Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Well not commence a three hour interview. Gary Gensler joins
Speaker 2: us now. He's a former chairman of the Securities Exchange Commission,
Speaker 2: a modest tenure of duty at Golben Sachs as well
Speaker 2: and critically long ago and far away writing legislation Sarbaines
Speaker 2: Oxley is well, well, well over twenty years ago. Gary,
Speaker 2: I've been dying to talk to you. I read all
Speaker 2: the wonderful comments on this life of Alan Greenspan, and
Speaker 2: I get the criticism about interest rate dynamics in two
Speaker 2: thousand and five, two thousand and six and that. But
Speaker 2: I'm going to go to a guy that you have
Speaker 2: a nodding acquaintance with, one S. Johnson up at MIT.
Speaker 2: I've quoted this many times, folks, Simon Johnson and his
Speaker 2: magisterial thirteen Bankers the SEC not Unstler's sec Final Rule
Speaker 2: Alternative net capital requirements for broker dealers that are part
Speaker 2: of consolidated supervised entities. August twenty, two thousand and four.
Speaker 2: Gary Gensler. We can criticize Chairman Greenspan, but he had
Speaker 2: a lot of help in screwing us up into the
Speaker 2: financial crisis, didn't he.
Speaker 3: Well, there was a broad miss I don't know how
Speaker 3: else to say it. Policymakers across the spectrum, and the
Speaker 3: American public paid the price, and we exported by the
Speaker 3: way that crisis around the globe. But in terms of
Speaker 3: Allan himself, I worked with them closely in the late
Speaker 3: nineteen nineties, actually met Allan in the nineteen eighties at
Speaker 3: a wonderful dinner at Larry and Billy Tish's house in
Speaker 3: the mid nineteen eighties. And Alan was a dedicated economist,
Speaker 3: a dedicated public servant. And look, Tom, none of us
Speaker 3: get everything right. And yes, in those key years going
Speaker 3: into that OA crisis, there was too much leverage being
Speaker 3: built up in the housing market, too much leverage being
Speaker 3: built up in the financial markets.
Speaker 2: One final question in Sherman green Span, just as Paul
Speaker 2: and I feel the news flow right now, Gary Gunsler
Speaker 2: is just so important. He was, in my estimate, a
Speaker 2: market economist. I love what Greg Hips said, more accountant
Speaker 2: than theorists. Do we need more central bankers steeped in
Speaker 2: trucking data in Nebraska? I mean, do we need a
Speaker 2: more of a tinge of Alan Greenspan in our future?
Speaker 2: Economist types.
Speaker 3: Well, i'll tell you the other thing about Alan, having
Speaker 3: worked closely with him for three or four years, maybe
Speaker 3: not as closely as others. He also was really steeped
Speaker 3: in the financial market. So there's all sorts of different
Speaker 3: types of economists.
Speaker 1: And we've had leader of the Federal Reserve that were lawyers.
Speaker 3: We've had leaders of the Federal Reserve that have come
Speaker 3: from all sorts of places. William Mtchesney Martin famously from
Speaker 3: the nineteen fifties and sixties had run the New York
Speaker 3: Stock Exchange. Alan understood markets. He is a young guy.
Speaker 3: He used to trade futures in the old Chicago merket
Speaker 3: TIL type of futures markets. And I remember conversations with
Speaker 3: Alan about futures in the nineteen nineties, and then when
Speaker 3: I took the role at the Commodity Futures Trading Commission,
Speaker 3: Alan and I would sometimes get on the phone and
Speaker 3: he said, well, this is how futures markets really work,
Speaker 3: and this is how energy markets. And he'd beg into
Speaker 3: the backwardization of the markets. That was remarkable about Alan.
Speaker 3: I think he had a sense of financial markets. He
Speaker 3: had too much of a trust, though in them, to
Speaker 3: right themselves when they were in balances, and there were
Speaker 3: big imbalances. He navigated during the Internet enthusiasm, but he
Speaker 3: didn't quite navigate that on the housing markets.
Speaker 2: Paul Sweeney, you get lucky. You have Gary Genslron and
Speaker 2: moments ago across the Bloomberg is a five trunch SpaceX
Speaker 2: benchmark dead offering right, perfect timing.
Speaker 1: Gary.
Speaker 4: We're at a time here in the markets here where
Speaker 4: we're getting just these mega IPOs SpaceX, you know, they
Speaker 4: win public and we've got anthropic and open AI. That's
Speaker 4: send a signal to you and to others about where
Speaker 4: we are in this market cycle.
Speaker 3: Well, I think so you used the word signal, I
Speaker 3: use the word Tell Simon Johnson, who you mentioned earlier.
Speaker 3: He and I do this podcast and we just put
Speaker 3: one out on the mega IPOs just this morning on
Speaker 3: power and Consequences. And I think the overall equity markets,
Speaker 3: like Alan green Spence nineteen nineties, equity markets is funding
Speaker 3: this big burst of infrastructure built in AI seven hundred
Speaker 3: and fifty billion dollars this year, up threefold in just
Speaker 3: two years. And to scale that, that's a about two
Speaker 3: and a half percent of our gross domestic product and
Speaker 3: so then you have like space Echo Public and maybe
Speaker 3: anthropic and open AI.
Speaker 1: We'll see.
Speaker 3: I think that's somewhat of a tell Google raising eighty
Speaker 3: five billion and the markets have to digest this, and
Speaker 3: then there's valuation questions, you know, at one hundred, one
Speaker 3: hundred and forty times revenues without earnings. So this will
Speaker 3: all sort out, but it also might be six months
Speaker 3: from now we look back, it was fine, but there's
Speaker 3: an equal and better chance that six months from now
Speaker 3: we look back, we say, as all those venture capitalists
Speaker 3: and sovereign wealth funds starts selling those shares, that you
Speaker 3: see a downward pressure on the not just SpaceX, but
Speaker 3: the whole market.
Speaker 4: You're up there at MIT, Gary, and as I understand,
Speaker 4: there's some pretty good engineers and computer geeks up there
Speaker 4: as well. What is kind of your understanding? What's the
Speaker 4: understanding up there at MIT just about AI today? Because
Speaker 4: initially we in the marketplace, we just said, let's just
Speaker 4: buy the chips, but there's more to it than that.
Speaker 4: Market seems to be trying to discern some winners and losers.
Speaker 1: How do you guys think about that?
Speaker 3: Look, there's thousands of remarkable research scientists and faculty here,
Speaker 3: so I can speak for just maybe myself, and I
Speaker 3: think AI is the most transformative technology of our times.
Speaker 1: But we've had this before.
Speaker 3: If you go back over the last two hundred years
Speaker 3: from canals to the Internet to this and what happens
Speaker 3: and Ray Dalio talks about this too. We get an
Speaker 3: over enthusiastic financial market support and then at some point
Speaker 3: we build so much infrastructure we have a reckoning. And
Speaker 3: I think that's what you learn from history is that
Speaker 3: we tend to have reckonings. Now, is it a calamitous
Speaker 3: reckoning like with railroads in the eighteen seventies where we
Speaker 3: had disastrous recessions.
Speaker 1: Is there reckon like after the nineteen.
Speaker 3: Twenties we had a big boom on electrification mostly in utilities.
Speaker 3: Or is it like the Internet where you have a
Speaker 3: modest reckoning, still a recession. And that's so AI is transformative.
Speaker 1: One last thing, Paul.
Speaker 3: I think of it a little bit like a parlay bat,
Speaker 3: you know those the prediction markets. You have to have
Speaker 3: two things. You have to have AI hyper scalers and
Speaker 3: open AI be able to build the revenues. Right now
Speaker 3: they don't have the revenues. And two you need to
Speaker 3: build productivity in the economy enough for the capital markets
Speaker 3: to overlook all the disruption, all the companies that are
Speaker 3: going to be disrupting value with a successful AI.
Speaker 2: We continue with Gary against the former chairman of the
Speaker 2: Securities Exchange Commission as commitment to Sloan, where he's won
Speaker 2: a couple like student trophies.
Speaker 4: Is that right?
Speaker 2: I didn't fall asleep in his class trophy? Does it wonderful?
Speaker 1: Tom? You're too kind?
Speaker 2: He does a wonderful podcast Assignon Johnson. I want to
Speaker 2: go two questions here, Gary. Quickly, a lot of people
Speaker 2: went retail on bitcoin and they enjoyed buying it one
Speaker 2: hundred or one hundred and ten. What do you say
Speaker 2: to the retail crew that have losses in bitcoin?
Speaker 3: Look, markets both trade on sentiment and fundamentals, and the
Speaker 3: challenge for those purchasers who are is what are the
Speaker 3: fundamentals we were just talking about that is with SpaceX.
Speaker 3: But there's a real business there. I mean, Elon Musk
Speaker 3: is built a real business. It's just a question of
Speaker 3: where do you value it?
Speaker 1: Here? The EBB and flow of any.
Speaker 3: Purchaser of bitcoin has to think, all right, what are
Speaker 3: the real use cases and particularly to be even more
Speaker 3: careful with the rest of that asset class crypto. It's
Speaker 3: like meme stocks. You have to be very careful that
Speaker 3: you're not trading just on sentiment.
Speaker 2: I'll refrain from editorial lensing here for Tom Kean, I've
Speaker 2: got a chart from Jeff Jake. Thank you zero Hedge
Speaker 2: for this. Gary Gensler to me, it's manipulated. They do
Speaker 2: an IPO which is five percent of the SpaceX float.
Speaker 2: They trunch it out August eleven, twenty one, September ten,
Speaker 2: September twenty five, they get fifty percent of the stock
Speaker 2: out October ten. They finally get out to sixty percent
Speaker 2: of the stock out December ninth. Is it just a
Speaker 2: manipulation of folding the the stock into the public in
Speaker 2: a way that keeps the fervor up. It doesn't seem
Speaker 2: like the old days where a company went public.
Speaker 3: Well, so here's the other thing. Nasdaq made an accommodation
Speaker 3: in how they do their index, the NASTAK one hundred
Speaker 3: and Once there's thirty percent of that stock outstanding, which
Speaker 3: might happen as soon as mid August after the earnings release.
Speaker 3: Once that happens, the entire free float is counted into
Speaker 3: the indexes, which put out Elon's for fifty eight percent
Speaker 3: might fold into the indexes and then there's a buy.
Speaker 1: But here's the other side.
Speaker 3: I caught the great rebalancing all those venture capitalists and
Speaker 3: sovereign wealth funds. They're going to want to take risk
Speaker 3: off the page. I mean, Tom, They're not going to
Speaker 3: want to just leave their profits in and say let's
Speaker 3: let's go for more. They got to take you know,
Speaker 3: a third half, maybe three quarters of the risk off
Speaker 3: the page. And so there's going to be a lot
Speaker 3: of selling pressure too as these lockups come off.
Speaker 4: Gary, as we think about the continued rollout of AI
Speaker 4: across the economy, what do you think the regulatory framework
Speaker 4: should be?
Speaker 1: Dung forward? Look.
Speaker 3: I think with any great technology, a society adapts and says, listen,
Speaker 3: there's public goods and we have to promote them.
Speaker 1: We call it responsible AI.
Speaker 3: I started doing work on this seven years ago and
Speaker 3: tried to move the ball on that even at the
Speaker 3: Securities and Exchange Commission. I think the most it's happening
Speaker 3: is at the States about protecting people against bias, protecting
Speaker 3: people's privacy.
Speaker 1: Of course, the accuracy of it.
Speaker 3: But when the algorithms are making decisions on our behalf,
Speaker 3: who gets healthcare, who gets a job, who gets credit,
Speaker 3: it's important that they are accurate. And I think that
Speaker 3: right now this current president is more into let's just
Speaker 3: support a competition with China. Let's you know, as they say,
Speaker 3: just take off the regulatory guard rails. And yet I
Speaker 3: think society is reacting and starting to say, what about
Speaker 3: my kids, what about addiction, what about the use of this,
Speaker 3: what about my lost job potential?
Speaker 1: Maybe?
Speaker 3: And so it will be a very interesting next several
Speaker 3: years in terms of the politics of all this.
Speaker 2: Paul, what's it like working with Simon Johnson? I've known
Speaker 2: him for years, We're quite close, et cetera. But I'm
Speaker 2: not in the trenches where gunstlers to walk in the
Speaker 2: room with the Nobel Lauriate. What's it like working he's Johnson?
Speaker 3: It's fabulous. He's a very gracious colleague. He's got a
Speaker 3: fertile mind, I mean his mind just I mean, how
Speaker 3: did he come up with those ideas in the nineteen nineties,
Speaker 3: working with Drona s and Oaklow and Jim Robinson. It
Speaker 3: led to that Nobel prize. But it's a remarkable collaboration.
Speaker 3: Sometimes sometimes we in the classroom have to make room
Speaker 3: for each each of us. And he's he's a remarkable
Speaker 3: chalkboard teacher as well. This is a secret of his,
Speaker 3: but he loves being at the chalkboard and summarizing things
Speaker 3: and then bringing students into that conversation.
Speaker 2: Here at MIT, Stanley Fisher has a great story Gary
Speaker 2: of Samuelson was so angry at his incompetence that he
Speaker 2: ripped the chalk out of Stanley Fisher's heads threw it
Speaker 2: across the room. Some of that some of the intensity
Speaker 2: at the Massachusetts Institute of Technology. Their next podcast will
Speaker 2: be how to Fix the Red Sox. Gary Gensler is
Speaker 2: the former chairman of the SEC and we greatly appreciate
Speaker 2: remembrance for the life of Ellen Greenspan.