Lloyd Blankfein is chairman and CEO of what is arguably the world’s most profitable, most envied and most emulated investment bank, Goldman Sachs. Its detractors will tell you that not only was the bank at the centre of the 2007-2008 financial crisis, but also that its alumni control large swathes of Wall Street along with chunks of the U.S. political establishment and that they make extensive use of both for their own benefit. All of this, according to the naysayers, at the expense of widows, orphans and the more general American taxpayer.
For someone whose firm was memorably, if infamously, described as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” Lloyd Blankfein is remarkably funny and charming. It’s probably why, he had an audience of distinguished academics and financiers eating out of his hand at GIBS, the Johannesburg business school, on Wednesday evening this week., his only public appearance on this trip. The fact that Blankfein is cautiously bullish on South Africa’s economic prospects probably also helped.
Blankfein says Goldman Sachs has invested in South Africa and he is generally bullish on South Africa as an investment destination, although the important thing is to scale the investment “because it’s risky”. He is quick to add that “there is enormous potential” although he notes that “If you asked me the same thing about China, I’d give you the exact same answer.”
“South Africa is not meeting the expectations of a lot of South Africans,” warns Blankfein, although, in the longer term “it has been a spectacular success. Who would have said 20 years ago, projecting out, to where South Africa is today? It was an economic revolution, and, more importantly, a social revolution.”
“There are aspects of the current situation in South Africa that are the same problems that people have all over,” says Blankfein, pointing to his own country, the United States. “Where are the jobs? Where is the distribution of the wealth that has been created in the most recent period of time? The failure of the society, in some cases the leadership, to drive a commitment to investing in infrastructure? Because the costs and the burden of that kind of investment are immediate but the benefits are in the future. That would be the conversation in the U.S. – crumbling infrastructure – and it’s certainly the conversation here [in South Africa]. Those are the problems that everybody has.”
Blankfein is crystal clear about one thing – South Africa has to fix Eskom and the power grid.
“The predicate has to be the infrastructure. How are you going to get people to go in and launch manufacturing and build their business when the power is going to go off, predictably, or worse unpredictably. Almost by definition, infrastructure supports everybody … The power grid has to be sorted out.”
He’s adamant that education is also a critical part of infrastructure.
“We make our decisions in some cases about where we locate – the operational parts of our business – based on where we can hire people.”
What about investment banking then? In the wake of the 2007-08 crisis, this was the sector identified as the Devil, and a greedy one at that. Have things changed and has the banking system reformed? It remains, clearly, an awkward area for Blankfein, who was grilled by angry Congressional Committees in 2010 and 2011. It was also the only time during his GIBS appearance when his words faltered and his syntax became slightly jumbled, a measure possibly of the subject’s continued sensitivity.
“A lot of changes have been made. The financial system enjoys a lot of rewards, the wealth creation that occurred. When the wealth creation model went into reverse, when wealth was destroyed in some ways and growth went negative instead of positive, if you had responsibility on the way up, you certainly had responsibility on the way down, and it was compounded – and the reputational consequence of this was severe – that the people didn’t think that the people who enjoy it on the way up suffer enough on the way down.
“When the system had been restored, and the stimulus had occurred, some of the greatest beneficiaries of the stimulus that was delivered to the market was the banking system which needed to be shored up – not because you wanted to benefit the bankers, but it had the counterpoint of benefitting the bankers. You were doing it to protect the financial system so that the growth engine could crank up again.”
Right. That explanation would clearly have gone down well with the Occupy Wall Street crowd, too.
But it was no more than a moment of cloud on an otherwise sunny afternoon: Blankfein is a gifted communicator, natural, witty, swift on the reply. A known Democrat and contributor to a previous campaign by presidential candidate Hillary Clinton, he was asked if he would serve as her Treasury Secretary should she win the White House?
“No, yes, look…let me be frank…if you’ve been doing something for a very long time, what’s driving you? What motivates you? At some point you want to do more for society and that means government. But realistically…you never say never…I think I’ll be at Goldman Sachs for a while. A call for me to serve in public office? You know something…if they asked me, I wouldn’t play hard to get.”
Nor is this a far-fetched scenario. Blankfein’s predecessor as CEO, Henry Paulson was George W. Bush’s Treasury Secretary, and former Goldman chairman Robert Rubin did the same for Bill Clinton. Didn’t this procession of alumni in high places mean that Goldman Sachs calls the shots at Treasury anyway?
Quick as a flash, the riposte from Blankfein: “I don’t even call the shots in my own personal treasury.”
Oh you charming old squid, you!
 The Great American Bubble Machine, Matt Taibi, Rolling Stone, 2009