Lloyd Blankfein, the Goldman Sachs CEO between 2006 and 2018, has said he’s developed a sense of foreboding around economic crises.
“I look at credit spreads being so narrow, so much money going to private credit, people trying to goose their returns a little bit by leveraging up in kind of odd ways at the portfolio level,” Blankfein said.
He added that plenty of assets are being placed in insurers as a way for those companies to generate higher yields on long-term liabilities. However, he said if he were an insurance regulator, he might begin to question the true value of those assets.
“There’s a lot of 1% risk, but it’s not a 1% risk that something bad will happen,” he continued in the interview.
Blankfein warned there’s been a “crisis of the century every four or five years.” That includes Mexico’s 1994 debt crisis, the Russian debt default and Long-Term Capital Management bailout in 1998, the 2001 dotcom bubble, and Great Financial Crisis. Essentially, Blankfein said, expect the unexpected.
“I’m saying we’re due, and it doesn’t matter that you can’t see where it’s coming from.”
Blankfein’s concerns about the narrowing of credit spreads and the continuing swell of private credit speak to potentially hidden risks.
