Lloyd Blankfein has one piece of advice for anyone fearing that a financial reckoning is on the horizon: plan like it is coming.
Blankfein, who led Goldman Sachs during the 2008 financial crisis, said steering the investment bank was about contingency planning and being brutally honest about what assets are worth.
“I would be very aggressively marking to market, making people sell certain things that even if they’re liquid, try just to make sure you could,” he told the FT in an interview at his apartment in New York’s Upper West Side.
The comments from Blankfein, 71, come as concerns mount about the economic disruption from artificial intelligence and the underwriting standards at many non-bank lenders, which have proliferated in the past two decades.
He said the lack of a major “shakeout” since 2008 means people “aren’t as scared” and had “got more complacent”.
“The longer it takes between reckonings, there is a potential for a more severe reckoning,” Blankfein said. “I’m not saying it’s going to happen tomorrow or what direction it comes from. But when something goes off you’re going to find all the assets that have been carried at prices that can’t be realised in the market.”
Eight years after leaving Goldman, Blankfein is out with a memoir this month, Streetwise: Getting To and Through Goldman Sachs. It charts his unlikely rise from Brooklyn public housing to running one of the world’s most important financial institutions. Forbes pegs his net worth at around $1.7bn.
Blankfein said he initially started jotting down his life story for his three children, who grew up surrounded by privilege that would have been unthinkable to a young Blankfein.
But after getting about a third of the way through, he paused for several years before resuming writing. His wider aim was to demystify Goldman and show that a path to the top is more attainable than people realise.
“I’ve met a few people in my life where they were so smart I couldn’t even figure out how they saw the world,” Blankfein said, naming Elon Musk and Warren Buffett. “But most of the time, people aren’t that great. They’re just lucky, in the right place at the right time. Worked harder. And maybe even smarter but not smarter of an order of magnitude. Just a little smarter.”
Blankfein went to Harvard at 16, and started as a tax lawyer before deciding to move into finance. He was initially rebuffed by Goldman but joined through the back door as a commodities salesman at J Aron, which Goldman acquired in 1981.
Streetwise is written with the biting and self-deprecating humour that Blankfein became known for on Wall Street. He calls his comment in 2009 to the Sunday Times that he was “off doing God’s work” a “Lloydian slip”. The quip has stuck to Blankfein and Goldman ever since.
The book is full of detail for Goldman Kremlinologists: the culture clash between upper crust Goldmanites and the scrappy J Aron traders, the squabbling at the top between Hank Paulson and Jon Corzine, partners agonising about taking Goldman public, John Thornton’s no-show leadership following the 9/11 attacks, and the sudden departures of Stephen Friedman and Jon Winkelried during various crises.
“Most of the time these people are by and large my heroes. And heroes have flaws too,” he says. “Not everybody is wonderful in every context.”
The main drama in Streetwise is the 2008 financial crisis, a market blow-up that sceptics still feel Goldman contributed to and profited from. Blankfein rejects these accusations.
He took over as Goldman’s chief executive in 2006, after Paulson left to become Treasury secretary in the George W Bush administration. Blankfein writes about his crisis starting in 2007, studying Goldman’s daily P&L while in the cinema watching Live Free or Die Hard. He noticed a decline in a Goldman-managed hedge fund.
That kick-started more than a year of risk management and gut checking of asset prices that Goldman was holding. Blankfein’s view is that the crisis would have been much less severe if more of Wall Street had thought like Goldman.
Rival investment banks Bear Stearns and Merrill Lynch had to merge with other banks, while Lehman Brothers collapsed in the largest bankruptcy in US history.
“They wouldn’t have accumulated so many bad assets on their balance sheet to the point that they couldn’t sell them,” Blankfein says. “Whereas we were constantly challenging our traders to sell into the market, to see what the true value and what the market rate was for what they were accumulating.”
Blankfein largely defends the government response to the crisis as one that was necessary to restore the health of the banking system, even as many average citizens criticised the policies as ones which favoured Wall Street over Main Street.
“They weren’t trying to bail out [the banks]. They were trying to get the economy righted,” he says.
Blankfein occupies an unusual place in Goldman lore. His legacy is secure through his stewardship during the crisis. But he is an outlier for not having a second act after leaving the investment bank.
His predecessors often transitioned into public service, like Paulson and Bob Rubin as Treasury secretaries or Corzine being elected New Jersey’s senator and then governor.
Blankfein views the timing of his departure in 2018, during the back half of the first Trump term, as not conducive to a government job. He says he was approached over the years about running for New York City mayor but never seriously entertained a bid.
“In every hive there’s one queen bee that stays long when all the other drones and everything come and go,” he says. “I was that person [at Goldman]. I stayed a long time.”