Goldman Sachs CEO Lloyd Blankfein on CNBC

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Goldman Sachs Chairman and CEO Lloyd Blankfein on CNBC’s Power Lunch

The low volatility period usually precedes a shake up

“Every time I get accustomed to low volatility like we were towards the end of the Greenspan era, and we think we have all the levers under the control and there’s low risk in the world and the world is awash with liquidity that pounces on every aberration in the market so things go in. Something erupts to remind us of our – that that idea that anybody is in control of anything is hubris and the world doesn’t perform like that for long periods of time. So I don’t know what brings us out of the doldrums, but my expectation is that this is not a normal resting state.

Some warning signs point to a bubble

“Not as many warning signs…if I had to look for anything specifically, I would say asset prices are high…credit is very tight. So, I would say distressed credit as people search for yield… people are ploughing money into equities because the dividends are higher than the interest that some of these companies are paying. That may be evidence of a bit of a bubble. The low volatility itself might be a kind of bubble of confidence, but we won’t know until we know”

Forecasting vs risk management

“I always differentiate forecasting what do you think will happen from the exercise of risk management. In risk management, I don’t care what anybody thinks. I don’t care what I think. I’m just preparing for contingencies. On the other hand, in our trading businesses and trying to anticipate flows and what clients want to accomplish, there I have to try to guess the future and where thing are going. So those are two different exercises.”

They are positioned for a return of the Glass-Steagall Act

“We are probably the large bank that’s best positioned for a return to Glass-Steagall because we’re not a universal bank. We have some of those functions, but very minor in relation to our investment banking activities…our adaptation to that would be relatively easy….with that kind of remoteness and that kind of perspective I could say in 2017 it’s really hard to differentiate functionality such that one institution could lend money and complete a loan and another institution could underwrite a bond for the company which may be the economic equivalent, but that’s a security.”