Goldman Sachs Chairman on Why Finance Adopts AI Differently | a16z

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anybody who's investing, you know,

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you're doing two things. You're trying

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to make money for yourselves and your

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clients, and so you're trying to get out

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there and take risk, and you're also

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trying to be a risk manager, and you

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have to do both.

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>> I think it was your quote there. It's

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like, if you're so good at predicting

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the future, tell me what's going to

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happen next.

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>> Once the present turns into the past,

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everybody's a genius. Most of what we do

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with respect to risk is not so much

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predicting, it's a lot of contingency

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planning.

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>> We are on the precipice of some of the

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largest IPOs ever. What are risks that

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you think are underappreciated? Before

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this technological age, not just AI, but

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in general, could you have had a mistake

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that could cost billions of dollars? Um,

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not really. But now you can leave a a

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piece of software could go out and do

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70,000 transactions. The leverage in

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these things is themselves a problem.

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Not because it's smarter than us and

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it's going to turn us into pets, but

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because we don't have the ability to

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test whether it's right or not.

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Your tweet, by the way, about the White

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House Correspondent Center was amazing.

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Uh, I think for for the good of like the

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timeline, we need you back on on Twitter

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more often.

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>> I know. You know what it's a funny thing

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is I You would think that um you see

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something and you're activated to tweet

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about it. It me I said, "Oh, gee, I

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haven't tweeted for a long time. Let me

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find something to tweet about." That's

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more and also being in the risk

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management business I always know that

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everybody keeps doing that and

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eventually you get cancelled because you

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do you know you do something you step

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over some invisible line that you you

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know that nobody knew about and so I

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realized that from a riskreward point of

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view it's all ego and no no real value

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other than that but that was saying you

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know when you retired you your grasp its

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draws

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>> why not I mean it was like 10 million

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views later or something I went to I

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remember when I was um doing it what's

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his name from uh

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You know, I got this I said to you know

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when I retired no unrestrained uh no I I

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am I am freed from the restraints that I

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had because I started you know I did

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this at Goldman

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>> and I realized that I was um you know

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playing a dangerous game because I was

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being snarky with the president and I

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had all those back and forths

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>> totally

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>> with um Sanders and Elizabeth Warren.

2:12

The the other thing I was curious to ask

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you, you know, you're obviously like

2:14

famous for being come under pressure and

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a risk a risk manager, but it was

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reported that you you know what like

2:20

during the active shooter, like you lean

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over to the person next to you, you're

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like, you're going to you're going to

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finish that that salad. Is that was that

2:25

a real

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>> No, that was Yeah, that was real. But I

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but it wasn't, you know, it wasn't like

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I was I was hungry. I So every you know,

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I always used

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in in moments of crisis like that, I

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always tried to be disarming.

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>> Sure. And you know, everybody was and

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and by the way, it was very sensible to

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duck down under the desk. I mean, it was

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a line, you know, realized we were

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pretty close up and I was just it wasn't

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it wasn't that thoughtful on my part. It

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was just that I was like it was like it

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was like being in a movie and I was like

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enjoying watching it. Totally. And you

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had all these um guys who were wearing

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tuxedos. Suddenly they had little, you

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know, they had uh they had pistols in

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their hand and there were guys in full

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tactically and they all ran in and they

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all s you know they all were on the

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stage with with their guns facing

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outward of course because that's where

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the threat would have come from. Then I

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you know suddenly you know guy tugs at

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my you know leg and he said you know you

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really should get down. And I said

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you're really right. I said you know

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this is like like when I get into an

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airplane this is one this is another

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time that I'm glad I'm short. Um, but I

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was uh watching it and then and then I

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saw what everybody was doing and know I

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didn't see a lot of panic. I didn't see

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any panic really the people under this

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which was a sensible thing to do. Yeah.

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But again to break the moment I looked

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down and they said by the way are you

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going to finish your uh are you going to

3:38

finish your are you going to finish your

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salad? And as I said it was, you know,

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it was kind of a you know it was kind of

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funny at the time.

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>> Ice in the veins you know I don't know.

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Well, were were you always even killed

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like as a as a kid or

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>> Yes, I was. You know, in somebody said

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go Gleman, you know, you're very good in

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a crisis and uh and and and that's why

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you go out of your way to create them.

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So, just so you can give you an

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opportunity to be good in a crisis. And

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I would say that my normal resting

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um you know, my resting state is to not

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be resting. So, I tend to be a little

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bit wound all the time, but I don't get

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especially wound. In fact, things slow

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down for me.

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>> I'm used to seeing things uh like that.

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They're in slow motion, and I become

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very sensitive to what the people around

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me are thinking and trying to, you know,

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get them uh most of the time like at

4:28

Goldman and and in most most of life in

4:32

a crisis time, the really important

4:34

thing is just to get people to do their

4:36

jobs and to stop being, you know, stop,

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you know, don't be frozen and don't be

4:40

uh don't submit to the chaos. Do you

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think that was like a nate or was there

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something from your childhood that sort

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of like helped kind of breed that

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temperament?

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>> I don't know. I wouldn't have predicted

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that about myself, but I've now gone

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through, you know, we, you know, going,

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we had the crisis of the century roughly

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every four or five years.

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>> Um, and it's always that way. But, by

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the way, it doesn't mean I like crises

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and I wouldn't go out of my way to

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volunteer to be in one. It's just that

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when it happens, I I I generally have

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confidence that I'm not going to get dis

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that

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I'm not trying to tempt the fates. If

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I'm going to get discombobulated,

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everyone is going to get discombobulated

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before me. That's how I that's how, you

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know, and so I I've done that. And by

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the way, that that taught me a lot

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about, you know, the people that you

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need to rely on because you can't really

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tell,

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>> you know, I mean, not to coin a phrase,

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but you can't tell a book by its color.

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And I, you know, I went through and, you

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know, maybe this is out of sequence, but

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I went through the financial crisis and

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we had, you know, we had people, you

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know, and thinking one in particular who

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was great athlete, terrific guy, real

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man's man, you know,

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>> did rodeos on the weekend and

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>> and he was, you know, terrible. Yep. And

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you know and then here I am the co

5:54

co-president of the firm you know here I

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am trying to teach people how to me and

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you know trying to say you know you have

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to breathe and then there were people

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who didn't look like they could walk up

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a whole flight of stairs

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>> and they were you know really good and

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so you know just people you know you

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just don't know and that's why I mean my

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advice uh you know when you when you

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pick board members

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>> yep

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>> and by this is a very I'm turning

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something that's generic into a very

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narrow things. I I think a good place to

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go is find people who've already gone

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through a crisis because to me, people

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who look like and sound like

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>> they'll get through it. It's not really

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uh I'm not sure how much of a

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correlation there is to the to the to

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the reality of it, but when somebody's

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gone through a crisis, I think that's

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your best bet.

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>> Totally. Well, I I definitely want to

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spend some time on on the financial

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crisis. Obviously, was uh such a

6:42

defining kind of period. Um but maybe to

6:44

go backwards sometime obviously you um

6:47

>> you know, you had a very modest

6:48

upbringing. Um, you know, I was curious

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like, you know, uh, what role did like

6:54

living near New York City or Manhattan

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maybe more specifically play in sort of

6:58

like creating ambition or or for me, you

7:00

know, I didn't grow up in the projects,

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but I grew up very modestly as well. And

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where'd you grow up?

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>> In South San Diego in Chya, like 10

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minutes from Mexico. Mom was public

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school teacher. You know, dad worked in

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retail in Mexico. Uh, very far from, you

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know, Cambridge. And Harvard really

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changed my life, right? Your dad had to

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get through the border to get to Mexico

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every day. They give him a tough time at

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the border.

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>> He had a motorcycle, so it was a little

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bit a little bit easier.

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>> They flew shoes on the other foot.

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>> Exactly. Um, but uh, you know, Harvard

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definitely changed my perspective on

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what's possible. I always say I learned

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more from my peers than I did from my my

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classes. I'm just curious if you had a

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similar experience.

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>> I would say that I I I grew up in the

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uh, you know, with Manhattan looming in

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the distance. I think I probably when I

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was before I went to college, I probably

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went into Manhattan

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>> three times or something like that. And

7:48

I think twice was to the Radio City

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Music Hall Christmas show.

7:51

>> Yep.

7:51

>> And I know once of them was my was an

7:54

interview to go to Harvard.

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>> And that was a big deal. We might as

7:57

well have been

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>> 5,000 miles away from it because, you

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know, I grew up in public housing. It

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was

8:03

>> this won't mean anything to you. It was

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a two fair zone. You had to take you had

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to take a bus to the subway to get to

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the city. Probably took, you know, took

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a long time to get there. I grew up I

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grew up in public housing, Nicha. Um,

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and you know where I think you know and

8:18

there there's a gradation of incomes

8:20

that you can have. There's different

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levels of public housing and I think you

8:23

know my if you made more than $90 a week

8:25

you couldn't live in that in that

8:27

particular building. So

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you know it was um you know since then

8:32

I've met people who walked across

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deserts, people who grew up in war

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zones. So I don't want to compare

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compare stories because a lot of people

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had tougher stories than that. But it

8:41

was um I didn't know a lot and so I I

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didn't have the burden of high

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expectations. And that's a funny way of

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putting it. But I did label the first

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chapter kind of advantages as opposed to

8:53

burdens because I realize now now that

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I'm on the other side of the, you know,

8:57

the other side of the ledger. I

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understand just what a burden high

9:00

expectations can be on people. I did not

9:02

suffer from that.

9:04

>> But I also didn't know what was going on

9:06

in the world.

9:07

>> Sure.

9:07

>> And I'd never traveled. I don't I I had

9:09

never been on an airplane for sure. Um

9:12

so anyway, I you know when I went up to

9:15

you know and I checked into you know I

9:16

saw Harvard was the first time I really

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traveled and my sister took me up.

9:20

>> Um so yeah it was uh it was a bit of a

9:24

more of a culture shock. I went to a

9:25

high school that that was a failing high

9:27

school. I don't think I'd read a book.

9:28

My my board scores I mean I'm a pretty

9:31

verbal person. My my verbal scores were

9:33

very low. My math scores were like

9:35

almost perfect. I think I was got like a

9:38

790.

9:38

>> Yeah.

9:39

>> Uh my you know and I went to I

9:45

>> didn't all my what I was burning to do

9:47

and the only the extent of my ambition

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was to go to an out of town college

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>> and that was it.

9:55

>> Amazing. Um to get out of you know to

9:57

get out of Brooklyn.

9:58

>> Totally. Um,

10:01

you know, maybe just to transition a bit

10:03

to Goldman, um, you one of the things

10:06

I've always found kind of remarkable

10:07

about the firm's history is that, um, it

10:10

wasn't a business built through a series

10:11

of bank mergers.

10:12

>> Right.

10:12

>> Right. Unlike many of its peers, JP

10:14

Morgan, you know, BFA, etc. Um, it was

10:17

really a business, at least from my

10:19

vantage point, you know, built brick by

10:20

brick by kind of generations of

10:22

entrepreneurial partners, you know,

10:23

raising their hands, going off and

10:24

building, you know, Europe or the

10:26

merchant banking business or

10:27

>> right even the retail.

10:28

>> Yeah. that started that you know went in

10:30

a different direction after I left. Y

10:32

that was that was an outgrowth of the

10:33

merchant bank totally nurturing a

10:36

business and then somebody said gee this

10:37

should be you know we shouldn't be just

10:39

a a private equity firm here we should

10:40

be a strategic our own strategic and

10:42

that's how that yes that's how it was

10:44

done

10:44

>> the one notable exception maybe from

10:46

like an inner crow story was was the

10:47

acquisition of Jarn

10:49

>> uh and I know you have your I think the

10:50

45th anniversary you know dinner

10:54

>> um you know I guess did people at the

10:57

time think that they would have such a

10:58

big impact on a firm or or maybe

11:00

>> well I was an acquiry so I I don't know

11:02

what they thought at the time. I

11:03

subsequently found out what they felt

11:04

about it. It was a disaster and it was a

11:06

little bit like uh you know Columbus

11:11

sailing you know trying to find the east

11:12

trying to find the Indies and instead

11:14

finds America. It turned out okay but

11:16

for the wrong but but for different

11:18

reasons. They they they discovered

11:19

something but not what they intended to

11:21

discover. So they ended up getting a bit

11:23

of an entrepreneurial culture that they

11:24

didn't know they were buying. But

11:25

certainly at the time this was in the

11:28

early 80s. It was a moment of great um

11:33

uh in high inflation.

11:34

>> Yeah.

11:35

>> Um that inflation, you know, the manif

11:37

the manifestation was higher commodity

11:39

prices, precious metals. Gold had only

11:42

been recently freed up to to be able to

11:44

be owned by individuals who wrote, "Hey,

11:45

gold had been a we've been on a gold

11:47

standard that that that evolved. It's

11:49

hard to transport back to that time."

11:52

But

11:53

the business of Jay Aron & Company um

11:57

was kind of a sleepy business except it

12:01

erupted in a positive way at the end of

12:03

you know before Vulkar came in and

12:05

clamped down on inflation highly

12:06

inflationary period.

12:08

>> Um and of course the savvy trade street

12:11

guys at J Aaron

12:13

>> extrapolated the value of the firm at

12:15

the peaky peaky part of its thing and

12:18

sold itself to Goldman. Interesting. At

12:20

the same time, DLJ, which was a

12:22

investment bank at that time, bought

12:24

Ackley and Solomon Brothers and Fibro

12:27

got together. So, it was in the air that

12:29

the Wall Street firms needed a commodity

12:32

arm and they uh and Goldman Sachs got uh

12:35

Jarn. Now, Jay Aaron

12:37

>> had a you know, kind of a different

12:39

culture. It was, you know, if to the

12:40

extent that this is kind of law all lost

12:42

now because all these firms have kind of

12:44

blended and you wouldn't know the

12:45

difference. And at the time Goman was

12:48

kind of a an our crowd kind of a firm.

12:50

It was a Jewishy kind of firm.

12:52

>> So was Jay Aaron but very different.

12:54

>> Interesting.

12:54

>> Gleman was so was kind of like um you

12:58

know was kind of a you know the upper

12:59

echelon upper echelon crowd and Jaron

13:01

was more of a kind of a streety guys. Y

13:04

>> Goldman recruited from the Ivy League.

13:06

Yep. and you know people with MBAs and

13:09

Jay Aaron just recruited people and the

13:13

first the entry level job for most of

13:14

the life of Jay Aaron was the best job

13:17

to get was the driver

13:18

>> for one of the uh for one of the

13:20

traitors and literally and it was kind

13:22

of almost like mafia like in a way and

13:24

that's how you rose in the organization

13:26

by that and and I had been I had gone

13:31

through college went to law school took

13:33

myself and my loans into a law firm

13:36

and worked there for about four or five

13:38

years. And like a lot of other people at

13:39

that time, I wasn't doing I was doing

13:41

pretty I was doing well at the law firm,

13:42

but it wasn't necessarily for me in the

13:44

long term like a lot of people. And I

13:46

looked for jobs I knew nothing about. I

13:48

interviewed at a lot being in New York

13:50

what what do you go into when you're

13:52

done with you go to you become a

13:54

consultant or you know go to Wall

13:56

Street. I said I'll go to Wall Street

13:58

give you know there I will I will bestow

14:00

myself on them. They should be so

14:01

grateful to have me. I knew nothing

14:02

about it. And of course I got a job

14:04

nowhere. Yep.

14:05

>> And the only place I got a job or

14:07

including, by the way, Goldman. Yep.

14:09

Where I didn't get a job. And the only

14:11

place that offered me a job was Jay

14:12

Aaron and Company, the small commodity

14:14

trading firm that I had never heard of.

14:16

And they hired me as a a precious metals

14:20

salesperson. And right around that time,

14:22

they were acquired uh at uh by Goldman,

14:25

which is how I got into Goldman.

14:27

>> Amazing. And And was that where you kind

14:29

of learned to be a risk manager? I mean

14:31

that that's like one of your most famous

14:32

kind of qualities but I don't know maybe

14:35

I don't know I don't think much of our

14:37

audience probably has a good

14:38

understanding for what kind of trading

14:40

in the 80s or 90s kind of looked like

14:41

either a jarn or or a

14:43

>> it hasn't shifted you know the the

14:44

vehicles have changed the thing but the

14:46

you know the kind of judgments and the

14:48

perspective that you believe I think

14:50

look you know we were at at Goldman and

14:55

anybody who's doing this business and

14:57

yourselves you know anybody who's

14:59

investing you know you're doing two

15:00

things You're trying to make money for

15:02

yourselves and for your, you know, your

15:04

investors and your clients. And so,

15:05

you're trying to get out there and take

15:06

risk. And you're also trying to be a

15:09

risk manager, which is, you know, you

15:11

look, you know, it's almost like you

15:12

bifrocate yourself and say, are we too I

15:15

know we want to take risk, but let's go

15:16

into risk management mode and let's

15:18

consider, are we diversified enough? Are

15:21

we overly committed to this? Are we

15:22

managing it well? And that's kind of a

15:24

different head that you have to bring.

15:26

Yeah.

15:26

>> So, and you have to do both, you know.

15:29

Um, and by the way, we get challenged on

15:32

both sides. Sometimes things go badly

15:34

and you have to, you know, and people,

15:35

you know, the pleasure pain principles

15:36

work and people don't want to take risk.

15:38

But yes, you we're paid to take risk.

15:40

So, you have to take risk. So, what do

15:41

you want to do? And you have to exhort

15:42

people

15:43

>> and sometimes shame people into taking

15:45

more risk. And sometimes you have to get

15:47

them, okay, we're not talking about what

15:49

risk we want to take. Let's go over our

15:51

portfolio. I'm sure you do portfolio

15:53

risk. and saying where are we overly

15:55

exposed?

15:56

>> Y

15:56

>> what contingency plans would we have if

15:58

X Y or Z or W or G happens?

16:01

>> What can we do today to mitigate the

Goldman Sachs Chairman on Why Finance Adopts AI Differently | a16z

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