Former Goldman Sachs CEO Lloyd Blankfein on Why He Doesn't Tweet

Lloyd Blankfein was CEO of Goldman Sachs for more than a decade, riding the trading boom to the top of the storied investment bank and steering it through the 2008 financial crisis. In his new memoir, Streetwise: Getting To and Through Goldman Sachs, he writes about his journey from public housing in Brooklyn to the pinnacle of Wall Street. So what's he up to now? And how does he see markets and finance today? In this episode, we talk about deglobalization and Wall Street, the threats AI and tech pose to investment banking, risk management in private credit, and rich people's attitudes towards taxes. Plus, Lloyd shares some of what he left out of the book and he explains why he doesn't tweet more. Read more:Goldman’s Solomon Is Watching for ‘Frothiness’ in Private CreditPrivate Market Titans Warn of Pain as Credit Cracks Widen Only http://Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 01

  Your team is on a deadline, but moving all your enterprise data will take time your business simply doesn't have. IBM Technology lets AI work with your data where it already lives with an open hybrid cloud approach designed to build on your existing investments. It's another way IBM helps you put your data to work. Let's create smarter business. IBM. Visit ibm.com to learn more.

• 0:57Speaker 02

  Bloomberg Audio Studios, podcasts, radio, news.

• 1:13Tracy Alloway?

  Hey there, Odd Lots listeners. This is Tracy Alloway.

• 1:16Joe Weisenthal?

  And Joe Weisenthal.

• 1:18Tracy Alloway?

  We are very pleased to bring you a live recording of the podcast that was part of Bloomberg Invest. That's our flagship investment conference over here at Bloomberg. And we truly had the perfect guest, someone I've wanted to interview for a very long time, never got the chance. It is, of course, the former CEO of Goldman Sachs, Lloyd Blankfein.

• 1:39Joe Weisenthal?

  Take a listen.

• 1:40Tracy Alloway?

  Joe, I have a confession to make.

• 1:41Joe Weisenthal?

  Yeah, go on.

• 1:43Tracy Alloway?

  This is probably the most nervous I've ever been for an Odd Lots episode.

• 1:46Joe Weisenthal?

  Are you for real?

• 1:47Tracy Alloway?

  Yeah. And I'll tell you why. And actually, the reason why, you'll know, because you were there.

• 1:52Joe Weisenthal?

  I do know.

• 1:52Tracy Alloway?

  The first time Joe and I ever met Lloyd Blankfein in person was at a sort of media roundtable. And for some reason, I felt incumbent upon myself to tell a joke.

• 2:01Joe Weisenthal?

  You were late, too.

• 2:02Tracy Alloway?

  Oh, I was.

• 2:03Joe Weisenthal?

  You came in late.

• 2:04Tracy Alloway?

  All right, I forgot that part.

• 2:05Speaker 04

  I like that.

• 2:05Tracy Alloway?

  I told a joke to try to, you know, make it up, I guess. Probably the joke was at Goldman's expense. At which point Lloyd leaned forward on the table and he said, let me tell you how I would have made that joke funny.

• 2:20Tracy Alloway?

  And the worst part was, he then made a very, very good joke that was a lot funnier than what I had just said.

• 2:25Speaker 04

  I think I said, you're supposed to, you should put the punchline at the end, not at the beginning.

• 2:29Tracy Alloway?

  That's right.

• 2:30Joe Weisenthal?

  Wait, can we actually talk about what the joke was? The context of the joke, because I remember it well.

• 2:35Tracy Alloway?

  Go on.

• 2:35Joe Weisenthal?

  So the whole reason that the media roundtable happened was that apparently Lloyd was supposed to be in China for some reason. And something happened, like, um, someone from the UK was there and Lloyd's schedule got changed. And so they, at the last second, they're like, oh, maybe some reporters will bring in. And then the joke that Tracy made was something about having to like, oh, were you going to go there to recruit princelings for Goldman Sachs, which at the time was, you know, one of those scandals out there.

• 3:03Tracy Alloway?

  I swear it was better than that.

• 3:05Joe Weisenthal?

  But that was the theme of the joke. It was at Goldman's expense.

• 3:08Tracy Alloway?

  All right. So we all learned our lesson, which is don't try to be funnier than Lloyd because he'll beat you at it every time. But Lloyd, congratulations on the book.

• 3:14Speaker 04

  Well, thank you.

• 3:15Tracy Alloway?

  Very exciting to be speaking with you. One thing I learned from the book is that you're spending your time trading now. And when I read that, I sort of had a vision of you on your phone on Robinhood, trading like zero day options or something like that. What are you actually trading?

• 3:31Speaker 04

  I, I'm, well, I'm sort of committed to Goldman. I would be on Robinhood.

• 3:34Tracy Alloway?

  That would make sense, yeah.

• 3:35Speaker 04

  Except for the history. No, to me, that's, um, one of the occupational hazards of my prior life is that I watch markets all the time. I watch markets at night while I'm asleep. And so I know the price of everything all the time. And I trade, but it's not like, when you say I'm spending, you spend your time trading, no, it's just background noise. While I'm having a conversation, in my life with people I, you know, hang around with sometimes in business, it is not considered to be rude that if you're talking to somebody, you're not looking at them, but looking at a screen or a phone or something like that. That's, that's kind of okay. So it's like.

• 4:10Tracy Alloway?

  I work with Joe. I, I know.

• 4:11Speaker 04

  So trade, doing that, when somebody says, what percentage of your time? Your time, it's like listening to music. You can listen to music while you're doing something else. So you, it adds up to more than a hundred percent.

• 4:21Joe Weisenthal?

  What are your trade? No, I'm not. We're not here for stock recommendations, but like, what's interesting markets and such that you feel compelled to click buttons and try to anticipate moves?

• 4:31Speaker 04

  Well, I was always kind of a Mac. I mean, I came up through what we call them, you know, macro markets, large things, interest rates, you know, government policy, fiscal, you know, the sort of stuff that kind of moves all assets together, although there's always differences. So that's my background. But I mean, things, I mean, everybody now is in the is in tech, because if you weren't in tech, you'd be bankrupt because you'd be wrong for all this time. So everybody is, given how the markets have moved sort of consistently for a very long time, I could tell you what everybody is kind of in. And of course, I could tell you who's getting hurt at any given part when it gets upset for a day. But I'm in probably things that wouldn't surprise you.

• 5:12Speaker 04

  But maybe the biggest surprise is that I'm all in, you know, so like I'm always 100% in equities now.

• 5:18Joe Weisenthal?

  Wow.

• 5:19Speaker 04

  Yeah, risk assets. That's what you say, risk assets. Yeah, risky assets.

• 5:24Tracy Alloway?

  Well, so after you retired from Goldman, some people were surprised that you didn't choose to go into politics like some of your peers. Yeah, well, explain that. Like, why did you? You took a proper break when you left Goldman.

• 5:36Speaker 04

  Yeah, well, let me tell you, if somebody gave me something overwhelmingly interesting and fun, I might have done it. Five of my last six predecessors either went into the cabinet, except for John Corzine, who became Senator of New Jersey. But, you know, you know, Bob Rubin and Hank Paulson, Treasury Secretaries and whatnot. I came out in the, I stopped in 2018, end of 2000, so the second half of Trump I. The beginning of Trump I, you know, the economic team was Gary Cohn and Steve Mnuchin, all ex-Goldman. So I think we had had enough of that. And I certainly didn't want, I didn't want to like add myself to the list at that point. And so kind of drifted on, then I drifted through COVID. And I say, you know, I kind of like this. You know, not sending an alarm clock in the morning and Saturday afternoon, having lunch with people

• 6:21Speaker 04

  and not having to go to the airport on a Saturday afternoon so I could get to Beijing first thing Monday morning. And so it's easy to get used to sloth.

• 6:30Joe Weisenthal?

  So here's the thing, I get not taking some big job after retirement, like I totally get that. I get wanting to trade and that sounds like stimulating and intellectually, you know, interesting and fun and so forth. Here's what I don't get, why don't you tweet more? And the reason I ask that is like, because like I'm addicted to posting and a lot of people in your shoes or at your level, they feel this impulse to like always weigh in on everything and Twitter is a great place to do it. I know, but never that much. And what I want to know is like,

• 7:03Speaker 04

  Oh, no, no, I was, I was fighting with people, I was fighting with people that had subpoena power.

• 7:08Joe Weisenthal?

  Okay, so how do you resist the temptation to keep doing it? Cause I would like to know how to post less. So how do you resist the urge to chime in on everything?

• 7:15Speaker 04

  I was in the risk management business. And so the risk reward of certain things, so for example, retired. When things are going badly, you can't leave my job. And by the way, we had the crisis of the century every four years and most of the time they'd accuse us of, and probably you accused us of causing it falsely, of course.

• 7:33Tracy Alloway?

  I did write a few of those headlines, I would.

• 7:35Speaker 04

  I pretend to have forgotten that. But when things are going well, you know, when things going badly, you can't leave. And when things are going well, you don't want to leave, which is why in my line of work,

• 7:47Speaker 04

  everybody leaves in distress. You know, you get fired, something comes over, the world blows up, you don't do well, you have, you lose, something happens. And I didn't do that. I left on my own steam.

• 7:58Joe Weisenthal?

  Yeah.

• 7:59Speaker 04

  And I quit tweeting. I still tweet very occasionally, but I mostly quit tweeting before I got canceled, which is very unusual.

• 8:07Joe Weisenthal?

  Really impressive.

• 8:08Speaker 04

  Cause most people quit after they've been, most people, most people get quit, they don't quit on their own.

• 8:13Joe Weisenthal?

  And you chalk that up to your natural risk management knowledge and like intuitions, you're like, you know what? I'm just gonna, I'm not gonna do it until the end when you, you're not gonna go all the way to blow it.

• 8:25Speaker 04

  I chalk it up to my normal anxiety and my not wanting to, um, you know, get killed. So cowardice you might call, you know, just sensible, well, sensibility. But really, most of that stuff. And, you know, because I was doing things on the line, I would fight with, you know, with Warren and, well, you know, largely because they would say something, mostly I was responding. And I kind of liked it. And the problem is, you get a good reaction, some, you know, good reaction, and then you start to feel clever.

• 8:53Joe Weisenthal?

  Yeah.

• 8:53Speaker 04

  And when you start to feel clever, that's when you're gonna get killed, because then you think, gee, this is irresistible. And then somebody might say, well, they're not gonna like that. And I said, how can I resist? It's so clever.

• 9:04Joe Weisenthal?

  Yeah.

• 9:05Speaker 04

  And so, guess what? I found my, I found it irresistible. So I stopped.

• 9:08Joe Weisenthal?

  It's impressive.

• 9:09Tracy Alloway?

  Yeah, it just takes one bad tweet, really. So when I think about your career, and, you know, I read the whole book, so I know your career trajectory fairly well at this point. I kind of think of it as synonymous with globalization. And, you know, you rode the sort of wave of international expansion, and then you retired in 2018. And it turned out 2018, 2020 was sort of the end of that globalization era.

• 9:34Speaker 04

  Yeah, the world is a little less flat.

• 9:35Tracy Alloway?

  Yeah. When you look back on that time, do you think that was a blip? Was that an unusual circumstance that's never gonna be repeated?

• 9:44Speaker 04

  When I start, you know, when sentiment changes, it changes your memory of what you used to think. It's kind of a weird thing. So nobody can remember being friends with Russia now. But we were, when I started, you couldn't think of going to Russia. I remember I once, my, my early trips, I was in the commodities business also. I started in the commodities business. I used to go to Russia in the early eighties, literally, like 1982, 1983, middle of the Cold War. And I remember when the plane would take off, and you, you wouldn't go direct, you'd go to switch. The plane would go in the air, people would start applauding, and the plane lifted off. You couldn't imagine Russia being normal, like a place to do business. Then in the go-go years, after the fall of the Iron Curtain, you'd go there, and it was like the what? It was capitalism on steroids. And you thought that that was gonna endure.

• 10:28Speaker 04

  And now, you know, it reversed again. Same thing with China. When, you know, we invested a lot of time. I personally invested a lot of time and effort. And, you know, by the way, we still have a big business in China, but it's, you know, as you imagine, it's strained now. It's very hard to do business. We had a lot of joint ventures that can't be done because it's Chinese, you know, so it's too much of a Chinese association for it. But when I started, you couldn't have gone. Then for a long time, you thought we were growing into each other. And then, you know, now we hit a speed bump. The point is, there are cycles to everything. It's not a question of something being a blip. Everything is a blip, and everything gets a little bit undone. I think, I would have said, And I still believe, I think the tendency is for things to improve, to get better.

• 11:11Speaker 04

  You know, what happened? What, you know, globalization. It's not just the rivalries or the polarization of the East and the West. The global financial crisis contributed to that because what happened was, you know, there was the central banks of the world and the governments of the world were coordinating their policies. And then when it hit the fan, in a digital world where nothing really moves except electrons and digital notations, it suddenly became important to each government where an institution's assets were. If the assets were in the United, the US central bank, the Fed, was lending money, for example, to the US affiliate of Deutsche Bank.

• 11:52Speaker 04

  And they were lending to Deutsche Bank multiples of the assets that Deutsche Bank had subject to the US, because most of their assets were Germany. All of a sudden, people realized that, and it became very 19th century. It became, where are the assets, like physically, as if they were really physical assets as opposed to, but assets have a location and they discovered that. Similarly, and I mean, you can go case by data point by data point, COVID, it made a real difference who, where they were manufacturing the vaccines. Yeah. For who got them first, or the PPE and all this other stuff. And so now, of course, that's been, you know, emphasized now, because now it's, you know, America first, and I'm sure, you know, I don't speak German, but I'm sure in Germany, it's Germany first and it's like that.

• 12:36Speaker 04

  But that also will evolve and that's, that cycle will go again because, you know, does the world, it turns out, when, when we started to globalize, you say, does Europe need 14 battery makers? Shouldn't they just have three for the whole thing? And then it became very important that you had a battery maker, if it's strategic in your own country, and supply chains and other things that make people less global.

• 13:15Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 13:42Speaker 01

  Your team is on a deadline, but moving all your enterprise data will take time your business simply doesn't have. IBM Technology lets AI work with your data where it already lives with an open hybrid cloud approach designed to build on your existing investments. It's another way IBM helps you put your data to work. Let's create smarter business. IBM. Visit ibm.com to learn more.

• 14:11Joe Weisenthal?

  When you think about the time the Fed opening up swap lines with central banks all around the world, banks getting support, even if they're not necessarily primarily domiciled in the US, do you think that that would even be possible today in the current media environment? Because it was controversial then, but not many people were aware of what was going on.

• 14:30Speaker 04

  First of all, you have to do what you have to do. So would you think it would be possible to, in an America First presidency, where we're not going to go into wars, is this possible? But of course, you know, he felt, you know, obviously he felt there was some compulsion to do it. People disagree, but that's certainly how he's representing it. So you do what you have to do. If we had a crisis like that, you would have to sort out the banking system. Now, you can, you can want to, you know, bring them up in trial and kill them, you know, do whatever you want to do. But at the end of the day, Governments don't lend money to people and central banks don't lend money to people. The transmission for economic policy and for monetary policy and getting money out into

• 15:15Speaker 04

  the public is the banking system. And if the banks are distressed, if you gave them money, they husband that money to increase their reserves so they could be solvent. And in fact, they have to do that. The regulation requires that they do that. And so it's very, very hard to get money and resources and get people going and provide that stimulus to the general public with a distressed banking system, which is why the big recession was a big recession. Because it was very hard to get over. Today, if we had bad employment, if growth went down and we weren't particularly worried about inflation, it'd be no problem to stimulate the economy. You take rates down, fiscal spending, the banks are in good shape. If the banks are in bad shape, that's very hard to do.

• 16:00Tracy Alloway?

  I mean, since we're talking sort of hypothetical crisis scenarios, one of the things we sometimes hear from people is because the US government is very polarized at the moment, maybe some people would say feels a little bit disorganized at times. If we had a financial crisis, the response would be a lot less direct or a lot less swift than what we saw in 2008 when we had ex Goldmanites like Hank Paulson at the helm or Geithner for that matter. What's your sense of how the current administration would react to something like that?

• 16:33Speaker 04

  Look, I said this, and you know, you don't, you don't know, nobody knows anything, but my guess is they would be fleet of foot and they would do it because you have to do what you have to do. They would hate, look, they would hate, if that had to happen hypothetically, they would hate it. They hated it in 2008, really hated it, really, really, 15 more reeleys hated it, but we were look, you know, staring at, not so much staring at the abyss like it would have gone, but my guess, and everyone's always asking, I think there was like, like a 15, 7, 15 to 20% chance that it could have really have gone off the rails and that we really would have had a crisis, it would have taken a very long time.

• 17:18Speaker 04

  Because what happens is in a kind of crisis where there's credit, a credit crisis, which is what it was, a credit crisis. We owe each other money. There's a daisy chain of money. You bought something from him, he bought it from me. And that goes around. In a credit where you don't know the solvency of your counterpart, you're not going to pay me until I pay you. So you're waiting. But I can't pay him unless I get my money from you. So I'm stuck. And he's stuck, and he's stuck, and he's stuck. So the system is frozen. You need somebody with a big balance sheet, and it's usually a government, to say, "We will, for the short term, cover it. So all of you will get paid. Now go." And generally, you don't have to use the money. The money comes back because it's just insecurity that drives that.

• 18:02Speaker 04

  And I think the government would have to do that. They'd hate it, but would have to do that. And by the way, is that going to happen again? You know, fortunately, you know, it was a once in eighty year storm, but you know, I'm not, I don't think I'm going to see the next one. But you know, these things, you know, when you get through a crisis like that, everyone says, "Let's ensure we never have another crisis again." And you know how you can do that? You could turn yourself into a treasury bill. You could turn it, and even a treasury bill has risk because you're taking a risk with the value, that the value of the dollar doesn't get inflated away and retains its purchasing power. If you take zero out risk, you will have zero progress and zero growth. And so what happens is, and again, it's a cycle to things.

• 18:47Speaker 04

  You come out of that and you say, "Never, never, never, never." You implement very, very tough protocols and regulations and things. And over time, you start to think, you know, it would be a lot growthier if the, if there was more lending.

• 19:03Tracy Alloway?

  Growth is a good word.

• 19:03Speaker 04

  It'd be a lot growthier. Well, wouldn't it be great if banks did mortgages again? Or wouldn't it be great if you didn't have to put down thirty percent to get a mortgage, blah, blah, blah? And it relaxes a ton. Memories start to dim. And it gets to a point, and maybe it gets past the point where it should, and the cycle resumes. And you say, "How could that have happened again so soon? It's only been eighty years."

• 19:25Joe Weisenthal?

  Right. So, one, Ari, and you've commented on this a little bit in your little media tour over the last several days and weeks. But you know, we've had a lot of stress in private assets, private credit in particular, some of the big companies, having issue, all kinds of issues. It's one thing for it to be bad and maybe it's one thing for people to lose money. Is there anything about the structure, though, that could get systemic? Where it becomes something beyond just investors lost money because they made a bad bet?

• 19:54Speaker 04

  I think, you know, talking about credit, I think the general issue is illiquid.

• 20:00Joe Weisenthal?

  Yeah.

• 20:00Speaker 04

  Illiquid stuff. It could be private equity. And, you know, like everything, like everything else that balloons into a crisis. Of course, I don't think it's going to be systemic. No one does. No one thought, because if everyone thought it would be systemic, we, you know, we would have fixed it. Or we would have done something about it before it got to that point. You're always surprised, even the people who you think are in the inside, who should know better. They're also surprised, too. I don't know, you know, the private credit and other private assets. I think they're generally, of course, by definition, they don't trade publicly. So they're less liquid and probably maybe sometimes illiquid. And consequently, very hard to price. So when you have your asset and you look at your account and you own this and you get a mark to market. Is it reliable? Is it where you can sell it?

• 20:46Speaker 04

  There are a lot of private assets on people's balance sheets that take private equity. We've just gone through a period of time where we've had record equity prices in a world that's awash with liquidity, the best financing market. And there's still an accumulation of assets on the balance sheet of companies that are in the business of selling the assets they invest in, yet it hasn't happened. So maybe they're not marked for sale really to be done. So that's, that could be an issue in general. I'd say one of the things now, there's nothing wrong with private credit, private asset, private equity, as long as the returns, the expected returns, compensating you for the illiquidity. And the people you're communicating to understand the illiquidity and the consequence of the illiquidity to them. That has to be made clear.

• 21:32Speaker 04

  I'm not always sure that it is. And certainly, if it goes wrong, no one will remember having been told that.

• 21:37Joe Weisenthal?

  Right.

• 21:38Speaker 04

  So I would say, and in taking account of that, I would say a particular private asset, whether it's credit or private equity, is no different in your hand, in an individual's hands or an institution's hands. But the consequence. Of it going badly is much worse. If it's individual hands, why is that? Because I would say the official sector can watch institutions, very high net worth individuals, lose money and not be particularly perturbed about that. Yeah. But when it goes to consumers and retails, other names for which are citizens and taxpayers and voters. Yeah. The public, the official sector gets very perturbed. So one of the comments I made is without applying whether these are good or whether

• 22:23Speaker 04

  the marks are correct or whether the illiquidity premium you're getting is adequate or not, I just said, you know, be careful. Some of these firms, people who run these firms have fabulous lives, do very well for a long time, have boats and everything and great, have multiple houses. Have some trepidation about extending your business from institutions into 401Ks, people, ETS, people who are less than the highest net worth individuals. Yeah. And by the way, adjacent insurance companies, which is sort of one order away from individuals because insurance companies ensure are real people and need to be solvent. So that's something that I'd say is happening too. It's not just the nature of the assets, but where some of these assets are being put now.

• 23:08Tracy Alloway?

  So I take the point about retail investors and private credit, but just putting your old Goldman Sachs CEO hat on again. I mean, one of the things Goldman was famous for was its very dynamic risk management at the time. And so I'm very curious, walk us through in excruciating detail how you as CEO of Goldman Sachs would be managing private credit risk at the moment on a day to day basis for something that, you know, might be mark to market quarterly.

• 23:35Speaker 04

  I mean, risk that we had.

• 23:36Tracy Alloway?

  Well, just hypothetically.

• 23:37Speaker 04

  On our balance, yes.

• 23:38Tracy Alloway?

  Like what would Goldman style risk management look like for private credit?

• 23:42Speaker 04

  I mean, in the financial crisis, everyone's focused on mortgages. Some of the biggest risks that we had were just loan commitments to company, you know, where we have a very big, we're the biggest M and A house. So we have very big M and A franchise, which means that if you do an M and A deal, you commit to the financing. So we had a lot of financing commitments outstanding. That was sort of eye opening at the time because we had commitments to make loans, which, believe me, at the time, you know, when things are going crazy, it's the last thing you want to do is do that. And so we had to manage those risks. So, you know, what do we do? We make sure in the lead up to the press, you know, once something is happening. You know, it's pretty late to start doing stuff when everybody's trying to get out of the same stuff.

• 24:25Speaker 04

  We sort of always knew, we, we had a, you know, a real abiding respect for reality. So we would always try to mark stuff to market and very assiduously. We had a separate group, half the firm would take risk and the other half would market, would do the marks. And sometimes the risk takers would disagree and say, oh, that mark is too conservative. I think this asset's worth more. And we'd say, fine, I'm sure you're right. Go sell something and prove that your mark is better than their mark, that it's worth more. We would do that religious, I mean, we were firm on that. And then when things started to get bad, when people couldn't sell things for where they thought it was, we started marking it lower. And when that started to happen, we didn't necessarily think, we didn't have a view of what was going to happen.

• 25:10Speaker 04

  We went into risk management mode. So it didn't matter whether it was bullish or bearish, stuff is happening. And so we just put out the word, stay close to home. So we have to take risks. People come to us to buy from them what they want to sell, to sell to them what they want to buy. We get caught in risk-taking situations from our general activities for our clients. But whenever we were veering too much in one direction, getting too long and getting too short, we would stop until there was another side to it and we would source the other side. So, I mean, the key for us was not reacting crazily when it started to go badly, but what we did in the lead up. The other thing we did when we couldn't get other sides to things, we bought insurance in the market. Famously.

• 25:55Speaker 04

  From famously from other banks for very little, because it was worth very little. We bought insurance on triple A companies that weren't, turned out not to be triple A. It, we didn't do that because they thought that aha, these really aren't triple A companies. Oh no, we thought they were triple A companies, but we just didn't want to have too much exposure to anything at that point. And the good thing about the fact that It doesn't, you know, it doesn't look like you need the insurance is that the people who sell you the insurance don't charge you very much because they think it's free money. And by the way, we thought we were wasting money and it turned out not, but that's just a discipline that you have to have all the time.

• 26:35Speaker 04

  You can't have that discipline when it looks like things are going bad. You have to have those things, that discipline when things are looking good.

• 26:41Joe Weisenthal?

  Right. That makes a lot of sense. New York City, how are you feeling? Is New York City the center of the finance world today, the same way it was 15, 30 years ago? And is, is that at risk?

• 26:52Speaker 04

  Look, New York City is still where people come, young people come especially to learn what, to, to learn from their colleagues and to be around and be surrounded by a good culture and a good place. And I think, you know, that's why I love the book and I thought it was a brilliant book, but I thought it was wrong. The world is flat. You know, you can be stimulated by something that's not right. The fact of the matter is, you know, you could be hooked up and, and be living in Warsaw, which by the way, is a financial community. And then, and there's a lot of tech people in, in Warsaw, but people who are smart and ambitious want to be around other people who are smart and ambitious.

• 27:26Joe Weisenthal?

  Has that changed at all?

• 27:27Speaker 04

  I'd say there are more pods than there were before. So I think there's communities in San, obviously in San Francisco, which is a tech community. A sub-tech community is Boston, which has biotech. And so there's, there are other places that grow, but I still think the highest concentration is still New York. People are promoting Miami for that. And there's a lot of, you know, a lot of reasons for it. Like you get to keep more of your money because there's no state tax. Expensive place to live, New York, by the way, very expensive place to die. I don't know why I'm thinking those dark thoughts now, but, uh, because we, New York has an estate tax and even California doesn't.

• 28:04Speaker 04

  But so for tax reasons and for reasons of, uh, sunshine, people are going there, but it's not New York. It's still New York, you know, kind of sorry, you know?

• 28:14Joe Weisenthal?

  On the Miami thing, I like Miami, but why aren't you there? Do you, you don't spend 183 days of the year?

• 28:20Speaker 04

  I'm still, I, I, I'm still a New York taxpayer.

• 28:24Joe Weisenthal?

  Yeah. Why?

• 28:26Speaker 04

  Stupid.

• 28:28Speaker 04

  No, I do it.

• 28:29Joe Weisenthal?

  Because New York City is the greatest, right?

• 28:31Speaker 04

  I have, you know, my wife, you know, we have kids and we have grandkids. I tell my wife from time to time, if you really loved your kids and your grandkids, you'd move to Florida. And with, I just said, no, it's true. But, you know, we like being around a family. We have plenty of money, you know, and my, you know, my wife, I don't know how things run in your household, but, you know, I would say that she has full voting control.

• 28:57Joe Weisenthal?

  Understood.

• 28:57Tracy Alloway?

  I'm not going to say anything. I'm holding back comment right now. So I just want to go back to risks for a second. So, you know, in your book, you talk a little bit about private credit, but the one risk you highlight as the sort of big one that worries you the most is some sort of technological risk, like a giant.

• 29:12Speaker 04

  Oh, no, I said, yeah, you know, it has said the world is going to end in a whimper, not a bang.

• 29:16Tracy Alloway?

  Yeah.

• 29:17Speaker 04

  You know, everybody's talking about malevolent state agents, you know, taking it down. Every time we lost stuff, and we had some wonderful problems in technology, well, every once in a while, there was some bad behavior and somebody hid something for a while. But most of the time, it was a fat finger. Like, I remember one famous incident where somebody, now, why anybody would do this, but they were, they were testing some software. And in the software, they were, you know, it just said, they.

• 29:47Tracy Alloway?

  I remember this.

• 29:48Speaker 04

  Like somehow they were selling, somehow it got turned on and it sold all stocks that started with an L, M, N, O, or P for a dollar. Now, if you want to test something, why wouldn't you sell, sell it for a million dollars so nothing ever gets to them, but they had to sell it for a dollar. And that thing was working for about 15 seconds and did about $2 billion, you know, $1.5 billion worth of transactions, which you managed to get undone mostly, yes. You know, fat finger. What's a fat finger? That's when you hit the wrong key. And somebody, it was like stupid, somebody put in, and do it. The problem with technology is you want to check things over and over again, but if you build in nine checks. Nobody takes it seriously because they know eight other people are gonna check it.

• 30:32Speaker 04

  It doesn't even solve the problem to build in more layers of checking because it's mind numbing to check something where it is not a problem, except once every two years. Who's gonna live, who's gonna sleep through that? No, the world, I've said, the world is getting dangerous in a way. When I started out in a trading room, everyone was said out loud, somebody would say buy and, you know, people, and it was all noise. Today, you go into a trading room and you're communicating digitally with the person sitting next to you. In the old days, you'd shout across the room. And if somebody said something wrong, a buy instead of a sell, or the wrong number, or the wrong price, the whole room would stop and everybody would look at that person. You would hear it. Now, nobody hears anything. And if they did, they wouldn't know because no one could intuit anything

• 31:14Speaker 04

  because it's all a lot of algorithms and a lot of technology trading. So I would say with technology, technology is leverage. And leverage is good when it's going the right way and leverage is bad when it's going the wrong way. And by the way, that's in life. And you, if you had an industrial, you know, prior to the age we're in today, the, you know, where, you know, the nuclear age, where proliferating and more atomic power and things like that, even for good uses, what could an industrial accident be? And you think the biggest industrial accident was Bhopal, Union Carbide, eight or nine thousand, very tragic, horrible situation, liability for Union Carbide, destroyed the company. But I think eight or nine thousand people died.

• 31:59Speaker 04

  In Fukushima, the Japanese, when they had the tsunami and it affected planet, if the wind had been going in a different direction, you would have had millions of people die. That's technology in progress for you. So not only is there leverage, the ability to intuit and see what the problem is, is less. So I, I just postulated that, you know, we have all these safeguards, all these things, all these state actors malevolently trying to, well, I'm like, yes. But you know something? I'm also worried about the mistake, the fat finger, the unintentional thing. Because we're not, how do you build it? It's hard to build in safeguards. Because the more safeguards then that you build, the more repose and relaxed you get about each one of them. And nobody, you find out that no one's doing their, no one's doing their job.

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• 33:26Tracy Alloway?

  I mean, it seems inevitable to me now that AI is going to become more and more of banks' risk management or back office systems. Like, what parts of a bank would you feel comfortable outsourcing to an AI system?

• 33:39Speaker 04

  Everything shy of the job I had.

• 33:40Tracy Alloway?

  Okay, go on.

• 33:42Speaker 04

  You know, we don't know. I mean, the greatest technologists today aren't sure themselves where it'll go, but you're gonna... Look, if you think about it, our brains, we're just wiring, we're just code. We're a lot of lines of code, but we're just code. And at some point, you cross into judgment and reasoning. And I'm sure it'll happen. I'm sure it's a lot. I'm sure the people who, at least until they start to walk better than they walk today, the people who garden for me and the massage therapists and the personal trainers are safe. Well, maybe not even personal trainers, but everything shy of that is just some, you know, and then we're gonna just have to...

• 34:24Speaker 04

  And then there'll be more jobs that leverage whatever stage of progress we're at. You know, once upon a time, not that long ago, beginning of the 20th century, more than half the country was involved in agriculture. Guess what? We absorbed those people, but it's not without stresses and strains. Not everybody who's a software programmer is going to be a Pilates teacher.

• 34:45Joe Weisenthal?

  Right.

• 34:46Speaker 04

  And so there'll be some stress and dislocation, but who knows the way society's going to evolve? Maybe, you know, remember, you know, from school, you read the Marxist ideal, where everybody's gonna only have to work four days a week, Marxist ideology. Who knows? Maybe there'll be... Once upon a time, there was a six-day work week. Uh, even on Wall Street, people came and said that's when they did all the back office stuff. And maybe we go to a three day work week. Maybe we work, once upon a time, it was a ten day, ten hour work day. Now it's an eight hour work day. Maybe it goes to five. Maybe we, everybody just works less and moans to high heaven that they have to work four hours that day. So, by the way, it doesn't matter whether we like it or not, it's gonna happen.

• 35:26Joe Weisenthal?

  Yeah.

• 35:27Speaker 04

  So we could spend a lot of time mourning for it and regretting it, but it's gonna happen. But the idea that machines are gonna do a lot of stuff that we do. When I started, when I started on Wall Street, you know the tape, when people don't know, you know ticker tape? What is that ticker tape? Those were the threads that came out. Well, once upon a time, that's how you communicated. You communicated tickers and you couldn't get it back, so you had to proofread it very carefully.

• 35:50Joe Weisenthal?

  Yeah.

• 35:50Speaker 04

  And you had to make sure that the confirmation you were sending to the Central Bank of China, Beijing, didn't go to the Central Bank of China, Taiwan.

• 35:59Joe Weisenthal?

  Right.

• 35:59Speaker 04

  And you'd kill yourself. So I spent three hours a day doing that. Nobody spends any time doing that.

• 36:03Joe Weisenthal?

  Yeah.

• 36:04Speaker 04

  When I practiced law, you used to have to go and look at every case that ever mentioned a case you relied on, lest it be, have been overruled or criticized. I spent days doing that. No one spends minutes doing that today. That's progress, it's gonna happen, and I welcome it, particularly since I've already made my money and I'm unemployed.

• 36:23Tracy Alloway?

  Must be nice. Joe, when I first joined Bloomberg, one of my key duties was to monitor the fax machine just in case the Bank of Japan sent a fax overnight.

• 36:33Joe Weisenthal?

  Do they still, they, do they communicate?

• 36:35Tracy Alloway?

  I believe it's been automated now.

• 36:37Joe Weisenthal?

  One of the versions of the future that people talk about is that, okay, AI is gonna come, a bunch of white collar jobs are going to be eliminated, and there's going to be some sort of like, universal basic income redistribution so that people can survive. But in theory, like, that would require some taxation and the few, the handful of winners of the AI world, like, they'd have to find some way to tax their wealth perhaps. But this gets, I'm really interested in taxation because like, I pay a good chunk of my salary, disappears in taxes. We had a good year last year, so we got bonuses recently, a good chunk immediately disappeared. I'm not going to like.

• 37:15Speaker 04

  So now you're not a social democrat and you, you know.

• 37:17Joe Weisenthal?

  No, no, I'm just saying it's fine. It's like not the end of the world. I don't love it, but it's not the end of the world. It's hard for me to wrap my head around people who have all the money in the world and still optimize their lives about going to the lowest marginal tax jurisdiction. Can you help?

• 37:31Speaker 04

  No, it's crazy.

• 37:32Joe Weisenthal?

  And you haven't done that.

• 37:33Speaker 04

  No, I haven't done it.

• 37:33Joe Weisenthal?

  But you're still in New York, but can you help me wrap?

• 37:35Speaker 04

  But I'll just say, that's why they have a lot of money to begin with, because that's how they, because that's how they, because that's how they think. And also they're competitive, fiercely competitive and they just want to win. I mean, actually it's good in a way. I'm glad that the Mark Zuckerbergs, you may like or dislike these names of people. But the fact is, or Elon Musk, they're on the cutting edge and they're still motivated to work. Thank goodness. I'm glad they're, I'm glad they're ours. I'm glad they work. But to just extrapolate the point you're making, the, an economic system has to do a couple of things. I mean, it has to do a lot of things, but two major things. It has to create wealth and then it has to allocate that wealth thus created according to the values of society.

• 38:15Speaker 04

  I think our cap, our system has done a pretty good job in creating wealth. Nobody can get out there and figure out what the new thing is. And nobody's more ruthless about taking things that fail, getting rid of them.

• 38:30Joe Weisenthal?

  Yeah.

• 38:31Speaker 04

  And repurposing them and getting them off the balance sheet and building, you know, plowing over that airport that no one lands at and making it, turn it into a Walmart. Nobody's better at doing that. But where we have done poorly is the allocation of it, the, the allocation of the proceeds. And that's of course where a lot of the polarization that we're living through now. And, you know, so a variety of things, you know, you have to, you know, you know, obviously progressive taxation is one of them, just building the safety net. So things are free and available to everything that previously you would have had to pay for. So, public housing has air conditioning now. Public housing when I grew up didn't have air conditioning. So making life better at a base minimum. But that's the task and that's the challenge that we have to do to allocate.

• 39:17Speaker 04

  Based upon values in a way that doesn't disincentivize things people from working. So at some level of taxation, you may be disincentivized from working. Poor Elon Musk went back to his shareholders and said, you know, I'm only worth $500 billion because you took away my options from the Tesla thing. Give them back or else I'm not going to work for Tesla anymore. So there and so he got it back. And so now he's got that extra stimulus of billions 501 to 749. So people do what they do. But by the way, I'm glad he's working and I'm glad he's one of mine. And I still can't believe those rocket ships can land in tandem so beautifully. And nobody else seems to be able to do it. So bravo, keep on going. I'll give you an extra couple of dollars if it'll help you.

• 40:02Tracy Alloway?

  You know, we started this conversation talking about how your career trajectory kind of mirrored the rise of globalization. But the other thing it mirrored was the rise of trading and FIC on Wall Street. I'm curious if you have any sense nowadays, what the next sort of booming business is going to be among the investment base. Is everything kind of feels the same? Everything kind of feels flat? Like, is there something that's going to take off or where you could differentiate yourself?

• 40:27Speaker 04

  It's not the same, but it rhymes. You know, it doesn't repeat, but it rhymes. You know, really the last generation, the, you know, the cool kids in town were, you know, private equity and alternatives feels a little less cool the last couple of days. You know, you know, it shifts, but there's always, you know, we're always wringing out efficiencies for things and we're always figuring out, you know, risk versus reward. And so illiquid stuff look better than public market stuff. Then you have a liquidity event where people try to sell and they get gated and it's not working out so well. And so that goes, I don't know, I think, you know, the one of the things that AI can't really do is they can't take risk. They could tell you in my opinion, based upon my, you know, working this algorithm

• 41:11Speaker 04

  against this huge database. How those dice would have rolled and what, you know, what percentages when you will do these simulations and stuff. But at the end of the day, you have to still apply judgment. And if we were sitting there having a conversation a hundred years ago, by the way, people a hundred years from now are going to be around, I don't know if they'll be sitting on this chair or floating above ground, but they're going to be talking about how primitive we were thinking that we're, you know, we're thinking, sitting here thinking how cool we are today and how everything's up to date in Kansas City and everything is good and novel. But all this is going to look stupid. Could you imagine they carry their cell phones? Ha, ha, ha, ha. Or could you imagine?

• 41:52Speaker 04

  Yeah, I mean, but they'll, but some things as general principles are going to persist. I think they'll be create, create, you know, still people are going to still write music and natural, you know? People will fill in the gaps if you plug in a song, it'll publish another song like that. But will it do something radically innovative? I don't know. It's possible, again, brains are lines of code. Maybe they'll just have more lines of code and eventually do it. But I do think certain things like willingness to take risk, judgment. I've known so many brilliant people and I've known so many people with good judgment. It's amazing how infrequently those come together at the same person at the same time.

• 42:33Joe Weisenthal?

  Within a given bank, you know, the push, pull, or the tug between, okay, now banking and deal making is hot or trading is hot and it seems to go back and forth. Like, is there a direction at Goldman or any other bank with the, where the next leader is going to come from? Could it have come from the technology side of the bank?

• 42:52Speaker 04

  Yes, well, first of all, it already has. In a firm like Goldman, I bet over a third of the population of the firm are engineers. It was when I was there, it wouldn't have gotten, it wouldn't have gotten less in this period of time. If anything, it would have gone more in that direction. So it already is engineering and efficiency. Look, we're in a world now where in trading and market making, a lot of which is done algorithmically by machines. It's a millisecond game. If you have your computers a half a block closer to the main computers of the platform, you win everything. Because even moving at the speed of light, getting there ahead is...

• 43:37Speaker 04

  So that's already been done. But in a firm, to answer, maybe I'm interpreting your question a little bit differently. These things happen at different times. So sometimes it's the people who put deals together. Sometimes it's the people who finance deals. Sometimes the biggest, coolest kids on the block are the risk managers, who prevent the firm from discombobulation and manage risk so successfully so the other people can do their jobs. In our organization, one of the things that I think has helped Goldman Sachs through the agent is that we still, the firm is still run like a... It's 26 years since it was a private partnership. Half of my tenure was in a private partnership, half was in a company. But we ran the firm as a partnership.

• 44:20Speaker 04

  Everybody in the firm got paid largely on, based on how the firm as a whole did, not just their narrow area. People who did a good job and it wasn't their turn or the market was working away that they couldn't make money, got compensated well for doing a good job, even if the opportunity wasn't there. And if it was an easy market to make money in and they weren't doing a good job and didn't do well, it didn't matter that they did well. You know, in other words, we looked at the firm as a whole. People had to look out for each other. The place was run as a partnership. That's very helpful. If you have a firm full of people who are owners, everyone is looking around what the people next to them are doing. And if they see bad behavior or something's not right,

• 45:02Speaker 04

  they demand information about the whole firm, not just their narrow area. And they give you opinions even when you don't want to hear it. And guess what? It's a little bit slower and harder to run that organization, but I think you get a better, you get a better outcome.

• 45:17Tracy Alloway?

  Now that the book is officially published, it's been a whole 18 hours, I suppose, since it's been published. But is there anything with the benefit of that 18 hours of daylight and reminiscence that you wish you had included in the book and that you left out? I want the really good gossip.

• 45:35Speaker 04

  People are always telling me, I told, you know, we had, you know, Bloomberg was very nice enough, Mike, Bloomberg, the man, not necessarily the company, hosted an event last night, and I thought of a Bloomberg. There was a story that I told that at the end of it, I could tell you the story, but

• 45:50Tracy Alloway?

  Please.

• 45:51Speaker 04

  Okay. A million years ago, when the first Bloomberg terminals came out, and I was a fairly junior person, and they put a Bloomberg terminal in front of me that about 900 people were supposed to share, but it was right in front of me. And everybody was walking by it, like they were walking, remember the movie 2001: A Space Odyssey? Remember the obelisk? The obelisk, and everyone's doing this, and everybody was doing that. And I finally figured out how to use it. I put yellow paste-ins on it with my schedule and numbers that I had to look out for. In other words, I couldn't turn, I didn't know how to turn on the machine, but I was using it as a bulletin board. And then somebody calls up and he said, Lloyd phoned line so and so. Who is it? Bloomberg. So I said, I'll call him back.

• 46:34Speaker 04

  He said, no, no, it's Bloomberg the person, not Bloomberg the company. And it was Michael Bloomberg, and he calls me, and he called up. And I get on the phone, and he said, I noticed you, we noticed you haven't turned on your machine. And I said, oh, my God, where's the camera? Now, I said, well, we could tell.

• 46:49Joe Weisenthal?

  Digital surveillance, very early on.

• 46:51Speaker 04

  Yeah, and I said, and so I said, well, and so you're calling me? And he goes, oh, no, we do, the way here, and I don't know if they do it today, but in early Bloomberg, he had all the senior people in the organization. Every day, they had to call five customers, each one, and call them and discuss. And I said, I said, you know, wow, I promise I'll turn on the machine. And probably about two years later, I figured out how to do it. But I'll turn on the machine. But I said, isn't that a very inefficient use of your time? Because here you are calling me, and I wasn't a senior in that, you guys. And he goes, no, no, we learn a lot about the business. I realize now, that was a very stupid comment. Because here I am, first of all, everybody on our floor knew that Mike had called and that he cared.

• 47:36Speaker 04

  The guy whose name was on the door cared about whether we're using or not. And not only laterally across that dimension, everybody knew, but here I am 35 years later, telling the story. And so now you're hearing about it. That was a very good use of three minutes.

• 47:51Joe Weisenthal?

  Yeah, sure.

• 47:52Speaker 04

  Of Michael Bloomberg, that I'm telling that story about his care. And so to me, I know how Bloomberg got built. And so that was the lesson I learned. So I told that story. And then I said, you know, Mike, this book is so good and has so many good stories that that one didn't even make it in the book. It's on the cutting room floor. If it sells well, maybe volume two or volume three.

• 48:15Joe Weisenthal?

  Well, we went a couple of minutes over, but that was a good story.

• 48:19Tracy Alloway?

  That was a good ad for both the book and for Bloomberg. So thank you.

• 48:23Speaker 04

  I know my audience.

• 48:24Joe Weisenthal?

  Lloyd Blankfein, thank you so much.

• 48:26Speaker 04

  Thank you very much.

• 48:41Tracy Alloway?

  That was our conversation with former Goldman Sachs CEO Lloyd Blankfein, recorded live on March 3 at Bloomberg Invest. I'm Tracy Alocke. You can follow me at Tracy Alocke.

• 48:52Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the stalwart. Follow Lloyd Blankfein. He's at Lloyd Blankfein. Follow our producers, Carmen Rodriguez, at Carmen Armin, Dashil Bennett, at Dashbot, and Kale Brooks at Kale Brooks. And for more Odd Lots content, go to Bloomberg.com/oddlots for the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 49:14Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we ask Lloyd Blankfein why he doesn't tweet more, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 50:06Speaker 05

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