Lloyd Blankfein, Chief Executive Officer and Chairman of Goldman Sachs
CHARLIE ROSE: In the fallout of the economic crisis, one name has
come to epitomize both Wall Street success and public resentment against
the financial system. Goldman Sachs, the 140-year-old investment firm has
long been known as an outlier with an indisputable record of financial
success. "The Times of London" recently called the firm "the best cash
making machine that global capitalism has ever produced, and, some say a
political force more powerful than governments."
Despite last year’s deep recession the firm posted a $13.4 billion profit,
a Wall Street record, and it recorded another $3.5 billion gain for the
first quarter of this year, a 91 percent increase.
The firm’s influence extends well beyond markets. Two of the last six
U.S. Treasury Secretaries were Goldman CEOs before they left for
government. Despite or perhaps because of this success, the firm has come
under attack from both Washington and Main Street. Many point to the
billions that it received from AIG after the insurer received a massive
bailout from the government. Other critics say that the firm owes more to
society after taking advantage of cheap capital provided by the government.
More recently, the bank stands accused of deceiving its clients and
profiting from the collapse of the housing market. Reports broke late last
night that the Justice Department has opened a preliminary criminal
investigation to the firm’s trading.
The news comes just two weeks after the SEC accused the firm of fraud.
This is all had a deep impact on Goldman Sachs. Its stock fell over nine
percent today and has dropped 20 percent in just two weeks. Its reputation
has been called into question. "New York Magazine" recently called Goldman
"America’s most successful, cynical, envied, despised Wall Street player."
The man who leads this firm is not your typical executive, Lloyd
Blankfein was raised in a Brooklyn public housing complex by a postal clerk
and a wife who was a receptionist. As a teenager, he sold popcorn and
peanuts at Yankee stadium before attending college. He then got into
Harvard Law School. He began his career as an attorney before breaking
into investment banking as a commodities trader, one of the most
competitive fields in the investment world.
Today in the minds of many, he has come to symbolize Wall Street. On
Tuesday, the Senate permanent subcommittee investigations summoned Lloyd
Blankfein and several Goldman executives for nearly 11 hours of sharp
questioning.
(BEGIN VIDEO CLIP)
SEN. CARL LEVIN (D), MICHIGAN: You don’t believe it’s relevant to a
customer of yours that you are selling a security to that you are betting
against that same security. You just don’t think it’s relevant and needs
to be disclosed, is that the bottom line?
LLOYD BLANKFEIN: Yes. And the people who are selling it in our firm
wouldn’t even know what the firm’s position is, and--
CARL LEVIN: Oh, yes, they did. Oh, yes, they did.
LLOYD BLANKFEIN: Senator, we have got 35,000 people and thousands of
traders making markets throughout our firm. They might have an idea, but
they might not have an idea.
CARL LEVIN: Now you say they might.
LLOYD BLANKFEIN: And the next day it might be different.
CARL LEVIN: And what do you think, by the way, they have an idea more
than an idea in these cases. But putting that aside. What do you think
about selling securities which your own people think are crap. Does that
bother you?
LLOYD BLANKFEIN: I think they would, again as a hypothetical .
CARL LEVIN: No, this is real.
LLOYD BLANKFEIN: Well, then I don’t.
CARL LEVIN: We heard it today.
LLOYD BLANKFEIN: Well .
CARL LEVIN: We heard it today. This is a (EXPLETIVE DELETED) deal,
this is crap.
(END VIDEO CLIP)
CHARLIE ROSE: And joining me now is Lloyd Blankfein, chairman & CEO
of Goldman Sachs. I’m pleased to have him on this program. Welcome.
LLOYD BLANKFEIN: Thank you, Charlie.
CHARLIE ROSE: Why do you think the public is so outraged?
LLOYD BLANKFEIN: With respect to--
CHARLIE ROSE: With respect to your firm, with respect to Wall Street,
with respect to the financial sector, with respect to government bailouts?
LLOYD BLANKFEIN: I think the financial system failed the American
people. I think people on Wall Street did well, carried themselves in a --
you know, in a very proud way. Some might say haughty way. When things
were going well. Talked about the contributions they were making to the
wider society, and to the economy, and to the country and to the world.
And guess what? When it didn’t work well, how could you not blame the
people that were getting -- that had awfully nice lives with when things
were going well, how could you not blame them when things turned badly.
Then to compound it, you know, people see -- people see some of the people
who did well when things were going well, not do so badly when things were
going badly.
And that absolutely infuriated people. And then that goes into the whole
system of whether people’s actual compensation was really being correlated
to performance. And that led to situation where how rigged is the game.
And so people got very, very, very upset and very, very angry.
CHARLIE ROSE: And what would you say to them?
LLOYD BLANKFEIN: I would say that if you look at this, there is --
the anger is -- is totally understandable and justified in many cases. Not
in every case. And not in every case to the same extent. But I -- you
know, I looked at some of the -- you know, I share the point of view.
But I understand now, if you ask why Goldman Sachs, they were five big
investment banks at the start of this period. Bear Stearns, Lehman,
Merrill Lynch, Morgan Stanley and Goldman Sachs. Now there’s Morgan
Stanley and Goldman Sachs. And given how we performed in the market, there
was a lot of focus on us for doing -- you know, for doing well.
By the way, we did well largely not because we got this right or that
right. We did largely well because we didn’t lose as much money when a lot
of people were losing money. And not because we were so smart, but because
we have discipline of hedging.
CHARLIE ROSE: On housing you had the discipline of hedging and you
saw early on what was happening.
LLOYD BLANKFEIN: By the way, we .
CHARLIE ROSE: . and then you had a bad position, you changed it to a
better position.
LLOYD BLANKFEIN: By the way, we lost money in housing. We just
didn’t lose a lot.
CHARLIE ROSE: All right. In terms of what the government did, there
is also a big question comes up. And one, the culture of firms who used to
be dedicated to the allocation of capital. The culture of firms. The
other question has to do with the -- with Goldman Sachs and Morgan Stanley.
Without what the government did, would Goldman Sachs have survived?
LLOYD BLANKFEIN: Hard to know. I’m not sure. But the risk was
enough so that I’m glad to not have tested it. So let me just take you
through the sequence. In the week after Lehman Brothers fell, and that was
the week in which there was a run on money market funds. That was the week
that AIG was bailed out. There was an issue with prime brokerage activity
in London. There was a lot of stresses and strains.
That, the Monday after that week, after that Lehman Brothers -- the
week following Lehman, we went to the markets ourselves. We did a
transaction with Warren Buffett in which he made a big investment in our
firm. And then we went to the capital markets the next day and sold equity
in our firm. And we effectively recapitalized ourselves. The government
talked (ph) bailout was some weeks later. So we took initiative. We
weren’t waiting for a government action. We thought we were pretty well
capitalized at the time, but we weren’t taking any chances and went to
private sources, Warren Buffett and the market, to recapitalize ourselves.
There was still a lot of volatility. Still a lot of uncertainty and
still a lot of systemic risk. If the government had not done what it did,
would the system have blown up? For sure if the system had blown up,
everybody would have been in trouble. Certainly us. Would that have
happened? I don’t know. No one will know.
You can’t go down two tracks. The history won’t let us have two choices.
We can’t look back. But I will tell you the risk, the consequences would
have been so great and the risk was so high that it was -- I would say it
was critical that the government took the actions that it did for the
benefit of the system. The risk was just too high. Who would have gone
under, who wouldn’t have gone under? We’ll never know. But the risk was
too high for everyone.
CHARLIE ROSE: At that time, did -- you have no problem in terms of
selling your paper?
LLOYD BLANKFEIN: We had access to the capital -- we had access to the
capital markets on any -- on every day. One day would have been better,
one day would have been worse. But certainly in the week and a half after
Lehman Brothers, we certainly were able to raise equity and raise preferred
-- and raise -- raise capital. But that still wouldn’t have been a
safeguard.
Let me tell you, the most important thing that the government did, at least
as far as we’re concerned, was not the injection of the TARP money, which
gets all the focus. You know, gave most banks 25, we were mark to market
firms so our capital needs were perceived as less, and so we got $10
billion. But we had a lot of excess, we had a lot of cash.
That wasn’t the most important thing for us. What was the most
important thing was the general embrace of the government of the financial
system, including the nine banks that basically calmed the market down.
The amount of dollars they put in was much less important. It was not
important, really, at all for us. But--
CHARLIE ROSE: Or JP Morgan.
LLOYD BLANKFEIN: But they did other -- or JP Morgan. But what they
did was important for us and everyone else.
CHARLIE ROSE: Because?
LLOYD BLANKFEIN: They settled the market. They stopped the run.
There was a bit of a run on the bank. Credit froze. People weren’t
lending. People were insecure what other institutions were worth. For
some cases, some element of what they did in injecting capital assured
people.
But they also made credit available through the FDIC, if you wanted to take
it. They also did some activities that stabilized money market funds. And
they, in general, embraced the financial system. That was critical. I’m
not -- I’m not -- by saying that, I’m not diminishing the consequence of
the TARP. I am just saying that other things they did at the same time
were very, very consequential, and consequential to the point of
criticality, I think.
CHARLIE ROSE: Is there anything about the financial regulation that
is being offered, the Dodd bill, and the Volcker rules as they even may be
modified that would be injurious to the future of Goldman Sachs?
LLOYD BLANKFEIN: I think that it’s hard to know. It’s hard to know.
It feels -- the points feels fluid. I’m not even sure myself what’s in and
what’s out. And even to the extent that certain words have been in for a
long time, I’m not sure every element of interpretation. I could tell you
that there are aspects that directionally I agree with, with everything
directionally, maybe 90 percent.
CHARLIE ROSE: Of the regulations, 90 percent -- of the reform--
LLOYD BLANKFEIN: For sure it has to be reformed. But even the
outline of the Dodd bill, I’m very, very constructive and very positive on
all the aspects. There are parts of it that depending on how it goes, I
think could be improved.
CHARLIE ROSE: OK. How about the Volcker rules as defined by Paul
Volcker?
LLOYD BLANKFEIN: Again, I’m not sure entirely what they would apply
to. But I think that, look, I think there are aspects of the Volcker rule
that go too far. I don’t think in a cataclysmic--
CHARLIE ROSE: So do you -- what would happen to Goldman Sachs if you
could no longer engage in proprietary trading?
LLOYD BLANKFEIN: I think that if we eliminated all the activity that
is unrelated to client activity at Goldman Sachs, we would probably do away
with about ten percent of our revenue.
CHARLIE ROSE: So you wouldn’t care then. I mean ten percent--
LLOYD BLANKFEIN: I care about--
CHARLIE ROSE: Well, no, but in the great scheme of things, if it is
only ten percent of your revenue, if that reform would only eliminate --
would only reduce your revenue by ten percent --
LLOYD BLANKFEIN: I would care very much about the -- I work very hard
for the ten percent of our revenue. And I would say that if the activity
that it would otherwise eliminate is otherwise benign activity that is
diversifying and doesn’t create a risk for the system, then I think it’s a
bad idea.
CHARLIE ROSE: Goldman Sachs for a long time was a partnership.
LLOYD BLANKFEIN: Uh-huh.
CHARLIE ROSE: Would it be better as a partnership today?
LLOYD BLANKFEIN: It would be impossible to be a partnership today.
CHARLIE ROSE: Because .
LLOYD BLANKFEIN: . and accomplish -- and accomplish--
CHARLIE ROSE: Because as you know what -- the argument being made by
some people, they look at it and said, when those firms were partnerships,
they looked at risk differently.
LLOYD BLANKFEIN: You know, let me say, Charlie, we run the firm as a
partnership. Our top 400 people we call partners. We act together. The
teamwork is in the same way. Compensation for the partnership is of a
certain kind of way. We have the compensation that all the observers of us
say even think of it as the partnership. But why did we stop being -- we
were the last firm to give up being a partnership. We liked being a
partnership. But partnership does not have permanent capital when a
partner retired, he took his capital with him.
CHARLIE ROSE: Right.
LLOYD BLANKFEIN: And the firm was unstable. Companies, corporations
have permanent capital. We are a big financial firm. We’re not big --
just big in the United States. We’re one of the biggest in every country
in the world. Where we advise companies, help people.
Listen, it suits American business that we have a very big business in
China that allows, you know, just helps to facilitate their investments
back and forth between China and the United States. These things matter.
We could not do those activities unless we have a balance sheet that had
permanent capital. That was why reluctantly with much observation and much
fanfare and much regret and tears and -- the firm stopped being a
partnership in 1999.
CHARLIE ROSE: And some in the firm were opposed to it at the time.
LLOYD BLANKFEIN: Most people were opposed to it. It was a concession
to necessity.
CHARLIE ROSE: But the question I had asked was when the firm was a
partnership, it was much more careful about what it did and how it managed,
and how it looked at risk.
LLOYD BLANKFEIN: I think we are -- we are totally careful about how
we look at risk. I think we are, frankly, our reputation is as effective
risk managers -- I think the whole dialogue about the question you asked me
about betting and clients, is a function of a failure to appreciate how we
manage our risk. In other words, if we accumulate risk in one way, we’re
going to work very hard to distribute that risk.
CHARLIE ROSE: Yeah, but then you are saying is those kinds of
transactions, while they may not be about allocating capital, they may not
have some societal benefit--
LLOYD BLANKFEIN: No, no, no. They have -- these are -- these are all
transactions -- how did we get those positions in the first place? Through
client positions. Let’s -- even within the home, where did all those
positions, that all those firms had that lost all that money, and the firm
positions that we had. Those were secure -- those were holding on to
securities of mortgages. Those had huge -- how do commercial banks lend --
how do community banks lend money to, you know, to their people. Remember
Bailey Savings & Loan from "It’s a Wonderful Life."
CHARLIE ROSE: Yes.
LLOYD BLANKFEIN: They lent out the money. And once they lent out all
the money, where was the money? Remember Jimmy Stewart, it’s in your home,
your home, your home. Well in modern finance, they don’t just lend out the
money once. After they lend out the money, the banks take those mortgages,
wrap them together, and sell them to financial institutions like us who
resell them to investors. The money then goes back to the banks, cash.
And they lend it out and put it into new homes again. And that cycle gets
repeated. Those securities are supposed to be distributed. Many people
just accumulated them. And the accumulation of those securities created a
lot of the excessive risk that almost tore down the system. Our process--
CHARLIE ROSE: The creation of those securities, created the excessive
risk that almost tore down the system.
LLOYD BLANKFEIN: The accumulation, what they -- what you are supposed
to do, whether it’s risk in mortgage-backed securities or risk in
government bonds or risk in equities is you are supposed to manage your
risk. If you -- the way a market maker like us works is we hold ourselves
-- now we have different levels of business.
We have advisory businesses. We have asset managed businesses, we are a
fiduciary. We have a market making business where we hold ourselves out to
facilitate transactions that other people want to do. So if you want -- we
wouldn’t deal with you, we deal with the big institutions.
CHARLIE ROSE: Right. OK.
LLOYD BLANKFEIN: And big companies. If you wanted to sell something,
we would give you a price where you could buy it. If you wanted to buy
something, we would give you a price where you could sell it. Now the way
the world works, it’s not like you come into buy, somebody comes in to sell
and we match you off. Firms like us are always getting risk in one way.
So, for example, if the equity market was going, it was going down. You
would be selling equities to us. Everybody in the world would be selling
equities to us. We would be accumulating equities unless we could find a
place to sell it. So at some point before we could buy any more from you,
we better find somebody else to who want to buy it. And so we keep having
to lower to a price where that person wants to buy it. That’s a market
making function.
CHARLIE ROSE: And how crucial is that to your business?
LLOYD BLANKFEIN: It’s crucial to the American capital system. It’s a
part of our business. It’s one of the activities that we do. It is a very
important business. But if people couldn’t get into and out of their
securities, they would never buy them in the first place. If a big company
wanted to sell its bonds to finance its construction project, they’ll want
to sell it to you. If you thought you had to hold that security forever,
whatever the fortunes of the company, if you thought you can never get your
money back, if you thought whether you, if you thought you wanted to take
your money out and put it into something else and it would be hard to do,
you wouldn’t invest in the first place and they could never raise the
money.
The ability of the capital markets to help companies and businesses and
institutions raise money when they want to, invest their money when they
want to, at the core is a constant churn and movement of positions around
and around and it’s the market makers that provide that access and that
liquidity.
CHARLIE ROSE: The question is not whether Goldman Sachs did something
illegal or not. That legality other people can decide--
LLOYD BLANKFEIN: Sure.
CHARLIE ROSE: Even President Clinton said "I’m not sure Goldman Sachs
did anything illegal." But people raise questions as to whether there was
any wrongdoing. Difference in right and wrong, when they say that to you,
do you understand what they are saying?
LLOYD BLANKFEIN: No, Charlie, of course I understand what they’re
saying. I think, listen. When I was sitting there at the Senate hearings
and after having given over 20 million pieces of paper, emails--
CHARLIE ROSE: Right.
LLOYD BLANKFEIN: . conversations and other documents which were
basically snippets and conversations, there were some e-mail where some
people were projecting I would say at best an indifference, and at worst a
callousness to the fact that we had sold something in time and maybe
somebody had bought something that didn’t go well. And one of our clients
lost money.
Now our clients didn’t lose money because of security didn’t do what
it was supposed to do. It lost money because the security provided a
certain kind of risk that the client sought, actually functioned the right
way, but the market and the risk and the -- in other words, people got the
risk they sought.
And again, when I talk about people, these are all sophisticated
institutions, and didn’t do well. And in a couple of the e-mails, a few of
the e-mails that came out, there was more of an expression of relief that
we didn’t do badly, and not a regret that a client did do badly as a
result, after the fact. That kind of indifference and that kind of, and as
I said, callousness in some cases, is something that was very disturbing to
me. And doesn’t represent--
CHARLIE ROSE: And where do you think it came from?
LLOYD BLANKFEIN: I just--
CHARLIE ROSE: Was it just simply one exception on the part of an
individual? Or do you think it had to do in the end with the kind of
culture that had developed?
LLOYD BLANKFEIN: You know, we have to be thoughtful about that. And
you know, I can’t -- I can’t at this point -- I can’t exclude the latter.
Look. We have--
CHARLIE ROSE: But explain that. You can’t exclude the latter--
LLOYD BLANKFEIN: I can’t exclude--
CHARLIE ROSE: It may very well be--
LLOYD BLANKFEIN: We’re going to have--
CHARLIE ROSE: That there was a callousness and a sense of things had
become blurred as to what one ought to do.
LLOYD BLANKFEIN: I would say in a particular case, in those
particular things but as I said, there is 35,000 people at the firm. There
was 20 million e-mails. I assure you, when those e-mails were revealed and
this was a very humbling experience. And it was a very difficult, you can
imagine how much fun it was sitting there, even though was appropriate that
we do. But I’m sure that those e-mails were selected from those millions
of e-mails because they were the worst things.
I at the core, believe that is not representative of the firm. That is not
who we were. There was a selection. Do I know that those were all, but I
will tell you we’re not stopping there. We’re going to soul search. And
we’re going to look through this. And it’s inexcusable if ten people think
that way or thought that way. We’re going to have to be very, very--
introspective.
CHARLIE ROSE: And perhaps do what?
LLOYD BLANKFEIN: And make sure that we adjust people to understand
that our fortunes, that it’s not only the right thing to do to be more
aligned with the interests of your client, but that it’s essential to our
legitimacy and ultimately therefore to our success.
CHARLIE ROSE: OK. Let me speak to that for a second. Legitimacy, I
mean what is at risk today for your firm? In the court of public opinion
and in the court of its future?
LLOYD BLANKFEIN: I think legitimacy is a good -- is a good word.
CHARLIE ROSE: Because some people have said to me knowing you were
coming here, they are at great risk because if their clients don’t believe
them.
LLOYD BLANKFEIN: Right.
CHARLIE ROSE: They’re out of business.
LLOYD BLANKFEIN: I think that’s right. But I .
CHARLIE ROSE: If your clients don’t believe you and you lose
something in this engagement that is taking place now, Goldman Sachs is at
risk.
LLOYD BLANKFEIN: Goldman Sachs -- yes, we are not -- we are not -- we
are not in a good place, that’s for sure, yes.
CHARLIE ROSE: But there is now discussion about a criminal suit.
LLOYD BLANKFEIN: I’ve read -- I have read the newspaper reports.
CHARLIE ROSE: Just--
LLOYD BLANKFEIN: But that’s -- but that’s, you know, listen. There
are a lot of -- I’m telling you, it is -- we hate it. I said in my opening
statement in the Senate it was the worst day when I received that civil
suit. But--
CHARLIE ROSE: It was the worst day because, in your words?
LLOYD BLANKFEIN: It was the worst day because it was the idea that
our government accused us of a fraudulent act. This was a very specific,
this was a specific -- let me say, this was a specific case involving a
specific -- a fine--
CHARLIE ROSE: You got up in the morning and the headline said SEC
charges --
LLOYD BLANKFEIN: No, it was in the middle -- it was -- I didn’t get
up in the morning.
CHARLIE ROSE: No, no, but you saw it the next day, too. I mean, you
know.
LLOYD BLANKFEIN: Well, I saw it the next day, by then I already had
it. It was in the middle of the morning. It was stunning. It came over
the screen. I saw it over the screen. I read it and my -- I just -- my
stomach turned over. I couldn’t -- I was stunned. I was stunned.
Stunned.
But to your point, of course, but I would say but we live in the -- we
live, rely on the opinions of our clients and have for 140 years. This
didn’t start yesterday. It didn’t start last week with the lawsuit from
the SEC. We are judged every day. I will tell you, this market that we’re
in has a lot of things. But one thing for sure, it’s the most competitive
market and our clients understand what we do. And they validate us every
day by doing their business with us.
CHARLIE ROSE: Why do you think Goldman Sachs does better than
everybody else?
LLOYD BLANKFEIN: To you the question. Why do you think Goldman Sachs
does better than everybody else?
CHARLIE ROSE: I will tell you what I assume.
LLOYD BLANKFEIN: Yeah.
CHARLIE ROSE: I assume you hire the best people.
LLOYD BLANKFEIN: Because we recruit and hire the best people. And
more importantly, because we retain them. And the reason why we retain
them and the reasons why we get the best people is, and I believe this, let
me say.
CHARLIE ROSE: I want you to say. No, no--
LLOYD BLANKFEIN: You got to let me say this. Because we get people
who are really interested in doing something that they think is good for
the public, for the world they are in. If you look at, you mentioned
earlier my predecessors who became secretaries of Treasury. I could take
you back and give you a hundred -- the people, we get a kind of person at
Goldman Sachs who really wants to be an influential person, who wants to do
something that is important. Who feels that the job .
CHARLIE ROSE: Who wants to make lot of money and then go out and do
good.
LLOYD BLANKFEIN: You know something, the people that we have would
like to do well for themselves also.
CHARLIE ROSE: Do well.
LLOYD BLANKFEIN: But most of them at the height of their careers go
into public service. I mean the record is .
CHARLIE ROSE: Is the record ...
LLOYD BLANKFEIN: Not just in the U.S. but all around the world. Not
just at the top of the firm but in the middle of the firm.
CHARLIE ROSE: So you are saying is the secret of Goldman Sachs is
that they hire the right people.
LLOYD BLANKFEIN: And we hire -- right, we hire the right people.
CHARLIE ROSE: OK.
LLOYD BLANKFEIN: And retain the right people. And at certain times,
lose the right people and make room for other right people to come in.
CHARLIE ROSE: If you thought your resignation as CEO would make a
difference in terms of the future of the firm, is that something you would
do?
LLOYD BLANKFEIN: Of course. But first of all, it wouldn’t even be a
choice I would have. I serve at the pleasure of a board of directors.
CHARLIE ROSE: Right.
LLOYD BLANKFEIN: But if they thought--
CHARLIE ROSE: No, no, that is different. Of course, they could fire
you. But I’m saying, if you thought it, if you decided, would you do it?
Is that what you would do?
LLOYD BLANKFEIN: Sure.
CHARLIE ROSE: If you decided that you being there, notwithstanding
whether you had done anything and hadn’t given great leadership, but if you
thought that it was injurious for the firm for you to stay as CEO, you
would leave.
LLOYD BLANKFEIN: Yes, I serve the interest of the firm. The firm is
not there for my benefit. The firm is not there for my benefit. I’m there
for -- I’m there -- I’m there in service of the firm.
CHARLIE ROSE: And so what’s the challenge for Goldman Sachs today?
To move beyond this?
LLOYD BLANKFEIN: Well, the challenge--
CHARLIE ROSE: I know you got to meet legal actions and you have to
respond by--
LLOYD BLANKFEIN: Sure. And by the way, the firm is -- listen, this
is a big preoccupation for me and a big preoccupation for a lot of members
of our management group, but--
CHARLIE ROSE: You have no choice.
LB: But -- and we have no choice. But 35,000 people at Goldman Sachs
are coming into the office every day and helping to manage people’s money,
advising companies on how to grow, helping to raise capital for them.
Helping companies in the United States expand overseas.
We -- you know, in other words, I am living in this world, you know, this
week, and you know what my schedule was this week and how much time I’m
spending on these matters. But I would say, the overwhelming preponderance
of the firm are serving the interests of the, you know, are working there
17 or 19 hour days, serving the interests of their clients. And that’s
going on right now. So that’s-- all that is going through.
CHARLIE ROSE: What do you have to do, and what does Goldman Sachs
have to do?
LLOYD BLANKFEIN: The challenge is that we have--
CHARLIE ROSE: To get back--
LLOYD BLANKFEIN: -- we have to -- we have a lot of work to do. We
are in a hole, I think--
CHARLIE ROSE: The hole is what? I want you to define the hole for
me.
LLOYD BLANKFEIN: I think that there is a lot of resentment and anger
over the financial crisis, of which a partial cause was financial
institutions, of which -- and that is a community of which we are a member.
CHARLIE ROSE: And the most prominent.
LLOYD BLANKFEIN: The most prominent. I don’t think we did anything
uniquely wrong as far as financial institutions are concerned.
CHARLIE ROSE: So in other words, you are saying whatever we did that
might be considered wrong, everybody else was doing it.
LLOYD BLANKFEIN: But we’re bigger and we are--
CHARLIE ROSE: So we want to be a leader.
LLOYD BLANKFEIN: And we are a leader. We want -- listen, yesterday -
- you know, Wednesday I didn’t particularly want to be a leader when I was
sitting in front of the Senate. We are a leader, like it or not. And most
of the time we like it. And so obligations come with that. And so we have
our share of responsibility. Maybe more than our share.
But at the same time, it seems a bit disproportionate that we’re-- we’re
the firm that probably managed our risks very well and that we have a
disproportionate share of all the burden that financial institutions in the
United States and around the world should have to take for this. So I
don’t claim -- it’s not a matter of fairness, but it is a matter of
proportionality.
The challenge that we have is to repair that reputation. And one of
the complexities that we have -- and maybe this is an oversight of us, it’s
our own fault-- but for 140 years, Goldman Sachs is an institutional firm.
We transact with corporations, big institutions, governments, states, where
we buy bonds from the United States government. Who don’t we deal with?
For the most part, we don’t deal with the American public. We don’t have
banks on the street corner. We don’t do credit cards. We don’t have
checking accounts. We’re not involved in the lives.
The things that we do that support the American economy, that at the
core, we are a very important catalyst for economic growth when you think
of the money we raise for industries, the tech firms we take public, the
bonds we raise to finances (ph). We are very important. But the public
doesn’t see that, the way they see their credit card company, and the place
where they get their mortgage. We don’t do that. So for 140 years, we
didn’t focus--
CHARLIE ROSE: I know, but--
LLOYD BLANKFEIN: -- on the Americans. Now we have to take a damaged
reputation with the American, without the contact with the American public
to build on. And that’s, you asked me what the big challenge is.
CHARLIE ROSE: That is why you are here, and that is why you--
LLOYD BLANKFEIN: That is a huge challenge. I have to say, it is my
deficiency, but how often have you seen me on television on general
interest news shows?
CHARLIE ROSE: Never.
LLOYD BLANKFEIN: You know something?
CHARLIE ROSE: What?
LLOYD BLANKFEIN: That was probably a mistake. But now it -- you see
that we have a lot of work to do explaining to people what it is that we
do. And we’re starting from a hole.
CHARLIE ROSE: Here is what one person said to me. Has there ever
been a time -- this is a respected journalist in the world of finance --
Has there ever been a time--
LLOYD BLANKFEIN: That is redundant, respected journalist.
CHARLIE ROSE: And you were looking for that one?
LLOYD BLANKFEIN: Yes.
CHARLIE ROSE: Has there ever been a time when Goldman’s investment
advisors bought securities from Goldman for a client and at the same time
Goldman was simultaneously shorting it?
LLOYD BLANKFEIN: I have to explain -- see, this is a problem. As a
market maker, we are making -- buying and selling a thousand times a
minute, probably. That’s what I -- that’s what I -- that’s the detach and
that’s why--
CHARLIE ROSE: OK, but I mean -- but see, that is the question.
LLOYD BLANKFEIN: But not--
CHARLIE ROSE: You are saying that is our business. And other people
are saying is that -- should that --
LLOYD BLANKFEIN: No, but let me--
CHARLIE ROSE: I mean, and your answer always was before -- here at
this table and before this interview -- you know. That’s who we are. We
are a market maker. So we are buying over here and shorting over here and
investing over here, and advising over here--
LLOYD BLANKFEIN: No, no, no, no. Stop, stop, stop. Stop. Advising
opportunity, advising is where people are coming to us for advice.
CHARLIE ROSE: On mergers and acquisitions and raising capital.
LLOYD BLANKFEIN: Right, let me explain. Right. That is an activity
where people are asking us for our opinion, where we have an obligation and
a duty and relationship. And I’m not talking about law. I’m talking about
people’s expectations.
CHARLIE ROSE: That’s what we are talking about.
LLOYD BLANKFEIN: When we are explaining our market maker, somebody
saying what is the price on IBM? What is the price on this, what is the
price? Simultaneously someone is buying, someone is selling a thousand
times. They’re not asking us for opinion. We’re not providing. We are
simultaneously sell, buy, buy, sell, sell, buy -- think of the New York
Stock Exchange.
CHARLIE ROSE: Right.
LLOYD BLANKFEIN: Let’s make believe we were the New York Stock
Exchange. That’s a market.
CHARLIE ROSE: Right. It is.
LLOYD BLANKFEIN: Like a market maker. Ask the question, and instead
of Goldman use the word New York Stock Exchange.
CHARLIE ROSE: Right.
LLOYD BLANKFEIN: Can someone go to the New York Stock Exchange, buy a
security, the same time they are selling and at the same time they are
selling a security?
CHARLIE ROSE: No, they need someone to help them do it, a market
maker.
LLOYD BLANKFEIN: Let me ask you a question. Can the -- would the New
York Stock Exchange sell you the security and simultaneously buy it from
someone else? Would they?
CHARLIE ROSE: Yes.
LLOYD BLANKFEIN: Of course, that’s what a market maker does. All day
long. It’s just we’re like a machine that lets people--
CHARLIE ROSE: Yes.
LLOYD BLANKFEIN: --buy and sell what they want to buy and sell.
That’s not the advisory business. That’s just a facility for market
making. That’s what has -- that’s what the detach is. And I am telling
you--
CHARLIE ROSE: That -- the detach meaning that’s where the breakdown
in understanding--
LLOYD BLANKFEIN: Yes.
CHARLIE ROSE: -- Goldman Sachs is. And that’s where--
LLOYD BLANKFEIN: Not Goldman Sachs, every firm like us.
CHARLIE ROSE: Yeah, but you are the one under scrutiny right now.
LLOYD BLANKFEIN: We’re under scrutiny, but that doesn’t mean we are
the firm--
CHARLIE ROSE: OK.
LLOYD BLANKFEIN: In other words, we have the burden of explaining it.
But in any way, that is what I’m saying. So if you just used instead of--
CHARLIE ROSE: All right, but let me--
LLOYD BLANKFEIN: New York Stock Exchange.
CHARLIE ROSE: Can you imagine circumstances in which that would be
wrong?
LLOYD BLANKFEIN: I think it would be--
CHARLIE ROSE: In a sense where you are shorting something that you
are advising somebody to do something?
LLOYD BLANKFEIN: Not advising, again--
CHARLIE ROSE: OK. All right.
LLOYD BLANKFEIN: It’s a different, it’s a different thing. We’re--
CHARLIE ROSE: Can you imagine, I’m trying to get at this notion why
people have a perception--
LLOYD BLANKFEIN: We are not working against--
CHARLIE ROSE: Every senator up there had some perception that there
was wrongdoing. And it wasn’t just about the SEC suit either. It was
somehow there is something going on. That’s one argument. The other
argument they were making, other people are making, and I think some
friends of yours--
LLOYD BLANKFEIN: Let me ask you, if you went into, again, who we --
who are, by the way, who is this market? The biggest institutions, mutual
funds. Could you imagine a market where somebody came in, the trades that
get done are hundreds of millions if not billions of trades a day. This is
not -- this is just a facility for being the other side of what people
wanted to do. Anyway.
CHARLIE ROSE: All right, but let me just ask you that--
LLOYD BLANKFEIN: Yes.
CHARLIE ROSE: Since you mentioned that, in terms of putting together
securities, you know, and if -- if the people who were buying those, these
very sophisticated people you are talking about, if they knew, if they knew
that Goldman or people who helped put the securities together believed they
were going to fail--
LLOYD BLANKFEIN: We would--
CHARLIE ROSE: -- would they have -- would they-- would they have
bought them or not?
LLOYD BLANKFEIN: If they believed they would fail, they wouldn’t buy
it. If we believed it would fail--
CHARLIE ROSE: We wouldn’t sell it.
LLOYD BLANKFEIN: -- the security wouldn’t work, we would not sell it.
CHARLIE ROSE: If you believed that a bundle of securities you had put
together were going to decline in value, fail --
LLOYD BLANKFEIN: No, that’s -- no--
CHARLIE ROSE: Oh, you want to--
LLOYD BLANKFEIN: No, that’s very important.
CHARLIE ROSE: OK.
LLOYD BLANKFEIN: We -- look. The equity markets, do you think the
equity markets are going up or down from here? We just went up 70 percent.
CHARLIE ROSE: What do I think?
LLOYD BLANKFEIN: What do you think?
CHARLIE ROSE: I think things are going to go up because I believe in
America. That’s sort of--
LLOYD BLANKFEIN: Me too.
CHARLIE ROSE: OK.
LLOYD BLANKFEIN: But I don’t know. But let’s say I thought they were
going to go down.
CHARLIE ROSE: I mean, I think we’re coming out of--
LLOYD BLANKFEIN: And I thought your buying -- you’re buying an
instrument--
CHARLIE ROSE: Right.
LLOYD BLANKFEIN: . that-- buying equity would lose your money, I
would sell that to you. That’s not failure.
CHARLIE ROSE: Right.
LLOYD BLANKFEIN: A security that would fail is a security that was
not going to work the way you wanted it to work. In other words, the basis
of markets is that everybody makes a decision in the professional-- in the
way markets work, is that you want to get a risk that you want. If you
understand the risk, and you are suitable to take that risk, the New York
Stock Exchange doesn’t ask who are you or what you think or what the New
York Stock Exchange’s opinion is. You could buy that risk.
We would never, we would let you buy a tech stock even if we had an opinion
that tech stocks were going to go down. That is not our business. Are you
not looking for our opinion to that. You are looking to buy a technology
stock and you know what you want to buy and you come to us and sell it.
CHARLIE ROSE: But suppose --
LLOYD BLANKFEIN: But if you want to buy something that wasn’t going
to work, that you thought you were buying a stock and the company was a bad
company, and it wasn’t going to deliver or it was a-- or it was, or the
security wasn’t going do what you thought it was, we wouldn’t sell it to
you.
CHARLIE ROSE: Maybe that’s what I am asking you.
(CROSSTALK)
CHARLIE ROSE: You may just have answered it. Suppose I’m at Morgan
Stanley. I’m going to sell you a security because I believe, I believe
it’s going to go up.
LLOYD BLANKFEIN: Yes.
CHARLIE ROSE: I will sell you a security, and you are believing it is
going to go up. At the same time somewhere else in Goldman Sachs, we’re
shorting that same security. There’s no problem there, in your judgment?
LLOYD BLANKFEIN: No problem.
CHARLIE ROSE: That’s just the nature of making markets. That’s the
nature of markets work.
LLOYD BLANKFEIN: By the way, we wouldn’t even know. First of all, A,
you might have your own opinion. B, if somebody at Goldman Sachs is
selling that security, they might plan to buy it back in two seconds, you
might be investing in that security for five years. You don’t know. In
other words, we have rows and rows of people who are answering people’s
requests to buy and sell securities all day. They’re not going around and
say, what was the last trade long or short. The market wouldn’t work.
CHARLIE ROSE: But you are also saying we would not go out and advise
somebody to buy a security at the same time we are shorting it, or that
doesn’t bother you either.
LLOYD BLANKFEIN: Again, you know, again, I don’t want to get trapped
in the technicality.
CHARLIE ROSE: I know.
LLOYD BLANKFEIN: But that’s not how a market-- the market makers
work. When we are advising, then we have a fiduciary obligation and a
duty. And I’m not talking-- it happens to be a legal expression, but it is
also the ethics of the market. When we are just a facility to facilitate
other people’s transactions, they are not asking us our opinion and they
wouldn’t care about what we-- what some other trader down three seats away
did or didn’t do.
CHARLIE ROSE: Here is what I believe you are saying about the housing
crisis, and correct me, that was at the core of the subprime crisis and the
housing bubble, was that at the core of a global economic meltdown,
correct?
LLOYD BLANKFEIN: Yes, it was at the core. It probably wasn’t the
only thing at the core.
CHARLIE ROSE: OK. And --
LLOYD BLANKFEIN: It might not even be the first cause.
CHARLIE ROSE: What was the first cause?
LLOYD BLANKFEIN: If you want to make it more general, there was a
general overleveraging on everything, the housing was a symptom of it. But
it wasn’t-- consumer credit was overleveraged. The federal government was
overleveraged. Corporations had borrowed too much money.
CHARLIE ROSE: Everybody had lost, there was too much debt and
everybody had lost sight --
LLOYD BLANKFEIN: Including.
CHARLIE ROSE: Of risk. Everybody lost sight of risk.
LLOYD BLANKFEIN: Including housing, not limited to housing.
CHARLIE ROSE: How would you fix that so that we don’t do that again?
LLOYD BLANKFEIN: Well, I can tell you we can improve our chances of
not doing it again.
CHARLIE ROSE: Because it is reducing risk.
LLOYD BLANKFEIN: There are a number of things that we are going to
do. But if you-- you will not absolutely rule out excess. You can pass a
law against excess, and somewhere down the road some excess will appear at
some point from some direction and no one will know it at the time and
everyone will know it in hindsight.
But some of the reforms that are being talked about today will improve the
chances of having-- make it less likely to happen. So for example, a
systemic regulating council people to look out around corners and say where
are these excesses taking-- maybe I won’t see all of them. But maybe I
will see more than we would have thought before.
CHARLIE ROSE: How about a consumer protection aspect of it.
LLOYD BLANKFEIN: A consumer protection aspect to make sure that
doesn’t build up in consumers.
CHARLIE ROSE: Right.
LLOYD BLANKFEIN: Derivative legislation to make sure that leverage
doesn’t come--
CHARLIE ROSE: Transparency.
LLOYD BLANKFEIN: Transparency. Those are all things designed-- .
CHARLIE ROSE: That are you in favor of.
LLOYD BLANKFEIN: Of course. Those are all things-- .
CHARLIE ROSE: But you know, the characterization is that the Wall
Street is down there lobbying against it all the time, as you know,
spending millions of dollars.
LLOYD BLANKFEIN: You know, Wall Street just like academics, just like
corporations are not only, you think I’m saying entitled. I’m going to go
further. Are invited by staffs of legislators, can you explain this to me,
can you explain that to me. What are the consequences of this? If we pass
this rule, could these people tell me what you think the consequence is,
good or bad.
So let me tell you, if you call it, if you call it lobbying all the
time, you have one image of it. And maybe there’s excessive petitioning
and it turns into that. But I will tell you, even in the Senate hearing
that we had, there was a lot of entreaties by the senators saying, I hope
you will work with us to pass the right rules and not the wrong rules and
to work with us. What do you think that means? That means going in and
giving-- making recommendations.
CHARLIE ROSE: But you are not going to sit here and suggest, I don’t
think though, that all lobbying is simply trying to explain and help them.
LLOYD BLANKFEIN: No, but all lobbying isn’t invidious. And a lot of
it is explained.
CHARLIE ROSE: No, exactly, OK. It depends on what --
LLOYD BLANKFEIN: Yes, sometimes -- yes.
CHARLIE ROSE: But you are in favor of the Dodd bill, is that what I’m
hearing you saying?
LLOYD BLANKFEIN: I’m in favor-- the Dodd bill is still being-- I’m in
favor of, frankly I’m in favor of a bipartisan bill, which will incorporate
the bulk of the Dodd bill. But elements of refinement to it. So I’m in
favor of a bipartisan bill.
But as we started ticking through it, some of those things in the bill are
designed to make a-- a bubble less likely. Some of those things are
designed to make the consequence of being caught up in a bubble less
dangerous, like having extra capital to absorb losses when they occur. And
some of the things in the bill are designed that if everything else fails,
let’s make sure the consequences of failure aren’t so great again. And
that’s the resolution authority, ending the too big to fail element.
So there’s a number of elements in that bill that let’s avoid the
problem, let’s make sure we could absorb the problem, and if we can’t, and
if one and two fail, let’s make sure we can, you know, put a company out of
business in a way that won’t affect the whole system. Those are three very
important elements. And of course consumer legislation is very important.
Now, we happen not to be a consumer firm, so we have less to say about it
and less experience with it. So we tend to talk about it less. But
obviously consumer legislation in some form is essential as well.
CHARLIE ROSE: Do you think the country is headed in the right
direction in terms of -- and the president in terms of what he is trying to
do about the economy, about jobs, about the whole range of issues that
affect the economy and the economic recovery of the country?
LLOYD BLANKFEIN: I think there is consensus around the direction. I
think most of the debate, even though the debate is strenuous and at times
to somebody who, you know, is not used to, is not as a keen observer as
some other people, looks sometimes aggressive and bitter, but if you look
at the actual issues, I think the directions in which both parties are
going in are pretty consistent. And a lot of this dispute and a lot of
disagreements are around small percentage of the whole outline. Now they
have consequences and some of these things may be worth fighting for, but I
would say on the whole, most -- they are quite consistent in the direction.
CHARLIE ROSE: Goldman Sachs will survive.
LLOYD BLANKFEIN: Thrive.
CHARLIE ROSE: Thrive. Lloyd Blankfein will survive?
LLOYD BLANKFEIN: Lloyd Blankfein, yes, I’ll be here.
CHARLIE ROSE: As CEO of Goldman Sachs.
LLOYD BLANKFEIN: That’s my-- that’s my-- that’s my expectation and
that’s my-- that’s my duty. And I feel that.
CHARLIE ROSE: And Goldman Sachs a year from now will be essentially
the same company that it is today, doing the same things.
LLOYD BLANKFEIN: Goldman Sachs, I don’t think has ever been the same
company two years in a row, ever. In any moment. We are always evolving.
Look, in the last 10, 15 years, we went from a private company to a public
company, a mostly U.S. company to a global company. A most -- a small
balance sheet to a big balance sheet. We -- a private partnership to not a
private partnership. We are always evolving to meet the needs of the
markets and our clients. And we will continue to evolve in order to
accomplish that.
CHARLIE ROSE: There is misunderstanding in terms of the functions of
Wall Street, in terms of how people have been hurt. In terms of the whole,
are you agreeing with me or --
LLOYD BLANKFEIN: I’m agreeing and I want to add something. Because I
don’t want to leave you. It isn’t all the misunderstandings are on the
other side well. We have soul-- in other words, we, I sat there and it
wasn’t just trying to parry every thrust. There are things -- when I say
we have to evolve, we have to take into account, we have to read these
things, and that the callousness of some of the e-mails I listened to,
which I don’t think are representative but were still there, we have to
make adjustments also. And I-- if I-- if your summary, if you were done
with your summary, then I have done a bad job of telling you that we are
listening also and that we know we have to make changes.
There are ways in which I have to do a better job of informing people
about markets and what we do and the contribution we make. But it’s not
one way. We-- let me tell you, there are a lot of-- we’re getting a lot of
communication these days. And we have to be awfully thick not to pick it
up. And so we are going to have to go--
CHARLIE ROSE: And not to say that what, that we have to change.
LLOYD BLANKFEIN: Yes. Yes.
CHARLIE ROSE: I don’t understand, I really don’t. You know, you
mentioned the e-mails and clearly that represents something, if that
represents something at Goldman Sachs, we want to do something to make sure
it’s not. But what is it Goldman Sachs has to do to change? I still don’t
understand.
LLOYD BLANKFEIN: I think we have to engage more. We might have to,
well, we’ll look at all of our business practices. But we have to do more
about examining the crosscurrents and we have to look at the conflicts
inherent, by the way, inherent in the business where you’re a go-between
between buyers and sellers. People who need to invest money and people who
need those investments. We’re always intermediating in our business
between interests that are in conflict, and we help to resolve those
conflicts. But in some ways, we’ve taken those conflicts on ourselves.
The conflicts themselves aren’t a bad thing because there are buyers
and sellers. They have to meet. The buyer wants it to go up. The seller
wants it to go down, there is an inherent conflict. But we have to do a
better job of being transparent and examining our processes to make sure
that the society is in tune to the way in which we’re making our decisions
on those outcomes.
And I know it sounds -- it’s not as concrete as you would like it to be or
as I would like it to be. But I’m just indicating to you that we are going
to have to go through our processes with a view to making people appreciate
in a more positive way what we are doing. We can’t -- we can’t, we can’t
exist in the current state that we are in. And we understand that. And so
we have a lot of work to do.
CHARLIE ROSE: The perception, and you know, and I think you just
spoke to that better than I have ever heard you say that, the perception
too, beyond an individual transaction, is that Wall Street is making a ton
of money in transactions that A, people don’t understand or B, that don’t
have economic benefit. That it’s become one great big casino in which a
bunch of selected people have gotten rich.
LLOYD BLANKFEIN: I think, you know, we touched on this before. You
can characterize anything as a bet. You can call it a casino. People call
futures markets, they call the stock exchange a casino. The stock exchange
a casino? Well, people can make and people can lose. But really, there’s
an extraordinary social purpose in allowing people to take--
CHARLIE ROSE: To bet on anything.
LLOYD BLANKFEIN: To, think of it, you can characterize it that way
and some people did characterize it that way. But to take a risk or to
hedge a risk. Look, if I’m an auto company and I want to build plant and
equipment in South America, I might not do it if I can’t hedge that
currency. If I’m trying to -- if I’m trying to-- if I’m trying to finance
an offshore oil well, well, that oil well may work if oil is trading at
$80, if I can sell the oil that comes out of the ground or out of the ocean
at $80 a barrel. But if it comes out at $40 a barrel, I will go bankrupt.
So no one will give me financing unless what, unless I can lock in the
price of oil at $80 a barrel.
So I am going to go to a market. I’m going to go to Goldman Sachs and
say, I would like to sell oil forward at $80 a barrel. Is that person
betting on the price of oil? I guess you could say that. But what is that
person really doing? They are hedging a risk that will allow that company
to go out and invest $10 billion in extracting oil out of the market. That
person is selling oil, but as a result of selling oil forward, what does
the world get? It gets more oil. Because now that person will invest in
digging that well, and prior to that, they wouldn’t be able to invest in
digging the well, because they don’t know what the price of oil will be in
seven years.
Now, in order to do that, you really need somebody to be on the other
side. Who is going to buy that oil seven years forward? It could be
another client. It could be somebody who uses oil. It could be a
speculator. It could be Goldman Sachs taking the other side. But there’s
a real social purpose in doing that. This idea of transferring risk has a
very big -- you could call it a casino. But if it is, it’s a very socially
important casino.
CHARLIE ROSE: Thank you again.
Lloyd Blankfein, CEO of Goldman Sachs, as I said. There is-- we’re talking
about an area in which a lot of people have a lot of misunderstandings or
an absence of understanding. And it is complex. It is difficult. And we
hope that this advanced at least some the idea of what is taking place and
how some of this has fallen on the shoulders of Goldman Sachs. Thank you
for joining us. See you next time.
END
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