is not so much antagonistic to the progressivity of the system, but whether in fact there’s waste and we’re spending money on stupid things or inefficiently on things. 

 I think it’s appropriate to look at a lot of stuff that we’ve been paying for a long time, that a lot of bureaucracy has been built upon. And maybe, you know, you don’t know what you could do without till you try to do it. And I’d be forgiving if the government did some things and had a reverse course because we decided that some things that were identified as wasteful or unnecessary turned out to be more valuable than we thought. But I think that has to be done. And while you’re doing that, I think what has to be done is raising the minimum standard of living for people who don’t have resources and adding stuff to it by paying for that with a more progressive tax system.

ISAACSON: Including healthcare?

BLANKFEIN: Yes, even healthcare I think that people will rail against the system and maybe it’s worth railing about, I’m not an expert on how on Obamacare or the things, and it’s certainly, we certainly are expending a lot more money for healthcare than other countries that are percent of our much higher GDP and don’t necessarily have the results to show it. Yes, including healthcare.

ISAACSON: You talk about how the inequalities of wealth that comes from great asset growth and the booming economy, but leaving people behind has led to a populous backlash. But part of that too comes out of the crisis, you write about in the book, the 2008 financial crisis, that there was a perception and perhaps a reality that the banks got bailed out, average person didn’t. Tell me what you think the ramifications of that were.

BLANKFEIN: Well, certainly it contributed to a sense of things being unfair and things being un- rigged. And, you know, in fact, the banks that accumulated lots of bad assets kind of went under, and the people who were responsible for those banks at the end of the day lost a lot of value. But you know, at the end of the day, government doesn’t lend money to people, and the central bank doesn’t lend money to system. The banking system does. And because the banking system was in distress, any money you put into the banks were husbanded and kept and retained by the banks because they had to increase – by the way, by regulation – they had to increase their reserves that were lost and had become exhausted. So the reason why the financial crisis and the recession that resulted from it lasted so long was because it was also a banking crisis. And the instrumentality by which individuals get reached and the economy gets stimulated was under stress. And that’s why that recession lasted quite a long time. 

ISAACSON: You talk about being an outsider, feeling like a real outsider at Harvard. Did you feel like a real outsider the whole time you were running Goldman Sachs?

BLANKFEIN: You know, I said, you know, I started writing that book at a point at which my life in East New York, Brooklyn was a quarter of my life. And yet that quarter, your early childhood – again, I’m not a lot of things and I’m not a child development psychiatrist – but I could tell you, but I am a father and grandfather, and I see kids. I think you get stamped at a very early age in a certain kind of way. You can – those tendencies in you get formed. You can lean against them, but you never are without them. And so I was stamped a bit as somebody who’d walk into a room and be very, very aware that I was different from other people and what that meant. And coming on from the wrong side of the track, my natural empathy is, you know, look, I get into a car and there’s a driver in front, and then when I get upstairs, I wonder, oh my gosh, is he, what’s he doing with his time? And is he, did he have lunch? And it makes you think a certain kind of way. 

And my identification is gonna be born out of those life experiences. And it’s just a very funny thing. Those life experiences at a very early age get stamped indelibly on you and they are on me. So the answer, that was a longwinded answer of saying yes, even though – I could be the CEO of the company and still walk into a room and know that, you know, gee, I’m a little less polished than these people. I’m a little less this and a little more of that than these people. And that’s a little bit of a, you know, that state that remains a preoccupation for your whole life. I’ll take it to my grave,

ISAACSON: Lloyd Blankfein, thank you for joining us.

BLANKFEIN: Walter, thank you very much. And I appreciate – I always love talking to you. Thank you.