Thank you everybody. Thank you for being here. We're going to get into some trouble with Lloyd Blankfein.
I don't get that lightning rod part.
You don't get the lightning rod part. It is a privilege to be here with Lloyd and it really is an extraordinary book, Streetwise: Getting to and Through Goldman. We're going to spend some time talking about the book, talking about his career and life, an improbable one, growing up in the projects in Brooklyn and ending up running Goldman Sachs and then the journey through that being a lightning rod and what that felt like and maybe get into what you think is going on now in our country and markets and worlds because I think we're all trying to figure it out.
Yes, let's do that. Let me start with this with the lightning rod piece.
Oh, you wrote this entire book I imagine because you think that there was something misunderstood about your story about the idea that people think of you as a lightning rod. And I wanted to understand, you know, writing a book is hard. I know how hard it is. Why did you even want to do this?
You know, I'm not sure. I thought I was pretty well understood. I wrote it because it was COVID outside and I was used to being busy all the time and having deadlines and pressure. So I started writing something, I started something, and then I showed it to people and they said this is good. What about this story? What about that story? And I said you know I'm going to keep on going and see how it goes.
But what did you want people to know about this about you and the idea did you think of yourself as she described as a lightning rod? If you watch a lot of the newscasts and broadcasts about this book, that is a word that's used often.
You know, something I don't, there's a lot of reasons why one can be a lightning rod and they're not always that bad. Not all that bad. I mean it's not that I would volunteer for it but I managed to find the silver lining inside every cloud here. The fact is we were highly influential but not at the same time not very well known by the general public. You know, go deposit your check at your branch, your Goldman Sachs branch or take a loan out or mortgage out of Goldman Sachs. So, we were kind of mysterious. That was the kind of the culture of the firm to stay in the background. And guess what? That turns out to have been a big mistake in a lot of ways because you couldn't be that influential and that significant, have that kind of a balance sheet and stay hidden. And so we learned the hard way. But I wasn't trying to, if you read the book I'm not trying to shirk it. I even put my review in there.
I know. Well, should we talk about that and go right there then? Here it is guys. This is in 2002. His review, this is by his colleagues. This is like a 360 review at Goldman Sachs. Opportunities for development: better listening skills, more inclusive, less dominant in meetings, can be overly harsh, adversarial and intimidating, tendency to micromanage. How accurate do you think so far? Indefensible, not open to other opinions.
I could go on. Look, it's safe. It saved time.
So what do you think of this now?
Well, I put it in there. I did it for a couple of reasons. Look, a lot of the book is showing accessibility. I mean, I've known some people in my life that were so brilliant. I couldn't figure out how they saw the world or what the world looked like through their eyes. It was so different for me. I would say Warren Buffett was a guy like that where he would reduce things, make it so simple and I think to myself, why couldn't I have seen that? Or an Elon Musk. Most of the people I know are very very smart, very very motivated, but a lot of people are very very smart and very motivated and some degree of luck and that all goes in. And some people may even be smarter, way way smarter, first 1% smart, but it's still not unfathomable. It's still accessible. It's still available. And I think that's who I was. And I try to make it that with the right institution, with the right kind of culture and run in a kind of ownership kind of partnership culture way you can get great things. And if you get people subordinate their ego in favor of the platform, you can then use that platform and exploit it for other things as well. So, some of it is I put that in there to show look, I've known some people in my life that look like they were voted most likely to succeed every year from kindergarten on. I wasn't that person.
So, where do you put yourself in that stew? I mean, when I first introduced you, I said it was an improbable story. You consider it improbable. I imagine it was improbable for me.
It was improbable for me. But then when you look at and again I'll say something about the country. If you look at the list of the richest people in the world or the most successful this or that, you know a lot, not everybody grew up in the projects but a lot of them are pretty self-made. In other words, if we did this 80 years ago you'd see generations of Morgans and Rockefellers and things like that. That's not what you see today and that's not what you see on Wall Street.
Where do you think your drive came from?
Well, I know. Look, I did grow up in a pretty distressed neighborhood of East New York, Brooklyn. Went to a distressed high school that subsequent to my leaving it was shut down. Didn't leave the house much for safety reasons. And I wanted to get out of there. And for me at that time when I was a kid, getting out, the big vision that I had, I didn't know anybody that went to college. I didn't know anybody whose parents went to college. I wanted to go to an out of town college. That was my big burning desire. I thought if I could go to an out of town college...
Harvard's calling by the way.
They call often the development office and always at fairly inopportune moments like this.
So you wanted to go to college out of town.
I wanted to go, to me I didn't even know what that meant but an out of town college was going to be the recipe for being in one of those situation comedies, you know like a Father Knows Best or one of those things where they had a house and a lawn and kids and a dog, that kind of thing. It just was a vision that I had when I was very young.
Yeah. Leave it to Beaver. American dream.
Yeah. You know like the normal typical American that nobody was. So when did it go from that dream to what became the Lloyd Blankfein that ran Goldman Sachs?
You know, once just like in writing the book, if I had a vision of how much lay ahead, I probably wouldn't have undertaken it. But one step at a time you do this thing. You want to go to an out of town college. You don't want to be the stupidest person in your class. You want to justify somebody's confidence in you. And you just go on and on and one step after the other. I think if you had set it all out, I would have taken a deep breath and gone back to sleep.
Did you ever have any conception that you'd become the CEO of this firm? And I asked, I think we met, I was trying to think back 2005 or six, right? Right before a partner meeting in Chicago. This is right when Hank Paulson was actually about to step down to go work at the Treasury Department. He got a call, right? He accepted a job. He got offered a job that he was reluctant to take, was offered Treasury job by Bush and it was the second half of the second term of an unpopular. What how could that possibly be interesting? And so he wasn't going to do it and they offered it to him and he kept going back. And once you go back, you know, you're going to have to take it because the guy walks you through the rose garden. I guess right now there's no rose garden anymore. In those days, they walked you through the rose garden. And I said, Hank, you know, you're going to take this. And he said, No, I'm not going to take it. And I said, Hank, what was your first job out of school? And he said, Oh, I was a White House fellow. I said, Give me a break. Of course you're going to take it. You know, this is what you wanted to do. And guess what? He took it. And did you know as you were having that conversation that if he took it, you were the next choice at that point?
Yes. I would say it had been very far-fetched for a very long time and it wouldn't have occurred.
Had he read this review, the opportunities for development?
You know, that actually at Goldman Sachs is quite a positive review.
One of the things you actually talk about in the book which I found fascinating for those folks who are in the sort of management business. You talk about managing down.
Actually rather than managing up. What do you mean by that?
Well again I don't have like a whole section of it. I made the observation and I guess I thought it would be obvious in a lot of ways but if you're doing a really good job the people over you fight for your attention and your time. A lot of people are giving you stuff to do for them and they give you more than you can do. When you have more than you can do, you have the choice of what to do. The way I could do a good job and make a name for myself was having the people that reported to me be super enthusiastic about my success. You know, we had an unwritten kind of contract. We're going to be good for each other and nothing set out. But if you invest in people and they support you. Now, what's the difference between doing that right or doing it wrong? You can ask somebody a question, they give you the narrowest answer. We're in a risk business. People can see stuff going on, call you up and tell you about it. They can wait till you hear. They can wait till you ask them. They could wait till you ask them the precise narrow question. You know, there's a lot of ways that people can passively resist and there's a lot of ways that people can really really help you out. And if it's the latter, it's most important. So I would say the relationships that I had with the people who reported to me were much more effective in advancing my goals.
Okay. So you get the job, you're now running the whole place. We and by the way, we've skipped some of the most exciting parts of your younger years and how you didn't really start at Goldman and obviously were acquired effectively. And what I before we even go to what it meant to become the CEO culturally, what was it like being acquired into a firm like Goldman? And why do you think you weren't like an organ reject?
Well, I was an organ reject, but I persisted like sort of like a, I was more of a vestigial organ than a rejected organ. You know when I, I had applied, I went through college, went through law school, had massive amounts of loans so what do you do, you become a lawyer and you go to work and I was kind of at that path and then you get to about four or five years and probably a lot of people here where you have to decide whether you're going for it or not and so I left with, I was going to leave with a lot of people. I interviewed with a number and you live in New York so what do you interview at? You either go to, you interview consulting firms, I interviewed investment banks. I got turned down by all of them. I wasn't always the polished person you see before you here today. And I didn't get a job anywhere there, but I got a job at this commodity trading firm called Jay Aaron and Company. Which had a burst, you know, during there was, before this current blast of the gold and silver market, they had one during the Hunts corner. This was the Bunker Hunt. And they made a lot of money one year and being the great traders they are they extrapolated that into infinity and sold it to Goldman and I was part of that and so having been rejected by Goldman and then acquired into Goldman I spent like the first several years like every time somebody from Goldman, I walked by someone from Goldman Sachs I hid my face. And so that persisted for a while until...
So when did you get comfortable?
Well, a few years later, well, I started doing a lot better than they hid their faces from me. So,
Okay. So, you get this job though. Let's go to the being at the top because I think it's, you get this job and you are thrown into the deep end almost immediately. I mean, you get the job in 2006 is when you get the job and by the summer of 2007, you tell a story about what you think I think was the worst moment of your time entire.
First we had the crisis, we had the crisis of the century roughly every four or five years. And probably so you asked me what was the worst moment and it actually wasn't the financial, it was actually a precursor to the financial crisis. It was if you think of the financial crisis when some of the firms started going under in the mortgage crisis there was actually a moment where it's like in a western movie where the horses in the corral start whinnying and kind of there's a cloud on the horizon. And that happened to me when I was sitting in a movie theater with my wife watching a movie. I can't remember the movie, but I was doing what I always do when I'm in a movie theater. I was reading my Blackberry and the P&L, going through the P&Ls of what happened that day. And there was a fund that we managed. Wasn't even our own balance sheet. Wasn't our own money, which made it worse, but it was other people's money that we were managing. Something that would move on a busy day, a wild day, it would move like five basis points, like 5 hundredths of a percent, but this moved 8%. And I go, whoa, that's not supposed to happen. And so after that, got on the phone and then all of a sudden this is back in the world and just not technical, there's a lot, this was relative value stuff where things get a little bit out of line. One asset versus another, but they generally stay in line with each other. If one's a little bit highly valued, you sell that one and you buy the other one and then they converge over time. And so it's not dramatic. It has a lot of leverage and you make little tiny amounts on large numbers and that's how you get through life. Except this was moving wildly. So a lot of relationships were breaking down. By the way, that happens periodically. It's happening now in some ways.
We'll talk about now in just a moment.
But and that was the precursor to what was then a very rough time where we had a fund that was very highly leveraged, 20 times leverage. It was highly leveraged because these things never moved and they were in relationship but then they weren't and of course they were liquid. I noticed that there's some people in the market who talk about semi-liquid investments. Now, that's a current term of usage in private credit land and other things. And to me semi-liquid is stuff that you can easily sell when you don't need to and can't sell at all when you do need to do it. And that's where the semi comes from. And so we had a fund that I hadn't thought of it at the time but was semi-liquid and we were coming to the illiquid part of the semi like needed to get out and it was 20 times leveraged and if something is 20 times leveraged and you sell a dollar's worth of stuff and you lose 5% of it, 5 cents, you don't have the asset anymore and you go to collect your money and there is no money.
You got nothing because the whole dollar is used up because it's 20 times leveraged. And so that was bad. And we did a lot of stuff to make that work out. And what made it worse at the time is we were having a record year for Goldman Sachs on balance sheet and we were watching a fund that we were managing with other people's money and that couldn't happen. I mean that couldn't happen.
And that was worse to you. Tell me what was the worst moment in September of 2008. When did you know that the wheels were coming off the car?
Those are different things. That wasn't, my worst moment was when I got a call from a very well-meaning alum of the firm who meant well and said, had no idea what our position was. I said, but he reflected what other people must think must be going on in the firm because at that point he was an outsider and he said you know I really love the firm you better do something and merge the firm into somebody or else before it's too late. And I'm going, whoa, this is what he thinks. We better, we mustn't be communicating very well. And that was the worst moment. That was way after we were dealing with crisis and crisis week. You're familiar with this, you wrote about it. You wrote the book on it. Where we went through all those successive weekends at the Fed with the other heads of the five families trying to open up the market on Sunday night in New York, which is Monday night in Tokyo. And everybody's biting their fingernails and one weekend the government has to guarantee money markets fund, the next week they have to take care of Fannie Mae and Freddie Mac and the next weekend it's Merrill Lynch and the next weekend and going through all these successive things and so this was way after we were in Defcon 1 or Defcon 2 but that was like the worst, that was a bad moment because you know...
Let me ask you, Goldman emerged among all of the firms the most unscathed, right? If you will, but there is a debate even to this day. I felt kind of scathed by the way but there's a debate to this day that if the government hadn't come and opened, the Federal Reserve hadn't come and opened the window and there wasn't additional money that was provided to some of the other banks and things like that that Goldman too would have been taken down. What do you make of that? And because that is the ultimate critique.
Well, you can critique, but I'll tell you, I don't know that that wouldn't look the way I put it and I wrote about this and you wrote about this and you know a lot of background information because I was even communicating with you at the time because a lot of stuff was being written and I had the most confidence in you and I had you come in and audit our books in effect. That... say it again.
Well I think the question is, well we all look at Goldman and I think people give Goldman credit on one side but those who have the critique would say yes they might have been the best among a bad bunch then they would not have existed here if not for the Federal Reserve and other measures.
It was a freezing of the markets. It was a credit thing. If nobody was paying anybody for fear that if I gave you value and you owed something to me, I didn't know your solvency. So guess what I'm going to do? I'm going to hold on to my money and wait till you pay me. But you can't pay me because you're waiting to get paid by someone else. There's a whole daisy chain. Not to make it sound illegitimate, but it's a legitimate thing. Everyone owes money to everybody else. That's how the financial system works. But if everybody becomes suspicious and is only going to pay out what they owe when they receive what they owed from someone else, guess what happens? Nothing. It's frozen. There's only one balance sheet that's big enough to reassure the markets and said, I can see through you. We're the regulator. We know what people's assets are. Don't take anybody's word for it, but we're going to make sure that if you pay, you'll get paid. And that's really what happened. And it unfroze. And by the way, that's all they really had to do was to just get that going. And by the way, that will happen. That's why you have the so-called lender of last resort. But what would be the odds that Goldman Sachs in particular, you know, we had access to the market. We did a capital markets transaction. Warren Buffett invested in us. We did so we could have, at that point we were raising money.
