Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Goldman's Blankfein Discusses the Vampire Squid

Companies / Banking Stocks Apr 25, 2012 - 11:00 AM GMT

By: Bloomberg

Companies

Best Financial Markets Analysis ArticleBloomberg TV anchor Erik Schatzker spoke with Goldman Sachs CEO Lloyd Blankfein today. Blankfein said "shame on us in a way for not anticipating how important" public sentiment would be for maintaining Goldman's reputation.

Blankfein also said, "I tend to be a little more positive [on the markets] than what I'm hearing from other people...one of the big risks that people have to contemplate is that things go right."


Blankfein on public opinion of Goldman Sachs:

"I think the average American probably had no contact and had never heard of Goldman Sachs before three years ago. Shame on us in a way for not anticipating how important that would be. We're an institutional business with no consumers. It turns out, another name for consumers are citizens and taxpayers. They became important for reasons that are obvious. They always should have been important, but it wasn't part of our audience as we thought about it. Now we will have to develop those muscles a little better than we have. Shame on us."

On whether Goldman is still, in the public's eyes, the "vampire squid":

"That is hyperbole...it possibly is, but we'll have to do a better job, getting out there and telling people how important this industry is, what it does when we advise companies on their growth plans and finance their growth plans and manage their assets for them and how important this is for the economy, the markets and obviously society at large."

On whether Blankfein had to change his priorities since becoming CEO six years ago:

"The last few years in particular have been a lot about having to deal with this risk management complexity of the time leading up to the burst of the financial bubble and of course, there has been some absorption in the aftermath. In the larger strategy, the thing we're dealing with, which is a very big positive for the world, is the wealth creation that is going on all around the world and that we are engaged in, benefit from, and help to support. And that might be encapsulated in the expression, the rise of the BRICs."

On conflicts of interest:

"I think no one who is going to be effective in this business can avoid conflicts of interest coming up. You can do that if you only represent one client in every industry, in which case you won't really be able to be that effective, knowledgeable, or influential. You won't be able to get anything done."

"If you advise a client today, you have to lend to that client. If you lend to that client, they have to pay back. Now you have a stake in the outcome of their business decisions. You give them advice, but since you are a lender to them, like every bank has to be today, you have conflicts of interest. They always have to be managed."

"[Conflicts on interest] have to be managed. I think there's a sensitivity to it and you are going to have more prophylactics, more safeguards built, you get more scrutiny, more second-guessing of the decisions you make, which make you more conservative, all to the good. But if you want to rule out conflicts of interest, you'll just give advice to one client in one industry and never do any lending or support for the capital structure of the firm. It's just not feasible."

On Arthur Levitt's statement saying Goldman should stop saying it puts clients first:

"I spoke to Arthur. We have different aspects of our business. For example, in the market making business, we give prices to our client and a client decides whether to trade or not. We hope as a result of that exchange, we will make money and not lose money. If over time we lose money, we will be out of business. We have other businesses or we are an adviser and other businesses where we are a pure fiduciary. One of the things we set up to do when we wrote our business standards report is go out and carefully delineate for our audience what our roles and responsibilities are in each segment of our business. As an adviser, we work for the best interests of our clients. As a fiduciary, our clients to come first. As a market maker, we have to protect Goldman Sachs."

On why Goldman says clients come first when conflicts of interest are inevitable:

"In the context, they mean different things. In a market making business, the 'client comes first' element in our culture is in tough markets, when things are hard and it is risky for us to be the other side of what our client wants to do, we will hold ourselves out as standing out there and doing more than other people would be doing. When the markets were opening in early 2009, Goldman Sachs was one of the bravest market makers in a very dislocated market. It didn't mean we wanted to lose money or we would bid as high as our clients wanted to because we wanted to protect our firm, but we were there for our clients and provided a market. After 9/11, we were the first firm to make a market for someone who wanted to get out of a position to flatten out their books and reduce their risks. These things mean different things. I think Arthur's comments were reserved for a narrower part of the business."

On illiquidity in times of dislocation and whether Goldman will be as brave in the future:

"I think that is how market makers like ourselves get prioritized in the minds of their clients, by their willingness to provide the other side of what our clients want to accomplish. Our first duty is to not risk our capital and hurt our shareholders too much or excessively and manage our risks, which I think no one will debate we do pretty well. That expertise is also used to benefit our clients to provide liquidity for the things they want to accomplish."

On whether being a pure investment bank/securities firm is still the best model for Goldman:

"It suits us just fine, yes. We have a tremendous amount of room ahead of us to expand. To refer back to the rise of the emerging markets and wealth creation around the world, my predecessors didn't go to China. They called it Red China. They didn't go to Russia or India because there were people in poverty, not people growing their businesses and trading with the rest of the world to the extent they are...In Europe specifically, we are probably a bit of a recession and slower trajectory than people would like. We are dealing on a near-term basis with a probably what is at best a lower third court-quartile opportunity set. I wouldn't make any judgments about the long-term of what this business will be extrapolating from these times as I would not have extrapolated what happened in 2006 and 2007. We had a 12.2% ROE in what we would regard as a very, frankly relatively poor, opportunity set."

On what kind of ROE can be generated in a good opportunity set:

"I think there's a confluence of a lot of changes going on around the world. Some will be supportive. Competition is lessening and a lot has been written about how the global institutions are under pressure with respect to their own capital are becoming much more closed in with their own countries and less global. We're still a global bank. Our reputation and our reach into the rising economies is quite strong. That's a big positive. We'll have to hold more capital against the things we do and that's a positive for safety and soundness but in and of itself, would tend to reduce ROE. If you net all of these considerations, it is a big unknown."

On Goldman recently issuing a dividend to shareholders:

"We engage our shareholders a lot. We're a young public company. We're an old company, 140 years old. But we've only been a public company for a dozen years or so. In terms of engaging our shareholders and finding out what they want to do, it's clear they wanted the predictability of a dividend flow. We're still primarily returning capital to our shareholders through share buybacks. If you do the math, that's always felt like a better way for us to do it. But we've exceeded to the interest of our shareholders on this as we should."

On whether it's a better strategy to use the money to buy back the stock when it's trading at less than one times book value:

"Personally, we've always preferred to do buybacks. We like to reduce the share count, it helps for our ROE per share. But it's not that far off and our shareholders like the predictability and the discipline of us feeling the need to reserve some money to set aside as a dividend on a predictable basis, as opposed to buybacks which are a little more episodic."

On whether Goldman could survive if it didn't have access to the Fed's discount window:

"We did not have access to the Fed window as the bank leading up to the crisis because frankly we run ourselves very conservatively. One of the reasons why we came out of that crisis, that moment so well is because we went into so strong. Today, we carry over $170 billion of liquidity. We are very highly capitalized among the highest tier in our industry. We don't borrow from the discount window."

On whether it would be better to cease to be a financial holding company and go back to the way things once were:

"On one hand, that has an appeal. But I think the world needs institutions as big as we are to have a lender of last resort and have the regulation that implies. Even if we were not a bank holding company today, we would be a SIFI and regulated almost as extensively. It's not a question of what we want, it's how people want us to be. There is a regulatory and legal commitment to achieving that anyway."

On whether it's necessary for some institutions to be too big to fail:

"I think some of the rules being written, specifically to allow institutions to fail, allow for lending to go to those institutions so they can be managed down. But those will still be failures. Equity holders and debt holders will be wiped out as a result of it. The lending that a lender of last resort will provide under some of these rules is lending associated with a wind down, with allowing a failure to occur."

On what he's predicting for the markets and global economy:

"I tend to be a little more positive than what I am hearing from other people. I think the world is a bit bifurcated between what economists are saying and what market people are saying. Economists looking at all of the deflationary pressures, austerity that is building up, things looming in the distance, tend to be quite negative and they're doing the appropriate thing, the policymakers, making contingency plans for QE3. The risk is skewed. Even if you thought there was a better chance for the world to grow, the consequences of not growing and sliding back are so much greater that you want to build insurance on that side. A lot of the rhetoric that comes out of the economist point of view and the people of advising policymakers would make you feel a lot more negative. If you look at how much cash there is, how big a trauma we have had and how we are reversing out of it, it is a lower trajectory of growth, but it's going in a positive direction. In some way, markets is economics plus sentiment. Were there to be a sentiment change, there is a lot of pent-up demand to do things. I spend all of my time talking to CEOs in this country in this country and outside of this country in addition to policymakers and others. There is a lot of interest in doing things. We are unsure of the environment and we're not executing all of our big plans and ambitions because we would like to see some clarity."

On what Goldman is holding back:

"Clearly, our fortunes hinge on growth around the world. A lot of growth is occurring overseas and in the BRICs countries. We should intend to build out our footprint a little more. We have been conservative with that because we have to scale our investment relative to the opportunities...But there is a consequence sometimes to being too early and we have to scale that opportunity in the right place. On the whole, I would think that most pundits that come on the television, I would say 80% of the time they are negative and provocative and that way in a way that jins up interest in their sentiments and if you think about it, the world progresses and moves forward about 90% of the time. There are a lot of things that could go wrong and it would take a whole show to go through it. I'm in the risk management business. But one of the big risks people have to contemplate is that things go right and we get through all these different issues, whether we know about them or other things compensate for them. We have a big slowdown in Europe, but even China, at its lowest growth, is growing, its growth is equivalent of half the U.K. economy every year."

On Facebook's IPO:

"There are a lot of important things happening. If we ever added an S to the end of BRIC to make it BRICS, you might have to throw Silicon Valley in there."

bloomberg.com

Copyright © 2012 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ernie Messerschmidt
25 Apr 12, 19:39
Vampire squid ink cloud

"we'll have to do a better job, getting out there and telling people how important this industry is" Right Lloyd, parasitic non-production is very important to our economy - the heart of it, really. Without GS generating its huge volume of shystering and controlling our economy and government where would we be?

"the wealth creation that is going on all around the world and that we are engaged in, benefit from, and help to support. And that might be encapsulated in the expression, the rise of the BRICs." Yes, the BRICS are growing. And one of the main reasons is that they rely primarily on PUBLIC banking -- they don't have the TBTF monkeys on their backs. They own the banks; the banks don't own them.

"When the markets were opening in early 2009, Goldman Sachs was one of the bravest market makers in a very dislocated market." Yes, GS: the leading strong-arm extortionist and economy destroyer, and biggest pig at the govt. welfare trough.

"the world needs institutions as big as we are to have a lender of last resort and have the regulation that implies"

NOT. The banks are bigger and more powerful than governments. THAT'S THE PROBLEM. Oh, so you think you're the lender of last resort instead of the FED, and the regulator instead of the government too, huh? That's awfully frank of you.

"If we ever added an S to the end of BRIC to make it BRICS, you might have to throw Silicon Valley in there."

What colossal ignorance. There is an "S" on BRICS and it stands for S. Africa. The BRICS organization is a countervailing force in the world and is the world's main hope for escape from the life-destroying, evil grasp of the vampire squid . . . er, from "God's work" I guess I should say.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in