Goldman Sachs CEO Lloyd Blankfein is arguably the most influential banker in the world after the Chairman of the Fed, Governor of the Bank of England and maybe the Bank of Japan’s Governor. SO when he speaks policy makers sit up and take notice.
But when even Lloyd Blankfein is exasperated at what is going on in Washington you can see how fractious in the US political and policy making process have become.
Yesterday the Global Public Square program on CNN ran an extensive interview with the Goldman Sachs boss and he highlights where US politics has gone off the rails and why it might be harder to get things back on track than many in the market think likely.
Below is an exchange between Fareed Zakaria, host of GPS and Blankfein.
ZAKARIA: But Lloyd, let me ask you this. Is it fair to make this, you know, kind of moral equivalence if you will? Yes, both parties are moving in partisan directions. But only one party is threatening to blow up the United States’ credit rating.
BLANKFEIN: You know, that’s right at the moment. And look, I can – you can find fault – again, in the substance of it, you could say also part of the problem was this is not – we don’t have a parliamentary system.
We have a system where the moderates of both parties are supposed to unite together and have a moderate solution, which by the way, may or may not be the right result. But it certainly brings about the most stable result because then when the party in power shifts, the other party – the next party had already signed onto it and made its contribution owns it.
For one moment in time in my life, we had a parliamentary system in effect where you had the – both Houses had a veto proof majority and the president was of one party, so it was effectively a parliamentary system and it passed legislation without having to compromise and consequently it didn’t. And that created a very unstable situation.
So, the reaction to that I think is a terrible reaction. You could go back to a first cause and say if some of these elements and some of this – some of the legislation that had gone on …
ZAKARIA: If Obamacare had been passed with more Republican support.
BLANKFEIN: More Republican support and the concessions, maybe the minor, maybe some modest concessions that would have had to make to earn that support, it would have been a much better – much more – much more stable outcome. Again, some people – you know, does democracy produce the best results? In a way, it produces the most stable results and the most stable tends to be the best results.
So, now we have a situation where we have Obamacare. And the Republicans want to destroy it. And the Democrats want to – eventually you’re going to have a change of government. It’s not a good situation. I could find – I could see the world through the lens of either side. Right now my focus is really on what the Republicans are doing, which I think is – which I don’t consider to be the best constructive civic behavior, because if they don’t like the resolution, but it is resolved – to go about and say I’m going to blow up the budget or I’m going to blow up the credit, I’m not going to pay for debts that I had already taken on – I don’t think that’s right. If you go a step back and you see the underlying cause for their frustration, that wasn’t right either.
It is clear that he thinks that the two sides have moved into their corners and that the moderate elements who might compromise have lost their power to the more radical elements of either party.
The good news is however that he doesn’t think the US will default but with markets expecting a resolution this week to the political impasse before Friday’s deadline if Blankfein is right there could be more pain before a solution.
Currency, bond and stock markets will all be holding their breath.
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