Chapter 1: What is the main topic discussed in this episode?
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I'm here with Lloyd Blankfein. Lloyd, thanks for joining me on the podcast. Thanks for having me, Sam. You've written a memoir, Streetwise, which is incredibly fun to read and an education for anyone who doesn't know much about finance. I'm going to ask you some questions about it.
I especially am interested to understand the lessons we should have drawn from the 2007-2008 financial crisis, which you uh, steered Goldman Sachs through, um, which was, uh, high stress and high stakes and, um, an achievement for which you were both celebrated and vilified.
So you, I mean, you, you have a very interesting story because you came up from, I mean, you're, you're a Jew living in the projects. I mean, this is not a story that's often told about Jews these days coming from basically nothing.
We forgot to socially mobilize. Yeah. Yeah.
But you went to Harvard and then kind of climbed your way through all the high-status rungs on the ladder, and eventually were running one of the most storied financial institutions in the world and through periods of great stress, and you did that for 12 years. So it's a great story, much of which we will not touch on here.
I mean, in no sense is our conversation going to be a surrogate for actually reading the book, so I just recommend people do that. I want to use it as a lens through which to look at the present, because you obviously have a unique perspective on many of the things that ail us.
I'm worried about things like wealth inequality and the dysfunction in our government and hyper-partisanship and just how we should, if we can find our way back to something that seems like dry land in the near future, where the new cycle is more normal. Uh, yeah. I mean, what is normal?
Uh, it's, it's, we're, we're, we're a decade from normal by my lights, but let's start with some just very basic things. Cause I want people to know, um, what you've done. What is Goldman Sachs? What had it just, I mean, people, I don't think they know the name. I don't think they know what Goldman Sachs does.
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Chapter 2: What insights does Lloyd Blankfein share from his memoir?
Goldman Sachs said it is a financial institution. Think of it. It's a wholesale financial institution. So people really can't get a mortgage from Goldman Sachs or bank with it. There's no Goldman Sachs offices on the corner. We finance people who are looking for capital, people who want to build businesses. We also address the needs of people who have capital to invest.
So those could be high net worth individuals, they could be institutions, it could be government, sovereign wealth funds. And we try through our good reputation on both sides to marry people who need capital with people who have the excess capital.
And in order to do that, you have to have cultivated, which Goleman has done for something over 150 years, a reputation for kind of being good at it, not always perfect at it.
Chapter 3: What lessons should we have learned from the 2007-2008 financial crisis?
but good at it. And so we engage with pools of capital and engage with entrepreneurs. And who else needs capital? Governments need capital. Municipalities, the federal government gets financed. People who go through IPOs. And so people in the audience will understand IPOs. That's a way of getting finance for a private company, going public and raising stock and bonds.
And there's a lot of different mechanisms and instruments to do it. But basically, we are the bridge and the intermediation between people who have capital and people who need capital. And I'll say that there's another corollary. We're also a bridge between the people who have unwanted risk And the people who are willing to take on the burdens of that risk and get paid for it.
And since those people don't always match up at the same time, we are a principle. We will take on somebody's unwanted risk until we could find somebody else who will take the other side. And when they take the other side, it's usually not exactly the same thing.
So we're very mathy and have algorithms to try to get something that's not quite like the other thing to be almost like it by, you know, buying a cocktail of things to replicate something else. I know this is kind of abstract, but we can get specific too.
Yeah, that reminds me about something that you were specifically vilified for during the crisis, or in the aftermath of the crisis, which seemed to turn on confusion around your role as a fiduciary versus your role as a market maker.
I'm thinking of the John Paulson trade, which was shorting mortgage securities, and he made billions of dollars betting against the mortgage market, and you guys created that trade for him. But you had to find a counterparty on the other side of the trade. And then that was, you guys were maligned as having basically knowingly defrauded some other client.
But maybe it's just worth double-clicking on that.
Sure. You know, it's easy. Look, anything that's resolved, nobody ever remembers not knowing it. So everybody knows that the mortgage, you know, that mortgages were, you know, junk securities were bad. And, you know, a lot of them never, you know, turned out to be worth zero at the time. Some people thought it and other people thought the opposite, but nobody, nobody really knew.
It's only in hindsight that people knew. By the way, every time somebody tells me they know something, I ask them about something that's current.
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Chapter 4: How does wealth inequality affect American society today?
And so what happens at that, so that happens is if you have an obligation to pay someone and he's going to pay you, you want to see your, you want to see the money from him come into you first before you pay. And you get a whole daisy chain effect. Or the, or the money from somebody else.
You're not going to pay anyone until somebody's paying you.
So this is a market. So, Even if you're an industrial company, I'm selling cars to a wholesale dealer. The money has to come in so I could pay the cost of my raw materials. Everybody's waiting to get paid first before they'll pay. And then it freezes up. And so what happens in a situation like that, which has happened periodically in history, which is why we have central banks and
one of the roles of a central bank, and not just the U.S. central bank, which is called the Fed, is to be the lender of last resort. If the world gets into a position where everybody becomes distrustful, and we're talking about sentiment, we're not necessarily talking about reality, we're talking about, remember the movie It's a Wonderful Life, if there's a bank run?
You think of the Depression, some of the institutions could have been solvent, but nobody could survive a loss of confidence. If people are unwilling to take your credit then they make you have to pay before they'll pay you. And eventually everybody is left with an obligation they have to meet, but no money with which to do it, no liquidity with which to do it.
And that's the situation that almost everybody could have been in eventually. And it would have been, to me, it would have been like dominoes. It would have been over time. And that was the crisis. Was it certain that that would have happened? No, but it was a much higher likelihood than anybody should reasonably want to go to bed worrying about.
How do you think, in hindsight, how do you think the government performed during that crisis? Did we cut a large enough check? Should certain institutions have been allowed to fail that were propped up? How do you look at the moral hazard question?
You know, I think at the time, again, there's two ways of answering the question, you know, what would you have done? What would you have done differently with after acquired information?
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Chapter 5: What role does Goldman Sachs play in the financial market?
Yeah. And what would you have done differently at the time with your greater wisdom and competence that the people on the site at the time didn't do? I would say the people at the time with what was available did very well because it was unknown and unknowable. And again, we're dealing with the risk of a problem and not necessarily the certainty. And so they went into some wrong directions.
They dealt with things in a gross way. Just let's bring it to something where that's more current in people's experience. Let's say the start of COVID. Mm-hmm. And you want to go and you're worried about, you know, worried about the economy getting wrecked. And so you come out with a stimulus plan and you're going to mail checks to people.
If you had a few years to do that, you might design it so that you were only, you know, you're only sending checks to people who really needed the money. better, it would have been less fraud, it would have been better targeted, but you didn't have the time and you didn't have the tools to be able to do that.
So you say, you know something, we're sitting here, we'll do a retroactive examination about it and we'll find 50 things that were done wrong, but really can you say that the people at the time, the decision makers, performed badly given what they had to work with and the speed with which they had to execute.
No, so I would say looking back, things could have been done much differently, but at the time, and I was present and watching, I think they did a very good job with what was available at the moment. And again, the exigencies of the moment
Is there anything we learn from that experience that is setting us up to respond better next time? The analogy to COVID I find pretty depressing because my sense is that COVID was a dress rehearsal for something much worse and we performed quite badly. Much of the culture drew the wrong lessons from the experience of COVID. And I feel like in the presence of a scarier pandemic now,
We have a society that it will be less trustful of any public health messaging coming from institutions, harder to wrangle to solve various coordination problems. I mean, this is just my view of it, but I feel like we're somehow less fit for the next pandemic than we were before COVID.
What do you think we did with respect to the financial crisis? These are parallel fields of human endeavor. They're not the same thing, but they rhyme. Basically, it's fundamental. We're dealing with human nature. The first reaction, an early reaction, was the economy should never have these risks again. And so regulation was stiffened.
Capital requirements for financial institutions were stiffened. What's the consequence of that? It means that some of the financial institutions can't do their job as well because they can't lend as much. They have to husband capital instead of lending it out and supply it. And over time,
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Chapter 6: How did Goldman Sachs navigate the 2007-2008 financial crisis?
That's the element of this growth. And so people... Again, once again, the market is extrapolating, is discounting the future into the present and saying, yes, it looks like 100 times earning now, but at this price, five years from now, it'll be 12 times earning. The price is going to go up from there.
But we do have this phenomenon of a meme stock, which looks irrational, both in hindsight and foresight. Yeah, that's just crazy.
There's nothing positive you can say about that.
Right. But it feels like culturally, there's a little bleed through from those moments of just sheer, I mean, it's not even a bubble, it's just irrational gambling behavior to what the market is, respectable market is also doing. It's looking more and more like a casino. Members can hear the full conversation by subscribing at SamHarris.org.
Subscribers get a private RSS feed you can use with your favorite podcast player. I've had the sense that the pitchforks are coming and we're now living in the age of soon-to-be trillionaires. Elon might be there in a few months. It's ultimately going to be disastrous politically.
Are we in like just a total post-truth world? Is it like a mortal life that once truth is killed, it's dead forever?
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