* Blankfein says Libor scandal hurts public trust
* Tells economic group fiscal cliff must be resolved
By Emily Stephenson
July 18 The unfolding scandal involving global
banks' attempts to manipulate benchmark interest rates
undermines the financial system by chipping away at public
trust, Goldman Sachs Chief Executive Lloyd Blankfein said
Blankfein said financial scandals like the one surrounding
the London Interbank Offered Rate, or Libor, create uncertainty
that only builds on the American public's mistrust of the
industry after the 2007-2009 financial crisis.
"The biggest impact is once more undermining the integrity
of a system that is already undermined substantially," Blankfein
said, speaking before the Economic Club of Washington. "There
was this huge hole to dig out of in terms of getting the trust
back, and now it's just that much deeper."
Goldman Sachs was not involved in setting Libor, which is
based on daily lending rates reported by some global banks. But
during the financial crisis, Goldman Sachs and its chief became
public symbols of greed on Wall Street.
The Libor scandal, in which Barclays paid $453
million to settle allegations it reported false lending rates in
an attempt to influence the index, has stirred up frustration
with the financial industry and with regulators in Washington.
Officials say more banks may have tried to fiddle with the
index, which is the basis for interest rates on many consumer
loans, such as mortgages. Submitting false lending rates could
allow a bank to make profits or hide weakness but also could
artificially influence rates for borrowers.
Blankfein said uncertainty as a result of scandals, as well
as fiscal policy decisions facing the U.S. Congress, can make
business more difficult.
He said debates in Congress over whether to extend expiring
tax cuts and prevent sharp spending cuts before the end of the
year, the so-called "fiscal cliff," need to be resolved.
Blankfein declined to spell out his preferences for how to
settle the standoff but said compromise is needed so that U.S.
policy is not reversed every time a new party wins the majority.
He said decisions such as tax rates can always be adjusted later
as circumstances change.
"I would almost capitulate to either side rather than have
these things go on," Blankfein said. "Everyone comes out ahead
if there is a resolution."