Lloyd Blankfein sees `bubble elements’ in markets thanks to ‘free’ money

Former Goldman Sachs CEO Lloyd Blankfein sees speculative elements across markets for stocks and bonds.

Blankfein, a billionaire who served as Goldman’s CEO from 2006 to 2018, said Thursday on Squawk Box that low interest rates were essentially creating free money for big institutional investors. After keeping rates low for years after the 2008 financial crisis, the Federal Reserve said last month it would maintain a zero-rate policy to help the economy recover from the coronavirus pandemic.

“Money is close to a free commodity,” Blankfein said. “And when something is free, you tend not to husband it, you tend to overuse it like it’s a free good.”

Blankfein was responding to a question from CNBC’s Joe Kernen, who asked if he saw “red flags” in markets. Despite a pandemic that has slammed the brakes on global economic growth and forced more than 30 million Americans to seek unemployment benefits, U.S. equity indexes are still near all-time highs. The market rebounded strongly after central banks and lawmakers unleashed a torrent of support for markets, households and businesses.

“The wash of money is clearly creating bubble elements,” Blankfein said. “You look at SPACs, and how much money is available on the basis of someone’s reputation, as opposed to a business plan.”

Special purpose acquisition companies, also known as SPACs or “blank-check companies, have helped smaller, sometimes speculative companies become publicly traded. SPACs have raised more than $33 billion so far this year, outpacing traditional IPOs for two straight months.

Risk may also be mis-priced in credit markets, Blankfein said.

“People are lending to what historically have been viewed as weak credits for very little money,” he said. “People are lending to the U.S. Treasury for today, 80 basis points , but for a long time for 60 basis points for 10 years, as if there would never be inflation again.”