Now, as we've seen, the war with Iran is also hitting the financial sector. Iran has declared it'll go after US and Israel's regional economic centers after one of its own banks was targeted in a strike. This as oil prices continue to skyrocket, sparking fears of a recession. Lloyd Blankfein knows about navigating times of great uncertainty. As the former CEO of Goldman Sachs, he led the company through the 2008 financial crisis. His new memoir, Streetwise, looks back on his humble beginnings and his rise to the top of the career ladder. He shares his reflections with Walter Isaacson.
Thank you, Chris. John and Lloyd Blankfein, welcome to the show.
Thank you, Walter. Happy to be here.
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?
You know, I don't think so. But one never thinks so. That's the nature of a spark. The point is we haven't had a reckoning for a long time, which to me means 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 of the forest, it would have 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 $90 oil may be 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 going to be borne 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.
And could that, what would happen if you got to 130 a barrel for oil?
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? And so that's a very poor situation to be in and one tries to avoid that.
You know there's been about 4% growth in the economy in the past but half of that does seem to be from AI infrastructure and the complex investment. How much does that worry you?
Well, 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 if you ask me what my base case is, I think it's absolutely terrific. I think 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. I look, first of all, once the genie is out of the bottle it's like you can't unlearn stuff so we're going to 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 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 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.
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?
Well, there's some irony 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 also produced a lot of motivation to get out. And frankly that 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 drive. In fact, nobody, I didn't remember anybody having a suit. Very, you know, very blue collar. Not necessarily that different from a, you know, a lot of people. It was very motivating. It was very motivating.
Well, wait. So, how did you get to Harvard?
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 grown-up. It was probably a young guy, but 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 grateful. 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 got there. 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 the doors that got opened to you. By the time I was done with four years I was then prepared to first get into Harvard as a result of my four years there but there was some acculturation and difficulty. But I label it advantages because I don't know, I didn't have to source my motivation. I know a lot of you 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 want to go with this. You know, there's some advantages to having no choice.
