CEO Club Briefing

Mortgage Crisis

Excerpt from remarks to Boston College Chief Executives Club  

March 22, 2018


We’ve spent a lot of time going through this stuff, but it was very unnerving. I was very philosophical in my thinking, because—being a naturally fatalistic person, I said: I knew it! If I’m going to be a CEO, the world’s going to blow up. And it’s not like—you know, Goldman Sachs, big balance sheet company, we’re involved in everything, and so nothing can go wrong anywhere without affecting us.

But oddly—just this goes to show how much we punch above our weight—we were viewed as ground zero for the mortgage crisis. We don’t do mortgages. That’s pretty good. We buy mortgages from other people. So then therefore we could be an enabler, because we bought mortgages from other people who had bad origination practices. We may have on-sold them in a bad way—possibly, alleged—or we enabled other people who had bad practices to sell what they had, get money, do other things, none of which I think was necessarily the case, but that was it. But we were hardly ground zero for the mortgage crisis, because we’re really not—we’re only derivatively or secondarily into it. But we’re very high profile. And if you pick up—you know, if you’re in New York, I’m in the paper every day—in the Post—and frankly, a lot of the national papers. We get a lot of attention. So, we were getting it.

The financial crisis for us came in two parts. There was the existential part, where nobody knew who had what, who was solvent, who had liquidity. And that we navigated very, very well, largely because we ran our business in a sensible—I’ll say this—a sensible way. We hedged. If we bought something, we sold it. Some people thought, gee, housing can’t go down any more. Some people thought housing prices were going to go to zero. We had people at the center of the firm who managed that and would let people go long if other people—you know, that whole stuff. But that was done sensibly, and so that was the existential part.

And there was about five minutes where people said, How did you do it? And where I felt good for about five minutes because it was—you know, people were looking for us to blow up or something, and we didn’t. And then, 15 minutes later, it was, How did you do it? Which was kind of the reputational part of it, which—because all that hedging that we did—we bought, we sold—well, why would you sell that, when you know it’s going down? I said, well, we didn’t know it was going down. Well, you sold it. Why’d you sell it? Well, we sell it because we bought it over here. They said, well, don’t tell me about that side. Tell me—and so you saw all that—and got involved. And there was nothing about my early training that would prepare you for that. So, you learn how to cope.

Now, the existential part—and I have to say we got through it, but it wasn’t like at every moment I was—you know, I thought—and I’m very clinical about this. I’ve been in the risk business. I came up through the trading side and managing the risks of the firm forever—for a long period of time. But I didn’t get that way because I’m like happy guy, I’m happy-go-lucky. I looked at this stuff, and I’m saying, gee, there’s a percentage—what are the percentage probabilities of the world blowing up?

And let me tell you, I’ll insure—we’ll all insure our houses that have a 0.001 percent risk. I didn’t like going to bed if there was a 15 percent risk of things melting down. So, I would say when people go out and now evaluate how regulators and decisions that were made and everybody is on a high horse—oh, you shouldn’t have done that, shouldn’t have intervened in the market—see, it didn’t blow up. Yeah, it didn’t blow up because that’s what they did. And it might not have blown up, but who of any kind of responsibility would allow the country to go along with—put a number on it—15, 20 percent chance of that kind of a meltdown? It would have been irresponsible. So, I think they did a good job.

But we did have to negotiate—we did have to get along from weekend after weekend where there was one crisis after another. Fortunately, we just didn’t know how long it would be. If somebody would have told me that it would have been as bad as it was for as long as it was, I wouldn’t have gotten out of bed. But since every time it seemed like—and in hindsight, it was reasonable that it would take as long as it did and there was as much rough stuff to handle as it did. But at the time, of course, you don’t know, and so you just get up and you do what you do.