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CNBC Exclusive: CNBC Transcript: Goldman Sachs Chairman & CEO Lloyd Blankfein Speaks with CNBC's Carl Quintanilla

WHEN: Thursday, October 16th

WHERE: CNBC's "Closing Bell"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Goldman Sachs Chairman & CEO Lloyd Blankfein today live from the Goldman Sachs Builders and Innovators Summit on CNBC's "Closing Bell" (M-F, 3PM-5PM ET). Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000320855 and http://video.cnbc.com/gallery/?video=3000320832.

All references must be sourced to CNBC.

KELLY EVANS: WELCOME BACK. GOLDMAN SACHS HOLDING ITS THIRD ANNUAL BUILDERS AND INNOVATORS SUMMIT IN SANTA BARBARA. AND OUR CARL QUINTANILLA IS AT THAT CONFERENCE. HE JOINS US NOW LIVE WITH LLOYD BLANKFEIN, WHO IS CHAIRMAN AND CEO OF GOLDMAN SACHS IN AN EXCLUSIVE INTERVIEW. OVER TO YOU, CARL.

CARL QUINTANILLA: HEY KELLY, THANK YOU SO MUCH. WE ARE HERE AT THE BUILDERS AND INNOVATORS CONFERENCE AND YOU SAW THE NUMBERS FROM GOLDMAN EARLIER TODAY. 457 OBVIOUSLY BLEW PAST ESTIMATES, REVENUE SURPRISE TO THE UPSIDE, FIXED INCOME TRADING, FIRST REVENUE GAIN IN OVER A YEAR, GAINING MARKET SHARE IN M&A. LLOYD BLANKFEIN OF GOLDMAN SACHS JOINS US HERE IN SANTA BARBARA. LLOYD, IT IS GREAT TO HAVE YOU. WELCOME.

LLOYD BLANKFEIN: GOOD TO SEE YOU, CARL.

QUINTANILLA: THEY ARE CALLING THIS THE BREAKOUT WINNER OF EARNINGS SEASON SO FAR.

BLANKFEIN: THAT'S GOOD. AND IT'S GOOD TO BREAK OUT – IF YOU ARE GOING TO BREAK OUT, IT'S BETTER TO BREAK OUT ON THE HIGH SIDE. BUT IT'S BEEN A LONG HAUL.

QUINTANILLA: WHAT DROVE THE QUARTER?

BLANKFEIN: I'D SAY, TOWARDS THE END OF THE QUARTER, YOU KNOW, AGAIN, A RETURN OF VOLATILITY. ALSO A RETURN OF CONFIDENCE. WHAT WE SAW IN THE U.S. AND IF WE WERE HAVING THIS CONVERSATION A FEW WEEKS AGO, I WOULD SAY BETTER GDP PERFORMANCE AROUND THE WORLD, BETTER CONFIDENCE. AND I WOULD SAY AT THIS POINT, IT'S PRETTY MUCH BETTER IN THE UNITED STATES AND NOT BETTER IN VERY MANY OTHER PLACES. BUT STILL, THE UNITED STATES IS AN IMPORTANT MARKET FOR US. AND THAT KIND OF CONFIDENCE IS CREATING MORE TRANSACTIONS. AND IF YOU HAVE MORE M&A, YOU CREATE MORE FINANCINGS, MORE FINANCINGS, MORE SECURITIES, MORE SECURITIES, MORE SECURITIES TRADING.

QUINTANILLA: I REMEMBER A TIME WHERE THE NARRATIVE FOR THE QUARTER WAS THE INVERSE OF THAT. WHERE YOU SAID VOLATILITY WAS DRYING UP TO SUCH A DEGREE THAT THAT WAS A PROBLEM.

BLANKFEIN: I KNOW.

QUINTANILLA: IS THAT CHAPTER NOW OVER?

BLANKFEIN: THESE CHAPTERS ARE NEVER OVER. IT'S NOT A BOOK WITH CHAPTERS, IT'S A PENDULUM THAT SWINGS A BIT. AND SO, THESE THINGS, YOU KNOW, TEND TO BE CYCLICAL. BUT I WAS THINKING A FEW WEEKS AGO PEOPLE WERE BEMOANING THE LACK OF VOLATILITY. NOT SO MUCH WITH VOLATILITY, BUT THE LACK OF RISK PREMIUM, THE INABILITY TO SEPARATE THE GOOD FROM THE BAD BECAUSE THERE'S NOT A LOT OF PREMIUM ATTACHED TO THINGS. AND WE'RE WISHING FOR IT. THIS IS A LITTLE BIT LIKE THE GENIE IN THE BOTTLE. YOU KNOW, YOU WISH, YOU WISH, YOU WISH, AND NOW ALL OF A SUDDEN, WE HAVE AN AVALANCHE OF VOLATILITY. AND YOU KNOW, A LITTLE BIT BEYOND WHAT PEOPLE WERE HOPING FOR.

QUINTANILLA: ON THE CONFERENCE CALL THIS MORNING, YOUR CFO HARVEY SCHWARTZ SAID THAT WEDNESDAY WAS A PAINFUL DAY FOR YOUR CLIENTS. BUT HE SUGGGESTED NOTHING IS REALLY FUNDAMENTALLY CHANGED, STRUCTURALLY CHANGED, IN THE GLOBAL OR THE U.S. ECONOMY. DID WEDNESDAY REVEAL SOME UNDERLYING WEAKNESS IN MARKETS OR THE ECONOMY?

BLANKFEIN: WELL, I WOULD SAY IT – YOU KNOW, WE ARE NEVER SURE OF THESE THINGSL. YOU KNOW, WE HAVE TO LOOK BACK. WE DON'T KNOW. AND I'M SURE IT WAS A PAINFUL DAY FOR SOME. I THINK THE INTERESTING THING ABOUT IT WAS THAT A PULLBACK WAS HIGHLY ANTICIPATED AND PEOPLE ON, YOU KNOW – PEOPLE THAT YOU INTERVIEWED WERE NOT ONLY TALKING ABOUT THAT IT WAS ANTICIPATED AND NECESSARY, BUT THAT IT WOULD ACTUALLY BE WELCOMED. AND OF COURSE, WHEN EVEN A WELCOMED, ANTICIPATED THING HAPPENS LIKE THAT, WHEN IT HAPPENS, IT'S JARRING. BECAUSE WHEN IT HAPPENS, IT DOESN'T DECLARE ITSELF A BRIEF PULLBACK. IT ACTUALLY REPRESENTS A SHIFT IN SENTIMENT AND EVERYBODY BEMOANS, THEY WONDER HOW COULD I HAVE BEEN SO DUPED IN THE RUN-UP TO THIS AND THEY HAVE CHANGED THEIR MIND UNTIL SENTIMENT SHIFTS AGAIN. SO IT'S NOT – I WOULD SAY THE STORYLINE HAS GONE ONE FROM WHERE THE WORLD'S ECONOMIES WERE REFLATING, THINGS WERE GETTING BETTER AND SO TRADES AND POSITIONS WERE IN LINE WITH THAT INCREASE IN M&A, INCREASE IN DEAL FLOW, LONG EQUITIES, LONG DOLLAR, LONG COMMODITIES THAT ARE GOING TO BE USED IN PEOPLE'S BUSINESSES AS THE ECONOMIES REFLATE, TO ONE WHERE THE STORY IS NOW DEFLATIONARY. AND NONE OF THOSE THINGS ARE GOING TO WORK ANYMORE, INTEREST RATES ARE GOING SO LOW, BECAUSE THE ECONOMIC ACTIVITY IS NEVER GOING TO BE THERE AND IT WILL NEVER HAVE INFLATION AGAIN. AND SO THAT'S KIND OF THE NEW STORY. PROBABLY EITHER OF THOSE TWO EXTREMES ARE WRONG. IT'S ON A PATH IN THE MIDDLE.

QUINTANILLA: BUT THAT SAID, A LOT OF HEDGE FUNDS FOR INSTANCE, WERE POSITIONED JUST THE WAY YOU SAID. AND I WONDER, DO YOU FORESEE A LIQUIDATION? A MASS LIQUIDATION OF HEDGE FUNDS? DO WE COMPARE THIS TO A LONG-TERM CAPITAL SCENARIO OR NO?

BLANKFEIN: I DON'T KNOW. I THINK HEDGE – WELL, THIS IS A DIFFERENT WORLD NOW. HEDGE FUNDS IN GENERAL ARE LESS LEVERAGED. THEY ARE LEVERAGED, BUT MUCH LESS LEVERAGED THAN THEY WERE BEFORE. AND SUCCESSFUL HEDGE FUNDS HAVE BEEN IN THE RISK MANAGEMENT BUSINESS FOR A LONG TIME AND ESPECIALLY THE ONES THAT HAVE SURVIVED THOSE OTHER CRISES. LIKE ALL OF US WHO HAVE SURVIVED CRISES, WE LEARN THESE LESSONS AND WE TAKE THEM WITH US. SO I WOULD SAY THE RISK MANAGEMENT SKILLS ARE THERE. THIS IS A BIG EVENT, IT'S NOT AS – YOU KNOW, IT'S A ONE-DAY EVENT, IF THESE THINGS GO ON FOR A LONG TIME, IT COULD BE WORSE. AND OBVIOUSLY, THERE WAS A LOT OF PAIRING OF POSITIONS, WHICH IS RESPONSIBLE FOR THE BIG MOVE AND, YOU KNOW, NEAR RECORD FLOWS THAT WE HAVE SEEN IN SOME OF THESE MARKETS. BUT I WOULDN'T GET HYPERBOLIC ABOUT IT.

QUINTANILLA: DO YOU THINK EUROPE IS GOING INTO DEFLATION?

BLANKFEIN: I WOULD SAY IT'S A CONCERN. LOOK, THE DEFLATIONARY CONCERN HAS BEEN EVIDENT, EVEN IN THE UNITED STATES IT'S DRIVING POLICY. BECAUSE EVEN WHEN WE ARE GROWING AT NEAR, YOU KNOW, TREND GROWTH, THERE'S A CONCERN THAT, YOU KNOW, THAT ALL IS NOT RIGHT. NOT ALL THE NUMBERS ARE RIGHT. IN FACT, GOOD NUMBER, BAD NUMBER, GOOD NUMBER TO BAD NUMBER. AND THAT THE CONSEQUENCE OF SLIPPING BACK INTO DEFLATION ARE VERY, VERY EXTREME, BECAUSE WHAT TOOLS DO WE HAVE LEFT TO REVERSE THAT? ARE WE GOING TO HAVE ANOTHER FISCAL STIMULUS? ARE WE GOING TO TAKE INTEREST RATES A LOT LOWER FROM HERE? BETTER TO PLAY IT ON THE SAFE SIDE AND INSURANCE AND KEEP RATES LOWER LONGER UNTIL IT'S FIRMLY ESTABLISHED. THAT'S IN THE U.S., WHERE WE ARE AT LEAST HALF A CYCLE AHEAD OF EUROPE. IN EUROPE, A LOT OF THE RESTRUCTURING, YOU KNOW, REMAINS TO BE DONE. RATES NEED TO BE – AND THEY HAVE AN ADDITIONAL PROBLEM IN EUROPE. AND THAT'S REALLY WHAT – ALSO THE MARKET IS FOCUSED ON. THERE'S A REAL DIVERGENCE IN THINKING. THE STRUCTURE ISN'T THE SAME. THERE ARE DECISION MAKING PROCESS AND PROTOCOLS IN THE U.S. TO EVOLVE A POLICY. IN EUROPE, THAT ISN'T WELL ESTABLISHED.

QUINTANILLA: YOU MENTION FED POLICY. TODAY, JAMES BULLARD MADE SOME COMMENTS THAT HAVE PEOPLE THINKING THAT QE FOUR MAY BE PART OF AN ACTIVE DISCUSSION. OR THAT YOU TAPER THE TAPER. WOULD IT SURPRISE YOU TO SEE THAT KIND OF POLICY EXTENDED BEYOND WHAT PEOPLE EXPECT?

BLANKFEIN: AT THIS POINT, I THINK THE FED HAS BEEN COMMITTED. AND I'M NOT GIVING THEM ADVICE ON THIS. I THINK THEY HAVE DONE SOME – THEY HAVE TAKEN THIS POSITION, BY THE WAY, DESPITE A LOT OF CRITICISM. JUST THINK OVER THE LAST FEW YEARS, PEOPLE WERE HARPING ON THEM AT HOW INFLATIONARY THEIR POLICIES ARE, THERE IS NO INFLATION. WE DON'T HAVE ENOUGH INFLATION. AND PEOPLE ARE TALKING ABOUT, YOU KNOW, IN A CRITICAL WAY, SOME PEOPLE, ABOUT HOW THEY SHOULD HAVE – YOU KNOW, WE HAVE GONE WELL PAST THE POINT OF ENOUGH GROWTH, SO WE SHOULD HAVE REVERSED. NOW, PEOPLE ARE SPECULATING. SO I WOULD SAY THEY HAVE HANDLED IT RIGHT. THEY HAVE HANDLED IT IN A CAUTIOUS WAY. AND I THINK IN SOME WAYS, HAVE BEEN COURAGEOUS. BECAUSE IF EVERYTHING GOES WELL, IT WILL TURN OUT THAT THEY NEEDED. THEY DIDN'T NEED TO BE THIS LOW FOR SO LONG. BECAUSE IT IS LIKE AN INSURANCE PREMIUM THAT THEY ARE PAYING. AND I THINK THAT THEY HAVE BEEN WISE AND COURAGEOUS AND WILL SUBJECT THEMSELVES TO SECOND GUESSING. BECAUSE IF THE U.S. ECONOMY IS ESTABLISHED, IN GOOD SHAPE, AND GOES ON FROM HERE, THEN EVERYONE WILL SECOND GUESS THEM AND SAY YOU SHOULDN'T HAVE BEEN THIS LIGHT FOR TOO LONG.

QUINTANILLA: TRUE. SOME LOOKED AT THE ACTION IN TREASURIES ON WEDNESDAY AND HAVE ARGUED THAT REGULATION HAS REMOVED THE BANK'S ABILITY TO ACT AS A STABILIZING FORCE. IS THAT TRUE?

BLANKFEIN: YOU KNOW, MAYBE TO SOME EXTENT. I'M NOT SURE MYSELF. CLEARLY THERE ARE CONSEQUENCES TO ATTACHING A LOT OF COSTS AND RESTRICTIONS AND LIMITATIONS ON THE AMOUNT OF INVENTORY YOU CAN HOLD AND THE AMOUNT OF CAPITAL YOU HAVE TO HOLD AGAINST VARIOUS RISKS THAT YOU HAVE. I CAN'T SAY THAT THAT WAS THE DOMINATING FACTOR HERE. PART OF IT IS JUST THE WORLD VIEW, ALL OF A SUDDEN, PEOPLE GOT A VERY DEFLATIONARY SENSE OF HOW THINGS ARE. I THINK THERE'S ANOTHER THING WORTH LOOKING AT, TOO, WHICH IS A LOT OF THIS TRADING HAS BEEN ROUTED TO ELECTRONIC EXCHANGES, WHICH ARE KIND OF DRIVEN BY ALGORITHMS AND CERTAIN THINGS. AND SO THERE'S ELEMENTS OF THE MARKET THAT ARE STARTING TO LOOK AT, LIKE, ELEMENTS OF THE EQUITIES MARKET, WHERE AUTOMATIC ORDERS ARE PUT IN, AND SO YOU GET GAPPY KINDS OF MOVES. AND WE ARE SEEING THAT IN THE TREASURY MARKET. COMPARED TO, IRONICALLY, MAYBE LESS EFFICIENT IN SOME WAYS, BUT OFTEN A MORE ORDERLY MARKET WHERE DEALERS WITH A SENSE OF RESPONSIBILITY TO THEIR CLIENTS STAND IN AND SMOOTH OUT THE FLOWS. SO I THINK THAT THAT'S AN ELEMENT THAT ALSO – THE SOCIOLOGY OF THE MARKET HAS MOVED, NOT JUST THE REGULATION AND MAYBE THEY ARE RELATED.

QUINTANILLA: EBOLA. MARKET'S BEEN HANDED THIS, YOU KNOW, POTENTIAL DOWNSIDE SCENARIO. EXTREME DOWNSIDE SCENARIO OF A PUBLIC HEALTH CRISIS. WITHOUT A SHORT-TERM SOLUTION IN SIGHT. HOW IS A REASONABLE INVESTOR SUPPOSED TO MANAGE THAT RISK?

BLANKFEIN: I THINK IT'S VERY TOUGH. I THINK YOU HAVE TO, YOU KNOW, FIRST OF ALL, WE SHOULDN'T, HERE'S THIS WORD AGAIN, I DON'T THINK WE SHOULD BE HYPERBOLIC AND CRAZY ABOUT THIS. WE SHOULDN'T, YOU KNOW, BLOW IT OUT. OF COURSE, LOOK, I'M IN THE WORLD OF WORRYING ABOUT LOW PROBABILITIES. I REMEMBER WHEN WE WERE WORRIED ABOUT SARS, WHICH, OF COURSE, DIDN'T MANIFEST INTO ANYTHING BIG, BUT, YOU KNOW, IT COULD HAVE. AND WE DIDN'T KNOW. AND WE WERE ACTUALLY GOING AND WAR GAMING SURVEYS AND STUDIES OF WHAT WOULD HAPPEN. WHAT A PATH THAT THINGS HAPPEN. WHO WOULD WE HAVE OPERATING FROM HOME, WHO WOULD COME INTO THE OFFICE, DOES IT GO THROUGH A REGION, PATH TO ANOTHER REGION, SO THE PEOPLE IN THE FIRST REGION COULD NOW GO BACK TO WORK OR IS IT EVERYWHERE AT ONCE? WE LOOK AT THESE THINGS, LIKE WE CONTINGENCY PLAN FOR A LOT OF THINGS. BUT I WOULDN'T LET – I WOULDN'T OVERDO THE EBOLA VIRUS AND I WOULDN'T TRY TO CREATE ANOTHER VIRUS OF FEAR THAT JUST HAS ITS OWN LIFE TO IT. YOU KNOW, WHEN PEOPLE ALL OF A SUDDEN ARE AFRAID TO MINGLE IN THE PUBLIC OR GET ONTO – YOU KNOW, WE ARE NOT THERE AND, YOU KNOW, IF ALL YOU DO IS TURN ON THE TV SET AND THAT'S WHAT ANYBODY IS TALKING ABOUT, I CAN SEE HOW YOUR FEARS CAN PLAY ON YOU, BUT THAT'S A KIND OF VIRUS ITSELF.

QUINTANILLA: FINALLY, THE BUILDERS AND INNOVATORS SUMMIT. YOU HAVE BEEN DOING THIS FOR THREE YEARS.

BLANKFEIN: YES.

QUINTANILLA: YOU BRING TOGETHER EMERGING ENTREPRENEURS, SEASONED ENTREPRENEURS. DO THE EMERGING ONES HAVE A THEMATIC RIBBON RUNNING THROUGH THEM?

BLANKFEIN: YOU KNOW, THEY ARE FROM ALL DIFFERENT INDUSTRIES, OUR BUILDERS AND INNOVATORS. AND SOME OF THESE ARE QUITE ESTABLISHED ALREADY. HOUSEHOLD NAMES, YOU KNOW SOME OF THE NAMES OF THE EMERGING BUILDERS AND INNOVATORS, THE ENTREPRENEURS. THE BUSINESSES ARE DIFFERENT, BUT THEY HAVE A LOT IN COMMON. THEY NEED FINANCING, THEY NEED CONFIDENCE, THEY NEED HOW TO ASSEMBLE TEAMS, THEY NEED TO DEAL WITH IT THROUGH ADVERSITY. THEY NEED TO DEAL WITH BAD EARNINGS, THEY NEED TO DEAL WITH RECALCITRANT INVESTORS WHO AT TIMES WOULD LIKE THEM TO GO TO A PATH THAT THE INNOVATOR HIMSELF WHO HAS A CORE CONVICTION, DOESN'T. THEY HAVE TO HAVE PASSION AND THEY HAVE TO HARNESS THAT PASSION IN A SENSIBLE WAY. AND SO, WHEN WE BRING THIS GROUP TOGETHER, THEY HAVE A LOT TO TALK ABOUT WITH EACH OTHER AND THEN WE BRING A GENERATION OF ENTREPRENEURS WHO ARE VERY WELL ESTABLISHED AND BOTH SIDES LOVE IT BECAUSE THEY – THE ESTABLISHED ENTREPRENEURS LIVE THAT CYCLE THAT THEY WENT THROUGH. AND THEY PLAY IT OUT AND THEY GIVE PRESENTATIONS TO THE YOUNGER GUYS WHO ASK THEM QUESTIONS. AND I WOULD SAY IT IS VERY VIRTUOUS AND WE GET TO FULFILL OUR ROLE AS CONVENER AND BRING THESE GUYS TOGETHER.

QUINTANILLA: YES AND HAVING IT ON A WEEK LIKE THIS WHERE WE ARE DEALING WITH A SHIFT IN SENTIMENT LIKE WE JUST TALKED ABOUT. THAT HAS GOT TO PLAY INTO THE DISCUSSION, I IMAGINE?

BLANKFEIN: OF COURSE. AND YOU KNOW, CARL, I THINK IT'S AN ABERRATIONAL PERIOD WHERE SENTIMENT DOESN'T SHIFT FOR A VERY LONG TIME. I THINK THAT WAS THE ABERRATION. IT'S NOT LIKE WE ARE HOPING FOR THESE THINGS TO HAPPEN. WE ARE JUST EXPECTING THEM TO HAPPEN. NEW FACTS GET INTRODUCED. THOSE FACTS, AND THOSE CIRCUMSTANCES, AND CONDITIONS, LIKE IT OR NOT, CHANGE THE MARKET-CLEARING PRICE OF EVERYTHING. HOW PEOPLE LOOK, WHAT PEOPLE THINK, THEIR VIEW OF THE FUTURE. DON'T FORGET THE PRICE OF SOMETHING IS THE STREAM OF ALL FUTURE – IS THE FUTURE DISCOUNTED TO THE PRESENT. AND THAT CHANGES ALL THE TIME. AND THOSE ADAPTATIONS AND THOSE TRANSITIONS HAVE TO BE MANAGED THROUGH A PRICE DISCOVERY PRACTICE. AND FRANKLY, THAT'S WHAT WE HELP TO DO.

QUINTANILLA: LLOYD, IT IS GREAT SEEING YOU. THANK YOU SO MUCH FOR YOUR TIME.

BLANKFEIN: THANK YOU VERY MUCH, CARL.

QUINTANILLA: LLOYD BLANKFEIN. AND BY THE WAY KELLY, TOMORROW, WE WILL TALK TO DAVID SOLOMON, THE CO-HEAD OF INVESTMENT BANKING AND GEORGE LEE, THE HEAD OF TMT RIGHT HERE FROM GOLDMAN'S BUILDERS AND INNOVATORS IN SUMMIT IN SANTA BARBARA. WE WILL SEE YOU LATER.

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