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Lloyd Blankfein sees "bubble parts" in markets due to "free" cash

Former Goldman Sachs CEO Lloyd Blankfein sees speculative elements in all stocks and bonds markets.

Blankfein, a billionaire who served as Goldman CEO from 2006 to 2018, said Thursday in CNBC's "Squawk Box" that low interest rates essentially create free money for large institutional investors. After keeping interest rates low for years following the 2008 financial crisis, the US Federal Reserve said last month it would maintain a zero interest rate policy to help the economy recover from the coronavirus pandemic.

"Money is near a free commodity," said Blankfein. "And when something is free, you tend not to cultivate it, but to overuse it as if it were a free good."

Blankfein answered a question from CNBC's Joe Kernen, who asked if he saw "red flags" in the markets. Despite a pandemic that has slowed global economic growth and forced more than 30 million Americans to apply for unemployment benefits, U.S. stock indices are still near all-time highs. The market rebounded sharply after central banks and lawmakers sparked a spate of support for markets, households and businesses.

"Laundering money clearly creates bubble elements," said Blankfein. "You look at SPACs and how much money is available based on a person's reputation as opposed to a business plan."

Special-purpose acquisition firms, also known as SPACs or blank check firms, have helped bring smaller, sometimes speculative, companies public. SPACs have raised more than $ 33 billion so far this year, beating traditional IPOs for two consecutive months.

The risk could also be mispriced in the credit markets, said Blankfein.

"People lend what has historically been viewed as bad credit for very little money," he said. "People are lending 80 basis points to the US Treasury Department for today, but for a long time 60 basis points for 10 years, as if inflation would never come back."

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