Goldman Sachs CEO Lloyd Blankfein Speaks From Boston College - Thursday March 22, 2018 | CNBC

Glad to be here. You did spend seven years here, so you're no stranger.

Yeah.

I spoke English.

Well, those are all different questions. One of the reasons I always think, how did you get to a place when you're in the place? It's kind of a funny thing. Being in the risk business and thinking of things in a mathematical way, the odds were very remote that I would be in this place from where I started. But someone would have been here, and there was a 100% certainty of asking that question of someone. So I'll ask you the second one, which is what inspired me. Because there's a lot of... look, I was smart enough and ambitious enough, and a lot of things enough. But some people want more, and some people... there's a lot of luck and chance in the world. I don't take anything away because you have to respond to luck and you have to seek it out sometimes. Sometimes you answer a knock on the door, and sometimes you're standing by the door and answer it when it's knocking on somebody else's door. I'm not going to diminish it, but I'm in forecasts. I went to... it was great, and a flash that I got into college was unbelievable. I think I got into Harvard, I'm getting to others, but somehow they did it, which is why I'm to this day very supportive because they found me. I wasn't that obvious. I went to law school because I had no idea what to do. I practiced law, and then from then I didn't plan anything. A lot of people leave law firms after a few years. I was one of them. I couldn't get a job. People were applying to Wall Street firms, which I did, and I got turned down by all of them. Including Goldman, and Dean Witter, firms that don't exist. But I got a job at a small commodity trading firm called J. Aron and Company. And I found out after the fact that they hired everybody. They had this metaphor, this was a very streetwise firm, and they thought of their hiring practices as mud down a sluice. If they just poured as much mud as they could down the sluice, you had a better chance of finding a diamond at the end of it. So they'd hire like 30 people intending to have two at the end of the year. That's what I did. And then just as I was saying, what am I doing here, they got acquired by Goldman. So I joined right about that time, and that's how I got into Goldman. That was lucky. And then when I got to Goldman, in precious metals, it turns out it was the only international business that Goldman had. It was a very domestic firm. You couldn't get a confirmation in any currency but dollars. This was at the wave of internationalization, and they asked me to do stuff in foreign exchange and to help hedge out some breach gas investment. So it was the first earliest things. So I found myself, given my roots in East New York, Brooklyn, to become the great internationalist, but I found myself by quirky circumstances there. And that was a huge theme. I just got caught up in that vortex, and I grew up in the organization. I don't want you to think I'm falsely or otherwise modest. I did well in that context, but so did a lot of people. But it's like the smartest, best new people who were making the biggest contribution to the firm weren't put in those new areas. They were too valuable. It's like who populated the new world? The third sons who weren't lucky enough to get those two and a half acres from their fathers.

Well, I knew it was. Of course. We could talk, we've spent a lot of time going through this stuff. But it was very unnerving. I was very philosophical at the same time, because being a naturally fatalistic person, I said, I knew it. I'm going to be CEO, the world's going to blow up. It's not like Goldman Sachs, big balance sheet company, involved in everything, so nothing can go wrong anywhere without affecting us. But oddly, this goes to show how much we punch above our weight. We were viewed as ground zero for the mortgage crisis. We don't do mortgages. That's pretty good. If we buy mortgages from other people, then therefore we could be an enabler because we bought mortgages from other people who had bad origination practices. We may have onsold them in a bad way. Nothing alleged, or we enabled other people who had bad practices to sell what they had, get money, do other things. None of which I think was the case, but that was it. But we were hardly ground zero for the mortgage crisis. We're really not. We're only derivative or secondarily into it. But we're very high-profile. If you're in New York, I'm in the paper every day in the Post, and frankly a lot of the national papers, and get a lot of attention. So we were getting it. The financial crisis for us came in two parts. There was the existential part where nobody knew who had what, who was solvent, and who had liquidity. And that we navigated very, very well by not being a bank, largely because we ran our business in a sensible way. We hedged. If we bought something, we sold it. Some people thought housing can't go down anymore. Some people thought housing prices are going to go to zero. We had people at the center of the firm who managed that and would let people go long if other people... that whole stuff. But that was done sensibly. So that was the existential part. And there was about five minutes where people said, how did you do it? And I felt good for about five minutes because people were looking for us to blow up or something, and we didn't. And then 15 minutes later it was, how did you do it? Which was kind of the reputational part. Because all that hedging that we did, we bought, we sold. Well, why would you sell that when you know it's going down? I said, well, we didn't know it was going down. Well, you sold it. Why'd you sell it? We always sell it because we brought it over here. I said, well, don't tell me that. So I saw all that and got involved. And there was nothing about my early training that would prepare you for that. So you learn how to cope. The existential part, I have to say we got through it. But it wasn't like every moment I thought... and they're very clinical about this. I've been in the risk business. I came up through the trading side, managing the risks of the firm forever, for a long period of time. But I didn't get that way because I'm a happy-go-lucky guy. I looked at this stuff and I'm saying, gee, there's a percentage. What are the percentage probabilities of the world blowing up? And let me tell you, I'll ensure a rural insurer houses that have a point over 1% risk. I didn't like going to bed if there was a 15% risk of things melting down. So I would say, when people go out and now evaluate how regulators and decisions that were made, and everybody is on a high horse, oh, you shouldn't have done that, shouldn't have intervened in the market. See, it didn't blow up. Yeah, it didn't blow up because that's what they did. And it might not have blown up, but who of any kind of responsibility would allow the country to go along with a 15-20% chance of that kind of a meltdown? It would have been a response. I think they did a good job. But we did have to negotiate weekend after weekend where there was one crisis after another. And fortunately, we just didn't know how long it would be. If somebody would have told me that it would have been as bad as it was for as long as it was, I wouldn't have gotten out of bed. But since every time it seemed like, in hindsight, it was reasonable that it would take as long as it did and there was as much rough stuff to handle as it did, but at the time of course you don't know. So you just get up and you do what you do. You had Hank Paulson, Ben Bernanke, Tim Geithner, all in the center trying. I think they did a very good job again in the fog. People will write dissertations for the next hundred years about what they did and find fault with everything. They should have done this, they shouldn't have done that, they should have optimized. But in the fog of war, when you didn't know what was going to happen, when you had to make decisions of huge consequence to the outcome and also take a lot of risk with respect to their own reputations, it wasn't even a matter of for most people what's the right thing to do. But in that context of the politics that existed at that moment, if you knew the right thing to do, how hard is it to do something where you know if it all goes well, people are going to hate you? Because if it all went well, they think you didn't need to do that stuff. And if it went badly, they'd also hate you. So they were putting themselves... and we're sitting there, all these guys who make a lot of money, do this and have that. Whether or not it was this level of responsibility or that level, we were still in or around the scene of the crime, if you could call it that. We were involved in that, in managing the mob and the finances, not as a whole but in our own contribution. And the regulators who had to sort this out, I'd say they did a very good job and should be honored for it. If people want to poke at them because now people are saying, oh, you should have, could have... that's kind of petty.

Look, we're in it. We advise a lot of different industries, so I deal with this disruption in other industries. Look at the way things are. Look at M&A now. Look at the media telecom space. Everybody's getting everything. People aren't just aggregating. You have cable companies that want to get that by telephony, mobile, and that by satellite because they don't know what's going to win. Used to be, if a mobile company was going to merge with... they're not a mobile company, but a mobile company may be more valuable to a cable company because they just have to make bets. Every industry. Automobile: 17 million cars, if they're all riding around, you still need property, you just don't need casualty insurance companies if those cars don't bump into anything. Occasional person, but you don't know what's new. But there'll probably be fewer axes. You can go industry by industry. For us, it obviously manifests in a lot of positive ways, some negative ways. But for us, I'll give you one indication. Goldman Sachs has been the ultimate wholesale firm. I just said we don't go get a mortgage at Goldman Sachs or a credit card. Marcus, for the first time after 148 years, we're going into a consumer lending business. How could that be? Why would we do that? The press says, oh my goodness, you're going into this, you're looking for things to... It's not so much that we changed, it's that the opportunity changed because of technology. Originally, if you think of consumer lending, a savings and loan would look into people's soul. You make 500 loans, you have to know the character. You have stores, people come in, they pour their story. But if you make 50 million loans, it's math. It's algorithms, it's digital distribution, it's risk management, all core strengths of ours. Every time you put down a credit card, somebody's making a loan to you. They're not asking you a lot of questions. In a heartbeat, less than a heartbeat, they're making a credit decision. So that's a core strength of ours. It wouldn't have been before. And there's obviously a consumer experience element at the other end of the computer. You have to import that and develop and grow some new muscles. Service centers, we have a service center we wouldn't have had before. But it now enables us to be deposit takers, which we did by buying a platform from GE and growing our own consumer business. These are muscles that we never exercised before, didn't have. So that's a change in our business. For us, there was an evolution here because we became a bank holding company over a weekend, and we were finding assets we could put into it because we are a wholesale business. We don't do a lot of bank-like activities that could even be in a bank. So we were looking around, what could we put in a bank to give it some heft so it would be a bank? Then the second go-around, 2.0, was, there's a cheaper source of funding that comes with a bank. Why don't we take advantage of it and take other activities and put those in a bank that don't have to be in a bank, but we can put them in a bank? 3.0 was, we're a bank, should we be doing stuff we wouldn't have ever considered doing but now can do because we're a bank? And the answer is yes. In this consumer business, just to give you our mindset, a lot of what we'll be doing is refinancing credit card balances, which is a gigantic market. There are a lot of people in the world who finance themselves. Statistically, a huge percentage of the country couldn't pay a $200 bill for a dentist without taking out a loan. Most of us don't live in that world, but that is the world. People run up constant credit card balances. As you may not know, because I'm sure you all pay your credit cards off the second you get the bill, people are paying rates of 21, 22, 24 percent. Those institutions, in normal banks, have no incentive to offer people consumer loans at 10, 11, or 12 percent. We are either cursed or blessed with no consumer business, no legacy operations. If we had one, it would be the best part of our business, the highest returns. But we don't have that. The normal folks who would disrupt that business, the Silicon Valley crowd, aren't bank holding companies and can't take deposits to fund them. Some of the names have been out there doing it, but those don't work that well because they have to package and onsell the loans. They can't be flexible because it doesn't sit on their balance sheet. It has to be packaged and sold to people who take all the margin from it. So we're in a weird place. We are a bank with no legacy bank businesses, normal bank businesses. That's a very odd place to be. So we could be our own disruptor. Historically, we've always been very tech-oriented. Our CFO was former head of technology. We have a lot of technologists in our company. A lot of the platforms that people take for granted, ARCA, ICE, all these platforms, came out of Goldman Sachs and spun off. But industry by industry, most of the changes that come from Silicon Valley involve payments and the infrastructure and guts. To actually do the actual banking stuff, the core banking business, there's a moat around it. And the moat is becoming a bank holding company. No one in their right mind would accept the benefit of raising deposits and the massive burden of regulation that attaches, except that we weren't given much of a choice. So there we are.

Well, a couple of things. One, I would say you can get something from everybody. I know I'm in the belly of the beast here in Massachusetts. It's only with some great trepidation I'd say anything positive about the president in this crowd, but I would say that one of the things I admire is the way he disintermediated the press. I think really. Henry Ford didn't invent the car, but he figured it out and he'll always be associated with that. I think you can make a parallel to that. He certainly has used that. And if you're honest and you're in the press all the time, every day around six o'clock, somebody says to me, the Wall Street Journal has just called, this is what they're going to write tomorrow. Then you go through and you call them up and you say, oh, that's wrong, please don't, let me give you... and they go, no, this is what we're going to write. I felt like one of those villagers in The Magnificent Seven before the... please leave some grain. And then all of a sudden I see, wow. So I'm thinking to myself, I'm not going to do that. That's an artist's thought, but that wasn't the background thought. I valued it. We are... we don't even have a name in our building. Nobody enjoys those Goldman Sachs commercials you see everywhere. Never. My successors will do that at some point, but I'm too grounded. You don't put your name out. Your clients not only come first, but if they see your name, you've done something wrong. I'm just grounded in that thought. So it wasn't... I was at Silicon Valley at a venture capital conference for their portfolio companies. I'm sitting next to a guy, a fellow who runs a company called HootSuite, which is an amalgam of other social sites. He goes, all you guys are going to do this stuff. You're all going to go out and talk to the public directly on your own. Why don't you just throw in the towel and just do it? I said, you know, that's absolutely right. I was sort of tweeting by press release anyway because things would come out like immigration stuff. The LGBT issue was a big issue in New York. I was chairman of the New York City Partnership, which may be a group like this group. I was chairman of that during the time when marriage equality, before it became an amendment, was before the New York State Legislature. I was in the front of that. So I'm standing out press releases about why we need to do this. The themes were always related to either something that Goldman Sachs had an expertise, so people would expect me to comment on it, or in my role as champion of our people, something is affecting the people in Goldman Sachs and their ability to do their job. I feel like I should comment on it. So being able to move their spouses from one country to another, or their boyfriends or girlfriends, if you were gay you could move where you couldn't get health care, or your spouse wouldn't get benefits in this location. Things that affected their business life. So I didn't reach out on just my personal issues, but enough that I would issue press releases that get reported. I felt like I was not only licensed to do that, I felt kind of obligated to do that. So I was in that mix. Then you combine all those elements. I said, I'm just going to do this. Scared to death, my fingers are trembling. I'm not used to doing something where I can't get it back. The first time I did it, the second time I used an emoji. There was an American flag, and I commented something. I went to the flags and I found the American flag, I put it in, and then it was going and clicking through. Then somebody said, why did you put the Liberian flag? I go, what are you talking about? Then I went back. Who knew that the Liberian flag looks exactly like the US flag except... Then I said, how do I get it down? The guy goes, no, you can't take it down. It's really bad if you... once it goes up, you look really bad because people will note. I said, thank you very much, get it down. I'm not doing that. So I felt my way along. Being a kind of natural snark, it worked. So I just got back. If they're picking up on infrastructure week, you know, go. I realized, gee, this is like The Price Is Right because you want to get as close as you can to the line, but if you go over it, the day. So I felt my spots. But I'm not like Britney Spears with 90 million followers. I have 90,000. But on the other side, probably 20,000 of them are press people and the media. So if you send something out, I could count down, five, four, three, two, one, it'll be on all the business channels, especially if you're doing something that's provocative, lively. So I did stuff on some of the things that were going on in the government. It's a balance. People are interested because I'm at Goldman Sachs. I go, it's Goldman Sachs, not to kill the firm by doing something too stupid. So I'm measured. But it's definitely mine. Goldman Sachs has its own account, and I have mine.

I think it's been... I have no regrets. In fact, if I weren't at Goldman Sachs, I could be really good at this. The ones I don't send are really doing... but I write these things out and I say, am I going to send this? Sometimes I ask for advice on it. But when I'm asking for advice, I know I'm not sending it because that's the reason. I'm just basically showing off what a funny thing somebody else's tweet should probably get a little advice too.

You know, there's an evolution. The pleasure-pain principles take hold. If you act a certain kind of way and it doesn't work, you do less of it. If it works, even more of it. Over time you become a different person. The way I think of it, and this is what I tell people, people don't always know who they are to other people or the consequences. I think if you understood it, most of the stuff follows from that. If you know the impact you have. I always say, as an exercise, where you are in your career, maybe it's a first year MD, a new partner. Think of when you were very much younger in the company. Who that person was for you, and how did you think about that? That's who you are now. I do that today because I don't think of myself. I realize what other people must think. When I joined the company, it was John Weinberg, John Whitehead. These were big lions of the industry, famous names. I was a younger guy then. But I remember how when they came to the floor, how I responded to that. And I realized after a while, oh, that's what people are thinking of me. I may not think of myself that way naturally, but they are. And that request, when you think of things that way, it imposes a certain amount of gravitas, makes you act in that kind of way. So there's that. I always remind people that you're not necessarily there to be loved. It's good to be loved. I'd rather be loved than not loved. But what you want to do is be appreciated. So you'll do things that people may not like. You're not there to be their friend. People don't want friends. They want people who make them better than they otherwise would be, enhance the platform that we can all share and work off of, and be better than we would be as an individual. So you have to get people to subordinate their ego, not out of selflessness but out of a longer-term greed that once you make that better platform, we can all exploit it to our own purposes and ends. That's a thought. The longer you do it, the more you can give stories because you have the stories. Also, what happens is, I realize now that as a CEO for 12 years, I was president or vice chairman for six or seven years before that. There's a very tiny percentage of the company who don't remember me as CEO or president. That's something else too. You can get away with a lot because there's nobody who remembers me as anything else. If I'm trying to improve people, I want to say, look, I was like you. That's not credible to people because I was never like them in their experience. But I have to have that with my kids too. We were talking about this yesterday. Your kids have a lot of advantages, but they have a lot of burdens because they only know you the way you are now. Whatever mythology attaches to how magnificent we are, they don't know. So you sometimes have to tell them, because otherwise you overly intimidate people. You make yourself so good that you become unapproachable, and then you can't help them because you're not human.

Well, Macron, I really do think right now, and we'll have to see how things evolve further, but right now the most important central leader in Europe is Macron. Merkel, who's a fabulous politician and has been for ten years the center and the most influential person in Europe, and maybe the greatest statesman in the world for some of this period, is weakened by having a weak coalition. Whereas Macron got into government with a huge tsunami of support and controls his legislature. The question in Paris is also, will he get cold feet? Will he see it through? His predecessors didn't, even though they had a bit of a mandate, but got cold feet. The first time they set the trucks on fire on the road. France is France, so I don't have any illusions about how difficult it is for change in that country. But this could be... he's not like a Thatcher or a Reagan. He may be like a Schröder in Germany, who was a socialist but who changed. It's hard to remember, but we know Germany is this huge economic power. If you think back 25 years, the book on Germany was it was going downhill. The first two generations after the war were killing themselves, worked hard. But after the 80s, remember the depression, the morass people sunk into, all the socialism that crept across Germany. All of a sudden it didn't look good. It was bad. Schröder, who I don't think has had a great afterlife in terms of what he's doing now, but at the time he reset that in Germany. He got rid of... they had short work weeks, unions controlling companies and everything. That was reversed in a way that Thatcher played that role in different places, and Reagan. So people want to see this. Sometimes you see what you want to see even if it's not there, but I think it's there. I spent time at that meeting and I met with him. I knew him before, not friendly, but I had met with him before he got into government. I think he has the potential to be the real deal. He can either do it or we'll be disappointed. But I'd say this is a moment in time where he seems to be on the right track, and the people he has in his government are like that too. The first thing you say is, is this just dependent on him? If he's gone, will it stick? I asked him that question. He said, if it works, it will stick. If it doesn't work, it won't. Which is the right answer. None of this, oh, of course it will stick, a new day has dawned. His approval rating is said, but we'll see. We're watching him. Parallel to that is what's happening in Japan, where Abe has been... they used to have a different Prime Minister more than one a year, and he's been there for a few years now. He came in with a mandate, and now it's a little bit uncertain how much further he can go. Everybody gets unpopular after a few years anyway. So I think the lesson is, if he's going to do it, he better do this stuff soon while he has his mandate. Rip the bandage off really quickly. If you asked me whether I still have the optimism I tried to convey there, yes. Just that the stakes are higher now because he's more influential now. He has a bigger percentage of the pool of leadership influence in Europe because of the weakening of Merkel.

Well, a few things. In my career, I would say less in my career because I've always been shocked to have gotten any opportunity I got. I'm just totally saturated with concern that I screw it up. So it was never like, oh my goodness, I got the silver medal, I'm so disappointed I didn't get the gold medal. I was more saying, how did I get to sit there? I didn't have that. At various times I would say, gee, it would have been nice to get a Rhodes scholarship. But I would have had to have applied for it. In order to have applied for it, I would have had to be somewhat close, and I moved myself out. Things like that. I think at this point, I'm probably not going to be a member of Augusta, but then I'd have to take up golf first. So there are a number of things that I think would be highly prestigious and wonderful to do, but it's not like I've been teeming with frustration and ambition not to have it. I've been pretty... I think one of the things... there are some people in life that I look at. I flew back from Washington yesterday with Jay, and I said at one point, there's something almost everything is a blessing and a curse. The one thing is, there are some people I know who are terrific, and the world looks at them, they're highly influential. They must have been voted most likely to succeed in kindergarten. The entire way, they're a good-looking guy, captain of the football team, this and that, their entire lives. Those are the people who I think get far but probably have the most potential for disappointment. And there are people who are late bloomers who find themselves in unexpected places, and it's kind of all good.

I don't know. I'm worried about it. My wife says don't quit. I think part of that is selfish, that you're around. She at least casts it as for my own good. I don't know. I'm worried about it. But I do know that it's very hard to leave these jobs. They're hard jobs to get. One of my predecessors told me, because people didn't speculate when I'm leaving, from the day I got the job, he said, don't leave so quickly. They're hard to get. If that's true, but I also know, how many other than Jim Brown leave at the top? You have to be a certain age for that. Another way, when things are going badly, and our job is very volatile, in the financial... our job is partly trying to guess the future. We guess. I'm trying to get there and try to get it right, managing risks. It's hard to get that right all the time or even a lot. So things go good and well, they go badly. When things are going badly, you can't leave. When things are going well, you don't want to leave. So almost by definition, you have to leave when you don't want to leave because one you can't, and the other you don't want. So I know that I have to leave when I don't want to leave. My last five predecessors kind of got the normal way out for us at Goldman Sachs. CEO leaves to go to the government. My last five predecessors went into the government: Paulson, Friedman, Whitehead, Corzine, Rubin. Bob Rubin went into the government. The one six back died at his desk. The government doesn't seem that available, and I'm not sure I'm guided. I'm not sure I want to die at my desk. So it creates a problem. But I'm not going to leave because I'm finding something else attractive. I just think I'm going to have to have the discipline to leave when I want to stay. I read a lot of history, and I know how things go and evolve. That's what's going to happen. There was press on my tenure recently, and it's frequent. But really what the story was is that we widened the succession candidates. It said nothing about my tenure. So that's why I tweeted that. I said, I cough into my own eulogy. So it wasn't right, but it may not be wrong forever. 12 years in this job is like Methuselah. I was sick for a while, so I thought about this stuff along the way. But I'll tell you, I don't know what I would do, but I know I want to do something. That's also part of it because I'd like to have a runway to do something. But I'd also like to know what that is. That's why the first thing I said when I saw Jay, because we were in Washington together, we participated in something together yesterday and flew back together. I just kept cross-examining him, how are you thinking? And he starts talking about golf.