Good afternoon and welcome to the Chicago Council on Global Affairs. It's great to see everybody here at lunchtime. What a tremendous opportunity we have today. I'm Leslie Vinjamuri. I have met many of you over my last, I think I arrived on July 1st to succeed Ivo Daalder, Ambassador Daalder, as the president and CEO of the Chicago Council on Global Affairs after 20 years based in London. It has been a phenomenal several months and the very best part has been meeting most of you who are sitting around these tables. I hope for those of you who I haven't yet met that we will have time to have coffee, have a drink. Drinks are especially good at this point in our world history, and I seriously appreciate them. But I hope I get to spend more time with you. I could not be more honored and thrilled on behalf of the trustees of the Chicago Council on Global Affairs, many of you are here in the room, and my colleagues and our fellows and non-resident fellows, to be able to very briefly introduce today's conversation with one of America's greats who's joining us today, Lloyd Blankfein, to talk about his book, Streetwise: Getting to and Through Goldman Sachs. We know there are a lot of people that would love to get to Goldman. Of those of them who get there, I wouldn't know. That hasn't been my journey, but I have no doubt that they would really love to be able to get through. Boy, would they love to get all the way through to being chairman and CEO and now in the next phase, senior chairman. So, what a phenomenal career and an honor to be able to host a conversation which will take place between our former trustee Chris Kio, who is global co-head of institutional client business and head of the Chicago office of Goldman Sachs. We are going to give you a few minutes to eat after I finish, but Chris Kio used to be a trustee of the Chicago Council. He was my first coffee conversation when I arrived in Chicago on a Sunday morning to interview for this role. And so I am forever indebted to Chris who is a friend of another Goldman friend in New York and came highly recommended. I also wanted to mention Jerry Keefe from Goldman Sachs who is one of our newest members of the trustee, new trustee here somewhere. Jerry, it is wonderful to have you on board in your individual capacity but not really because you're with Goldman. And we also have as our distinguished non-resident fellow on the global economy, Lord Jim O'Neill, who spent many years at Goldman Sachs, can't be with us here today but was sort of messaging with Lloyd in the green room, is mentioned in the book, was the founder of the acronym BRICS, and has already been a phenomenally engaged fellow in his writings, in his webinars, speaking for the council, will be visiting us before long. So the relationship, as you know, the Chicago Council on Global Affairs is fully independent. It doesn't take an institutional position. It certainly doesn't follow in any direct fashion, and I mean this seriously, the wishes of those who support us. But we value in a way that cannot be expressed, certainly not by me and in just a minute, the support over many years. And I mean that not just financially but intellectually by people turning up and by people bringing us their people because that's really what makes Chicago and the middle of the country special and the Chicago Council be able to host conversations like we're going to have today. So, at a time when we need leaders, at a time when we need reflection, at a time when we need people to cut right through to what matters and say it like it is, no better place and no better conversation than the one that we are going to have very soon. We are on the record. We are not live streaming, but we are capturing the stream and so it will be shared out after this event has concluded. So if you speak, you will be recorded so it's a fabulous opportunity and certainly for the author and Chris who will be in conversation with him. Please enjoy your food and we'll give you a few minutes before we begin. Thanks so much for joining us.
Well, thank you for this incredible opportunity, Lloyd. Welcome to Chicago. We're all very grateful to have you. Before we get started, special thanks to Leslie for her and her team hosting us. It's a terrific time to have you in town and to talk about a great many things. The book is incredible. Everyone should know it. It has debuted at number four on the New York Times bestseller list. And so, with your help today, we'll get that up to two or one. And so, buy early, buy often, kind of like voting in Chicago. And so, anyway, so think of all your friends and family, right? No, exactly. The holidays are just around the corner. Load up right now. So Lloyd Blankfein, chairman and CEO of our firm from 2006 to 2018, prior to his time at Goldman, a tax lawyer, which in the book he tells you he hated, but a proud graduate of Harvard Law School and before that, Harvard undergrad. The book is wonderful, at least in my opinion, because first and foremost, it stays true to Lloyd's voice. And so for those of us who know him, it's like he's reading it to you. And terrific anecdotes that...
Well, I understand. I look forward to the audio book. I assume that you'll be reading it.
No, it's already done. It's in the can. It's great.
Okay. Fantastic. Well, when I want you can fall asleep every night listening to it.
Actually, you did fall asleep listening to me. You used to be in Asia. I used to call you.
That's correct. You always used to hear me snoring. Yes. Usually when I was trying to get to the important parts.
Lloyd, let's get started with the first and most obvious question. You stepped down as chairman and CEO in 2018, but did not write this memoir until now. Talk to us about the timing and your decision-making process on deciding to do this book.
Well, actually I started it something like four years ago and I was going along, I was going along just fine because the beginning of it flowed easily because anybody who could contradict me was dead in the early parts. And then when I got to the part of things where people were still alive, it got bogged down a little bit. So, now I started it, you know, was a little bit bored, a little bit coy outside. And you know, and I started and then, but what I just said is actually kind of true. I wrote a lot of it and then I put it down and then I picked it up. And part of it was, you know, it's like, you know, you get out of these jobs and, you know, you pick up your grandkids' plastic telephone, you bark some instruction, and there's nobody on the other side. And so, you know, you want to comment, you want to do, I was tweeting a lot, and I'm that rare person who tweeted a lot and argued with people and didn't get cancelled. And being in risk management, I thought it would be a good time to stop that.
Well, you canceled yourself at the exact right time.
I did. I mean much to our dismay because the banter back and forth was usually very entertaining to those of us who have worked with you at the firm.
Yeah. But the problem was I started to mix it up with Elizabeth Warren and Bernie Sanders and I realized...
Well, they love you. Yeah. Well, I realized that why am I fighting with people with subpoena power. And so I...
So the lawyer in you and the risk manager...
And the risk manager, you know, I went through the whole financial crisis and I said, you know, I quit. Most of the people who had my kind of job usually get carried out of their positions. And I always thought one of the, if you're going to be a risk manager you have to stop doing things when you still like it because when it goes bad, when these things go bad, you can't leave. And so you have to leave when things are going well, when you really don't want to leave, but you have to have the discipline to do that.
It's interesting though, this book is arriving at the perfect time. So the book for those of you who haven't read it has wonderful stories and anecdotes of his childhood, how he got to Harvard, and we might explore these today. The majority of the book really delves deep into the credit crisis, Lloyd's leadership style, the things that he wrestled with. And I think it's that part of the book that feels most on time and resonant right now. We're at the table.
Say the credit card. You mean that credit card as opposed to...
That credit crisis? Yeah. So, this credit crisis, which is not a crisis yet, but there's cracks in the credit cycle. Love your thoughts on that. And then you also are an astute reader and student of history. You care deeply about geopolitics. We live in interesting times. So maybe comment on that.
Well, that's a lot of stuff. We do want to...
Well, I mean, we have 45 minutes before I even have to open it up for...
Why don't you break it down into chapters?
Okay. Well, I haven't written a book yet, but yes, since you're the client here, let's break it into the first chapter. Talk to me about your thoughts around where we are in the credit cycle, how serious it is, and maybe also talk about your thinking around markets.
Well, I'm tempted to say we're closer to the end of the cycle than we are to the beginning. Every day we get closer to the end. I think one of the problems, just stage setting, we haven't had, and this applies to a lot of assets, we haven't had a reckoning in a long time. Generally, you know, you go through something like the big financial crisis and everybody gets kind of scared to death and everybody gets very, very disciplined for a while and eventually that discipline erodes with the passage of time. Memories fade, new people come in, new risks getting taken and that's why there's generally a cycle for things. Now, generally during my tenure, we had kind of the crisis of the century like every four or five years whether it was the dotcom bubble, long-term capital, Russia default. We just had them periodically and it's a little bit like in the movie The Godfather, where they say, you know, it's good to have these mob wars because you get rid of all those grudges that build up over 10 years. And I'd say it's good to have a reckoning every once in a while because it gets rid of all the indiscipline that's on balance sheet that doesn't get reflected very well. And so there's undoubtedly not having had really a big set of problems that affected the market since the '08-'09 period, you just know that there's been a lot of stuff that built up and what does that mean on balance sheet? It means things that, you know, nobody's, I'm not suggesting that there's fraud being committed and certainly not, but there's, you know, indiscipline and marked assets that don't trade with any liquidity, you know, that went on people's balance sheets with optimism and that optimism has never been, hasn't had to be challenged for a very long time and no one has had to force sell into a market that didn't necessarily want the stuff. And so that's the general context. So I think it's perfectly appropriate to be looking at places now or to just use another metaphor, there's a lot of kindling on the floor of the forest and at some point, and it's almost inevitable, a spark will happen. Now if the kindling wasn't there and there was a spark nothing would happen. And so everyone say, 'What's the precipitating thing?' Well, it'll be something that at a different time wouldn't have caused a fire, but it will because there's just been a lot of buildup of stuff.
Now, people are unnerved a little bit about the credit, you know, and specifically because we're talking about some cases, you know, private credit is in the news. Those things don't get really marked. I was reading somebody else's, you know, the report. They get marked maybe once a quarter, right?
I just, I read that. I didn't know that because at Goldman we marked every day. We marked all the time which was an important discipline. And what we also did is we forced people to sell things.
Well, I think that's what that comes through the book multiple times that there was a rigorous mark-to-market culture that you grew up in and really double clicked on as we went into the crisis and we were ahead of it because of that discipline. And there's wonderful anecdotes about we always allow risk management to have an equal seat at the table with whoever is trading the position or has the position on the books and if they don't agree with the mark-to-market and this is what was fascinating you said that's great go sell it and let...
You just said, you know, again, you know, people now characterize, which I think is the funniest thing in the world, semi-liquid, right? Positions which to me means...
It's great for retail. No, semi-liquid positions means it's liquid the half a time you don't want to sell it and illiquid the half a time you do want to sell it. So that's hence semi-liquid. But...
That's so, that's a phenomenon, so that kind of stuff is building and now I'm not talking about any specific thing and by the way if to get to the punchline, I don't think this specific thing is a particular systemic problem because, you know, it's not that, I think it's not that leveraged. Now I also thought at the beginning of the big financial crisis that mortgages weren't that leveraged either. So you just don't know. The point is we just don't know. But it's being challenged now. You can't say it's not in the atmosphere and people are looking at that pretty hard. What it doesn't feel like to me is it doesn't feel like a banking crisis because it's not, there's no real, some of these funds are leveraged but they're not very leveraged at the fund level. And I think the market could absorb that. And there's, you know, the loan to value was very, and I also take note that some of the, and again I have no inside information, but I observed that JP Morgan took down the value of the collateral. Some people interpreted that as JP Morgan was marking down its assets, but no, it's marking down the assets it's holding as collateral from some of these funds. So in effect, it's raising the margin requirement incrementally. And so I don't know that that will be, and usually if it's something that we're all worried about, it's not going to be from that quarter.
Probably it'll be somebody, it'll be some technology hack or somebody's fat finger that wipes out stuff where nobody knows who's solvent and who isn't that causes, but it'll be, it feels overdue for, and I say it's overdue for a reckoning.
Yeah. And the reckoning, yeah. And the kindling analogy, once the forest burns down then...
The mere passage of time in a cycle, in an investing cycle creates higher and higher levels of risk because the more stuff that accumulates the more brighter the flames will be when if it does catch. It's kind of a funny way to say it but I think a lot of participants in the market, which is why anytime somebody steps on a twig everybody pops up into the air because everybody's very nervous. Right. Okay. You...
The general context of the market and the economy on a macro basis is actually quite positive, right? And you can lose if you just watch TV all the time, you could lose sight of that.
Yeah. And you could also argue that a steeper yield curve, there's a cost of capital now that makes sense as well, right?
Again, part of the buildup of the kindling was the cost, you know, for a long time like when these things were put on, the cost of capital was kind of zero. How do you allocate a commodity that has, you know, the price is zero? You get very, very, you get very undisciplined.
Right. You started your career in Jaron, our commodities business. It's now fascinating to me again you're a student of history. You know a lot about the commodity markets amongst other things. When you look at what's happening in the energy markets, industrial metals, rare earth metals, what do you think?
Well, I wish I was longer, you know, that's what I think. Look, the whole world right now is focused on the price of oil, you know, the Gulf, what's going on in the Gulf and specifically the Straits and the price of oil. And that's really, if it weren't for that and you could see every time it looks like the slightest ray of sunshine coming through like they let a boat through or something is going on you could see what happens, I mean I watch it closely than most people do here but you know the equity market just pops. And go back, you know, just taking a step back, the general, the economy is, you know, is doing very well. Now before all the hate mail comes in, it's doing well for a lot of people, you know, the K-shape that people talk about, the rich getting richer, the poor are just sort of staying the same. And so the gap between rich and poor is widening. And so that's really why society is so polarized. And you know this simple reason for that, which is unfortunate in a way, is that the asset prices are bulging and so if you have assets you're doing really, really well and if you don't have assets you're not participating.
And you've also discussed in other interviews and I think it's very salient this cultural moment in time in the country, this K-shape that you're talking about. It does have some of its seeds in the '08-'09 era. Do you want to...
Let's say the general, you know, polarization has seeds in that area and the kind of the bitterness and the politics has certainly has seeds in that and...
Well, you, I mean and we all, you know, looking around the room, everybody lived through, everybody in this room lived through that era, right? And obviously, you know, the people that you would have wanted to have been punished seems to have emerged a lot better than the people you would want to have helped.
And that happened a lot because in addition to being, it wasn't a normal recession, it was a normal recession with a big banking crisis.
