MELISSA BLOCK, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
MICHELE NORRIS, host:
And I'm Michele Norris.
Goldman Sachs took a very public political lashing on Tuesday. For nearly 11 hours, senators took turns blasting the bank's executives on charges that Goldman misled its clients so the firm could profit from market losses. The 140-year-old investment house has been known as both a leader and an innovator on Wall Street, but that reputation has been tarnished by a federal lawsuit.
Lloyd Blankfein is the CEO and chairman of Goldman Sachs, and he joins me now from his office.
Welcome back to the program. This has been quite a week for Goldman Sachs. What one-word sentiment best describes what you were feeling as you walked out of that hearing room on Tuesday?
Mr. LLOYD BLANKFEIN (CEO and Chairman, Goldman Sachs): Humbled by the experience, actually.
Mr. BLANKFEIN: Yes, it was quite a humbling experience to be in a position with Goldman Sachs which prides itself on the role it performs in the U.S. economy, to be in a position to have to defend itself against some of the, you know, some of the charges that were made.
NORRIS: What do you feel about the political and the public outrage against Wall Street, and Goldman in particular? Do you understand it? And understand it, perhaps, a little bit more clearly now?
Mr. BLANKFEIN: Well, I certainly appreciate the public outrage. You know, we have a situation where the U.S. economy has faltered, financial institutions played their role in it, and Goldman Sachs, of course, is an important member of that community of financial institutions. And so financial institutions will bear that burden, and Goldman Sachs has a specific burden here. And I understand the anger of Wall Street let down the American public to some extent, and even so we have to be, you know, we have to appreciate, you know, the scrutiny that we're going to get and appreciate that some changes are warranted.
NORRIS: You say Wall Street let down the country. Let me put to you a question that was put to some of your executives on Tuesday. Did Goldman Sachs do anything to cause the crisis or to make the crisis worse?
Mr. BLANKFEIN: I think the answer, in short, is yes. Some of the things that Goldman Sachs did contributed to the crisis. So, for example, Goldman Sachs did transactions for companies that involved lending them a lot of money, maybe too much money. We financed real estate that was probably overleveraged. There was a general bubble in the economy, and we contributed to that as Goldman Sachs - financial institutions, generally. I don't think it was anything uniquely about Goldman Sachs among financial institutions, but there's no relief.
Because others did it, there's no relief for Goldman Sachs from bearing part of the burden. The financial institutions in the United States - I mean, let's get a little further, financial institutions in the world participated in the overleveraging of society. Beyond that, there was overleveraging by states and local governments, municipalities, consumers. There was an overleveraging that created the environment that produced the bubble.
NORRIS: So what are the personal lessons in this for you? What do you do differently going forward? Will Goldman Sachs change the way that it does business?
Mr. BLANKFEIN: I think that Goldman Sachs and all firms like Goldman Sachs have to be introspective about where excesses are developing. With the benefit of hindsight, we can see clearly the excess leverage that developed in the system. The question is should there have been more signs? Should we have seen it earlier? Now, in the connection with the bubble, bubbles form because many people don't see them. So I think, you know, we can go through a number of things.
One, we have to be better at seeing bubbles and indications of bubbles. Two, we have to be able to be in a better financial position so that if bubbles occur that we don't see, where at least all financial institutions are better able to absorb it. And three, if institutions can't absorb it and don't have the financial wherewithal to deal with the problems as they arise, at least we have to have a system in place where financial systems can be put out of business in a way that doesn't jeopardize the entire system by creating systemic risk.
NORRIS: I'm hearing from you something that sounds a bit like contrition but you resisted the senator's characterization of Goldman's short position in residential mortgages as betting against them. What's the difference between gambling and buying a credit default swap that pays off at huge odds if someone else in the transaction that you have nothing do with defaults on an obligation?
Mr. BLANKFEIN: Michele, just to, you know, just to be clear: We did not bet against our clients and in fact, we spent a lot of those 10-and-a-half or 11 hours talking about what our actual positions were. Goldman Sachs, like every institution, takes risks on in connection with its business. And if you're running it prudently, you're simultaneously selling off those risks or otherwise hedging those risks. And we went through, in a painstaking way, that what we were really involved in was an exercise in creating instruments that bore risk and at the same trying to hedge our position.
NORRIS: In past errors, banks that were famously successful were held in great esteem, not just for their balance sheets, but for the railroads that were built with their capital, or the canals that were dug, bridges that were built, in some cases even the armies that were supplied thanks to the loans from those banks. When you point of something that has enriched not just the bankers at Goldman Sachs but ordinary people because of Goldman Sachs' financing an investment, what do you point to?
Mr. BLANKFEIN: You know, Michele, we are financing, all the time, capital improvements, roads. We help states raise money. We help companies that want to grow get capital, borrow money, so that they can go turn around and invest in their businesses and create jobs. We take new companies that are just being formed with innovative ideas and do IPOs, initial public offerings, so that they can go raise equity capital and go out and launch products. That is the essential function that we perform as investment bankers.
Beyond that, we also manage other people's money for pension funds in state governments and other institutions, so assets can grow. And even the function that we're talking about here, our market-making function, helps create liquid markets.
Without liquid markets, nobody would buy debt or equity in companies, which by the way is what finances companies, unless they thought they could sell them and move into and out of their positions. So even that market-making function, is - serves the interest of the capital markets, capital raising, and therefore in the helping to create companies and jobs.
NORRIS: Do you think the public really understands that?
Mr. BLANKFEIN: I think, you know, obviously not. At this point, you know, there are a lot of things in life that if they work very, very well, you don't understand - you don't need to understand them at all. Like, I don't really understand how when I turn on my faucet water comes out all the time. I don't - and how those systems and filters and everything was built, but I'll tell you if it ever malfunctioned, I'd focus on it. And I wouldn't get it right away, and it might be technical. But I'd really have to scrutinize it and learn it, and you know something, know more about it than I really want to.
In a way, that's what a little bit happened on Wall Street. When these things are working well, you tend not to examine it, and so people don't have a lot of experience in the technicalities and the complexities in the market. And unfortunately, because of the last few years, people have had to know more about it and learn more about it than they wanted to. And it is unfortunately, you know, complex, and we're going to have to do a - because everybody is aware of how important this is, we're going to have to do a better job. You know, someone like Goldman Sachs has never been in the consumer business and never really had to get out and explain to the public at large how we do our business. And now I'm afraid it's become very, very important for us to do that.
NORRIS: What's the never-again lesson for you here? The one thing that you've decided at the end of this week or this process or finding out that you're under investigation and facing a lot of scrutiny from the SEC, that you've decided we're just not going there again, we are never doing this again.
Mr. BLANKFEIN: Well, I think we are going to have to be in a position where we're much more transparent about the activities that we do. So I would say we don't want to be in a position where activities seem to people as mysterious as they were at the start of this crisis.
NORRIS: Lloyd Blankfein, thank you very much. Good to talk to you.
Mr. BLANKFEIN: Thank you very much.
NORRIS: Lloyd Blankfein is the CEO and chairman of Goldman Sachs.
BLOCK: After we spoke to Mr. Blankfein, NPR confirmed that federal prosecutors have opened a criminal investigation into alleged misconduct at Goldman Sachs. There are few details on the focus of the investigation. Neither the FBI nor the SEC would confirm or deny the probe.
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