David Solomon was interviewed last week by FedEx founder Fred Smith at the American Energy Security Summit. Up front, Solomon expressed gratitude that Smith, one of the great all-time American entrepreneurs, was interviewing him.
Solomon's reverence speaks to the importance of investment banks like Goldman Sachs. They do the herculean work of matching visionaries like Smith with always difficult to attain capital. It’s said here over and over again, but investment banking is the most important profession in the world. Without capital, the ideas of courageous individuals never get past the idea stage.
Which brings up the one substantial quibble with Solomon. Commenting on rising rates of interest from the Fed, Solomon observed that most would have expected recession. Solomon suggested that it might have been government spending that kept the economy afloat.
Except that as Solomon would surely attest, the reason Goldman’s investment bankers are properly paid so well is because there’s realistically no such thing as “costless” or “easy” capital from the Fed. Brilliant ideas are generally only brilliant after the fact, which is just a reminder that in Solomon’s world, capital is always difficult to attain.
Furthermore, Goldman is entrusted with many billions to allocate not because it’s a poor steward of capital, but because it’s not. GS shows why government spending is always an economic somnolent. If government spent substantially less, GS and other financial intermediaries like it would have trillions more to put to work in market-disciplined fashion over the government’s information-bereft, politicized approach.
Despite the quibble, Solomon was still a great interview. As the head of Goldman, he travels the world. He relayed to conference attendees that those with wealth the world over are endlessly trying to exchange it for dollars. No doubt the dollar has demerits, Solomon acknowledged as much in his optimistic assessment of private money, but for now it’s the world’s currency.
Equally appealing was Solomon’s corollary to the above. Not only do the world’s producers want to store their wealth in dollars, they want their kids to attend U.S. universities. No doubt. It’s a nudge for pessimistic Americans to dial down their manufactured misery. One way to do it is to look at the U.S. through the eyes of those not lucky enough to live here. They want to. What a powerful market signal.
When asked by Smith to project into the future, Solomon said he’s “hugely bullish.” He’s not talking the proverbial GS book in that he acknowledges there could be challenges along the way, but he’s saying that the long-term for the U.S. is positive. Which is true. It’s so easy to get caught up in the negative, but Solomon’s stance is that the U.S. has great capital markets that routinely finance the brilliant minds within it.
His optimism carries over to his stance on private money. Solomon believes cryptocurrencies will enable improved movement of money sans friction to all of our betterment, plus it gives us a way to work around monopoly control of fiat money by governments.
At the same time, he reminded attendees that other than in the 1970s (he should have added the 2000s), it’s rare that gold and oil (private money errantly seen by some as a proxy for gold) outperform equities. Solomon said that given the choice between Bitcoin and stocks, he’d rather be in stocks given his bullish view of the future. Good. People drive progress, and Solomon is speculating that there are many more Fred Smith types who have yet to make their mark.
In which case, let's imagine how many more Fred Smiths that Goldman could finance if the footprint of government were quite a bit smaller. Solomon's optimism is infectious, which is why it's worth hoping that he can be moved to a constitutionally-limited government view of the world. What a world it would be.