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Lloyd Blankfein’s Crystal Ball

Divining the future pays off big for Goldman.
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Crystal ball image courtesy George Hodan

Crystal ball image courtesy George Hodan

Who knows what is in the heart of Lloyd Blankfein? The man is a cipher. But every now and then we get a little indication of his many talents.

As president-elect, Donald Trump has promised to “dismantle” Dodd-Frank, because that’ll show those darn elites! Of course that would mean a bonanza for big banks, as evidenced by the 8.5-percent rise in the KBW bank index since Tuesday.

But Goldman Sachs is particularly well-placed for a regulatory rollback, as Dan Primack reports. The investment bank has been perhaps the biggest stick in the mud when it comes to complying with the Volcker Rule, which banned banks from making speculative bets with their own money. For years since the passage of Dodd-Frank, Goldman has held onto a multibillion-dollar investment in a private equity fund – an arrangement that the Volcker Rule would prohibit, once it went into effect.

Lloyd’s first bet was on the sluggishness of the federal bureaucracy, which is generally a solid wager. The SEC had already given banks several years to fall into line, but Goldman figured it would take even longer. Primack:

Goldman Sachs, however, seized on that time delta and began procrastinating. It and its employees had plenty of assets in violation of what were expected to be the new rules ― including approximately $9 billion in commitments to a $20.3 billion private equity fund ― but the bank figured that it would be able to liquidate by the time the final rules were written. And it ended up looking like a pretty smart bet, as the final Volcker language adopted in late 2013 included a grace period that was then further extended through July 2017.

With Trump taking aim at financial regulation writ large, the Volcker rule has emerged as a likely target – even though Trump seems not to have any clue what it is. That means Goldman’s verboten investments likely won’t be going anywhere anytime soon.

Did Lloyd dip into the occult to divine the future of the presidential election, and thus his Volcker-violating positions? There's no way to know, suffice to say that any kind of financial wizardry will aboveboard under a Trump presidency anyway. 

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