CNBC Exclusive: CNBC Transcript: Goldman Sachs Chairman & CEO Lloyd Blankfein Speaks with CNBC’s “Squawk Box” Today

WHEN: Today, Wednesday, February 3rd

WHERE: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Goldman Sachs Chairman and CEO Lloyd Blankfein on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Wednesday, February 3rd. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000491193 and http://video.cnbc.com/gallery/?video=3000491195.

All references must be sourced to CNBC.

SORKIN: NOW TO OUR VERY SPECIAL GUEST OF THE HOUR THIS MORNING. JOINING US IN HIS FIRST TELEVISION INTERVIEW SINCE DISCLOSING HIS DIAGNOSIS OF LYMPHOMA. HE'S NOW FINISHED HIS TREATMENT. LLOYD BLAMKFEIN IS HERE HE IS THE GOLDMAN SACHS CHARIMAN & CEO. AND I CAN SAY GENUINELY PERSONALLY WE ARE ALL VERY HAPPY TO SEE YOU AND SEE YOU FEELING SO WELL. TO START HOW ARE YOU FEELING?

BLANKFEIN: I THINK I'M FEELING PRETTY GOOD. BY THE WAY IT IS VERY HAPPY TO BE SEEN.

SORKIN: EXACTLY. WE WANT TO TALK ABOUT THE MARKETS. HOW ARE YOU FEELING, WHAT HAS THIS WHOLE EXPERIENCE BEEN LIKE?

BLANKFEIN: YOU KNOW IT'S KIND OF – YOU KNOW I'VE ALWAYS BEEN VERY REALITY BASED. I'VE ALWAYS BEEN KIND OF NO CHOICE, NO PROBLEM AND I JUST NEVER, FROM THE MOMENT I GOT IT, THE DIAGNOSIS I JUST WENT ABOUT IT. TO DEAL WITH IT. IT TURNS OUT I WAS ABLE TO HANDLE THE MEDS PRETTY WELL. LIKE 600 HOURS OF CHEMO DURING THESE LAST FEW MONTHS. BUT I WAS ABLE TO -- I WAS ABLE TO GO TO WORK AND I'LL TELL YOU THIS. WHATEVER YOU MIGHT THINK OF IF YOU WERE IN THIS KIND OF SITUATION HOW YOU MIGHT RE-ORDER YOUR LIFE AT THE END OF THE DAY WHATEVER I HAVE BEEN DOING AT THE LAST 35 YEARS I MUST LIKE BECAUSE I'M STILL DOING IT AFTER 35 YEARS. I LIKED IT BEFORE I GOT SICK AND I ALSO LIKED IT AFTER I GOT SICK. IT WAS ACTUALLY IMPORTANT FOR ME TO GO TO WORK AND I FELT GOOD ABOUT IT.

SORKIN: WE TALKED TO JAMIE DIMON WHO ALSO HAD A SIMILAR SITUATION ABOUT A YEAR AND A HALF AGO. HE DID SAY THOUGH THAT IT CHANGED HIS PERSPECTIVE BOTH ON BUSINESS AND LIFE. HAS IT CHANGED YOURS AT ALL?

BLANKFEIN: I MUST BE SO THICK, I MISSED THAT WHOLE THING. MAYBE ONE DAY I'LL STOP AND REFLECT ON IT AND MAYBE IT WILL TURN OUT. BUT REALLY AT THE END OF THE DAY I JUST WANT TO --

KERNEN: BUT AS THE CHEMO GETS STRONGER YOU KNEW, I'M SURE YOU WERE FOREWARNED THAT IT'S TOUGH. WAS IT ABOUT WHAT THEY SAID IT WOULD BE OR EVEN TOUGHER TO GO THROUGH SOME OF IT?

BLANKFEIN: I WOULD SAY THAT BEING A FATALIST I AM, OF COURSE I READ ALL THE WORST THINGS SO I WAS PREPARED, DEFINITELY PREPARED FOR THE WORST. WHEN I GOT THE DIAGNOSIS, AGAIN MAYBE IT'S PART OF MY TRADITION. SOMEBODY SAID HOW JARRING, HOW SHOCKING WAS IT WHEN YOU GOT THE INFORMATION. I SAID I WAS ONLY SHOCKED WHEN I GOT A PHYSICAL AND WAS TOLD NOTHING WAS WRONG WITH ME. I WOULD SAY, I READ THE STUFF. AND THERE WAS -- I DIDN'T MISS IT. I DIDN'T NOT KNOW I WAS ON THE CHEMO, BUT IT WAS ALL PRETTY MANAGEABLE. THE STUFF THEY SAY COULD GO WRONG I HAD MY SHARE OF THAT. I NEEDED ALONG THE WAY – FOR ALL WHAT PEOPLE SAY AND ALL THE OPTIMISM ABOUT TARGETED, GOING RIGHT TO IT A LOT OF THAT STUFF IS IN THE FUTURE AND AT THE END OF THE DAY IT'S STILL A NAPALM APPROACH. WHEN YOU NAPALMING YOU GET ISIS BUT YOU ALSO GET SOME OF THE KURDS AND IRAQIS AND EVERYBODY ELSE. BASICALLY IT'S ALL YOUR SYSTEMS. THE BAD REPRODUCING CELLS GET IT BUT ALSO SO DO THE ONES THAT MAKE YOUR RED BLOOD AND WHITE BLOOD CELLS AND ALL THOSE OTHER GUYS TOO. YOU KNOW YOU'RE UNDER TREATMENT. I HAD 600 HOURS OF CHEMO OVER THE LAST FEW MONTHS. BUT HAVING SAID THAT, IT WAS ALL PRETTY MANAGEABLE. BASICALLY THE DOCTOR SAID, MY DOCTOR SAID IN ADVANCE OF IT YOU'LL BE ABOUT 80% AND THAT'S WHAT IT WAS. I WAS ABLE TO GO TO WORK. FUNCTION WHILE I WAS THERE. EVERY THREE WEEK CYCLE, SPENT FOUR AND A HALF OR FIVE DAYS IN THE HOSPITAL. THAT'S THAT. I DIDN'T TRAVEL. AND I HAD A LOT OF OPTIONALITY FOR SURE ABOUT WHAT I DID AND DIDN'T DO BECAUSE YOU GET A PASS. I SHOULD OF THOUGHT OF THIS A WHILE AGO BECAUSE I CERTAINLYDIDN'T DO ANY OF THE THINGS I COULDN'T DO BUT I ALSO DIDN'T DO ANY OF THE THINGS WHICH I DIDN'T WANT TO DO WHICH NORMALLY YOU DON'T HAVE THAT CHOICE.

SORKIN: THROUGHOUT THIS WHOLE PERIOD YOU HAVE BEEN WATCHING THE MARKETS WHICH HAVE BEEN GYRATING LIKE CRAZY.

BLANKFEIN: YEH I HAVE BEEN THERE. WHEN YOU SAY IN HIS FIRST APPEARANCE I'VE APPEARED PLENT.

SORKIN: JUST NOT HERE. SO WHILE WE HAVEN'T SEEN YOU TELL US WHAT'S BEEN GOING THROUGH YOUR MIND BEYOND THIS TREATMENT IN TERMS MUCH WHAT'S GOING ON IN THE WORLD.

BLANKFEIN: I WILL TELL YOU ONE THING THAT'S GOING THROUGH MY MIND, I REMIND PEOPLE, IS TO SAY THE LEAST IT'S AN INTERESTING FUN TIME IN THE MARKET. AND THIS IS KIND OF WHAT WE SIGNED ON TO DO. A LOT OF THE STRESS AND STRAIN THAT WE HAD OVER THE LAST FEW YEARS WEREN'T THINGS THAT WE WERE, YOU KNOW, WEREN'T THE REASON WHY WE CAME INTO THE MARKETS WHEN YOU THINK OF THE REGULATION AND THE TESTIFYING AND ALL THOSE THE THOSE ELEMENTS IN DEALING WITH SOME OF THE SURVIVING ISSUES THAT CAME OUT OF THE FINANCIAL CRISIS, AND NOW THIS ON THE OTHER HAND, YOU KNOW, IS A BUSY TWO WAY MARKET WHERE YOU CAN HAVE GUEST WHO THINK THE WORLD IS CATACLYSMIC AND OTHERS SAYING WHAT A GREAT OPPORTUNITY THIS IS. I WOULD SAY, YOU KNOW, ON THE WHOLE, I AGREE WITH ALMOST EVERYBODY WHO IS SITTING HERE, AS I WAS DRIVING INTO YOUR STUDIO TODAY, TOWARDS YOUR STUDIO TODAY BUT I'M GENERALLY SANGUINE. I THINK WE MUDDLE THROUGH. I THINK SOME OF THIS IS AN OVERREACTION TO OVERREACTION OF ASSETS BEING SO SWOLLEN AND NOW THERE'S A REVERSION AND -- I THINK YOU SOUND SMARTER WHEN YOU'RE NEGATIVE SO I CAN REGALE YOU. I'M IN THE RISK MANAGEMENT BUSINESS AND I SPEND LIKE 99% OF MY TIME THINKING ABOUT THE WORST 1% POSSIBILITIES SO I CAN GO ON AND ON ABOUT ALL THE THINGS TO WORRY ABOUT. BUT I THINK THE MOST LIKELY CASE IS THAT WE KIND OF MUDDLE THROUGH AND THIS ADJUSTMENT CERTIANLY IN EQUITY PRICES MAKES SENSE TO ME. IF IT IS A SLOW GROWTH WORLD AND THE MULTIPLES ARE SHRINKING AND YOU MULTIPY THE EARNINGS TIMES A LOWER MULTIPLE AS YOU SHOULD IN A RISKIER ENVIRONMENT YOU GET TO AN S&P THAT WE'RE APPROACHING NOW.

QUICK: THAT SOUND LIKE YOU THINK THE STOCKS ARE MORE FAIRLY VALUED AT THIS LEVEL NOT NECESSARILY A BUYING OPPORTUNITY.

BLANKFEIN: FAIRLY VALUED IF, IN FACT, PEOPLE ARE -- THE VALUATION REFLECTS EARNINGS, AGAIN TIMES A MULTIPLE WHICH REFLECTS SENTIMENT. IF MARK TO MARKET SENTIMENT AT THIS POINT YOU'D HAVE TO SAY IT'S RISKIER WORLD WITH A LOWER, YOU KNOW, LOWER MORE PESSIMISM THAN BEFORE SO YOU ATTACH A LOWER MULTIPLE. THAT SENTIMENT CAN CHANGE ON A DIME AND INSTEAD OF MULTIPYING EARNINGS BY 15 OR 16 YOU GO BACK TO MULTIPLYING THEM BY 18 OR 19 AS MORE CONFIDENCE RETURNS. SO I THINK IT MAKES SENSE FOR NOW. BUT AT LEAST I UNDERSTAND IT. I CAN EXPLAIN WHY IT IS. I'M NOT LOOKING FOR THINGS, YOU KNOW –EXTRATERRESTIAL CAUSES.

KERNEN: GARY COHEN WE HAD ON, MAYBE YOU WATCHED HIM WHEN HE WAS ON. I HOPE HE'S RIGHT.

BLANKFEIN: OF COURSE HE'S RIGHT. WHAT ARE YOU SAYING?

KERNEN: THERE'S AN OVERSUPPLY OF OIL. IF YOU CAN EXPLAIN A LOT OF COMMODITY WEAKNESS ON THE SUPPLY SIDE RATHER THAN THE DEMAND SIDE THEN MAYBE WE'RE GETTING MORE OVERLY.

BLANKFEIN: FOR SURE. THERE'S AN OVERSUPPLY. THIS KIND OF REFLEX. IT'S A SELF-FULFILLING PROPHECY. IF EVERYBODY IS MAKE BEING EQUITY DECISIONS ESPECIALLY IN A WORLD DOMINATED BY BASICALLY -- THE EQUITY MARKET HAS BECOME A MACRO MARKET. USED TO BE MACRO MARKETS WERE FOREIGN EXCHANGE AND YOU TRADE INTEREST RATES AND YOU TRADE CURRENCIES AND YOU PICKED STOCKS. NOW ETF AND ETFs, PEOPLE ARE TRADING EQUITIES AT A MACRO MARKET SO YOU AND YOU LOOK AT THE OIL PRICE AND YOU REFELXIVELY BUY OR SELL IN CORRELATION AND IT BECOMES A SELF-FULFILLING PROPHECY. I CERTAINLY SEE THAT'S HAPPENING. AND AGAIN WE HAVE TO BE REALITY BASED IN THIS AND WE HAVE TO RESPECT WHAT IS HAPPENING. IT DOESN'T MAKE -- IT DOESN'T MAKE SENSE TO ME. I DO THINK MOST OF WHAT'S GOING ON IN THE PRICE OF OIL AND I KIND OF KNOW THAT INTELLECTUALLY, IS A FUNCTION OF THE SUPPLY HOW CHEAPLY OIL AND NATURAL GAS IS BEING RECOVERED, FRACKING THE RISE IN SUPPLY AND SUPPLY. YOU GET ANOTHER MOVE DOWN IN THE PRICE OF OIL BECAUSE SAUDI ARABIA SAID IT WILL STICK TO ITS GUN AND DEFEND ITS MARKET SHARE IN THE FACE OF IRAN COMING ON AND PUTTING MORE SUPPLY IN THE MARKET. AND THEN OIL TAKES ANOTHER MOVE DOWN. AND THEN THE S&P FOLLOWS IT. I DON'T KNOW WHY S&P WOULD HAVE THAT REACTION TO THE UNDERLYING CAUSE.

KERNEN: ONE MORE POINT. IT'S A COMBINATION OF THAT AND THE GLOBAL INTEREST RATE ENVIRONMENT WHICH IS ALMOST UNPRECEDENTED. SEEMS TO INDICATE WE'RE OVER ESTIMATING GROWTH GLOBALLY. COMBINED WITH OIL IT'S LIKE WHOA THERE'S SOMETHING WE'RE NOT SEEING.

BLANKFEIN: THERE'S A LOT. AGAIN, GOING ON. NOW AGAIN RESPECTING THE MARKET, I SAID I CAN UNDERSTAND WHAT'S GOING ON IN THE S&P. WHAT'S GOING ON IN INTEREST RATES THE FACT THAT CAN YOU BORROW MONEY FOR FREE IN A LOT OF PLACES OR NEARLY FOR FREE IN A LOT OF PLACES AND PEOPLE CAN THINK OF A WAY TO EARN MORE MONEY THAN ZERO OFF OF THAT, IT MAKES IT WORTH THEIR WHILE TO BORROW. NOW WE SAY WE'LL CHARGE YOU FOR NOT BORROWING MONEY FROM US. THAT'S A BIG WHOA, AND IT'S HARD FOR ME TO RECONCILE IT OTHER THAN TO ACKNOWLEDGE THAT'S WHAT ITS CASE BECAUSE IT DOESN'T FEEL AND OTHER GUESTS, YOU KNOW HAVE SAID THIS. THERE'S CERTAINLY NOT ZERO GROWTH. AND YOU KNOW THERE'S A LOT OF THINGS THAT CAN GO OFF THE RAILS BUT BY AND LARGE IT'S NOT. AND, YOU KNOW, CERTAINLY IF YOU LOOK IN THE U.S., THINGS ARE KIND OF IMPROVING, NOT THE TRAJECTORY PEOPLE WANT AND OF COURSE THERE'S SENTIMENT THAT'S BAD. POLITICS ARE BAD. EVERYBODY HATES EVERYBODY NOW. I THINK IT'S JUST ADDING TO A GENERAL MALAISE. FRANKLY I THINK THIS NEGATIVE SENTIMENT IS NOT JUSTIFIED BY, YOU KNOW, BY THE REALITY OF THE NUMBERS.

SORKIN: YOU MENTIONED POLITICS AND THE POLITICS ARE BAD AND BERNIE SANDERS TAKING A SHOT AT YOU PERSONALLY. HOW DO YOU SEE THIS WHOLE CAMPAIGN TURNING OUT AND ALSO DO YOU THINK THAT IT'S IMPACTING THE MARKETS IN ANY MEANINGFUL WAY.

BLANKFEIN: I THINK HE MENTIONED ME BY NAME. I DON'T TAKE IT PERSONALLY SINCE WE NEVER MET. ANOTHER KID FROM BROOKLYN HOW ABOUT THAT. IT HAS POTENTIAL TO LOOK TO PERSONALIZE IT. IT HAS POTENTIAL TO BE A DANGEROUS MOMENT. NOT JUST FOR WALL STREET, NOT JUST FOR THE PEOPLE WHO ARE PARTICULARLY TARGETED BUT FOR ANYBODY WHO IS A LITTLE BIT OUT OF LINE. WE HAVE A MOMENT IN TIME WHERE PEOPLE ARE -- IT'S A LIABILITY TO SAY I'M WILLING TO COMPROMISE, I'M GOING TO GET ONE MILLIMETER OFF THE EXTREME POSITION I HAVE AND IF YOU DO YOU HAVE TO BACK TRACK AND SWEAR TO PEOPLE THAT YOU'LL NEVER COMPROMISE. IT'S JUST INCREDIBLE. IT'S A MOMENT IN HISTORY. EVENTUALLY PEOPLE, THE ELECTORATE WILL NOTICE NOTHING IS GETTING DONE AND SOMEBODY WILL COME UP WITH A NEW IDEA OF SAYING HEY SEND ME TO WASHINGTON AND I'LL COMPROMISE AND I'LL GET THINGS DONE AND THAT WILL BE THE NEW NEW THING AND EVERYBODY WILL RALLY TO THAT POINT. THERE'S A PENDULUM THAT SWINGS IN MARKETS AND ALSO IN THE POLITICAL ECONOMY AS WELL. BUT RIGHT NOW IT'S AN ODD MOMENT IN TIME. COULD YOU IMAGINE WE COULD EVER HAVE A COUNTRY IF THE JEFFERSONS AND THE HAMILTONS, JUST CAME IN THERE WITH A TOTAL PLEDGE AND COMMITMENT TO NEVER COMPROMISE WITH THE OTHER SIDE?

SORKIN: DO YOU THINK WALL STREET OR THE BUSINESS COMMUNITY SHOULD BE WORRIED ABOUT BERNIE SANDERS OR IS? WHEN YOU SEE THE COMMENTS. I'M JUST CURIOUS WHAT THE REACTION IS. I'M ASSUMING YOU'RE BACKING HILLARY CLINTON.

BLANKFEIN: YES, YOU'RE ASSUMING IT. I DON'T WANT TO HELP OR HURT ANYBODY BY GIVING THEM AN ENDORSEMENT.

KERNEN: I WOULD PHRASE IT DIFFERENT THE YOUNG PEOPLE IN THIS COUNTRY ARE SUPPORTING A SOCIALIST. SUDDENLY WE FORGOT SOCIALISM DOESN'T WORK. I'M READY TO FIRE ALL THE ACADEMICS AT ALL THE UNIVERSITIES AND SEND MY DAUGHTER TO BRIGHAM YOUNG OR LIBERTY OR SOMETHING.

QUICK: IT IS PROBABLY A REFLECTION OF THESE PEOPLE GROWING UP AFTER THE FINANCIAL CRISIS.

KERNEN: I DON'T KNOW WHAT IT IS A REFLECTION OF BUT SOCIALISM DOESN'T WORK REAL WELL. LIVES ARE NOT REALLY IMPROVED BY IT.

BLANKFEIN: YOU KNOW WHAT THE BEST REAL TIME CONTROLLED EXPERIMENT IS I WENT TO CUBA

KERNEN: NO I HAVEN'T BEEN

BLANKFEIN: BY THE WAY YOU SHOULD GO. BECAUSE YOU GO THERE, STOP IN MIAMI AND YOU JUST SEE THE CUBAN COMMUNITY AND HOW MUCH WEALTH THEY'VE GENERATED, CREATED HERE AND HOW, YOU KNOW, REALLY EXCITING AND OPTIMISTIC A COMMUNITY. YOU GO TO CUBA IT'S THE COUSINS, SAME PEOPLE.

QUICK: LLOYD CAN WE HOLD ON FOR JUST A MOMENT. WE GOT SOME BREAKING ECONOMIC NEWS BREAKING RIGHT NOW WE GOT THE JANUARY ADP EMPLOYMENT REPORT ON FRIDAY IS THE BIG JOBS NUMBER BUT RIGHT NOW LET'S GET OVER TO STEVE LIESMAN.

BREAK IN INTERVIEW

BLANKFEIN: WHEN YOU INTERRUPTED ME I THOUGHT IT WAS FOR SOMETHING IMPORTANT.

SORKIN: LET'S JUST LEVERAGE THAT INFORMATION. DO YOU AGREE THAT THERE'S A DISCONNECT. IF YOU LOOK AT THOSE NUMBERS YOU WOULD THINK THAT THINGS ARE MUCH BETTER THAN.

BLANKFEIN: I THINK THAT THINGS ARE MUCH BETTER THAN THE PREVAILING SENTIMENT WOULD INDICATE.

SORKIN: WE HAVEN'T TALKED ABOUT CHINA. WHERE DO YOU LAND ON CHINA?

BLANKFEIN: AGAIN THAT'S ONE OF THE STRESSFUL PLACES IN THE WORLD. BUT I THINK WE KIND OF KNOW IT. WE DON'T KNOW WHAT THE CONSEQUENCES EVERYBODY THEY USED UP A LOT OF THEIR RESERVES. THEY RELIED ON THEIR $4 TRILLION OF RESERVES. THEY DON'T HAVE $ TRILLION. THAT'S A BIG CUSHION. IT'S A BIG PLACE SO THE CUSHION LOOKS A LITTLE SMALLER THAN IT OTHERWISE WOULD BE. THEY ARE MAKING SOME MISTAKES. GETTING A LOT OF THINGS RIGHT. IF I HAD TO BET IT MUDDLES THROUGH. THEY GET THROUGH THIS. TO SAY THE LEAST IT'S A VERY DISCIPLINED AND ORGANIZED KIND OF PLACE. IT DOESN'T THEY WILL GET ALL THE DECISION RIGHT. BUT YOU COULD HAVE A BAD YEAR YOU COULD HAVE FIVE -- UNITED STATES IN THE 20thCENTURY HAD TEN BAD YEARS IN A ROW AND IT WAS STILL A PRETTY GOOD CENTURY FOR US. I WOULDN'T GIVE UP. FOR CHINA THE TEST WHAT WE HAVE TO THINK ABOUT AND WE'RE A BIG INVESTMENT BANK IN CHINA AND DO A LOT OF THEIR CAPITAL MARKETS AND M & A ACTIVITY THERE AND FOR US IT'S HOW DO WE SCALE OUR INVESTMENT SO WE CAN ENDURE THE STRESSFUL PERIODS, NOT WITHDRAW BUT ACTUALLY BUILD AND INVEST IN THE BUSINESS AND HARD TO FIGURE OUT HOW TO INVEST BECAUSE THE RISK OF OVER INVESTING IS THAT YOU THEN HAVE TO PULL BACK BECAUSE YOU'LL GO THROUGH A LONG PERIOD STRESS WHERE NOTHING GETS DONE.

SORKIN: I WAS GOING TO ASK YOU WE HAD LARRY FINK ON EARLIER AND HE JUST SENT A LETTER AND YOU MIGHT HAVE BEEN ONE OF THE RECIPIENTS OF THE LETTER. DID YOU GET THIS LETTER?

BLANKFEIN: NO NO OF COURSE I GOT THE LETTER

SORKIN: YOU GOT THE LETTER HE DOESN'T WANT ANY COMPANY INCLUDING BANKS TO BE ISSUING EARNINGS GUIDANCE DOES THAT MAKE SENSE TO YOU? HE WANTS A MUCH LONGER VIEW.

BLANKFEIN: WE DON'T GIVE EARNINGS GUIDANCE. BUT WE RUN AROUND AND TALK TO OUR INVESTORS ALL THE TIME. AND I THINK I BET YOU NO ONE WILL COME UP HERE AND SAY THEY DON'T HAVE A LONG TERM VIEW AND NOBODY WOULD CONCEDE THEY ARE NOT SHARING THAT WITH THEIR INVESTORS ALL THE TIME. I WOULD SAY WE HAVE A LONG TERM VIEW WHICH WE CHANGE ALL THE TIME.

KERNEN: RIGHT.

BLANKFEIN: TO DEAL WITH NEW ISSUES AND NEW THINGS. I CAN ALWAYS TELL YOU WHAT OUR TEN YEAR FORECAST IS AND WHAT OUR PLAN IS AND AS I LOOK BACK AT LAST YEAR'S TEN YEAR PLAN IT'S NOT THE SAME PLAN -- IT'S NOT – THE OLD TEN YEAR PLAN WITH NINE YEARS LEFT TO GO, IT'S RECONCILIATION WITH CHANGES IN THE EXTERNAL WORLD. WE DON'T GIVE SPECIFIC GUIDANCE BUT WE'RE ALWAYS COMMUNICATING WITH PEOPLE AND I THINK THAT'S WHAT EVERYBODY IS DOING AND THAT'S WHAT HE'S SAYING.

KERNEN: YOU DON'T THINK, JUST TOTALLY SHIFTING GEARS I DON'T KNOW ABOUT THIS OTHER SUBJECT, YOU DON'T THINK THAT THE FED AND CENTRAL BANKERS AROUND THE WORLD HAVE FROM PROFLIGATE POLICIES BUILT ANY HUGE BUBBLES BECAUSE OF MALL INVESTMENT?

BLANKFEIN: OF COURSE THEY'VE BUILT.

KERNEN: IS IT BIG ENOUGH TO BE SYSTEMIC EVERYBODY IS WORRIED THE MARKETS ARE TELLING US SOMETHING IS COMING THAT WE JUST CAN'T SEE THAT CAN BE REALLY HORRIFIC AND THAT'S THE FEAR I THINK SOME PEOPLE HAVE. IF GROWTH WERE SO SLOW WE CAN'T REPAY THE INTEREST ON ALL THE DEBT.

BLANKFEIN: I THINK THAT ALL THAT IS FINE AND WHEN THEY GET SECOND GUESSED DOWN THE ROAD WHEN EVERYTHING IS SORTED OUT PEOPLE WILL FIND ABSOLUTELY FAULT WITH WHAT THEY DID. I JUST WENT THROUGH, HAD A DISEASE, TOOK CHEMO. RIGHT NOW I AM NOT REALING FROM THE DISEASE I'M PROBABLY CURED FROM THE DISEASE. RIGHT NOW I'M TRYING TO DEAL WITH THE CURE. I'M DEALING WITH THE CHEMO SOLUTION. ASK ME WHETHER I WOULD HAVE TAKEN THE CHEMO OR NOT. OF COURSE I WOULD. I THINK IF I WERE IN THEIR PLACE AND I WAS LIVING WITH THE LOWER, MAYBE THE HIGHER RISK OF INFLATION AND BUBBLES, BUT THE LESSER CONSEQUENCE OF THAT COMPARED WITH GOING OVER THE LEDGE AND DIPPING INTO DEFLATION WHICH THERE ARE VERY LITTLE TOOLS AVAILABLE ESPECIALLY NOW IN THIS ENVIRONMENT WHERE THERE'S NO FISCAL POLICY AVAILABLE AND MONETARY POLICY HAS LIMITED VALUE AND LIMITED OPPORTUNITIES IN THAT CASE, I WOULD DO WHAT THEY ARE DOING. I WOULD TAKE THE PLEDGE AND THIS IS WHAT I WOULD DO. AGAIN YOU HAVE A LOT OF PRESSURE. IT'S BAKED IN THE CAKE THAT WHATEVER THEY DO SOMEONE WILL CRITICIZE THEM AFTER THE FACT, YOU SHOULD HAVE GONE EARLIER. HOW DO YOU KNOW?

KERNEN: 50-50 HINDSIGHT.

QUICK: ARM CHAIR QUARTERBACK.

SORKIN: ARM CHAIR HALFBACK.

BLANKFEIN: A LOT OF TIMES -- LOOK THE DIFFERENCE IN BEING A SECOND GUESSER AND LEARNING FROM EXPERIENCE, BEING A GOOD MANAGER OR BAD MANAGER, GOOD MOTIVATOR OR NOT HOW MUCH YOU LET AFTER ACQUIRING INFORMATION SEEP INTO YOUR ASSESSMENT OF OTHER PEOPLE'S PERFORMANCE. PEOPLE WHO MANAGE THE CRISIS DO A GOOD JOB OR BAD JOB. PEOPLE UP AT HARVARD WHERE IT'S QUIET OR CALM YOU SHOULD HAVE GONE 13 DEGREES LEFT INSTEAD OF 15 DEGREES RIGHT IN A CALM. WITH THE INFORMATION THAT PEOPLE HAD AT THAT TIME, THE FOG OF WAR IF YOU WILL PEOPLE MADE PRETTY GOOD COURAGEOUS DECISIONS AND NOW THEY'LL SECOND GUESS. IN OUR BUSINESS WHERE WE HAVE PEOPLE THAT HAVE TO TAKE RISK, PRICE TO SIDE WHAT OUR CLIENTS WANT TO DO SOMETIMES PEOPLE COME TO US, THEY HAVE BEEN THINKING ABOUT SOMETHING FOR TWO YEARS AND WE PUT A PRICE ON IT IN 20 MINUTES. WE HAVE TO DO THAT. YOU THINK TO YOURSELF WHAT DID WE DO WITH THE INFORMATION THAT WAS AVAILABLE AT THE TIME. IF YOU'RE A SECOND GUESSER, YOU WILL ALWAYS BE RIGHT BUT NOT HAVE A LOT OF FRIEND IN THE LONG RUN.

QUICK: JUST QUICKLY ON THE CENTRAL BANK POINT. YOU MENTIONED YOU'RE BACK TO GETTING BACK TO WHAT YOU WANTED TO DO BEFORE. THE MARKETS ARE VOLATILE. YOU HAVE TWO SIDE OF EVERYTHING. IS THAT BECAUSE CENTRAL BANKS ARE PULLING BACK AT THIS POINT.

BLANKFEIN: WHAT I MEANT AT THAT POINT I HAVE TO REMIND PEOPLE YOU KNOW PEOPLE COME IN THEY'RE STRESSED GEEZ THE MARKET WENT UP YESTERDAY, DOWN THE DAY BEFORE, UP THE DAY BEFORE THESE ARE VERY HARD DIFFICULT MARKETS. NOT TO PARAPHRASE THE GODFATHER, THIS IS THE LIFE WE CHOSE. TO SOME EXTENT WE HAVE BEEN LIVING A LIFE THAT WAS CHOSEN FOR US AND IMPOSED ON US FOR THE LAST FEW YEARS. THAT WAS MY WAY OF REMINDING PEOPLE FROM A SOCIOLOGICAL A POINT OF VIEW THAT THIS IS WHAT WE ARE GOOD AT WE'RE GOOD RISK MANAGERS. IF WE THINK WE'RE GOOD SAILORS WE DON'T WANT TO DO IT WHEN THERE'S ABSOLUTE DEAD CALM OR IN THE MIDDLE OF A HURRICANE BECAUSE THEN YOU ARE REALLY RELYING ON CHANCE AND LUCK. BUT FOR 90% OF THE TIME IF YOU'RE A GOOD SAILOR AGAINST A POORER SAILOR YOU OUT PERFORM THEM. SOMETIMES WHEN THINGS ARE REALLY, REALLY BAD OR REALLY, REALLY BOYANT YOU CAN'T DISTINGUISH THE WHEAT FROM THE CHAFF BUT IN THESE MARKETS THIS IS WHAT WE DO.

BILL MILLER: SO AS A PRACTICAL INVESTOR, YOUR STOCK TRADES BELOWS BOOK VALUE.

BLANKFEIN: YES.

MILLER: THAT IMPLIES YOU CAN'T EARN YOUR COST OF CAPITAL OVER A LONG PERIOD OF TIME.

BLANKFEIN: YEH WE CAN'T EARN OUR COST OF CAPITAL, OUR BALANCE SHEET IS NOT REALLY WHAT OUR BALANCE SHEET SAYS IT IS. A LOT OF PLEASANT THINGS.

MILLER: TWO QUESTIONS. NUMBER ONE THINKING OUT FIVE OR TEN YEARS WHAT CAN YOU EARN ON EQUITY ON AVERAGE OVER TIME AND SECOND HOW DO YOU MANAGE CAPITAL WHEN THE MARKET SAYS EVERY DOLLAR THAT YOU RETAIN ON YOUR BALANCE SHEET IS WORTH LESS THAN IT WAS BEFORE YOU RETAIN IT.

BLANKFEIN: AGAIN, THIS IS A MOMENT IN TIME. WE HAD A GENERAL DOWN DRAFT. GENERALLY WE'VE BEEN TRADING FOR MOST OF THE LAST PERIOD BETWEEN 1.1 AND 1.2 TIMES BOOK VALUE AND THIS MOMENT YOU CAN DRAW A LOT OF WEIRD FUNFACTS ABOUT A LOT OF PEOPLE'S, YOU KNOW, RATIOS GIVEN THE BIG DOWN DRAFTS. SO I WOULDN'T EXTRAPOLATE OFF THE TIPPY TOP OR THIS MOMENT IN TIME BUT IN GENERAL THAT'S A LOW RATIO FOR US TO BOOK BUT THAT'S, YOU KNOW -- WE'RE NOT IN AN INDUSTRY THAT'S GENERALLY IN FAVOR NOW. BY THE WAY, WE'RE IN AN INDUSTRY WHERE EVERYTHING WE DO, AND BASICALLY OUR BUSINESS IS REALLY CORE INVESTMENT BANKING BUSINESS CORRELATES WITH GROWTH AND CONFIDENCE. M AND A, CEOs FEEL CONFIDENT. FINANCING MARKET PEOPLE FEEL CONFIDENT SO THEY. FINANCE TRANSACTIONS. WE MANAGE BIG ASSET BUSINESS SO WE MANAGE ASSETS IN A RISK ASSETS WHERE PEOPLE FEEL MORE CONFIDENT. THEN IF THEY FEEL UNCONFIDENT THEY PUT IT IN LOW FEE MONEY MARKETS. OUR INTERMEDIATION BUSINESS DEPENDS UPON PEOPLE REFORMING, RESHAPING THEIR PORTFOLIOS. ALL THOSE THINGS REALLY CORRELATE WITH GROWTH WHICH CORRELATES WITH CONFIDENCE. THIS ISN'T THE MOST CONFIDENT MOMENT. I WOULD SAY IN A CYCLE THIS IS NOT THE BEST MOMENT FOR OUR BUSINESS. NOW IT'S POSSIBLE "THE CYCLE" LASTS A LONG TIME. IT IS POSSIBLE I AM HERE TWO YEARS FROM NOW AND I LOOK BACK ON THIS YEAR AND SAY OH, MY GOODNESS I MISSED THE GOLDEN AGE BUT I DON'T REALLY THINK THIS MOMENT IS THE GOLDEN AGE FOR BUSINESS CONFIDENCE AT THE MOMENT SO I THINK THINGS WILL GET BETTER. THAT BEING SAID WE'RE ALSO REALITY BASED. OUR ROE DURING THIS PERIOD, WE HAD A LITIGATION SETTLEMENT FROM A PRIOR PERIOD BUT APART FROM THAT OUR ROE WAS 11.2, LAST YEAR WAS 11.2 THE YEAR BEFORE SO WE'VE BEEN DOUBLE DIGIT ROE WHICH IS THE HIGHEST ROE CONTINUING FOR OUR CATEGORY. SO WE REALLY, REALLY PAY ATTENTION TO RETURNS. BUT WE ALSO SEE WAYS IN WHICH WE CAN GROW. GROW OUR ASSET MANAGEMENT BUSINESS. TECHNOLOGY THING THAT PEOPLE THINK ARE SO DISRUPTIVE AND PUNITIVE WE EMBRACE AND WE THINK IT WILL IMPROVE OUR BUSINESS A LOT.

SORKIN: YOU MENTIONED THE SETTLEMENT. WHAT ARE INVESTORS -- HOW MUCH TIME YOUR SPENDING IN WASHINGTON AND WHAT ARE INVESTORS SUPPOSED TO TAKE AWAY FROM THESE BIG HEADLINES ON 5.1 BILLION MORTGAGE SETTLEMENT AND I AM ALSO ASSUMING YOUR REFERRING TO THE NAKED SHORTING ISSUE BUT I DON'T KNOW IF THAT IS

BLANKFEIN: I WASN'T. THAT WAS TECHNICAL. DID YOU WRITE ABOUT THAT?

SORKIN: I DIDN'T WRITE ABOUT IT OTHERS DID

KERNEN: NOT YET

SORKIN: SO IT MUST HAVE BEEN REALLY IMPORTANT. I THINK THE SETTLEMENT WE DID, I DON'T KNOW WHETHER WE WERE THE 19th OR 22nd BANK AND OURS IS ACTUALLY, YOU KNOW, KIND OF SMALLER BECAUSE WE WEREN'T THAT BIG. WE'RE NOT A MORTGAGE ORIGINATOR -- ONE OF THE WEIRDNESS AND AN INDICATION HOW POORLY WE DID IN ALLOWING A VACUUM INSTEAD OF A NARRATIVE ABOUT OUR BUSINESS, WE WERE, YOU KNOW, REPRESENTING THE MORTGAGE CRISIS AND WE DIDN'T ORIGINATE MORTGAGES NOW WE BOUGHT MORTGAGES FROM OTHER PEOPLE AND TO THAT EXTENT WE WERE ACCUSED AND TO SOME EXTENT THERE'S SOME VALIDITY WE BOUGHT OTHER PEOPLE'S MORTGAGES AND GAVE THAT MONEY TO GO OUT TO RELEND MONEY AND COULD HAVE BEEN AN ENABLER BETWEEN US AND AN INSTITUTION THAT ACTUALLY WENT OUT AND CREATED MORTGAGES WE DIDN'T DO THAT. BUT ANYWAY, WE SETTLED THESE ISSUES AS EVERYBODY ELSE AND I THINK IT WASN'T -- IT DIDN'T HAVE A BIG BANG OR EXPLOSION. OUR NUMBER WAS RELATIVELY SMALL.

SORKIN: SOME PEOPLE WILL SAY BANKS TODAY ARE REGULATED UTILITIES AND OTHER PEOPLE SAY THEY ARE STILL ENTREPRENEURIAL INSTITUTIONS. WHICH IS IT.

BLANKFEIN: WE'RE HIGHLY REGULATED. RIGHT NOW THAT'S A BURDEN TO RECONCILE. WE'RE HIGHLY REGULATED. AS A RESULT MUCH SAFER. BUT WE STILL HAVE TO BE ENTREPRENEURIAL. AT THE END OF THE DAY PEOPLE COME TO US AND ASK US FOR CAPITAL. IF WE HAVE A REALLY GOOD -- SOMETIMES WE PROVIDE OUR OWN AND SOMETIMES WE HAVE SUCH A GOOD REPUTATION AS BEING ABLE TO PICK SUCCESS STORIES IN THE FUTURE THAT OUR INVESTOR CLIENT BASE WILL COME ALONG WITH US BASED ON OUR RESEARCH AND OUR URGING. AND SO WE HAVE TO BE BOTH. WE OBVIOUSLY ARE REGULATED BUT WE HAVE TO NOT ONLY BE ENTREPRENEURIAL WE HAVE TO HAVE A REPUTATION FOR BEING GOOD AT IT. IF WE DIDN'T HAVE IT WE COULDN'T BE VERY GOOD AT CORRALLING THE CAPITAL TO SUPPORT THE PEOPLE THAT NEED IT.

QUICK: YOU SAID AT THE TOP BECAUSE OF YOUR ILLNESS YOU GOT TO SAY NO TO A LOT OF THINGS THAT YOU DIDN'T WANT TO DO. SINCE YOUR BACK HERE TODAY SHOULD WE ASSUME YOU'RE BACK TO DOING THINGS YOU DON'T LIKE TO DO?

BLANKFEIN: I'VE LEARNED TO LIKE THE THINGS I DON'T LIKE.

SORKIN: WE'RE THRILLED YOU CAME IN AND THAT YOU'RE FEELING BETTER AND WE HOPE TO SEE YOU A LOT MORE.

BLANKFEIN: THANK YOU. NICE TO SEE YOU TOO.

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