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CNBC Transcript: Goldman Sachs Chairman & CEO LLoyd Blankfein Speaks with CNBC's "Squawk Box" Today

Friday, 24 Jan 2014 | 11:18 AM ET

WHEN: Today, Friday, January 24, 2014

WHERE: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC interview with Goldman Sachs Chairman & CEO Lloyd Blankfein. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000237256and http://video.cnbc.com/gallery/?video=3000239254.

All references must be sourced to CNBC.

SORKIN: JOINING US NOW, LLOYD BLANKFEIN, CHAIRMAN AND CEO OF GOLDMAN SACHS. WE'RE THRILLED TO HAVE YOU HERE WE'RE TALK ABOUT ALL OF THESE ISSUES AND A LOT MORE.I WANT TO START WITH THIS THOUGH LAST YEAR, YOU SAT HERE, WE WEREN'T ALL TOGETHER. THEY WERE BACK IN NEW YORK. YOU SAID THAT YOU THOUGHT THAT THE MARKET AND THE ECONOMY WAS GOING TO, QUOTE, BREAK TO THE HIGH SIDE. THAT WAS YOUR PHRASE.

BLANKFEIN:YES.

SORKIN: WOULD THAT APPLY TO THIS YEAR AND ESPECIALLY IN LIGHT OF THE TAPERING AND SOME OF THE THINGS WE'RE EVEN SEEING IN THE LAST 24 HOURS.

BLANKFEIN:I'D SAY I'M STILL OPTIMISTIC BUT I CAN'T SAY IT'S GOING TO BREAK TO THE HIGH SIDE OF EXPECTATIONS BECAUSE EXPECTATIONS HAVE NOW ACCELERATED FRANKLY.

SORKIN: AND WHEN YOU SAY BREAK TO THE HIGH SIDE BREAK TO THE HIGH SIDE IN THE UNITED STATES OR ACROSS THE BOARD?

BLANKFEIN: CONDITIONS ARE WELL, WE'VE NARROWED THE POINT WHERE WE'VE RECOGNIZED THAT CONDITIONS ARE GOING BETTER. IN THE UNITED STATES THERE'S A BIG TAIL WIND. I'M SURE PREVIOUS GUESTS HAVE GONE OVER ALL THESE THINGS, THE DELEVERAGING THAT'S OCCURRED, THE INTEREST RATE ENVIRONMENT, HOUSING SITUATION, ENERGY, ALL FAVOR THE UNITED STATES. OF COURSE AS WE'VE BEEN SAYING FOR A LONG TIME, THE U.S. IS PROBABLY HALF A CYCLE AHEAD OF EUROPE ANYWAY. EUROPE IS DOING BETTER. EVEN A EURO, TWO YEARS AGO, EUROPEAN RISK WAS ALMOST EXISTENTIAL FOR EUROPE. EVEN LAST YEAR THERE WAS A LOT OF SQUEMISHNESS A COUPLE OF DAYS AGO WE HELPED RAISE 10 BILLION EUROS FOR SPAIN TO BORROW FOR 10 YEARS THE MARKET OFFERED 40 AT 385. 40 BILLION EUROS AT 385 FOR SPAIN. NO ONE WOULD HAVE CONTEMPLATED THAT A YEAR AGO.A LOT OF WORK HAS BEEN DONE. EVERYONE IS FOCUSED ON THE AMOUNT OF WORK THAT NEEDS TO BE DONE. SENTIMENT TENDS TO LAG A BIT. IF A YEAR AGO WE COULD HAVE SEWN UP WHERE WE ARE TODAY, WE WOULD HAVE DONE IT IN A HEARTBEAT.

QUICK:THAT'S AMAZING.

BLANKFEIN:AT THE SAME TIME, PEOPLE ARE STILL A LITTLE BIT DRAGGING. I THINK WE'RE IN THE KIND OF MUDDLE THROUGH PHASE, THE MOST LIKELY OUTCOME IS THAT WE'D MUDDLE THROUGH. WE'RE MUDDLING THROUGH. WE WON'T EXCEED ON THE HIGH SIDE OF EXPECTATIONS NECESSARILY BECAUSE EXPECTATIONS ARE NOW KIND OF IN LINE WITH REALITY.

SORKIN: OKAY WHEN YOU ARE IN DAVOS A LOT OF PEOPLE LIKE TO BE ANXIOUS ABOUT SOMETHING YOU ARE A RISK MANAGER MORE THAN ANYTHING ELSE. WHAT IS THE ONE OR TWO THINGS THAT YOU ACTUALLY ARE WORRIED ABOUT OR YOU THINK ARE THE BIG RISKS FOR THE FIRM, THE ECONOMY?

BLANKFEIN: I WAS WORRIED ABOUT THIS BEFORE. HAVING LIVED THROUGH THE SITUATION RECENTLY WITH TARGET AND YOU SEE THE VULNERABILITY OF FIRMS TO TECHNOLOGY GLITCHES, WHETHER DONE WITH A CRIMINAL OR ACCIDENTAL IS HUGE BECAUSE OF THE LEVERAGE INVOLVED.SOMEBODY MAKES A MISTAKE IN ONE PLACE AND THE LEVERAGE THAT COMES OUT OF SPINNING OUT WRONG INFORMATION OR MISAPPROPRIATING PEOPLE'S INFORMATION,MILLIONS, HUNDREDS OF MILLIONS, OF ACCOUNTS SOLD OR TRANSACTED. THAT'S A VERY BIG EXPOSURE. I WORRY ABOUT EVERYTHING. I WORRY ABOUT THINGS THAT NOMINALLY WE'RE IN CONTROL OF BECAUSE YOU HAVE TO SURVEIL PEOPLE AND TEST. PEOPLE CAN MAKE MISTAKES. WHEN IT COMES TO THINGS THAT FEEL OUT OF YOUR CONTROL, IT IS AVERY BIG CONCERN.

KERNEN: DID ANYONE CALL YOU IN THE LAST 24 HOURS AND SAY THIS IS HAPPENING TO THE RUBLE IN RUSSIA? THIS IS HAPPENING IN ARGENTINA? HAVE YOU SAID DO THIS, DO THAT, LET'S OFFLOAD RISK HERE.

BLANKFEIN: I KNOW YOU HAVE A HIGH OPINION. NOBODY CALLED ME BUT AT LEAST YOU DIDN'T ASKWHETHER I CALLED SOMEONE TO HAVE IT HAPPEN.

KERNEN: HAVE YOU CHANGED ANYTHING? YOU'RE A TRADER AT HEART. YOU'RE A RISK MANAGER. IS THERE RISK BREWING THAT YOU HADN'T COUNTED ON?

BLANKFEIN: LOOK THESE ARE HIGH YIELDING MARKETS, HIGH YIELDING CURRENCIES. YOU DON'T GET A HIGH YIELD UNLESS THERE'S HIGH RISK ASSOCIATED WITH IT. THESE THINGS CAN ALL GO WELL IN THE LONG RUN. BUT IT DOESN'T MEAN THEY'RE GOING TO GO EVERY MINUTE TILL WE GET TO THE LONG RUN. THESE THINGS ARE GOING TO BE MORE VOLATILE.

KERNEN: IS IT BECAUSE OF ARGENTINA? THAT'S BECAUSE OF ARGENTINA. TURKEY, THAT'S BECAUSE OF TURKEY.

BLANKFEIN: I HEARD YOUR INTRODUCTION. I'D SAY WHEN IT'S ONE COUNTRY SPECIFIC, IT'S LIKE CREDIT. IF IT'S NAME SPECIFIC AND WE'RE AT THAT PART OF THE WORLD, HOW IS THIS COUNTRY DOING, THAT COUNTRY DOING IT? BUT AT THE POINT, AT SOME POINT IT BECOMES KIND OF A MACRO EVENT.

KERNEN: IT'SNOT YET.

BLANKFEIN:ALL THESE COUNTRIES THAT ARE VERY FAR APART ON THE GLOBE ARE VERY VERY CLOSETOGETHER IN INVESTORS' MINDS.

KERNEN: YES.

BLANKFEIN:AND SO YOU WENT BACK TO THE ASIAN CRISIS. ALL THE DYNAMICS IN THOSE COUNTRIESWEREN'T THE SAME. BUT WHEN IT GOT RIGHT DOWN TO IT, IT BECAME THE SAMECURRENCY. BECAUSE PEOPLE WEREN'T TRADING THE NAME THEY WERE JUST TRADING THEMACRO CIRCUMSTANCE OF EMERGING MARKETS.

QUICK: ISTHAT THE CASE HERE? IN THIS SITUATION

BLANKFEIN: ITHINK PRETTY MUCH. I THINK THERE ARE FACTORS THAT ARE CHALLENGING FOR EMERGINGMARKETS AND YOU MENTIONED TRAVELING WITH LIQUIDITY, RAISING RATES, DEVELOPEDWORLD RATES GO UP, START COMPETING FOR OPPORTUNITIES WITH EMERGING MARKETS. THEPRESSURES THAT THESE COUNTRIES HAVE AND POSSIBLY IN FUNDING THEMSELVES ATLEVELS. IT FEEDS INTO EACH OTHER. IN THE LONG RUN, SOMEBODY SAID TAKE APOSITION ON THE EMERGING MARKETS AND YOU CAN'T CHANGE YOUR MIND FOR FILL IN THEBLANK, ONE YEAR, FIVE YEARS? I'D BE LONG, NOT SHORT. DOESN'T MEAN I'M GOING TOFEEL GOOD ABOUT THE NEXT. IN THE LONG RUN YOU HAVE TO BET ON GROWTH. YOU SEE,YOU KNOW, GROWTH EDUCATION, MOBILITY IN THESE COUNTRIES, BASICALLY THEFLATTENING OF THE WORLD HAS GIVEN TREMENDOUS OPPORTUNITY IN THESE COUNTRIES.

QUICK: WHATYOU JUST SAID IS REALLY IMPORTANT. I WANT TO MAKE SURE I UNDERSTAND IT. BASICALLYWHAT YOU SAID IS THIS COULD BE RELATED, IT'S THE SAME THING, INVESTORS WHO ARELOOKING AT EMERGEING MARKETS FROM THE SAME STORY. IT COULD FEEL BAD FOR THESHORT TERM BUT OVER THE ONE-YEAR OR FIVE-YEAR –YOU WOULDN'T BE SHORT THEEMERGING MARKETS.

BLANKFEIN:I'D SAY THIS HOW I USED TO SAY IT. WHEN YOU THINK OF EMERGING MARKETS, IN GOODTIMES, MERGING MARKETS FEEL LIKE A CREDIT BUSINESS. WHAT IS THE CREDITWORRINESS OF THIS COUNTRY, WHAT IS THE BALANCE OF PAYMENTS THERE? WHAT IS THEGOVERNMENT OF THIS COUNTRY SAYING VERSES THAT COUNTRY. IT FEELS LIKE IN NAMESPECIFIC, MICRO, LIKE A CREDIT BUSINESS, NAME BY NAME. AT A POINT IN TIME WHENTHINGS GET BAD AND TIPS OVER INTO THAT CATEGORY, FORGET THE NAMES. IT'S A MACROMARKET, ITS EMERGING MARKETS. FORGET ABOUT THE DIFFERENCES.

KERNEN:GIVEN THE RUNUP WE HAD IN OUR MARKETS WE HAD AT THE END OF LAST YEAR AND NOT SOBAD THIS YEAR, IT WOULDN'T TAKE MUCH NERVOUSNESS TO GET US TO MAYBE TAKE APAUSE.

BLANKFEIN:SURE.

KERNEN: DOYOU THINK THAT'S WHAT'S HAPPENING YESTERDAY AND TODAY?

BLANKFEIN:IT'S A PAUSE. YOU'RE WATCHING THE POT AND WAITING FOR IT TO BOIL OR HOPING FORIT TO BOIL.

KERNEN:RIGHT.

BLANKFEIN:BUT I'D SAY WHEN IT GOES DOWN, RELATIVE TO WHERE IT WAS WHEN WE FIRST STARTEDTALKING ABOUT IT, IT'S GOING TO DROP FROM WAY UP HERE TO HERE.

KERNEN:RIGHT.

BLANKFEIN:LOOK HOW HIGH UP THE MARKETS ARE. WITHIN WHAT PERCENT OF THE MARKET HIGHS AREWE RIGHT NOW, EVEN AFTER GOING A LITTLE BIT OF A PULLBACK. WE COULD PULL BACKMORE AND IT WOULDN'T DERAIL THE TRACK WE'RE ON.

SORKIN: YOURANALYSTS SAY WE SHOULD HAVE A CORRECTION OF SOME SORT IN 2014 OF 5% TO 10%. ISTHAT RIGHT?

BLANKFEIN:IT SOUNDS ABOUT RIGHT. I HAVEN'T FOLLOWED IT THAT CLOSELY. THERE'S A NATURAL --PEOPLE GET ENTHUSIASTIC, PEOPLE BELIEVE, PEOPLE GET IN. THERE HAVE BEEN PEOPLEWHO HAVE MADE 30% BECAUSE THEY'VE BEEN OVER A YEAR AND PEOPLE WHO GOT IN THEMARKET 15 MINUTES AGO AND HAVEN'T MADE ANY MONEY. WHEN IT STARTS TO GO SOUTH,THEY THINK OH, MY GOODNESS, I'M NOT PLAYING WITH THE HOUSE'S MONEY, I'M PLAYINGWITH MY MONEY, GET ME OUT OF HERE. SOME PEOPLE CALL THAT TECHNICALS OR SOMEPEOPLE WOULD TRY TO GRAPH THAT OR DO SOME SORT OF TECHNICAL ANALYSIS. BUTTHAT'S BASICALLY THE PSYCHOLOGY BEHIND THOSE CHARTS.

SORKIN: HOWFAR AWAY DO YOU THINK WE ARE FROM THE RETAIL INVESTOR ACTUALLY COMING BACK?

BLANKFEIN:FIRST OF ALL THE RETAIL INVESTOR IS BACK. BECAUSE THE INSTITUTIONS ARE JUST THESUM OF RETAIL INVESTMENT. PEOPLE ARE LOOKING -- WOULD A RETAIL INVESTORSOMEBODY LOOK AT HIS 401(k) PLAN OR THE MONEY HE HAS IN FIDELITY IN A MANAGEDACCOUNT? SO IN A WAY, RETAIL INVESTORS ARE NOT ONLY PARTICIPATING BUT THEY'REFEELING THE WEALTH EFFECT OR THEY'RE FEELING THE PAIN OF IT GOING DOWN. WHETHEROR NOT THEY'RE CALLING UP A BROKER AND BUYING STOCK DIRECTLY. I WOULD SAY COMPAREDTO MY PRIOR EXPERIENCES, I WOULD HAVE SAID BY NOW, YOU WOULD HAVE EXPECTED MOREOF A SHIFT FROM THE FIXED INCOME MARKETS TO THE EQUITY MARKETS ON RETAIL. YOUKNOW SOMETHING, THE MARKET STRUCTURE ALWAYS EVOLVES. THERE'S A LOT OF PEOPLEPUT THEIR MONEY IN INSTITUTIONAL HANDS. IT'S NOT JUST THE ACTIVE MANAGERS. IT'STHE ETF MARKET.

QUICK: CAN IASK YOU ABOUT CHINA? THAT SEEMED TO BE WHAT KICKED OFF SOME OF THIS CONCERNYESTERDAY, THE SLOWER GROWTH NUMBERS IN CHINA, SLOWER THAN EXPECTED. IS THATSOMETHING THAT YOU PUT A LOT OF CREDENCE IN? OR ARE THERE OTHER THINGS YOU'RELOOK AT INSTEAD WHEN YOU'RE TRYING TO FIGURE OUT THE CHINESE ECONOMY ANDWHETHER THAT MARKET IN PARTICULAR IS GOING TO SLOW DOWN A LOT FASTER THANPEOPLE EXPECTED?

BLANKFEIN:IT MIGHT. BY THE WAY, IT'S NOT LIKE LOOK THROUGH IT. WE COULD BE NERVOUS ABOUTIT. WE DID PUT OUT A STATEMENT TO THE EFFECT, WE'RE COMMITTED TO EMERGINGMARKETS, WE'RE COMMITTED TO CHINA. WE SAID WE'D HAVE LESS OF AN ALLOCATION NOWDURING THIS KIND OF TUMULTUOUS OR UNCERTAIN PERIOD THAN WE DID BEFORE. ANDPROBABLY WOULD AGAIN. BUT THEY HAVE A BIG EXPERIMENT GOING. IT'S NOT REALLY ANEXPERIMENT. IT'S A COMMITMENT. THEY'RE COMMITTED TO DEREGULATION. BUT THEEXECUTION ISSUES ARE TREMENDOUS. YOU KNOW, ONE OF THE THINGS ABOUT CHINA, THEYDON'T HAVE THE CAPITAL MARKETS. IN THIS COUNTRY, YOU MAKE AN INVESTMENT, ITWORKS OUT, YOU KNOW, IF IT DOESN'T WORK OUT, THE INVESTMENT FAILS. WHY DOES ITFAIL? PEOPLE DON'T USE IT, THEY DON'T HAVE THE REVENUE TO PAY BACK THE DEBT.THEY CAN'T SERVICE THE DEBT, BANKRUPTCY, FAILURE, SOMEBODY ELSE GETS THE ASSET.IN CHINA, HOW DO YOU WRITE OFF MISTAKES? THAT'S ONE OF THE ISSUES. IF YOU CAN'TWRITE OFF MISTAKES YOU CAN'T EASILY RE-ALLOCATE CAPITAL. YOU KNOW IT IS LIKECHICKEN AND EGG. HOW DO YOU BUILD UP THOSE RISK ALLOCATING CAPTIAL ALLOCATINGCAPITAL MARKETS WHEN YOU DON'T HAVE THE MARKETS AND COMPANIES THAT ARE PUBLICAND YOU DON'T HAVE -- SO HOW DO YOU HAVE INSTITUTIONAL INVESTORS? WITHOUTINSTITUTIONAL INVESTORS, HOW DO YOU TAKE THE COMPANIES PUBLIC, WHO BUYS THEM?THEY HAVE TO DO ALL THIS AT ONCE. IT'S VERY DIFFICULT.

KERNEN:CHINA IS DEALING WITH THE CREDIT BUBBLE TO SOME EXTENT. THERE ARE PEOPLE WHOTHINK IN THE EMERGING MARKETETTES BECAUSE OF QE 3, QE 2, WHATEVER, IN THEACTION OF WHEN WE TALK ABOUT PULLING BACK, WE SAW WHAT HAPPENS, HOW QUICKLY ITREACTS. HAS THERE TOO MUCH OVERBUILDING IN EMERGING MARKETS BASED ON CHEAPMONEY, HAVE THERE BEEN INVESTMENTS MADE THAT AREN'T GOING TO WORK OUT? AND THISIS THE BEGINNING OF WHAT WE ARE SEEING WE'RE GOING TO TAPER MORE MOST LIKELYUNLESS THE TEN-YEAR GOES TO 2.

BLANKFEIN:SURE, THERE WILL BE MISTAKES MADE. AS A THEME, I'M NOT SURE, MAYBE. MAYBE.

KERNEN: QE 3HAS NOT --

BLANKFEIN:UNDOUBTEDLY. IN OTHER WORDS, EVERY TIME A LOT OF CAPITAL FLOWN IN. AND WASSPENT QUICKLY. LOOK, IN A WAY WHAT CHINA DID WAS A SUBSTITUTE FOR WHAT WE DIDWHEN WE WERE TRYING TO STIMULATE THE ECONOMY. THE GOVERNMENT SPENT MONEY ANDSAID SPEND IT FAST. CHINA DIDN'T DO IT THROUGH THE MECHANISM OF ITS STATE. TOSOME EXTENT IT DID. BASICALLY I WASN'T THERE AT THE TABLE AND I WOULDN'T SPEAKCHINESE IF I WERE THERE. THE COMMON UNDERSTANDING IS THAT THE OFFICIAL SECTORTOLD THE BANKS, GO OUT EXTEND A LOT OF CREDIT AND TOLD MUNICIPALITIES, BUILD ALOT OF PROJECTS. GUESS WHAT? A LOT OF THE MONEY WE SPENT QUICKLY, BUILT THINGSTHAT MAY HAVE BEEN IN THE WRONG PLACE, THEY WERE BUILT INEFFICIENTLY. SO, TOO,WITH CHINA. ONE OF THE THINGS THAT'S EASIER IN OUR MARKETS, BECAUSE OF THESTRUCTURE WE HAVE, IT'S EASIER TO SEE THE MISTAKES, WRITE THEM OFF ANDUNFORTUNATELY RECRIMINATE ABOUT THEM AND ANGUISH ABOUT THEM. IN CHINA AS LONGAS THE DEBT GETS PAID TO THE MUNICIPALITY AND WHO'S GOING TO STOP PAYING IT ITSHARD TO SEE THE MISTAKE. YOU CAN HAVE A MALL WITH NO ONE IN IT AND IT CAN STILLSERVICE ITS DEBT. THOSE MECHANISMS AREN'T IN PLACE AND THAT'S ONE OF THEPROJECTS CHINA HAS TO ACCOMPLISH, DEVELOP ITS CAPITAL MARKETS.

QUICK: CAN IASK YOU ABOUT ANOTHER EMERGING MARKET MEXICO. SPOKE WITH THE PRESIDENT TODAY,ENRIQUE PENA NEOTA. HE'S MADE SOME MASSIVE REFORMS WHEN IT COMES TO THE ENERGYMARKETS WHEN IT COMES TO BANKING EDUCATION A LOT OF DIFFERENT PLACES THEY AREWORKING HARD. INVESTORS ARE EXCITED ABOUT IT. BUT AT THE SAME TIME GROWTH LASTYEAR WAS ONLY 1.2%. WHAT'S YOUR TAKE ON THIS?

BLANKFEIN: IWAS RECENTLY DOWN IN MEXICO CITY, IT'S STRIKING, THE LEVEL OF THE CALIBER, THEDIALOGUE WITH THE BUSINESS PEOPLE, THE LEVEL OF INVESTMENT, THE COMMITMENT.FRANKLY, THE PARTICIPATION BEYOND THE BORDERS OF MEXICO, IT FEELS TO ME, I'VEBEEN GOING TO MEXICO FOR A LONG TIME. IT FEELS LIKE A DIFFERENT ENERGIZEDPLACE. I THINK IN A LOT OF WAYS, ONE OF THE BIG OPPORTUNITIES THAT I THINK INTHE UNITED STATES, IS TO RECOGNIZE NORTH AMERICAN OPPORTUNITY. THE BLESSING OFENERGY AND TO HAVE SOME SORT OF INTEGRATED POLICY AND REALLY PUSH THAT REALLYHARD AMONG CANADA, THE UNITED STATES AND MEXICO. ONE OF THE SUBTHEMES THAT YOUHAVE IN DAVOS IS THE ANXIETY THAT EUROPEAN MANUFACTURERS AND INDUSTRIALISTSHAVE BECAUSE THE COST OF ENERGY IS SO MUCH HIGHER IN EUROPE THAN IN THE UNITEDSTATES. THEY FEEL THEY'RE ON THE WRONG SIDE OF A COMPETITIVE DISADVANTAGE. INTHE UNITED STATES WE DON'T FEEL THAT GOOD ABOUT IT. IT'S NOT REALLY IN THEFRONT OF MIND WHAT AN ADVANTAGE WE HAVE AND I THINK WE'RE MISSING ANOPPORTUNITY TO TAKE ADVANTAGE OF IT SOONER THAN WE OTHERWISE COULD AND WE'REFRANKLY MISSING THE OPPORTUNITY TO BE AN UPLIFT IN MORALE TO OUR COUNTRYTORECOGNIZE SOME OF THE BLESSINGS THAT WE HAVE.

KERNEN:YOU'RE ON THE ENERGY BANDWAGON TOO. THAT'S A POWERFUL --

BLANKFEIN:THINK OF ALL THE WAY OUR LIVES HAVE BEEN ORGANIZED, THE GEOPOLITICS OF THE LAST40 YEARS. BECAUSE THE UNITED STATES WAS PERMANENTLY AN ENERGY DEFICIT AND WEHAD TO GO OUT AND GET AND TRANSPORT OUR ENERGY.

KERNEN: SENDOUR MONEY OVER THERE.

BLANKFEIN:FROM THE HARDEST, TOUGHEST PLACES IN THE WORLD.

KERNEN:RIGHT.

BLANKFEIN;EVERYTHING WAS -- YOU CAN EXPLAIN A LOT OF LIFE IN THE LAST 40 YEARS AND A LOTOF SACRIFICE MADE BY THIS COUNTRY BY THAT FACT. WHAT HAPPENS WHEN NORTH AMERICAIS ENERGY SUFFICIENT? AND WHAT HAPPENS NOT JUST IN THE UNITED STATES BUT WHATHAPPENS, YOU KNOW, YOU HAVE TO HAVE RECOGNITION THAT MIDDLE EASTERN OIL TO AGREATER EXTENT IS BEING SHIPPED TO CHINA. NOT TO THE UNITED STATES.

SORKIN:RIGHT. I HAVE A COUPLE QUICK BANKING QUESTIONS. WE ONLY HAVE A LITTLE BIT OFTIME. WE SAW JAMIE DIMON. OBVIOUSLY THEIR HUGE SETTLEMENT AND APPARENTLYPOTENTIALLY 50 BILLIONS OF MORE SETTLEMENTS. YOU'VE GONE THROUGH YOUR OWNSETTLEMENTS WITH THE GOVERNMENT. WHAT DO YOU MAKE OF WHAT'S GOING ON.

BLANKFEIN:I'M A LITTLE BIT CLOSE TO THE COAL FACE HERE. FRANKLY, LOOK, I DON'T LOVESPENDING MY LIFE DEALING WITH LEGACY ISSUES BUT IT'S PART OF WHAT WE -- IT'SPART OF OUR RESPONSIBILITY. WE HAVE TO DEAL WITH IT. WE HAVE TO SORT OUT THEPAST AND MORE IMPORTANTLY, LEARN FROM THE PAST AND MAKE FOR A BETTER FUTURE.

SORKIN: WHATDO YOU MAKE OF THE FACT THAT THE GOVERNMENT HAS GONE MORE AFTER THECORPORATIONS THAN INDIVIDUALS? I WOULD ARGUE INDIVIDUALS ULTIMATELY MAKE THEDECISIONS, GOOD OR OTHERWISE?

BLANKFEIN:THEY DO. BUT AT THE END OF THE DAY, LISTEN, HAVING BEEN A FOCUS OF THIS MYSELF,I ASSURE YOU THAT PEOPLE -- PEOPLE EXAMINED THESE ISSUES VERY, VERY, VERYENTHUSIASTICALLY. AND YOU KNOW, YOU STILL HAVE TO HAVE A BAD INTENT. AGAIN,TAKING AWAY -- AS A COMMENTATOR ON THESE THINGS, THERE ARE PEOPLE WHO A LOT OFMADE MISTAKES. EVERYONE MADE A LOT OF MISTAKES. THE WHOLE WORLD WASOVERLEVERAGE. AT THE END OF THE DAY, A MISTAKE IS NOT NECESSARILY A CRIME. THEYSTILL HAVE TO HAVE CRIMINAL ACTIVITY TO HAVE A CRIME AND YOU HAVE TO HAVE ACRIMINAL INTENT TO HAVE A CRIME.

SORKIN: DOYOU THINK THIS INVESTIGATION INTO CHINA PRINCELING, WHICH I IMAGINE ULTIMATELYMAY INCLUDE GOLDMAN SACHS IS REAL? IS THAT A BIG ISSUE.

BLANKFEIN: ITHINK IT'S A BIG ISSUE BECAUSE IT'S A BIG FOCUS --

SORKIN:ISN'T THIS SOMETHING THAT'S HAPPENED EVERYWHERE THOUGH.

BLANKFEIN: ITHINK THE ISSUE IS NOT THAT ONE CAN'T HIRE PEOPLE CONNECTED TO PEOPLE WHO AREIMPORTANT IN THE PRIOR GENERATION BUT IT CAN'T BE YOUR MOTIVE AND YOU CAN'TGIVE UNDUE BENEFIT. IT CAN'T BE A BRIBE.

SORKIN: HAVEYOU SEEN STUFF THAT LOOKS LIKE A BRIBE?

BLANKFEIN:NOT FIRSTHAND.

SORKIN: HAVEYOU HAD CHINESE CEOs OR OTHER CEOs THAT SAID HIRE MY KID AND IF YOU HIRE THEKID, YOU GET THE JOB.

BLANKFEIN: ISAY YES TO THE FIRST PART BUT NO TO THE SECOND PART. NOT CHINA SPECIFICALLY.I'VE HAD PEOPLE SAY MY KID IS IN SUCH AND SUCH A SCHOOL, REALLY WOULD LIKE AJOB IN FINANCE. HE REALLY WOULD LIKE A JOB AT GOLDMAN SACHS. I DIDN'TNECESSARILY TAKE IT THAT WAY BUT I'VE GOT TO TELL YOU, THESE ISSUES HAVE BEENAROUND A LONG TIME JUST BECAUSE HE IS NOT THINKING IT THAT WAY I'M THINK ABOUTHOW IT COULD LOOK. WE HAVE A LOT OF PROCESSES TO VET THESE THINGS. IF YOUPRECLUDED YOURSELF FROM HIRING ANY KID THAT WAS AFFILIATED TO SOMEBODY WHOSEPARENT WAS AN IMPORTANT OFFICIAL OR AN IMPORTANT INDUSTRIALIST OR EXECUTIVE, YOUWOULDN'T HAVE VERY MANY PEOPLE LEFT. WHO DO YOU THINK THE KIDS ARE THAT AREMULTICULTURAL AND FILLING HARVARD BUSINESS SCHOOL?

KERNEN: AREYOU GOING TO ASK HIM WHO HE PICKED FOR THE 25?

SORKIN: IFYOU COULD PICK THE TOP GUY IT IS OUR CNBC 25, WE'RE 25 YEARS OLD, WHO IS THEMOST IMPORTANT PERSON IN THE BUSINESS WORLD IN THE PAST 25 YEARS.

BLANKFEIN:OH MY GOSH A LOT OF PEOPLE YOU HAVE TO GIVE ME TIME FOR THAT.

SORKING OKYOU'LL COME BACK.AND THEN FINALLY @GSELEVATOR IS A TWITTER HANDLE WHOAPPARENTALLY WORKS AT GOLDMAN SACHS AND IS WRITING A BOOK.

BLANKFEIN:APPARENTLY WORKS AT GOLDMAN SACHS

SORKIN: DOYOU KNOW WHO THIS PERSON IS.

BLANKFEIN:IF HE'S STILL WRITING I OBVIOUSLY DON'T KNOW WHO IT IS.

KERNEN: DOESJAKE KNOW WHO IT IS?

SORKIN: JAKEIS RIGHT THERE DO YOU KNOW WHO IT IS? HOLD ON. HE'S SMILING. HE KNOWS WHOGSELEVATOR IS. THE QUESTION IS WHETHER LLOYD IS REALLY GSELEVATOR

BLANKFEIN: ISEE THAT SMILE. I'M WONDERING IF IT'S HIM.


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