Blankfein preaches to choir with voice of bitter experience
Sachs says.
That's because investment banks can offer expert advice about the consequences of different regulations.
Lloyd Blankfein, who led Goldman Sachs during the financial crisis, is a polarising figure in modern finance.
His bank was a key player in the sale and purchase of complicated financial products that were linked to the US subprime mortgage market. When the market for those products unravelled, it contributed to the financial crisis in 2007.
Mr Blankfein came to Australia this week to meet investors and local staff, and he spoke at a business conference in Sydney on Friday.
It was a sometimes humorous, but self-serving presentation.
One of the highest paid executives on Wall Street - earning $US26million ($28 million) last year - Mr Blankfein was ushered into the conference by a team of private security guards. Media were not allowed to ask questions.
Sitting on a soft lounge with candles to provide an elegant backdrop, Mr Blankfein talked about the global economy, the political economic trauma in the US, and the push to regulate global finance in a post-crisis world.
He said the US was roughly three-quarters of the way through its post-crisis regulatory cycle.
The country's investment banks were obliged to help its policymakers design a new regulatory regime, he said.
"People seem to decry the lobbying of banks ... [but] we have the right, of course, and the knowledge to make forecasts of what the consequences of these things will be," Mr Blankfein said.
"I don't think we have just the right, I think we have the obligation [and] the duty, given what we know, to advise: 'Look, if you do this, this will be the consequence, you might not like the result'."
But it was uncertain what the final regulatory framework would look like.
"Foremost in people's minds [is] the recent drama which is driving that [regulatory] pendulum in one direction, and it may well stay there and it may move back the other way," he said.
Mr Blankfein also spoke about investment banks' unique ability to manage risk.
"The best year that Goldman Sachs had ever ... was 2009," he told the audience. "Why? That was the year that nobody wanted to take a lot of risk and everybody on the user side had to reorganise their portfolios, and we had the highest market shares we ever would have. I think it enhanced our reputation as being good market makers."
Mr Blankfein has been at the head of Goldman Sachs since 2006.
In 2010 he appeared before the US Senate after the Securities Exchange Commission charged his bank with fraud in relation to its sale of collateralised debt obligations (CDOs) in the lead-up to the financial crisis.
"Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO," SEC said.
Frequently Asked Questions about this Article…
Lloyd Blankfein is the chief executive of Goldman Sachs who led the bank through the global financial crisis. According to the article, he visited Australia to meet investors and local staff and gave a speech at a business conference in Sydney discussing the global economy, post-crisis regulation and risk management.
Blankfein told the audience that global investment banks have a duty and obligation to help policymakers design post‑crisis regulatory regimes. He said banks can offer expert forecasts about the likely consequences of different regulations and therefore should advise on policy decisions.
He argued investment banks have the knowledge to forecast the consequences of regulatory choices and a unique ability to manage risk. In his view, that expertise gives them both the right and the obligation to advise regulators on potential outcomes.
Blankfein said the US was roughly three‑quarters of the way through its post‑crisis regulatory cycle. He also warned that the regulatory pendulum, driven by recent drama, could stay tilted in one direction or move back the other way, so final frameworks remained uncertain.
He said 2009 was the best year Goldman Sachs ever had because many market participants were unwilling to take risk, which allowed Goldman to win market share while clients reorganised portfolios. He suggested that performance enhanced the bank’s reputation as a market maker.
The article notes that in 2010 Blankfein appeared before the US Senate after the Securities and Exchange Commission charged Goldman Sachs with fraud over its sale of collateralised debt obligations (CDOs). The SEC alleged the bank failed to disclose that a major hedge fund helped select the portfolio and had taken a short position against the CDO.
From the article, investors can take away that regulation after a crisis can change market dynamics and that financial firms play a role in advising on those rules. Blankfein emphasised how shifts in risk appetite (for example in 2009) can alter market share and liquidity, so everyday investors should be aware that regulatory change and collective risk sentiment affect markets and investment opportunities.
Yes. The article describes Blankfein as a polarising figure because of Goldman’s role in crisis‑era products, notes he is among the highest paid Wall Street executives (earning US$26 million last year), and says he was escorted by private security. Media were not allowed to ask questions and the presentation was described as sometimes humorous but self‑serving.
Call 1300 880 160
Start a chat
Schedule a call
