Q&A Podcast: Lloyd Blankfein on “Streetwise,” Goldman Sachs, and the 2008 Financial Crisis

Yeah. Goldman Sachs is an investment bank, which means we deal with securities. Basically what an investment bank does is it has great relationships with the people who need capital. Who needs capital? Companies that are trying to invest in new plants and equipments. Governments need to finance themselves. Individuals sometimes often borrow money. We deal with the people who need capital and we simultaneously have relationships with the people who have extra capital to invest. We get a good reputation with both sides and then we get them to meet with each other. I mean that's basically in a nutshell what an investment bank does and generally we're associated with the securities market more than with the lending market. So if you think of regular commercial banks in which people go and go to branch offices and put deposits that tends to be a commercial bank but investment banks tend to deal at a corporate level or a governmental level mostly wholesale. Real people don't use investment banks. Companies use investment banks and we raise capital for them. And for the other side of the ledger we help people figure out great places to invest.

Yes, it does because the people who need capital may need it today and it may not be available today. So, we will extend ourselves. They may need it in a form that's not available. The people who need capital may want to pay a fixed interest rate out for 10 years, but the people who lend capital out may want to have a floating rate interest rate. So, we will bridge that. We will give each side what they want and we will manage the risk between those two things.

By the way, there's another thing we do besides it's kind of like giving capital. We also take on other people's risk. So, if you're an automobile company and you're building cars, you need certain commodities to build those cars. You need to borrow money. You may need aluminum. You may need batteries. And but they don't really want to be speculating in foreign exchange if they're selling overseas. They don't want to speculate in the value and cost of aluminum. They may want to do hedges. They may want to hedge those materials out and we'll do that also. We'll take on other people's risk. So your question about risk, we are definitely taking on other people's risk either in terms of financing or in hedging the price of other things so that other people can do their real core businesses.

Well, because we're a wholesale firm, I mean, we don't really deal with individuals. Go try to get a mortgage from Goldman Sachs. That's not our business. And so, we are dealing at a very very high level. We have very very capable people who tend to spend part of their lives at Goldman Sachs but they have other chapters of their careers after Goldman Sachs or there's a lot of people who used to work at Goldman Sachs yet people don't experience what we do for a living and what we provide. So people know we're kind of big, important, highly influential, a little bit mysterious. And now I'll go into the more negative things. And we tend to be notorious in some ways. There's nothing that could go wrong anywhere in the world given the scale of our balance sheet. In other words, how many assets that we have from time to time and the risks that we manage. There's nothing that could go wrong anywhere in the world that doesn't affect us. And then because of our influence as a firm and because of the influence of a lot of our alumni, people hear about us but they don't quite know what we do. So we tend to be a little bit notorious and there's some mythology grows up in people's minds.

We I think allowed that to happen because prior to the financial crisis where we learned a lot we always valued our anonymity. It was part of our ethic. I mean our job was to put our clients i.e. big companies, big investors, institutions in front and we were to be in the background. We were not supposed to be self-promotional. We were supposed to promote the interests of our clients. But of course nature abhors a vacuum and so does the media. And when things started to go wrong I mean here was the mistake we made. We were just too influential, too important, too big to be anonymous. And when things went a little bit awry, people had no real experience with us and so people filled in our reputation for us. I think we learned a lesson from that and so I became more available to the public and that was a calculation because prior to that the ethic was stay away and be anonymous. We had a whole publicity department whose sole job was to keep us out of publications and then we realized that was really a big mistake on our part. So we made ourselves more available to people and we extended ourselves.

It's true that I was told that. And by the way, I know that it's true that at the core of it is true also. It's not just the assertion. It is true. That it does. And look, my last five of my last six predecessors Hank Paulson, Bob Rubin, John Corzine, Steve Friedman, John Whitehead all went into the government either at the cabinet level or in the case of Corzine became a senator. My successor Steve Mnuchin, ex-officio Gary Cohn, I can go on and on and it's not just here several prime ministers including the current prime minister of Canada and past immediately past prime minister of the UK and the prime anyway I can go on and on but there's a lot of ex-Goldman people in so much so that there was a time and this was meant as a pejorative 'Government Sachs' as if going into government service was a pejorative. I took it as a compliment. And then there were comments about revolving door, but our door didn't revolve. We didn't hire from government. Government hired from us because the ethic at Goldman and the people we hire tend to be service-minded.

I mean, people go to Wall Street, they, you know, certainly they want to make a good living for themselves. They're interested in the work and the material, but there are different kinds of people that find their way to different kinds of places. We tended to find the people who in the long term were public service-minded. I remember talking to Hank Paulson when he was being asked to be Treasury Secretary and he was debating whether he should do it or not and I said Hank what was your first job out of college and of course he was a White House fellow. I mean those are the people that come into the firm and guess what when they leave the firm they look for opportunities to do other things and one of the things about Goldman was people do generally leave with enough time to have other chapters that's also an expectation.

Well, I don't know. No, there was a famously Sydney Weinberg who started like before the depression and lasted till the 60s. And another example I mean I think he chaired several things for the government again very much involved in government service during the war and afterwards member of many many boards of directors back in the days when people like myself would join the boards of directors now we're so aware of conflicts that people like me don't join other companies boards of directors specifically to avoid conflicts of interest with other clients etc. But no, he was the longest service. But after him, I was pretty long. I was probably in recent history longer service. I wish my successor luck. Maybe he'll go. I doubt I'll keep that record for long.

Yes. He and I started about the same time. And of all the CEOs that went through the financial crisis, which is over more than 15, 17 years ago, when I left, he was the only one longer alive than me. Everybody else had gone by then, and he's still going on. God bless him.

Oh, not necessarily. And by the way, for balance, you should give some of my you should those are all the good comments. You should give some of the bad ones in the interest of fairness and balance. No, I don't think the requisites and by the way I think I have been described at that and what I used to say to people is it's not that I'm impatient, it's just that I hear faster than you speak. And look, the comments are the comments and I guess they're fair. I think I was and I say this again.

No, in fact 2006. In fact, in my book, not the version that you have there because I think you have an early galley, but my book actually was just published yesterday. So, you know, no reason why you'd have the current one. I put in one of the photographs. I put in a picture of my review from 2003 just before I got promoted to president of the firm. And I think there and it's a 360 review, so it's amalgam of many people's reviews of me. And I think what I said in the caption under it that it must have been a very very well-ordered conspiracy because they all found synonyms for the same thing which is very much along those lines. But also I think and you could test this in the world I think had very good relationship with the firm and very good relationship with the people in the firm. So much so that even though I've been out for seven or eight years now, I still am quite engaged with the firm and quite engaged with a lot of people who are some still at the firm and many are in the capillaries of finance and government and have very good relationships. So a lot of that I took with a grain of salt and everybody who wrote that ended up we all had a good laugh. Not that they didn't mean it, but they understood that it was all part of a package. And look, it's a very intense world in general and we represent a very inner core of intensity within that intense world.

Yeah. Now let me say another thing and I know this is maybe a nuance but Goldman Sachs I spent half Goldman Sachs has been around for like 160 years and for most of it it's a private partnership. It went public about a little over 25 years ago and I spent half my career in a partnership where the leader of the firm was a senior partner and not a CEO and of course half my tenure was in the public company and I was a CEO but we still ran ourselves and I think one of my contributions that I'm proudest of is that even after we went public we tend to think of ourselves and still affect a partnership kind of a culture.

Now that may not mean anything to a lot of people but I can tell you what that means and it has a lot to do with how I operated in the firm. You know, a corporation, very hierarchical, lightning bolts come out, the fingernails of the COO, command and control, again, hierarchical, very status, who reports to, very clear organizational chart. And your employees are the employees. In a partnership, you're mutual agents for each other as a matter of law. When you talk to the people who work there, they're also the owners of the company. It's a partnership. They own the whole. They don't just own their little space or their narrow job. Everyone's wealth and their earning and their company is based upon how the firm as a whole does not just narrow space. As owners, which they are partners are owners, they feel entitled to information. They feel entitled to give an opinion. They feel entitled to give an opinion six or seven times on the same issue because again they're your co-owners and a senior partner really doing his job correctly is listening to that maybe even slowing down the process socializing more as opposed to ordering and maybe even from time to time stopping or even changing your mind. That's a partnership.

It's a very very stable kind of organization. You get an ownership culture where everybody is committed and feels violated if somebody next to them in a different job with different responsibilities is behaving badly, they'll raise their hand and say something is wrong. You get a room full of owners instead of employees. And we continue to I think the firm continues to function that way. Even my successor understands the importance of that and runs it that way. And from a point of view of a leader, you can't just mouth those words. You have to act that way. You do have to listen more and you do have to slow things down and you do have to respond to people's criticism and maybe you can't get things done when you want them because you socialized it and the organism is rejecting it. And so there's a consequence to running a partnership, being a senior partner versus a CEO. Now, there's certain legal requirements that the world imposes on you when you're CEO. You sign the financials. You do all sorts of things. You're the point of contact. If anything goes wrong, people come after you. And so the buck stops with you. So ultimately, you have to say, 'This is the way it's going to be.' But in a senior partnership, you let the socialization process go on for a lot longer. And at times, I found that awfully inconvenient. But again, putting your money where your mouth is, you still have to do that.

Correct. We're a public company and we trade on the exchange and there's a concept of material information and if there's material information and a health issue for the CEO and a very consequential health issue for the CEO is material information and of course we had to disclose that and you know it's safe from time to time and so when I got sick I mean everybody's worried about the treatment. We're doing all sorts of tests and all sorts of things. I'm getting prodded and probed and some of the things I'm told in hindsight were painful tests, but I didn't notice. I was too busy trying to organize a press release so that we could stay on the right side of things and again, in a partnership, you're responsible to your partners. In a corporation, you're responsible to your shareholders, which is the investing public represented by a board of directors. So, I don't work for the board of directors. The board of directors are the representatives of my owners, which is the public. So, you're a public company. That's another difference between a corporation and a partnership. And so again, it's consequential in terms of the way you carry yourself.

It does because I grew up in public housing, the projects in New York City, we call it the projects. And it was a Yeah, I was Yes. So, Streetwise is a play on the street and the street, you know, Wall Street and the streets. So, I grew up in public housing. I went to a very very public high school, kind of a failing high school that actually was shut down a few years after I graduated from it because of its failure to educate the people in there. I had a so that's an unlikely start to where I ended up but I benefited from the kindness of a lot of people that owed me no obligations but I did okay. I made my way through because opportunities came my way and I took advantage of them.

So my dad was a my dad who always had two jobs at least two jobs and would lose a job from time to time and I remember there was a period of time when he had no job but my dad ultimately got into the civil service which he swore by and which was a godsend for him but his job was as a mail sorter in the post office. He worked nights sorting mail back when mail was sorted by hand. And I still remember him coming home and flipping the names of villages in Connecticut because this is pre-zip code even. Villages in Connecticut. And when he retired was the only time I saw his place of business because his and I'm sure no one was allowed into the general post office at that time, which was in Brooklyn. But they made an exception. We came in just to see the people, you know, people left. And he was sitting across a bench with other people with cubby holes where they were putting in letters. It was all done by hand. And I noticed that behind him was this big machine that was wrapped like they had some plastic over it. I said, 'What's that?' And that was a mail sorting machine that probably at any time in the last 10 years probably could have done his job many, many times faster. Never make a mistake, but it was never turned on because being civil service and being the post office, they didn't plug it in, didn't turn it on until there was enough attrition. They didn't fire people.

There's a lot of information embedded in that, but the takeaway for the moment was can you imagine doing a job that you knew really didn't have to be done and could have been done better by a machine and yet you were getting paid to go in and do that. So the only satisfaction available at that point is that you were making money and earning a living but you weren't necessarily doing anything productive. It would have been like carrying bricks from one side and when you finish that carrying them back to where they started and I thought that was I can't get that that's kind of seared in my mind of kind of a sacrifice he needed to make a living and so he was doing that but there's a lot of people who don't like their jobs but they don't feel like they're doing something pointless.

Well, when I grew up, again, when I grew up, there were changes along the way. My sister who was older my sister she passed away, which is so I'm using the past tense. My sister was older than me. She was nine years older than me. So, she had a baby at a young age. And so for my grandmother lived with us, my mother's mother lived with us. And we started out in, you know, two bedrooms, we ended up in three bedrooms, but again, it was public housing. It was small. Now listen, even at Goldman there are people, you know, which is very diverse population, people from all over the world. There are people who grew up in war zones and walked across very unhospitable territory to get to where they are. So, I can't say that I had, you know, I still had two parents. I still grew up in America. I still went to schools where you can get a scholarship and go to an Ivy League school even from a failing high school and public housing. So, I don't want to, you know, I'm not trying to extol that I conquered more setbacks than anybody else had, but I know that's not the way people would think of me if they knew what my, you know, knowing me and meeting me and have my job. I know when I've had people read this book and other people have reviewed and or I sit for an interview, they're surprised to hear from where I came from and it popped up in other places.

I remember being obviously in my job I met a lot of officials and politicians and I remember going back and forth with somebody actually one of our senators and he goes and I got one of these 'that's the problem with you people you have no idea how blah blah blah' And this was actually Senator Gillibrand when she was starting out. I was the chairman in New York City of the New York City Partnership which is like a chamber of commerce. And I remember one day she visited us and I remember saying you know really both of your parents were Albany lawyers but believe me I know this better than you do how the other fraction of the country lives and but it doesn't change anything it doesn't change mine but that comes up from time to time.

I remember with Mayor Giuliani in New York a similar kind of conversation where he assembled everybody at Gracie Mansion the mayor and had this thing and was kind of lecturing the business community I was there as a senior business person in New York City and I remember raising my hand and I said you know something and he did the same thing and I knew something about him also. I said you know my dad graduated high school and worked in the post office. Your dad went to Yale. You were lecturing me on this stuff and then it got funny because I said at one point why don't we I said you pick a subway line and let's see which of us can name more of the stops on that subway line. And so, and actually, by the way, ended up having a very good relationship. Our politics didn't always align, but I ended up having a very good relationship with him.

It was, but of course, he had a Boston accent since he wasn't even from New York. So, the indignity I had to suffer of him lecturing me about how I should behave and everything. And not only did his father go to Yale, but he wasn't even from New York.

No. I got into and this is terrific. And so I'm grateful I've tried to pay it forward. I've tried to pay it back and pay it forward. But I interviewed I was always very ambitious to leave to get out of where I was living. My goal in life was to go to an out of town school. That was my vision of what the break was going to be and then I'd be prosperous, be able to accomplish great things. If only I could go to an out of town school. Nothing wrong with Brooklyn College, but a little too close to home. And so I went to a college night at a different high school. Thomas Jefferson High School didn't have a college night, but I went to a college night and there were booths set up and there was a Harvard booth and I went to the guy and we chatted. He gave me an application and my memory is having filled that out, that application, which now I realize were essay questions and the like. I've gone through this with my kids who had a different experience than I did. And I think I filled it out the way you'd fill out a landing form when you got out. I just literally asked a question, I wrote an answer and they took me. I didn't get into every college, but I got into Harvard, which was saying something.

I remember my interview where I went to again from deepest Brooklyn to Manhattan, which was a big deal going into the city. And of course, I built in a lot of time. I was 15 years old or 16. Everyone got through school fast because you just took major courses. And so I was young. I was very young even for the moment. And by the way, not very worldly. And so I wanted to make sure I was on time. So I timed everything perfectly. Take the walk to the bus, get the bus, get the subway, get lost. And so I think I got there about in front of the place that I was to meet him about two hours early. And I remember walking around the block. And I went in and where was I getting interviewed? At the Harvard Club. Now, not many listeners will have seen the Harvard Club, but you can close your eyes and imagine what that looks like. One of the great interior spaces in New York. And I met the guy and was sitting in very very deep plush seats. And I knew it wasn't his house, but I figured he must live in some place like that. I had never, you know, I didn't know this stuff. Subsequently to that, even as a young professional, I volunteered to interview people for college. And I always met them at a coffee shop. Never met them at any place fancy. And even though I never met them in my apartment, which wasn't even that fancy, but I thought it could have been a lot better than theirs, and I didn't want to impose that on someone else.