WEBVTT - Met CEO and former SEC head Gary Gensler Talks  Semiannual Earnings Reports

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<v Speaker 1>Bloomberg Audio studios, podcasts, radio news. Public companies in the

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<v Speaker 1>US are required to report earnings every quarter, but that

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<v Speaker 1>could change. This week, the US Securities and Exchange Commission

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<v Speaker 1>unveiled a new proposal that would require companies to report

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<v Speaker 1>earnings semi annually, that's just twice a year.

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<v Speaker 2>The current SEC chair, Paul Atkins, said the proposed change

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<v Speaker 2>would quote provide companies with increased regulatory flexibility. Critics say

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<v Speaker 2>less frequent reporting could heighten the risk of insider trading.

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<v Speaker 2>Joining us now on set is a former chair of

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<v Speaker 2>the SEC, Gary Gensler, now professor at MIT and the

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<v Speaker 2>co host of a podcast called Power and Consequences.

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<v Speaker 3>I'll ask you plainly first, is this a good idea?

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<v Speaker 2>Is the move away from quarterly reporting to semi anal

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<v Speaker 2>reporting a good idea?

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<v Speaker 3>No?

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<v Speaker 4>I think this is really a solution in search of

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<v Speaker 4>a problem. I think transparency is really important in our

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<v Speaker 4>capital markets. You just had a report about transparency about UFOs.

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<v Speaker 4>This a little bit different, but we've been doing this

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<v Speaker 4>actually for a very long time, and I think it's

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<v Speaker 4>part of why our American capital markets are so good.

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<v Speaker 5>Investors people watching this show, or.

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<v Speaker 4>The big investors that maybe don't watch one Saturday morning.

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<v Speaker 3>I hope they will.

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<v Speaker 4>They get that information on a quarterly basis and so

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<v Speaker 4>it's more timely. And what studies, economic study after economic

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<v Speaker 4>study has shown that that's a good thing. That creates

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<v Speaker 4>a market environment where you can get a little higher

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<v Speaker 4>price earnings ratio and a little less cost of capital

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<v Speaker 4>because your investor base knows what's going on.

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<v Speaker 2>What do you say to the CEOs who complain that

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<v Speaker 2>this is onerous and too much of their life is

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<v Speaker 2>taken up having to prepare for these earnings releases.

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<v Speaker 3>And earnings schools.

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<v Speaker 1>That was pushing for this, that's my question, wants this?

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<v Speaker 4>Yeah, you know, it's really interesting, like who really is

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<v Speaker 4>looking for this? In President Trump's first term, which we'll

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<v Speaker 4>call Trump forty five, okay, he also called for this,

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<v Speaker 4>and his then SEC chair Jay Clayton, did some public roundtables,

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<v Speaker 4>put out what's called a concept release, and then didn't

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<v Speaker 4>do it. And I think maybe the president, even though

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<v Speaker 4>I think he still likes Jay Clayton.

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<v Speaker 3>He's attorney here in New York.

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<v Speaker 4>He is, he is, but he may have felt a

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<v Speaker 4>little slow walked on that. And Trump forty seven has

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<v Speaker 4>come back and so it's I think the president really

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<v Speaker 4>wants it, but I really don't think the capital markets wanted.

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<v Speaker 1>Does this make insider trading and malfeasan's easier to conceal

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<v Speaker 1>if you don't have to report quite as regularly.

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<v Speaker 5>It's just a little bit easier.

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<v Speaker 4>I want to caution, like every six months putting out

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<v Speaker 4>information means that our markets will be a little bit

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<v Speaker 4>more volatile those earnings releases. And this is a voluntary system.

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<v Speaker 4>So it's interesting what the SEC is saying. They're saying,

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<v Speaker 4>we just want to make flexibility the roots of all

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<v Speaker 4>of this, And there's there's a great study in the

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<v Speaker 4>nineteen sixties. The individual went on to get a Nobel prize,

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<v Speaker 4>George Akaloff, who is Janet Yellen's husband. Yes, Yes, And

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<v Speaker 4>George wrote about the problem with lemons, and he was

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<v Speaker 4>talking about the used car market, and he said, the

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<v Speaker 4>problem is is if you don't have enough information, you

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<v Speaker 4>don't know which cars are the lemons, and thus it

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<v Speaker 4>lowers the pricing of even the good cars. And so

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<v Speaker 4>put that in the stock market. If you let it

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<v Speaker 4>be flexible, the lemons might not report, but you don't

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<v Speaker 4>know who the lemons are, and so it might lower

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<v Speaker 4>the valuation in the overall markets.

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<v Speaker 3>The question about the mechanics of this.

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<v Speaker 2>So we have this proposal, sixty day period in which

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<v Speaker 2>the publican comment. You've lived through many of these, both

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<v Speaker 2>at the CFTC and the SEC. What happens at the

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<v Speaker 2>end of that comment period. Where are we in this process?

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<v Speaker 4>Well, this staff pulls together all the comments, puts together

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<v Speaker 4>a lot of things for the commissioners. There's only three

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<v Speaker 4>Republican commissioners now, and makes a recommendation. Generally speaking, from

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<v Speaker 4>this time to finalizing a rule takes anywhere from eighteen

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<v Speaker 4>to i'd say thirty months, But with the clock ticking

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<v Speaker 4>on the Trump administration, this agency might decide to move

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<v Speaker 4>forward within that timeframe.

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<v Speaker 5>I think it's up to investors.

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<v Speaker 4>I think it's up to listeners of this program to say,

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<v Speaker 4>small investors, large investors, academics, news organizations say no, quarterly.

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<v Speaker 5>Reporting is what we need.

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<v Speaker 4>And then really the key is to some companies, some

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<v Speaker 4>issuers say, you know, we should do this anyway. You know,

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<v Speaker 4>before the SEC actually made it mandatory in nineteen seventy,

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<v Speaker 4>the New York Stock Exchange in nineteen twenty six said

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<v Speaker 4>we should move to quarterly reporting. This is one hundred

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<v Speaker 4>year ago thing, and by the early nineteen fifties ninety

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<v Speaker 4>percent of companies were doing it.

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<v Speaker 1>But to all the points you just made, is this

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<v Speaker 1>a FATA complete or do you think there's room for

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<v Speaker 1>them to change their mind on this decision.

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<v Speaker 4>I think there's a public comment period, and it really

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<v Speaker 4>is important, whether it's the media and especially large companies,

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<v Speaker 4>investors and so forth who might get in the ear

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<v Speaker 4>of this White House.

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<v Speaker 2>Another question about disclosures, and we're going to watch you

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<v Speaker 2>definitely dodge the question that I put to you here,

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<v Speaker 2>but no, hey, I'm gonna get comfortable with We have

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<v Speaker 2>Elon Musk agreeing to a one point five million dollars

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<v Speaker 2>settlement with the SEC over the fact that he didn't

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<v Speaker 2>disclose the position that he'd taken in Twitter before he

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<v Speaker 2>bought the company in a timely fashion that now goes

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<v Speaker 2>before a judge this week, which I gather is customary.

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<v Speaker 2>A judge can say, I want to hear out the

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<v Speaker 2>reasons for coming to this settlement. Your reaction to that,

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<v Speaker 2>I should say, you were at the SEC when this

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<v Speaker 2>issue came about, well.

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<v Speaker 4>And you wanted me to get up and dance because look,

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<v Speaker 4>I ran a civil law enforcement agency, so I can't

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<v Speaker 4>comment on any individual thing that we worked on, but

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<v Speaker 4>it's about transparency and Congress in the nineteen sixties came together.

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<v Speaker 4>There was a Senator Williams from New Jersey, the Williams Act,

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<v Speaker 4>and said we need disclosure about when somebody's accumulating shares

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<v Speaker 4>in a company. If you accumulate over five percent, which

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<v Speaker 4>mister mus did, then you need to report to the

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<v Speaker 4>public that you have some intent to control. And I'm

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<v Speaker 4>proud that when I was Chair of the SEC we

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<v Speaker 4>shorten that time period from ten days to five days,

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<v Speaker 4>because that's really material, non public information that there's somebody accumulating,

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<v Speaker 4>and what happens generally when it's announced the stock pops,

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<v Speaker 4>and so Christina talked about insider trading. What happens in

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<v Speaker 4>those five days until it's announced, and who knows about it,

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<v Speaker 4>which lawyers know about it, what insiders not insiders in

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<v Speaker 4>the company, now insiders in the acquirer.

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<v Speaker 5>So that's a really important thing.

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<v Speaker 4>This is not just a small little traffic violation that

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<v Speaker 4>transparency in the markets really helps the public.

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<v Speaker 1>But how is the enforcement of that? Is it robust

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<v Speaker 1>or is it hard? To enforce a lot of these rules.

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<v Speaker 2>This one in.

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<v Speaker 4>Particular, well, it first comes from a little backbone from

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<v Speaker 4>the administration.

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<v Speaker 5>The cop on the beat matters.

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<v Speaker 4>And if the cop on the beat, like in forests

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<v Speaker 4>and says, and the law on this is not an

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<v Speaker 4>intent law. It's what lawyers call per se. It's just

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<v Speaker 4>like you've gone too long, that's a violation. I don't know,

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<v Speaker 4>it's just sort of straightforward stuff. I want to pivot

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<v Speaker 4>to the summit that's coming up this week.

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<v Speaker 2>President Trump going to Beijing to meet with President she

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<v Speaker 2>We were talking with Ambassador Burns about the work that

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<v Speaker 2>he did laying the groundwork for the three summits that

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<v Speaker 2>President Biden had with the Chinese president. You also were

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<v Speaker 2>involved in these issues when you were at the SEC.

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<v Speaker 2>We have seen over the last few weeks the Chinese

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<v Speaker 2>administration really pushing back on foreign investment in Chinese tech

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<v Speaker 2>companies in particular. Would love to get your sense of

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<v Speaker 2>where things stand. They have been so reliant on Western

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<v Speaker 2>capital for so long. Now is it worrisome? Should it

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<v Speaker 2>be worrisome to capital markets now that we see this

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<v Speaker 2>kind of prohibition in place by the Chinese government.

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<v Speaker 4>I did work closely with Nick, and we worked with

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<v Speaker 4>the Chinese and we successfully got the Chinese to agree

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<v Speaker 4>that their companies here in the US, the Chinese companies

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<v Speaker 4>in the US would comply with our laws. And for

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<v Speaker 4>twenty years previously folks weren't successful. So thank you, Nick Burns.

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<v Speaker 4>We were proud to do that as well. And I

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<v Speaker 4>think that was good. That's good for the US capital

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<v Speaker 4>markets that we kept those companies here because we're like

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<v Speaker 4>half the world's capital markets. And back to our earlier point,

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<v Speaker 4>I don't want to adopt the European approach that capital

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<v Speaker 4>markets has semi annual reporting, it's not as good. But

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<v Speaker 4>in terms of what's happening this week, for those of

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<v Speaker 4>you who don't want to listen to Simon and Johnson

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<v Speaker 4>and I do have an episode coming out Monday.

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<v Speaker 3>Or in China shameless teez I like that.

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<v Speaker 5>Yeah, yeah, she is on Power and Consequences.

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<v Speaker 4>But my thought is is on the table is the

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<v Speaker 4>Chinese do want to get a little bit loosening on Taiwan.

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<v Speaker 5>Nick talked about that the president.

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<v Speaker 4>Wants to have some deliverables and announceables, maybe on soybeans

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<v Speaker 4>and other things. It's an election year for the farm

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<v Speaker 4>belt and then business community wants a sort of a

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<v Speaker 4>lowering of the tension on trade and tariffs, and there

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<v Speaker 4>would be real questions will the President give President chie

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<v Speaker 4>something On Taiwan. They're already holding up a military sale

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<v Speaker 4>of about eleven billion dollars and Nick would like to

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<v Speaker 4>have that continue. But it would be really interesting what

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<v Speaker 4>happens there. And I think China has stronger today than

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<v Speaker 4>they were eighteen months ago. I think the war in

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<v Speaker 4>Iran has strength in China, and China now seems like, well,

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<v Speaker 4>there may be an alternative to the US. Now how

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<v Speaker 4>that plays out in the capital markets, of course, if

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<v Speaker 4>they don't settle things down this week or kick the

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<v Speaker 4>ball down the field, which I think that's what President

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<v Speaker 4>Trump wants to do electorally, kick the ball down the field,

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<v Speaker 4>then capital markets might fall off.

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<v Speaker 1>We shut on time. Before I let you go, I

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<v Speaker 1>do want to ask you about oil, which you talked

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<v Speaker 1>about them was the whole time you were here last year,

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<v Speaker 1>last time, so we only have one oil question. But

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<v Speaker 1>you know, we saw Brent crude plunge nearly ten dollars

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<v Speaker 1>a barrel early on Wednesday, after you had this report

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<v Speaker 1>that the US and Iran were nearing an agreement, and

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<v Speaker 1>about an hour before that was published, traders exchanged seven

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<v Speaker 1>hundred million in oil futures, raising suspicions of possible insider information.

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<v Speaker 1>The reporter for Axios, Barack Revied, of course, is forcefully

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<v Speaker 1>denying those allegations. Why is this something the government is

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<v Speaker 1>watching so closely?

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<v Speaker 4>Well, look, there's a real challenge around protecting markets, the

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<v Speaker 4>integrity of markets against insider trading, and over and over

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<v Speaker 4>again we've seen it this year, these happenings where somebody

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<v Speaker 4>gets into a market. Maybe they're going into polymarket or Calci, yeah,

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<v Speaker 4>but here sometimes it's even going into the oil futures markets.

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<v Speaker 4>I think the oil futures markets are better supervised than

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<v Speaker 4>the calchhis and polymrket, so that's going to have to

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<v Speaker 4>play out. I definitely think the Congress should pass some

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<v Speaker 4>laws that the government actors can't trade in these prediction markets.

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<v Speaker 3>Karyguins so great to see you.

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<v Speaker 2>Thank you for coming in the podcast His Power and Consequence,

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<v Speaker 2>as he co hosted with Simon Johnson, the Nobel Laureate

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<v Speaker 2>also at MIT, Gary Agnsler.

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<v Speaker 3>He both at MIT as professors.

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<v Speaker 2>Appreciate your time, appreciate the around the World tour that

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<v Speaker 2>we got there for.

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<v Speaker 5>Frank to you so much, Thanks Garry.

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<v Speaker 3>That was great.