Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: And joining me now for more on this here in
Speaker 2: our Washington, DC studio is Gary Gensler, the former chair
Speaker 2: of the Securities and Exchange Commission. Mister Chairman, welcome back
Speaker 2: to Bloomberg TV and Radio.
Speaker 1: Oh, it's good to be with you, Kayley, It's.
Speaker 2: Good to see you. It strikes me that we did
Speaker 2: see SpaceX debut today after Senator Elizabeth Warren wrote to
Speaker 2: the SEC and requested a delay over concern about the valuation,
Speaker 2: concern about how this could impact retirement accounts. If you
Speaker 2: were still helming the SEC, would you have shared those concerns?
Speaker 2: Would you have let this go forward?
Speaker 1: Other people? We are in this job right now, but
Speaker 1: some of the concerns that I think. She also wrote
Speaker 1: another letter to the index providers, and Romayne was just
Speaker 1: speaking about that. And one of the things is that
Speaker 1: NASDAK made an accommodation. They changed their rules. And for
Speaker 1: your listeners, this is important because it's when to the
Speaker 1: index company niece purchase these securities. And what's interesting is
Speaker 1: at SpaceX they have an arrangement where a lot of
Speaker 1: their insiders and venture capital firms and so forth aren't
Speaker 1: going to have the traditional lock up for one hundred
Speaker 1: and eighty days, so it will be a faster phasing
Speaker 1: of this. And in fact, what will be interesting under
Speaker 1: the Nastak rules, once about a third of the stock
Speaker 1: thirty three percent is no longer locked up, which could
Speaker 1: happen as quickly as July of this year, then they
Speaker 1: count all of it in the index, so all of a
Speaker 1: sudden pop into the Nastik one hundred.
Speaker 2: Well, so let me ask you this as you speak
Speaker 2: to the unique nature of this in so many ways,
Speaker 2: do you see this as being unique to SpaceX and
Speaker 2: an Elon Musk led company and changes being made with
Speaker 2: that in nine or is this really setting new precedent
Speaker 2: and this is the way we're going to see these
Speaker 2: things work going forward.
Speaker 1: Well, we're in this little era of mega IPOs and
Speaker 1: we don't know what will happen with anthropic and open AI.
Speaker 1: We just have this Google offering of eighty five billion.
Speaker 1: That's a sign of this enormous interest in artificial intelligence
Speaker 1: and in this case in space I do think there's
Speaker 1: a shift that's gone on here in this particular offering.
Speaker 1: I mean the valuations, Kaylee, with the nineteen percent pop
Speaker 1: today are about one hundred and twenty times revenues not earnings.
Speaker 2: Now, there's no profit here.
Speaker 1: There's no profit here. And two of the businesses are
Speaker 1: pretty understood, their space launch business and their starlink, which
Speaker 1: is called Connectivity. Those two businesses combined only had about
Speaker 1: sixteen billion dollars in revenues in the last twelve months.
Speaker 1: Their artificial intelligence business dooking it out Grock is not
Speaker 1: currently thought of as one of the leading three. That's Google,
Speaker 1: Open Ai, anthropic, and don't count the Chinese models out.
Speaker 1: So where does that play out over the next two
Speaker 1: to five years And are these valuations taking some of
Speaker 1: those risks in that well?
Speaker 2: And I also wonder how much of the valuation is
Speaker 2: valuing the man at the top and Elon Musk, he's
Speaker 2: going to have eighty five percent of the voting share here.
Speaker 2: There are major governance questions that were raised as this
Speaker 2: company went public. How great of a concern is that
Speaker 2: is that?
Speaker 1: To you? Well, they've also shifted some things. They did
Speaker 1: a little bit of We're not going to be in
Speaker 1: Delaware anymore. We're going to be in Texas, right, We're
Speaker 1: going to be under a little bit different governance and
Speaker 1: they also the Securities and Exchange Commission changed some things
Speaker 1: that shareholders can't sue the company, they have to go
Speaker 1: to arbitration, and so the governance is really shifted, and
Speaker 1: those risks have to be understood by shareholders. I do
Speaker 1: think as you start to see these shares come available
Speaker 1: out of lock up and so forth, you'll see where
Speaker 1: this stock will trade. And your earlier segment said, well,
Speaker 1: it's all about will they deliver on this big commitment
Speaker 1: of the new starship. But I also think the uncertainty
Speaker 1: is about how the shares come out of lock up.
Speaker 1: And there's a lot of venture capitalists that will say, listen,
Speaker 1: I love this, but let me take some risk off
Speaker 1: the page. Right, I mean, this is at one hundred
Speaker 1: and twenty times revenues. Maybe I should take some of
Speaker 1: the profits off the page.
Speaker 2: Well, it's lofty to say the least. Of course, we
Speaker 2: had a sense this was an unusual pricing, not the
Speaker 2: typical discovery process. It was just set, but we did
Speaker 2: have a sense of what the demand would be based
Speaker 2: off of private market behavior and also prediction market behavior.
Speaker 2: I want to talk to you more about the prediction
Speaker 2: market's overall mister Chairman, because we've also seen as maybe
Speaker 2: we're reaching the end of it now open questions to
Speaker 2: whether we reach a themorandum of understanding with Iran, but
Speaker 2: we have frequently seen bets being placed on this conflict
Speaker 2: actually things moving in futures markets. I know the CFTC
Speaker 2: is looking into this, but do you think people should
Speaker 2: be concerned that the US capital markets, which are renowned
Speaker 2: for their transparency, that perhaps some people are getting an
Speaker 2: edge that others don't have.
Speaker 1: I think there are always those concerns with this corner
Speaker 1: of the markets, so called prediction markets, where you can
Speaker 1: effectively make bets on whether the President of the United
Speaker 1: States is going to settle with the Iranians or not,
Speaker 1: or on sports or on politics. It's very hard to
Speaker 1: protect the integrity of the underlying events, and so I
Speaker 1: think that's a challenge. I think that we'll see how
Speaker 1: if investors get burned in those markets, then they'll back away.
Speaker 1: It could also undermine the integrity of our traditional financial markets.
Speaker 1: That's what I would worry about too, if it undermines
Speaker 1: the oil, energy and stock markets.
Speaker 2: Do you believe that ultimately prediction markets should be overseen
Speaker 2: by federal regulators versus the States.
Speaker 1: Well, I just followed an Amacus brief in the Sixth
Speaker 1: Circuit just yesterday, and I think this is settled. Actually
Speaker 1: that at least on sports betting, Congress in twenty ten
Speaker 1: in no way said that sports bets are swaps, nor
Speaker 1: did they say the Commodity Futures Trading Commission, which I
Speaker 1: was proud to run, really is the federal regulator to
Speaker 1: oversee it. I talked a lot about prediction markets and
Speaker 1: with Simon Johnson on this podcast that I have power
Speaker 1: and consequences, but we're I think that the Supreme Court
Speaker 1: will ultimately decide what's going to happen there, but just
Speaker 1: a mere assertion by a federal government actor they control this.
Speaker 1: Thirty nine states, Blue States, Purple states, and Red states
Speaker 1: have taken the other side. When does that happen in America?
Speaker 2: Well, we're seeing things happening in America, like someone becoming
Speaker 2: a trillionaire. Perhaps it's capitalism at its finest. If I
Speaker 2: could just quickly ask you whether it's anthropic or open AI,
Speaker 2: or if Grock eventually gets there. When we see the
Speaker 2: power some of these artificial intelligence models have in the cyberspace, specifically,
Speaker 2: how concerned. Are you that the things that are supporting
Speaker 2: are capitalism the financial markets actually could create great financial
Speaker 2: stability risk.
Speaker 1: I wrote about this years ago. I think it's even
Speaker 1: more of the case now. I think we will have
Speaker 1: a financial stability event and it will ripple through with
Speaker 1: millions of people. Yes, yes, but it might well be
Speaker 1: just that a bunch of banks or trading shops are
Speaker 1: relying on the same model and the model goes offline,
Speaker 1: like in that wonderful romantic comedy when Scarlett Johansson was
Speaker 1: playing the romantic interest. The love interest was a computer,
Speaker 1: yes her, and she goes offline, and so that I
Speaker 1: love romantic comedies. But that's I think the issue. But
Speaker 1: in addition, you're right the thread actors, and they can
Speaker 1: be state thread actors, North Korea, Russia, China, or just
Speaker 1: crypto related ransomware actors. And those ransomware actors they're probing.
Speaker 1: They're probing, they're probing, and I was glad to see
Speaker 1: the anthropic figured out how to control it. In some sense,
Speaker 1: I would say mitigate it, mitigate it. But I think
Speaker 1: the thread actors will use and are using AI to
Speaker 1: probe for vulnerabilities at Blumberg and at Goldman Sachs.
Speaker 2: All right, what an optimistic note to leave things on,
Speaker 2: mister Sherman, thank you for joining us. The former chair
Speaker 2: of the SE see Gary Gensler, and let the record
Speaker 2: show he brought up crypto in this conversation.
Speaker 1: Not I