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 Blankfein, the former CEO of Goldman Sachs. He's also the author of a new book called "Streetwise: Getting to 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 Straits of Hormuz, 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...
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's so many wonderful insights in your book about you navigating both good times and really tough times running Goldman Sachs, and you have talked too 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. We're due for a kind of reckoning. That 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 where it would like it, into a world where there's -- where employment's very good, growth is pretty good, always concerns, inflation, a concern, but 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. It's a question of how much and when. And we have a lot of fiscal stimulus coming in. The Big Beautiful Bill or whatever you would like to call it, has to come. And, by the way, there's stimulus owning two big expenditures by the hyperscalers who are investing in A.I. And A.I. 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 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 are 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, do you -- 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 who got helped and who got that -- and all these institutions were all different from -- all difference from each other. But, certainly, we had a financial bubble. Individuals were buying houses they couldn't afford and multiple houses, 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 the 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 aren'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 pertains -- that we're still wrestling with this today more than 15 years later.
Yes, and that people are very much still grappling with, right, in terms of digging out of financial holes.
And it bears out. 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 are -- 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 are right, because we really do have a bifurcated economy at this point.
And you do posit this question in the book that, had we not lived through that crisis, we may not have had as polarized a society and maybe would not have elected Donald Trump. You really believe that?
