Making Sense - Sam Harris - #473 — Money, Power, and Moral Failure

00:00:00.000 you're listening to making sense with sam harris this is the free version of the podcast so you'll

00:00:06.400 only hear the first part of today's conversation if you want the full episode and every episode

00:00:11.360 you can subscribe at sam harris.org there are no ads on this show it runs entirely on subscriber

00:00:17.980 support if you enjoy what we're doing here and find it valuable please consider subscribing today

00:00:22.960 i'm here with lloyd blankfein lloyd thanks for joining me on the podcast no thanks for having

00:00:29.120 me, Sam. So you've written a memoir, Streetwise, which is incredibly fun to read and an education

00:00:36.180 for anyone who doesn't know much about finance. And I'm just, I'm going to ask you some questions

00:00:42.360 about it. I mean, I especially am interested to understand the lessons we should have drawn from

00:00:47.360 the 2007, 2008 financial crisis, which you steered Goldman Sachs through, which was high stress and

00:00:55.760 high stakes and, um, an achievement for which you were both celebrated and vilified. So yeah,

00:01:01.380 I mean, you, you have a very interesting story because you came up from, I mean, you're, you're

00:01:05.460 a Jew living in the projects. I mean, this is not a story that's often told about Jews these days,

00:01:09.020 coming from basically nothing. We forgot to socially mobilize. Yeah. Yeah. But you're, uh,

00:01:14.960 you, you know, went to Harvard and then kind of climbed your way through all these,

00:01:19.120 all the high status rungs on the ladder. And eventually we're running, um, one of the most

00:01:24.520 storied financial institutions in the world and through periods of great stress. And you did that

00:01:29.440 for 12 years. So it's a great story, much of which we will not touch on here. I mean, there's

00:01:34.280 in no sense is our conversation going to be a surrogate for actually reading the book. So I

00:01:38.140 just recommend people do that. But I want to use it as a lens through which to look at the present

00:01:42.940 because you obviously have a unique perspective on many of the things that ail us. I'm worried

00:01:48.140 about things like wealth inequality and the dysfunction in our government and hyper-partisanship

00:01:53.400 and just how we should, um, if we can find our way back to something that seems like

00:01:59.200 dry land in the near future, where the things are more, the new cycle is more normal.

00:02:04.580 Uh, yeah.

00:02:05.980 I mean, what is normal?

00:02:07.100 Uh, it's, it's, we're, we're, we're a decade from normal by my lights, but let's start

00:02:11.840 with some just very basic things.

00:02:13.140 I want people to know, um, what you've done about what is Goldman Sachs?

00:02:18.600 What had it just, I mean, people, I don't think they know the name.

00:02:21.500 I don't think they know what Goldman Sachs does.

00:02:24.820 Goldman Sachs said it is a financial institution.

00:02:27.320 Think of it, it's a wholesale financial institution.

00:02:29.580 So people really can't get a mortgage from Goldman Sachs or bank with it.

00:02:33.140 There's no Goldman Sachs offices on the corner.

00:02:35.420 We finance people who are looking for capital, people who want to build businesses.

00:02:41.860 We also address the needs of people who have capital to invest.

00:02:46.780 So those could be high net worth individuals.

00:02:48.740 They could be institutions.

00:02:49.680 it could be government, sovereign wealth funds. And we try through our good reputation on both

00:02:56.140 sides to marry people who need capital with people who have the excess capital. And in order to do

00:03:01.760 that, you have to have cultivated, which Goldman has done for something over 150 years, a reputation

00:03:07.980 for kind of being good at it, not always perfect at it, but good at it. And so we engage with

00:03:15.460 pools of capital and engage with entrepreneurs. And who else needs capital? Governments need

00:03:20.760 capital. Municipalities, the federal government gets financed. People who go through IPOs. And

00:03:25.480 so people in the audience will understand IPOs. That's a way of getting finance for a private

00:03:30.560 company going public and raising stock and bonds. And there's a lot of different mechanisms and

00:03:34.800 instruments to do it. But basically, we are the bridge and the intermediation between people who

00:03:40.100 have capital and people who need capital. And I'll say that there's another corollary.

00:03:45.020 We're also a bridge between the people who have unwanted risk and the people who are willing to

00:03:52.420 take on the burdens of that risk and get paid for it. And since those people don't always match up

00:03:58.520 at the same time, we are a principle. We will take on somebody's unwanted risk until we could

00:04:05.300 find somebody else who'll take the other side. And when they take the other side, it's usually

00:04:09.080 not exactly the same thing. So we're very mathy and have algorithms to try to get something that's

00:04:16.220 not quite like the other thing to be almost like it by, you know, buying a cocktail of things to

00:04:22.420 replicate something else. I know this is kind of abstract, but we can get specific too.

00:04:26.580 Yeah. So that reminds me about something that you were specifically vilified for during the

00:04:32.940 crisis, which was during the aftermath of the crisis, which seemed to turn on confusion around

00:04:38.240 your role as a fiduciary

00:04:40.080 versus your role as a market maker.

00:04:41.460 I'm thinking of the John Paulson trade,

00:04:43.040 which was shorting mortgage securities.

00:04:45.140 And he made billions of dollars

00:04:46.720 betting against the mortgage market.

00:04:49.080 And you guys created that trade for him.

00:04:52.840 But you had to find a counterparty

00:04:54.260 on the other side of the trade.

00:04:55.200 And then that was,

00:04:56.200 you guys were maligned as having

00:04:57.820 basically knowingly defrauded

00:05:01.140 some other client.

00:05:02.660 But maybe it's just worth

00:05:04.420 double clicking on that.

00:05:06.020 Sure.

00:05:06.940 You know, it's easy.

00:05:07.620 look anything that's resolved nobody ever remembers not knowing it so everybody knows

00:05:12.080 that the that the mortgage you know that the mortgages were you know junk securities were

00:05:16.760 bad and you know a lot of them never you know you know turned out to be worth zero at the time

00:05:21.960 some people thought it and other people thought the opposite but nobody nobody really knew it's

00:05:27.060 only in hindsight the people who by the way every time somebody tells me they know something i ask

00:05:30.260 them about something that's current how much are you betting on that something right now you say

00:05:34.040 current. And so in that particular thing, you know, at those times we had somebody who wanted

00:05:39.880 to go short the mortgage market and we had plenty of people who wanted to go because at that point

00:05:45.600 they were very high yielding securities. And by the way, there was not widows and orphans on either

00:05:49.940 side of the transactions. It was a big institution on both on either side of it. And it was, and it

00:05:55.500 was, you know, plucked up as an example of some of the things that we did. So there was a very

00:05:59.560 well-informed institution that was dedicated to holding mortgage obligations by the mortgages are

00:06:05.120 securities like it's like a security that's a version of a bank holding a mortgage so it's

00:06:11.240 just only a people's homes and if people are going to default on paying off their home mortgage

00:06:15.260 those securities become could become worthless so people were betting that those securities would

00:06:20.320 go back up in value and other people were go were betting that they would go down in value

00:06:24.560 and what we, you know, our role in this is a market maker. People come to us and say,

00:06:30.000 I would like this, I would like this risk. And then we sell it to them and we principle and we

00:06:35.980 take that risk until we can scurry and find the other side or something that that's like it enough

00:06:41.300 so that we could be reasonably hedged. And, you know, we've been doing that for about 150 years.

00:06:46.640 Right. Right. By the way, that's what makes the economy and the market go, go on, go on.

00:06:51.720 This is the one thing that's sort of surprising and difficult to understand in reading about your experience during the financial crisis, because you guys were seemingly alone among financial institutions, well hedged and actually fairly impervious to what was going on until you weren't.

00:07:07.340 I mean, you, you had not, you were not exposed to these, these toxic assets in the way that

00:07:13.480 many other big names were, and you were actually making money through the, the crisis, but

00:07:19.680 then at a certain point, even you being totally profitable and not actually exposed to these

00:07:26.520 toxic assets were at risk of going under.

00:07:30.120 How is that?

00:07:30.980 How does that jump?

00:07:31.540 Oh no, everybody was at risk.

00:07:32.740 Yeah, so explain how you go from, your house is totally in order, from your house could be the next to burn down.

00:07:41.520 What actually was, what actually almost happened during 2007?

00:07:44.660 Look, when somebody, you know, when James Bond defuses the bomb, no one ever appreciates how close to destruction it was, because it was defused, it never happened.

00:07:54.080 This was a situation in which everybody, all companies, especially but not limited to financial institutions, every company has to finance itself, has commitments, it has to honor, it's receiving revenue and it's paying out revenue all the time.

00:08:11.460 And during a crisis like this, everyone was suspect about the solvency of everyone else they were dealing with.

00:08:19.880 right and so what happens at that it's what that happens is if you have an obligation to pay someone

00:08:26.280 and he's going to pay you you want to see your you want to see the money from him come into you

00:08:31.260 first before you pay and you get a whole daisy chain effect or the or the money from somebody

00:08:36.440 else somebody you're not going to pay anyone until somebody's paying so this is a market so

00:08:41.300 even if you're an industrial company i'm getting i'm selling cars i was you know to a to a wholesale

00:08:47.020 deal or the money has to come in so I could pay the cost of my raw materials. Everybody's waiting

00:08:52.980 to get paid first before they'll pay. And then it freezes up. And so what happens in a situation

00:08:58.740 like that, which has happened periodically in history, which is why we have central banks and

00:09:03.280 they're, you know, one of the roles of a central bank and not just the US central bank, which is

00:09:08.080 called the Fed, is to be the lender of last resort. If the world gets into a position where

00:09:13.720 everybody becomes distrustful. And we're talking about sentiment. We're not necessarily talking

00:09:17.720 about reality. We're talking about, remember the movie, It's a Wonderful Life. If there's a bank

00:09:22.220 run, you think of the depression, some of the institutions could have been solvent, but nobody

00:09:27.200 could survive a loss of confidence. If people are unwilling to take your credit, then they make you

00:09:34.100 have to pay before they'll pay you. And eventually everybody is left with an obligation they have to

00:09:40.020 meet, but no money with which to do it, no liquidity with which to do it. And that's the

00:09:44.960 situation that almost everybody could have been in eventually. And it would have been, to me,

00:09:50.020 it would have been like dominoes. It would have been over time. And that was the crisis.

00:09:53.860 Was it certain that that would have happened? No, but it was a much higher likelihood than

00:09:58.960 anybody should reasonably want to go to bed worrying about. How do you think, in hindsight,

00:10:03.580 how do you think the government performed during that crisis? Did we cut a large enough check or

00:10:08.760 should certain institutions have been allowed to fail that were propped up? Or how do you look at

00:10:15.180 the moral hazard question? You know, I think at the time, again, there's two ways of answering

00:10:19.140 the question, what would you, you know, what would you've done? What would you've done differently

00:10:22.980 with after acquired information? Yeah. And what would you've done differently at the time that

00:10:27.040 the other, with your, you know, with your greater wisdom and competence that the people on the site

00:10:31.920 at the time didn't do? Yeah. I would say the people at the time with what was available did

00:10:36.380 very well because it was unknown and unknowable. And again, we're dealing with the risk of a

00:10:42.160 problem and not necessarily the certainty. And so they went into some wrong directions. They

00:10:47.560 dealt with things in a gross way. Just let's bring it to something where that's more current

00:10:53.080 in people's experience, let's say the start of COVID. And you want to go and you're worried

00:10:58.020 about the economy getting wrecked. And so you come out with a stimulus plan and you're going

00:11:03.620 to mail checks to people. If you had a few years to do that, you might design it so that you were

00:11:08.380 only sending checks to people who really needed the money. Better, there would have been less

00:11:13.740 fraud. It would have been better targeted, but you didn't have the time and you didn't have the

00:11:18.880 tools to be able to do that. So you say, you know something, we're sitting here, we'll do a

00:11:23.480 retroactive examination about it, and we'll find 50 things that were done wrong. But really, can

00:11:27.720 you say that the people at the time, the decision makers performed badly given what they had to

00:11:33.880 work with and the speed with which they had to execute. No. So I would say looking back,

00:11:38.620 things could have been done much differently, but at the time, uh, and you know, I was present

00:11:44.020 and watching, I think they did a very good job with, uh, you know, with what was available at

00:11:48.280 the moment. And again, the exigencies of the moment. Is there anything we learned from that

00:11:53.020 experience that is setting us up to respond better next time? The analogy to COVID I find

00:12:00.640 pretty depressing because my sense is that COVID was a dress rehearsal for something much worse,

00:12:06.080 and we performed quite badly. Much of the culture drew the wrong lessons from the experience of

00:12:12.740 COVID, and I feel like in the presence of a scarier pandemic now, we have a society that

00:12:19.040 will be less trustful of any public health messaging coming from institutions uh harder to

00:12:25.360 wrangle to solve various coordination problems i mean this is just my view of it i but i just i

00:12:29.920 just i feel like we're somehow less fit for the next pandemic than we were before covid what do

00:12:35.440 you think what do you think we did for you know these are parallel fields of human endeavor they're

00:12:40.560 not the same thing but they rhyme i mean basically it's fundamental we're dealing with uh human

00:12:45.520 in nature. The first reaction, an early reaction, was the economy should never have these risks

00:12:52.180 again. And so regulation was stiffened. Capital requirements for financial institutions were

00:12:57.860 stiffened. What's the consequence of that? It means that some of the financial institutions

00:13:01.200 can't do their job as well because they can't lend as much. They have to husband capital

00:13:05.540 instead of lending it out and supply it. And over time, there was such an antipathy towards what

00:13:13.260 some of the regulators did at the time, again, with the benefit of hindsight, that they curtailed

00:13:18.400 some of the powers of the people, of the regulators, some of the powers that they

00:13:22.260 exercised to make judgments about who to save, how to give money, you know, how to distribute money

00:13:26.840 into the economy and the financial institutions. And by the way, all of this is quite understandable

00:13:30.560 that the reaction would be this way. But the effect of it is to make it possibly harder the

00:13:36.720 next time there's a problem. Now, one would say, why would there be a problem the next time if

00:13:42.040 you've put in all these instruments because over time the stark discipline starts to erode

00:13:49.080 also you don't want to turn the country into into the returns of a treasury bill you you want it you

00:13:57.080 want animal spirits you want people to take risk so if you have if you if you prepare the world

00:14:02.400 or the country to avoid the crisis of the century or the crisis that you have 80 years you'll lose

00:14:08.400 79 years of growth in between sometimes there just is going to be there's a there's a cycle to these

00:14:14.280 things and that will happen and we could talk about the current you know environment of what

00:14:18.420 the cycle is but one of the things is it might be harder the next time but there's a certain

00:14:24.380 inevitability that risk will get taken and we will get uh and we will uh and we will not see

00:14:31.580 it coming risk is risk well how do you perceive the current situation with the market and its

00:14:36.680 connection, however tenuous, to the real economy and the level of risk we're all running,

00:14:42.020 the possibility of a bubble, AI or otherwise. I mean, you can take any strand of this ghastly

00:14:49.100 object of the level of corruption in the government. I mean, there's definitely a lot

00:14:54.060 of animal spirits of a certain sort to be seen. Right. And it's been quite growthy out there.

00:14:58.060 And again, we can talk about the economy and the polarization and the fact that people with

00:15:03.580 that asset values are inflating. And so people with assets are getting richer and people without

00:15:08.060 assets aren't getting richer. So the gap between rich and poor. I definitely want to focus on

00:15:12.500 wealth inequality. It's very hard to talk about a good economy when you know for more than half

00:15:16.120 the people, it's not a good economy. And if you talk about the bad economy, you're missing the

00:15:19.580 point because on a macro basis, the economy is doing well. Right. Okay. So let's take it piece

00:15:24.000 by piece. What most concerns you about the state of the economy now? Well, obviously we're sitting

00:15:31.980 here and uh you know 15 minutes from now it might be resolved but right now the all eyes of people

00:15:37.500 who are thinking about the economy going forward are on uh the straits of hormuz and the price of

00:15:44.020 oil as a consequence of that and that's that's that affects the price of oil but affects a lot

00:15:49.200 of other things as well because energy is an ingredient for almost everything yeah and i'd say

00:15:54.080 the market is assuming um that this will be temporary by the way even down to the price of

00:16:01.460 oil. So the price of oil as we sit here is over a hundred dollars a barrel. And if you want to

00:16:07.120 take delivery of your oil in the future, it's a lot less. It's cheaper because everyone's assuming

00:16:10.960 that in the future, the price is going to go down because it's a temporary situation. The longer it

00:16:14.920 goes on, the less temporary people will see they'll get used to this happening and they'll know that

00:16:19.440 there's not a rapid end. So that's a focus. If you pluck that away. So in other words, before we

00:16:26.180 found ourselves in this situation or assuming that this gets resolved quickly, the economy has a lot

00:16:32.120 of tailwinds to it. A lot of tailwinds. You know, the equity markets have been very high.

00:16:38.800 Interest rates are likely to come down. There's a lot of stimulus coming in terms of the tax bill

00:16:44.620 that was passed. You could see people are already witnessing the fact that people's refunds from

00:16:51.660 the government, from their tax refunds are higher. All that is pumping, is going to pump money into

00:16:56.060 the economy. That's already going pretty well. And again, growth is a little bit lower than we'd

00:17:04.240 like it to be in the last reading, but still pretty high. Unemployment ticked up in the last

00:17:08.660 reading, but employment and payrolls are still very good. So you can find kind of problems. But

00:17:14.600 I would say, looking at the situation, we were in a pretty good economy from a macro

00:17:21.120 point of view.

00:17:21.820 But now the economy has to do two things.

00:17:24.320 This gets back to another point, which it has to create wealth.

00:17:27.520 It has to grow GDP, create wealth.

00:17:30.020 And then it has to figure out a way to distribute that wealth created according to the values

00:17:33.920 of society.

00:17:35.400 And so people will argue that we've done a lot better on the first part, creating wealth,

00:17:41.160 and still on a going forward basis.

00:17:42.960 but for this oil situation, still on a good track and less good on the second part. And the second

00:17:49.780 part is more, you know, the distribution part. And that's really, you know, is limits to what

00:17:55.280 financial institutions could do in that respect. That's really the job of the political sector to

00:17:59.580 figure out how to distribute things. Yeah. So we'll talk about wealth inequality,

00:18:03.200 but I'm still somewhat mystified and skeptical about the connection between the market specifically

00:18:10.640 and the rest of the economy are just the real world.

00:18:13.640 I mean, because I watched the market get blown around by, you know, Trump's posts on Truth

00:18:19.060 Social that seem quite, I mean, in many cases, obviously lies, right?

00:18:24.760 And yet the market draws immense enthusiasm from them.

00:18:27.900 It'll move by, you know, 4% in the day based on something that he's tweeted, you know,

00:18:33.380 a ceasefire that no one should believe in.

00:18:35.860 or take the, I mean, perhaps even a more egregious moment was during those, you know,

00:18:41.260 his terrifying of every member of our species on Liberation Day, so-called Liberation Day.

00:18:47.920 So he introduces this massive uncertainty into the global economy. And then he repeals a little

00:18:53.980 bit of that uncertainty by saying, oh, that this. And everybody's grateful. And everyone's so

00:18:57.980 grateful that the market is telling us that everything is better than it was before he 1.00

00:19:02.460 did this stupid thing. The relief is so much greater that everybody doesn't look at the... 0.99

00:19:07.800 Yeah, but clearly there's still more uncertainty in the world than there was the day before

00:19:11.560 Liberation Day. So how is the market aggregating the wisdom of the crowd here and how is it not

00:19:17.420 just become a meme stock? They're different. They relate to each other over time. But what a market

00:19:24.680 is trying to do is it's taking everything it knows and extrapolating it forever about everything.

00:19:32.460 So if you change it like one degree, you won't notice that in the economy, but somebody who's

00:19:37.300 trying to take all the earnings and discount it back to present value from infinity back to the

00:19:43.860 present, it's a big effect on a market, but really a small effect on the economy because the economy

00:19:50.240 is a day-to-day thing and the market is trying to look at all the future possibilities and

00:19:55.420 discount them back to the present. I would say they shouldn't ignore each other, but they could

00:20:01.700 go apart. And also, the market is also sentiment. But don't you worry about the uncoupling of any

00:20:09.640 kind of rational sense of, let's say, the price to earnings ratio of many of these companies and

00:20:13.900 their market value? I mean, what does it mean to have a 300x price to earnings ratio? I mean,

00:20:21.320 it seems like it used to be that 30 was high, right? No, it was high. And by the way, I am not

00:20:27.080 the market. I don't own the market. I am a slave to the market like anybody else. I'm trying to

00:20:31.120 figure it out also but when somebody has a 300 times trades at 300 times their earnings

00:20:37.780 people have to be thinking and they are thinking that it's not going to be 300 times that it's

00:20:43.860 that next year it's going to grow 100 percent the year after that it's going to grow 100 percent or

00:20:47.500 90 percent that's the that's the element of this growth and so people are extra again once again

00:20:52.600 the market is extrapolating is discounting the future into the present and saying yes it looks

00:20:57.620 like a hundred times earning now, but at this price, five years from now, it'll be 12 times

00:21:03.880 earning. The price is even going to go up from there. But we do have this phenomenon of a meme

00:21:07.960 stock, which looks irrational in both, both in hindsight and foresight. There's nothing positive

00:21:13.300 you can say about that. Right. But it feels like culturally there's a little bleed through from

00:21:18.940 those moments of just sheer, I mean, it's not even a bubble. It's just, just irrational gambling

00:21:24.880 behavior to what the market is, respectable market is also doing. It's looking more and more like a

00:21:31.920 casino. Members can hear the full conversation by subscribing at SamHarris.org. Subscribers get a

00:21:37.980 private RSS feed you can use with your favorite podcast player. I've had the sense that the

00:21:42.300 pitchforks are coming and we're now living in the age of soon to be trillionaires. Elon might be

00:21:47.760 there in a few months. It's ultimately going to be disastrous politically. Are we in like just a

00:21:52.300 total post-truth world?

00:21:53.900 Is it like a mortal life that once truth is killed,

00:21:57.500 it's dead forever?

Making Sense - Sam Harris - April 29, 2026

#473 — Money, Power, and Moral Failure

Episode Stats

Summary

Transcript