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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. With that question, this

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Speaker 1: is the interview of the day for Global at Wall Street. Paul,

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Speaker 1: can I dare say it's the interview of the month.

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Speaker 1: I'll go with that. We'll go with that. Gary Gensler

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Speaker 1: has a sterling effort of hard work and academic excellence

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Speaker 1: across his career, spanning from a look at media and

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Speaker 1: mergers and acquisitions with Golden Sachs onto his public service,

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Speaker 1: wearing numerous hats for the United States of America, recently

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Speaker 1: a chairman of the Securities and Exchange Commission, and he

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Speaker 1: joins us in studio. Thank you for joining Bloomberg.

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Speaker 2: Today, Tom Paul, It's wonderful to be with you. You're

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Speaker 2: a little exaggerating about me, but I'll take it.

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Speaker 1: We'll take it.

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Speaker 3: Well.

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Speaker 1: We do that as we can. You have the privilege

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Speaker 1: of a podcast with one of my favorite people. Simon Johnson,

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Speaker 1: was my book of the summer two thousand and eight,

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Speaker 1: two nine, and his little monograph thirteen Bankers, It's distilled

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Speaker 1: your chaos. It was your fault. We had the credit

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Speaker 1: of seven and Simon Johnson, Lobel laureate did it. Here

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Speaker 1: is Simon Johnson in thirteen Bankers, and I will take

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Speaker 1: credit for really making this public the SEC Final Rule

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Speaker 1: Alternative net Capital Requirements for Broker Dealers August twenty, two

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Speaker 1: thousand and four, And three years later, that third week

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Speaker 1: of August oh seven, libor Ois went out four standard deviations.

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Speaker 1: Are we doing it again with private credit? Look?

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Speaker 2: I won thank you so much, and it's wonderful to

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Speaker 2: be partnered up with Simon Johnson on our new podcast,

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Speaker 2: Power and Consequences. A little audacious because in the world

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Speaker 2: of economic minstrels, do we need another two folks you know,

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Speaker 2: out there doing podcasts. But we're going to have some

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Speaker 2: fun with it and speak about that. Look, in terms

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Speaker 2: of private credit, I think that it's there's some risks there,

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Speaker 2: but it's a small part of our overall capital markets.

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Speaker 2: Don't us capital markets what one hundred and fifty trillion

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Speaker 2: or so, and this is a two trillion dollar corner.

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Speaker 2: But there are some risk and I'm sure we'll get

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Speaker 2: into it, particularly because they've offered to retail investors, high

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Speaker 2: net worth individuals what's called the wealth channel, to be

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Speaker 2: part of this, and the wealth channel is turning on it.

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Speaker 2: They're saying we don't want to. We don't want to

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Speaker 2: be in here as much can we redeem out? And

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Speaker 2: that's a little hard.

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Speaker 1: How do you respond to people that blame you as

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Speaker 1: SEC chairman for opening up the door to this retail

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Speaker 1: investment in esoteric things like bigcoin and others. But also, Paul,

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Speaker 1: how would you phrase it a liquid private credit or

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Speaker 1: less liquature? They blame Gary gainst the chairman, Gainstler, it's

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Speaker 1: your fault. How do you respond to that?

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Speaker 2: That's a new one. I hadn't heard that top.

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Speaker 1: It's in the Zeist's Chunseler and Biden. Let this happen.

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Speaker 2: I repond, I firms, alternative asset managers and private equity

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Speaker 2: and private credit and hedge funds, real estate and so

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Speaker 2: forth have been around, you know, really for fifty years

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Speaker 2: in the direct lending space. That started in two thousand

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Speaker 2: and eight to twenty twelve. Mark Rowan started Apollo, Steve

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Speaker 2: Schwartzman with Blackstone. They were building big engines, and it

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Speaker 2: was already probably when I got there, at least approaching

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Speaker 2: a trillion dollars. So I just think that that that

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Speaker 2: was something that was.

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Speaker 1: Already was it? You haven't your four oh one k right.

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Speaker 1: Of course.

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Speaker 3: One of the things I noticed, Rob is when we

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Speaker 3: do go out and talk to registered investment advisors, and

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Speaker 3: we do that a lot of Bloomberg Radio, we go

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Speaker 3: out to our sponsors. I'm shocked at the ras at

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Speaker 3: the allocation to alternative investments. I would have thought it

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Speaker 3: was five percent. They're talking twenty thirty forty percent. They're

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Speaker 3: talking like they're in an endowment.

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Speaker 2: Look, I think that's where we have the risk. It's

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Speaker 2: a structural risk. Alternative asset managers, private credit amongst them,

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Speaker 2: are bringing in institutions, sovereign wealth funds like insurance companies,

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Speaker 2: and then about a third of private credit the investors

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Speaker 2: are everyday investors. Lloyd Blankfind said it well. He was

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Speaker 2: asked recently about it. He says, I don't care why

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Speaker 2: they're doing this. When this goes down the institutions Washington, No,

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Speaker 2: I don't care about but when it goes down for

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Speaker 2: private individuals, it's going to be bad.

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Speaker 1: If you said, with the celebration of mister Blankfind's book,

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Speaker 1: how many book parties does he having? You ben to them? All? Right?

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Speaker 2: No, But Lloyd and I we were at Going and Sachson,

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Speaker 2: we were honored to make partner together. So he's a

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Speaker 2: very clever and funny individual.

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Speaker 3: So I just preferred to Garry as Rob. You know

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Speaker 3: why I did that. His twin brothers Robin, that's the right.

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Speaker 3: He's a buddy of.

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Speaker 2: Marketing, my identical twin brother Rob.

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Speaker 3: Yes, Price's he's the guest across.

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Speaker 1: America with this Garry Gunsel, the former chairman of the

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Speaker 1: SEC and celebration of his podcast with the Laureate Simon Johnson.

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Speaker 1: It's Sloan Paul Sween.

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Speaker 3: So Gary, the investors have been dealing over the last

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Speaker 3: three four weeks with all the issues going on in rants,

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Speaker 3: whipping around energy markets, whipping around all kinds of risk markets.

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Speaker 3: How do you view that when you talk to investors,

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Speaker 3: I'm sure they come up to you and say, what

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Speaker 3: do I do here? Because it's so much stuff I

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Speaker 3: don't understand.

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Speaker 2: Perhaps, look, it's it's multiple shocks. It's shocked to the

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Speaker 2: energy markets, as we know. And I would look in

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Speaker 2: energy markets not at the current price. I'd look at

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Speaker 2: this September and December prices for both oil and for

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Speaker 2: natural gas. I'd look at fertilizer pricing and right now

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Speaker 2: probably we're going to have higher prices for agriculture in

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Speaker 2: the fall because the fertilizer pricing has gone up doubled

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Speaker 2: in the last few weeks and this is spring planting time.

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Speaker 2: I think it's also is going to hollow out some

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Speaker 2: of our longer term growth. Like we've remarkably resilient economy.

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Speaker 2: Jason Furman just wrote about this in the New York Times,

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Speaker 2: but I do think that our longer term growth rate

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Speaker 2: is now clinked down a little bit more. And so

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Speaker 2: i'd be worried about multiples in the equity markets when

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Speaker 2: you have lower growth.

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Speaker 3: If you're at if you were back at the SEC,

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Speaker 3: what would be your primary issue worry to do item?

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Speaker 2: Maybe, so I would be getting the team together and say,

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Speaker 2: what do we know and can you pulse the various

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Speaker 2: large banks, the JP Morgans and Goldman's about what's called

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Speaker 2: prime brokerage where they have trillions of dollars loaned out

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Speaker 2: to hedge funds. And then also i'd ask the bank regulators,

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Speaker 2: how does it look about their loans to private credit.

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Speaker 2: We recently saw JP Morgan remarking those loans to private credit.

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Speaker 2: I'd want those interconnections to prime brokerage hedge funds and

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Speaker 2: the banks to the private credit space.

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Speaker 1: Tell me about the hedging risk here I brought up

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Speaker 1: the last couple of days, and all of this works

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Speaker 1: off At New York University, Professor Roman Friedman has been wonderful.

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Speaker 1: There's a hedging and Greenspan would speak about this and

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Speaker 1: celebration folks of his one hundredth birthday. We have hedging.

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Speaker 1: There's a price to hedging always and then oops, things

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Speaker 1: go bad and within a hedge or out there a

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Speaker 1: rehdge or dariusay out again, what is our risk right

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Speaker 1: now of there's a point where you have to rehdge,

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Speaker 1: you have to restructure all these derivative instruments.

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Speaker 2: Well, that is always a risk, particularly if a firm fails,

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Speaker 2: and that's what we would look at when I was

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Speaker 2: at US Treasury many years ago and long term capital

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Speaker 2: management failed. So everybody has to rehatch. So when there's

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Speaker 2: breakage in the system, it's as you just said, the

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Speaker 2: rehadch for the listeners. A bank is counting on its

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Speaker 2: counterparty to be there tomorrow. But when the counterparty disappears,

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Speaker 2: then they have to take that whole position right and rehadge.

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Speaker 1: The certitude of the street. Gary Gunsler, is we fix

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Speaker 1: this in seven eight the big banks are not exposed,

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Speaker 1: but then they're the others. What are the shadows of

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Speaker 1: the others that you're focused on.

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Speaker 2: I do think that the big banks have better capital position,

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Speaker 2: are more resilient twenty twenty six than two thousand and seven.

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Speaker 2: But I do look at the significant leverage that's the

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Speaker 2: borrowing in the hedge fund community, and yes, the interconnection

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Speaker 2: between the banks and the alternative investors of the private

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Speaker 2: credit space. And now back to just private credit, we

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Speaker 2: or going to see some disruptions. I mean, AI is

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Speaker 2: changing the world right now right, and if it's a

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Speaker 2: fast change, that means valuations are going to change a lot.

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Speaker 2: This is like a Barbell economy. If AI goes really well,

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Speaker 2: that means some valuations, whether it's in software other fields,

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Speaker 2: have to decline.

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Speaker 1: Crypto.

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Speaker 3: Have we gained more any clarity on who is regulating it,

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Speaker 3: who should regulate it, to what degree should be regulated?

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Speaker 3: Where are we on net?

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Speaker 2: I think those are going to be questions that you'll

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Speaker 2: have for my honored successor, Paul Atkins and others. But

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Speaker 2: the American public, you know, they seem to be even

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Speaker 2: more focused on prediction markets than crypto right now. So

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Speaker 2: the investing public, I'm not saying they've moved on, but

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Speaker 2: there's been a new darling at this little casino.

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Speaker 3: One of our colleagues of Bloomberg Television was just interviewing

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Speaker 3: the CEO one of these prediction markets and adamant that

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Speaker 3: it is not gambling.

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Speaker 2: Okay, yeah, there's no gambling in this town.

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Speaker 1: Right, No come out, And I'm not going to blame

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Speaker 1: this on you, but I'm sorry, there's this huge thing

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Speaker 1: I gotta make some news this morning. Do you look

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Speaker 1: at these prediction markets as gambling, mister Gensler.

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Speaker 2: What parts of it are?

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Speaker 1: Sure?

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Speaker 2: Look, there's parts of it that is just hedging economic risk.

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Speaker 2: But now you go all the way over to the

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Speaker 2: sports world, and the sports world that's just gaming.

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Speaker 1: It is. I'm going to go mental here. Raphael Hour

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Speaker 1: at the Bank of International Settlements has written the smartest

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Speaker 1: stuff I've seen on a broader statement of bitcoin. They

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Speaker 1: did a paper, eight single sentence, single spaces, eight pages

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Speaker 1: of detail on the speculation within these markets. I mean

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Speaker 1: it's basically a casino like people voting against Duke and basketball.

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Speaker 1: I don't see Penn in the did you see the

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Speaker 1: University of Pennsylvania in the bracket? Wait?

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Speaker 2: Wait, wait, that's my all my mind? Are you eating Yaleen?

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Speaker 1: Did you see this? I saw them? Are you in

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Speaker 1: the second or third row at the game?

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Speaker 2: I don't want to give that up, Tom, But look,

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Speaker 2: I mean, investors can be taking a bet on things,

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Speaker 2: even when they're betting on an individual stock. But there

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Speaker 2: are parts of the prediction markets, and they're parts of

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Speaker 2: the cryptocurrency markets that are just pure, pure speculation. And

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Speaker 2: so you know, how do we protect the investing public

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Speaker 2: in those worlds? How do we protect the investment public

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Speaker 2: and prediction markets or in the cryptocurrency markets? And importantly,

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Speaker 2: how do we protect the integrity of the underlying the elections?

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Speaker 2: How do we protect the integrity that government actors aren't

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Speaker 2: leaking information so that you can make a bet in prediction?

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Speaker 1: Mark? Okay, So Lexus's great grandmother took bitcoin from thirty

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Speaker 1: thousand up to one hundred and ten thousand.

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Speaker 2: Your great grandmother, I love that.

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Speaker 1: About three years old, Gary, Come on, we've gone from

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Speaker 1: one hundred and ten thousand whatever on bitdog back down

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Speaker 1: to where are we seventy four thousand today? Should should

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Speaker 1: four one case, should Ira Should Grandma's be playing with

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Speaker 1: these fancy things where we question.

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Speaker 2: The underlying Look, we we let the investing public invest.

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Speaker 2: We're merit neutral. That's our system. I believe that's a

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Speaker 2: good system. However, we sort of have to have transparency.

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Speaker 2: We have to have market integrity, right, and we have

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Speaker 2: to make sure that people protect those investors that they're

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Speaker 2: not getting picked off.

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Speaker 1: Okay, Paul wants to jump in. I got one more question.

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Speaker 1: I'm going to shut up, Gary Gensel. You mentioned transparency.

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Speaker 1: How should we mark the market private credit? I mean,

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Speaker 1: is it by appointment? I mean, help me here.

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Speaker 2: That's the challenge at this If it were just a

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Speaker 2: pure institutional market, it was some sovereign wealth run from

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Speaker 2: Katar investing in private credit. And by the way, that

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Speaker 2: might also change the valuations. What's happening in Iran could

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Speaker 2: be a little less money from sovereign wealth funds. But

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Speaker 2: your question, I think it's hard when you have the

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Speaker 2: general investing public and as you said in four to one,

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Speaker 2: K's or rias and I think that's a very challenging

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Speaker 2: and I would say problematic part of this private credit space.

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Speaker 3: Bloomberg News has had a good story yesterday about quarterly

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Speaker 3: reporting for financial results for public companies. Europe and other

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Speaker 3: parts of the world do it twice a year. We

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Speaker 3: do a quarterly. What's your view there.

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Speaker 2: I'm very clear on this. I think it's one of

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Speaker 2: the parts of the US capital exceptionalism, our capital market

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Speaker 2: since nineteen thirty nine. The New York Stock Exchange put

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Speaker 2: this in the nineteen thirties. And you're saying, not everything

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Speaker 2: in the nineteen thirties, mister Genzer is good. This is good.

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Speaker 2: And yes, it's a little bit for the c suite. Yeah,

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Speaker 2: is it a little bit of friction? Is it a

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Speaker 2: little bit like, oh, I have to meet with the analysts,

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Speaker 2: I have to hear Tom Keane talk about my company.

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Speaker 2: But overall, it creates so much public good. It helps

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Speaker 2: our economy, it helps investors, it helps the media. It does.

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Speaker 2: But it's really an important piece. I wouldn't want to

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Speaker 2: give that up.

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Speaker 3: Yeah, you know, it's a former self side equity researchannel,

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Speaker 3: so it was four times a year you had to

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Speaker 3: gear up up. But arguably that is a backlone. The

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Speaker 3: transparency one of the reasons that our capital markets are

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Speaker 3: as deep as they are.

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Speaker 1: You did media years ago.

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Speaker 2: Right, Yeah, I advise the companies. Yeah, so I helped.

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Speaker 2: I helped media companies buy and sell each other, the

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Speaker 2: big newspaper companies, the new houses, the Yes.

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Speaker 1: Okay, so ZEVs loves Pocket and seven hundred million office

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Speaker 1: transaction Sweeney's expert on as I'm the dumbest one in

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Speaker 1: the room, your thoughts here on the media roll up,

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Speaker 1: in the politics of it, the idea of the White

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Speaker 1: House directly involved, mister Atkins, I don't think is weighed

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Speaker 1: in on this, which is I know you don't want

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Speaker 1: to comment on that, but but just your Gary Gonsler

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Speaker 1: media thoughts on our media roll up.

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Speaker 2: I think it's we were in a better system and

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Speaker 2: a better rule of law when these decisions were not

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Speaker 2: made and the White House. They were made at a

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Speaker 2: federal communications commission. If they're made at all. A lot

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Speaker 2: of buying and selling of newspapers aren't done at the

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Speaker 2: federal level. Buying and selling of radio stations technically are,

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Speaker 2: but they're really done away from that. I think that's

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Speaker 2: a much better way, and you have rules of the

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Speaker 2: road and you stick to them. The idea of a

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Speaker 2: White House picking winners and losers, that's not good for

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Speaker 2: the rule of law nor for our economy.

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Speaker 3: One of the when President Trump his second term began,

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Speaker 3: one of the themes was, boy, this is going to

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Speaker 3: be really good for the financial services industry writ large,

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Speaker 3: maybe taking down some of the regulatory risk, maybe allowing

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Speaker 3: some consolidation of.

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Speaker 2: Region, lowering, lowering taxes on the company.

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Speaker 3: Since actually, how do you view the regulatory overview of

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Speaker 3: the financial services industry today? Does anything need changes that

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Speaker 3: need to be losing tightened?

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Speaker 2: Look, there's an EBB and flow. Elections have consequences, as

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Speaker 2: they should, and so there's that EBB and flow. I

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Speaker 2: more am concerned. And the longer term that as the

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Speaker 2: US has stepped back from our leadership around the globe,

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Speaker 2: that our capital markets stay the sweet spot that everybody

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Speaker 2: wants to be at.

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Speaker 1: Gary Guesser, one final question here before we let you

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Speaker 1: start your morning here in Manhattan. You have so much

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Speaker 1: experience at this You've seen the good in the bad.

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Speaker 1: We had Disney with a succession yesterday two days ago.

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Speaker 1: How do you do executive succession correctly? With all that

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Speaker 1: you've you know, Goldman Section others frankly at the SEC,

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Speaker 1: how do you do executive succession? Look? Correctly.

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Speaker 2: Look, it's hard. Simon Johnson and I just started this podcast,

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Speaker 2: Power and Consequences. We don't know who would step in

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Speaker 2: behind Simon or May is just a small little podcast.

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Speaker 2: But when you're at a big company, you really have

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Speaker 2: to have succession planning. And Tom, you're terrific at the show.

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Speaker 2: You have to have succession planning, even for this show,

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Speaker 2: and that's a responsibility you have to your shareholders and

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Speaker 2: to have that set up. But then it's hard because

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Speaker 2: some of the most talented c suiteters don't want to

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Speaker 2: stick around. You know, Jamie Diamond terrific run that firm

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Speaker 2: for a long time. Well you've seen loads of really

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Speaker 2: good folks in his senior suite say no, I'm going

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Speaker 2: to I want that opportunity in my mid fifties to

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Speaker 2: go run something. So that's but you have to start

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Speaker 2: with that. The board of directors also has to be

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Speaker 2: very involved, and so we need this succession.

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Speaker 1: Should we have more people writing an annual note like

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Speaker 1: mister Diamond, I have a very strong feeling or we should.

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Speaker 2: But let me ask you, well, look you bofeed Jamie

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Speaker 2: right now, I hear.

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Speaker 1: To see also this managed pr event with forty seven

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Speaker 1: people around a massaging paragraph message. It's blowney. We need

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Speaker 1: it's better to know what they think.

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Speaker 2: And they're using AI now so sometimes as messages or

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Speaker 2: AI slop too.

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Speaker 1: But do I got AI in your class? T Oh,

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Speaker 1: good question.

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Speaker 2: Oh it's everywhere, Tom. The students are using it and

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Speaker 2: and I don't use it to grade students, but I

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Speaker 2: do use artificial intelligence to do research, to challenge to

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Speaker 2: to to uh so, So I don't think you can

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Speaker 2: say in a classroom, oh oh, we're going to ban it.

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Speaker 1: No.

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Speaker 2: This is the calculator came along when I was a kid.

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Speaker 2: We use it. The Internet came along, we use Here's

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Speaker 2: the thing, students, if you're listening, you have to command it.

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Speaker 2: You have to challenge it. Don't let AI command you.

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Speaker 2: Uh you you you have to stay ahead of that.

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Speaker 2: I call it the AI bear will get you unless

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Speaker 2: you really run faster and challenge.

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Speaker 1: The anal final question YEP the time final final final

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Speaker 1: question with Gary Gensler. Are we going to see an

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Speaker 1: AI roll up? There's just too many smart people running

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Speaker 1: around not making money. Axios was brilliant on this yesterday.

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Speaker 1: Are we going to see an AI roll up?

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Speaker 2: I think it's gonna. It is a field while you

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Speaker 2: see winner take most, meaning there's going to be one

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Speaker 2: to two big Michael Mobson models in the US and

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Speaker 2: one to two big Consequence models in China. I'd be

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Speaker 2: worried about China because China is doing more and open

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Speaker 2: weight open We're going to have wide distribution of this

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Speaker 2: and dispersion of this. So my eye on the geopolitical

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Speaker 2: thing is do never count China out.

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Speaker 1: One final, final, final, final question. Is Rubinstein doing okay

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Speaker 1: with the Orioles, I mean bringing in Alonzo and all.

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Speaker 2: I don't have a view of that. No, David's had

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Speaker 2: a lot of fun with the Orioles.

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Speaker 1: I know that he sits down front. You look at

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Speaker 1: the game and he's down front of the cheap scenes.

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Speaker 3: I'll tell you there, Blucark stands the test of time.

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Speaker 2: Still, there is David who's run a big alternative asset

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Speaker 2: management firm, Carlisle. He hasn't sort of been as troubled

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Speaker 2: in that private credit space. He has the earls. He

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Speaker 2: has kind of this version of a podcast where he

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Speaker 2: does his interviewers, I mean talk about and he served

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Speaker 2: in the American public. He served the public, So there's

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Speaker 2: a there's a David if you're listening, a kind of

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Speaker 2: hot tip to you. You're like a savant.

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Speaker 1: Yeah, people are saying Tom, put a cork in it.

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Speaker 1: Gary Gensler, thank you so much, the former chairman the

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Speaker 1: Securities Exchange Commission, a great supporter of all we do

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Speaker 1: here at Bloomberg, Surveyance and of course podcasts. Look for

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Speaker 1: it with the Lord Simon Johnson out of M I T.

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Speaker 1: I'll put that out on LinkedIn and Twitter