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Goldman CEO Blankfein warns 'fiscal cliff' threatens confidence in U.S. economy

Lloyd Blankfein, Chairman and CEO of Goldman Sachs.

Jeremy Hobson: Hi, I’m Jeremy Hobson from the Marketplace Morning Report and today we have one of the most powerful men on Wall Street with us. Lloyd Blankfein is the chairman and CEO of Goldman Sachs. He rarely does interviews, but he decided to take a few minutes to sit down with us.

Lloyd Blankfein, welcome to Marketplace.


Lloyd Blankfein: Thank you.

Hobson: Well, a lot of ordinary Americans are listening to this are going to hear that the head of Goldman Sachs, which for some epitomizes what they don’t like about Wall Street is putting on a conference to help small businesses, and they are going to ask ‘what’s this all about?’

Blankfein: Well, we’ve had this program for a number of years now, called 10,000 Small Businesses, where Goldman Sachs has convened a group of partners to basically give business education to small business owners. Now, these are people who are not going to start small businesses, in many cases these are small business that have been operating for some time -- sometimes, for more than a generation. But we are trying to give them and are giving them a business education, advice, and in some cases access to financing in order to allow them to grow their businesses. And of course we measure these results, and then we make revisions to the program. This has been going on for almost three years now and we’ve had some terrific results.

Hobson: But is this just about improving your public image or is this really about your bottom line?

Blankfein: Well, it’s about neither. This is about investing in small business and also as a matter of ideology, again at the end of the day, Goldman Sachs is an adviser to businesses and we’re a great believer in the capital markets, and so what this allows us to do is to apply those principles that we get to apply as a firm on the greatest and biggest companies in the world. We get to do this on a much more human scale and it involves our people on a much more human level to engage with small businesses and to affect great results. Again, we’ve had a program called 10,000 women that has been operated for five years now. And on the second anniversary of that we started 10,000 Small Businesses which is an analogous program which is dedicated to job creation and business growth in the United States. The women’s program is something we do globally. This small business program is something we do in the United States.

Hobson:
Well, you’ve said that Goldman Sachs serves a very important function in freeing up capital and making the economy stronger and obviously you’re saying that you’re helping small businesses in this case. But right now, a lot of Americans see banks like yours as really helping themselves, rather than the economy as a whole?

Blankfein:
We have an economic system in which capital is invested in businesses, wealth is created. When businesses are successful they go out and hire people. Those people get hired, generate income and wealth, and go out and buy more goods and services which also give a spur to other businesses. That is our economic system; we play an important role in that in several ways. We advise companies on what their plans should be, we help to raise capital, because we are in communication with the companies we advise and also with the investors that supply the capital. And we also help to manage other people’s money, as they try to put their investments into businesses that will be more successful. That is a very, very important role in the economic system that both creates wealth in the country and helps to allocate that wealth.

Hobson: Fair enough, but do you think it's working? There are a lot of middle class families out there who think ‘Wall Street’s not doing much for me right now.’

Blankfein: Well, I think there is a cycle of things that obviously isn’t working as well in the aftermath of the recession as it has worked in other times. But I think if you look at the United States and the success of the economic system of the United States over generations and, frankly, even to the present time, I think the U.S. capital market system is quite frankly the envy of the world. Many places around the world are trying to mimic the system and many would, in a heartbeat, change with us, if they could.

Hobson: Now, I think some people may be surprised to hear that you were recently asked if you would do away with the Dodd-Frank Wall Street reform law and you said ‘no, you wouldn’t.’

Blankfein: No, of course we wouldn’t do away with a reform of the system. Having come through a trauma that we went through, which was, by the way, we are not only a member of the system we are also a beneficiary and also at risk from the system, as much as anybody -- maybe more than other people so obviously we want things that would make the system safer. I think what will happen is, just as we knew we had to change certain things, some of the remedies that were proposed, after a while, and on reflection will probably seem inadequate in some ways and some may be too severe and there will be adjustments that were made. We certainly had an upheaval at the start of the Great Depression and that resulted in a lot of financial reform, but it wasn’t done in one stroke and it wasn’t done immediately. The Depression was in 1929 and resulted in the Securities and Exchange Act of '33, ’34, ’35, ’37, ’39, and ’41. So, undoubtedly the pendulum is still swinging back-and-forth here it but it will eventually get to the right place. Overall we needed to have reform. A lot of the reforms contained in Dodd-Frank look good to me and some of them look excessive and some of them may even turn out to be inadequate. But we’ll be able to tell -- we’re still in the process of trying to get it right. And unavoidably, I’m sure, we’ll make the system, the regulators, and the people who are having these regulations enforced will make some mistakes along the way, and we’ll try to get it right.

Hobson: I just interviewed Sheila Bair, the former FDIC chair, who has come out and said, basically, that the reforms that went in place were not enough, that in fact we should have broken up some banks or let some banks fail after the financial crisis. What do you think about that?

Blankfein: As I said, I am sure there are some parts of it that will, again, this was a very long, complex document that for the most part was skeletal and left it to the regulators to fill in and that process hasn’t even been done yet. So, I don’t know if you can make a judgment yet whether it’s too much or not enough because we don’t really know what it is. But it wouldn’t surprise me that people will look at the aftermath of this process. Some people will say it’s too much and some will say it’s not enough and that’s why there will be adjustments down the road.

Look, at the end of the day, there’s a trade-off between the risk that the system has and the amount of safety that produces. You can make a system very safe by just having everybody have lots and lots of capital. Which means there will be less risk-taking done by the institutions that have to be over-capitalized. That will make the institutions safer, but other people may observe down the road that, ‘gee, these institutions aren’t accomplishing their social purpose of taking more risk for their clients and for business and they aren’t lending enough.’ And you know, in the immediate aftermath of the economic crisis, society may opt for a very low level of risk and very, very high levels of redundant protections, and down the road they may think better of it, when they see that the world and business and the economy isn’t enhanced by that but rather constrained by that.

Hobson: You’ve spoken out about the fiscal cliff and your concerns about that. What looking forward, as we get to the end of this year, are you most concerned about?

Blankfein: Let me say, I am specifically concerned about the idea that the legislative process is one that gets characterized the way it is as the ‘fiscal cliff’. At the end of the day, the United States is the biggest economy in the world and the dollar is the reserve currency in the world. I think it behooves us to act in a much more responsible way. Without having a bias on which way the compromise should be generated, I believe our legislative leaders should affect a compromise. And in the long-run, the failure to do so will lead to less confidence in the U.S. which will have vast implications for a country that again is the strongest economy, whose currency is the reserve currency of the world. And then it would be manifest in terms of potentially rating downgrades but also in the attitudes that people have for doing business and relying on the integrity of the United States.

Hobson: Lloyd Blankfein, chairman and CEO of Goldman Sachs, thanks so much for talking with us.

Blankfein: Thank you.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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