WEBVTT - Former SEC Chair Gary Gensler Talks Economic Consequences of a Second Trump Administration

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Gary Gensler, he's a former chairman the Security Is and

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<v Speaker 2>Exchange Commission, Professor of Practice of Global Economics and Management

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<v Speaker 2>at MIT. Did you ever study under Stanley Fisher? Did

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<v Speaker 2>you have the privilege?

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<v Speaker 3>I got to know stan Fisher, a terrific public servant.

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<v Speaker 1>I got to know him when he served here at

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<v Speaker 1>the US he.

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<v Speaker 3>Was in international finance. I also got to know him

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<v Speaker 3>a little bit when he ran in the Central Bank

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<v Speaker 3>over in Israel.

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<v Speaker 2>Katie Greifeld called me up earlier this morning and she said,

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<v Speaker 2>and folks, Gus the horse is okay in the heat.

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<v Speaker 4>It's serious.

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<v Speaker 2>And Katie said that the horses are doing fine this morning.

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<v Speaker 4>And Katie said, can you do the entire interview on crypto?

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<v Speaker 2>And I said, over Mike, with all that's going on

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<v Speaker 2>from the Genstler to the Atkins SEC, we're going to

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<v Speaker 2>get crypto out of the way now, folks. And I'm sorry,

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<v Speaker 2>Gary Ginsler, it is breaking. It got Chris Giles in

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<v Speaker 2>the ft this morning highlighted the Bank of International Settlements research.

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<v Speaker 2>I adore Raphael Hour's work at BIS.

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<v Speaker 4>I got rogue off.

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<v Speaker 2>In chapter seventeen eighteen and nineteen going after stable coin.

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<v Speaker 2>We need a Guenstler update. What are we getting into

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<v Speaker 2>with tether and stable coin?

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<v Speaker 3>So Tom, I couldn't agree with you more about your

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<v Speaker 3>earlier statement. There are so many bigger items going on

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<v Speaker 3>in this economy. The tariffs, immigration, frankly, a whole attack

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<v Speaker 3>on science funding, a lot of things that are gonna,

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<v Speaker 3>I think hurt long term economic growth. And that's why

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<v Speaker 3>I joined Simon Johnson and other colleagues from the Center

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<v Speaker 3>of Economic Policy Research to do a book, a rapid

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<v Speaker 3>response book about the economic consequences. But in that book

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<v Speaker 3>you're asking about stable coins. It's interesting the worldwide dollar mark,

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<v Speaker 3>it's about forty five trillion.

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<v Speaker 1>That's when you added thing up.

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<v Speaker 3>Forty five trillion dollars and stable coins are about a

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<v Speaker 3>quarter trillion. And so you know, the question is is

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<v Speaker 3>Scott Bessant, Secretary of Treasury right he says that's going

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<v Speaker 3>to grow to two trillion. It starts to say, what's

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<v Speaker 3>the use of.

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<v Speaker 1>One of these? We already have digital dollars.

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<v Speaker 3>You and I, we all Lisa earlier were saying, I

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<v Speaker 3>don't understand stable coins.

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<v Speaker 1>We have stable coins.

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<v Speaker 3>They're called us dollars, deposits, money market funds, and so forth.

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<v Speaker 3>The only thing that these companies are offering is an

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<v Speaker 3>alternative way to move dollars outside of the banking system,

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<v Speaker 3>which means outside of sanctions, outside of any money laundering laws.

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<v Speaker 3>And so that's the real risk. It could undermine the

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<v Speaker 3>US GEO politically.

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<v Speaker 2>Let me, Paul's got any questions. Let me get this

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<v Speaker 2>in right now, because I think it's so important. The

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<v Speaker 2>bravest book in my career here was Ken Rogoff, The

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<v Speaker 2>Curse of Cash.

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<v Speaker 4>He got death threats off that book.

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<v Speaker 2>It's nothing more than a use for criminal activity. It

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<v Speaker 2>replaces illegal one hundred dollars bills in briefcases.

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<v Speaker 4>How simplistic is that statement that I just made.

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<v Speaker 1>Well it you're talking about these stable coins.

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<v Speaker 4>Stable tether, stable coin, the whole thing.

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<v Speaker 2>It's nothing more than a walk around the sec and

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<v Speaker 2>the rest of the financial.

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<v Speaker 1>World looks stable coins.

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<v Speaker 3>Tether was invented early on about ten and eleven years ago,

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<v Speaker 3>to be the equivalent of the poker chip at the casino.

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<v Speaker 3>You could use it to move crypto versus crypto because

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<v Speaker 3>these large exchanges couldn't get bank accounts, and so instead

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<v Speaker 3>you could sidestep any money laundering in sanctions. At a

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<v Speaker 3>quarter of a trillion dollars, it's starting to be somewhat meaningful.

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<v Speaker 3>And here's the cool question, the interesting economic question. Who

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<v Speaker 3>gets the interest payments? Who gets the float the three

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<v Speaker 3>and a half or four percent on you know, for

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<v Speaker 3>every billion dollars, that's thirty five for forty million dollars

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<v Speaker 3>of interest, And who gets that interest? I'd rather have

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<v Speaker 3>a money market fund where I get the interest the investor.

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<v Speaker 5>Gary the economic consequences of a second Trump administration of

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<v Speaker 5>preliminary assessment. We're six months into the second administration of

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<v Speaker 5>President Trump. There's lots of unique economic policies coming out

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<v Speaker 5>of Washington.

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<v Speaker 1>Let's start with tariffs.

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<v Speaker 5>When I was in business school, tarrorifts were kind of

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<v Speaker 5>a targeted thing you'd do once in a while if

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<v Speaker 5>somebody was dumping steel or something else in there.

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<v Speaker 1>We've never really.

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<v Speaker 5>Seen them as a whole policy across the globe, across

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<v Speaker 5>all of our trading partners. How do you think about

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<v Speaker 5>the President of Trump's economic policies pocusing on strategy on tariffs.

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<v Speaker 3>I think and thank you for mentioning this book that

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<v Speaker 3>we did together.

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<v Speaker 1>It was a Rapid Response book.

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<v Speaker 3>But overall, all our experts said tariffs are going to

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<v Speaker 3>put downward pressure on economic growth and upward pressure on inflation.

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<v Speaker 1>And that's the history of these things.

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<v Speaker 3>We have seen worldwide movements to tariffs, and it was

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<v Speaker 3>right before the nineteen thirties Great Depression, and Congress got

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<v Speaker 3>in and weighed in and so forth. And I would

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<v Speaker 3>remind listeners that tariffs are only on goods, not on services.

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<v Speaker 3>And about ninety percent of workers in the US are

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<v Speaker 3>working outside of the manufacturing field. And one of our authors,

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<v Speaker 3>Michael Strain, wrote an excellent chapter, and Michael says it

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<v Speaker 3>won't even help manufacturing because manufacturers have to buy all

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<v Speaker 3>these goods, these intermediate goods from overseas and the tariffs

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<v Speaker 3>will be higher. So I don't think the tariffs are

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<v Speaker 3>going to help. I think they're going to hurt and interestingly,

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<v Speaker 3>they're going to particularly hurt also in rural communities because

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<v Speaker 3>rural communities have to sell their farm goods, their agricultural

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<v Speaker 3>products overseas. So it doesn't even necessarily help the president

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<v Speaker 3>in some of his political base in rural states.

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<v Speaker 5>A lot of I'm just going to you know, preempt

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<v Speaker 5>a lot of email I'm going to get today in

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<v Speaker 5>my social saying.

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<v Speaker 1>We haven't seen any of it.

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<v Speaker 5>Tariffs are working, just find inflation's not there or is

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<v Speaker 5>it just too early?

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<v Speaker 1>So it's a bit early.

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<v Speaker 3>But I'd say this to any listeners, You've just had

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<v Speaker 3>the largest tax increase that you've had in generations. Average

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<v Speaker 3>tariffs in the US were two point three percent. Globally

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<v Speaker 3>adding everything up two point three percent, and that was

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<v Speaker 3>even after the first Trump administration raised tariffs.

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<v Speaker 1>In China they are now over ten.

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<v Speaker 3>Percent, so the overall teriff rates have gone up fourfold.

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<v Speaker 1>That's a big tax increase.

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<v Speaker 3>It takes time, but the International Monetary Fund lowered our

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<v Speaker 3>growth estimates for this year a full point, so you

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<v Speaker 3>know we're seeing that happen, right.

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<v Speaker 4>I've got to ask.

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<v Speaker 2>We got all sorts of topics to talk to with

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<v Speaker 2>Gary Ginsler, Former's Securities in Exchange Commission Chairman, and MIT

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<v Speaker 2>out with.

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<v Speaker 4>The wonderful what do you call it? Like a kindle book?

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<v Speaker 1>Is there like a well, it's a real book.

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<v Speaker 3>We do have it physically, but it's online at the

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<v Speaker 3>Center for Economic Policy Research, which is a remarkable organization

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<v Speaker 3>in Europe, and you can get it for free right

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<v Speaker 3>at the CEPR website.

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<v Speaker 4>Wonderful. So we'll get that. I'll get that on LinkedIn

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<v Speaker 4>and Twitter as well. So I got to get this straight.

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<v Speaker 2>You're at Pikesville High School, you end up at Wharton,

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<v Speaker 2>you do better than good in your academics. The world's

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<v Speaker 2>imploding in private credit, right, Paul, Sure, everybody needs a valuation.

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<v Speaker 2>You have to be the first call for the University

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<v Speaker 2>of Pennsylvania. Do you have any handle on the new valuation?

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<v Speaker 2>The mark to market a private credit? And dare I

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<v Speaker 2>say private equity as well?

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<v Speaker 3>Well, you're kind. I mean, the University Pennsylvania is terrific.

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<v Speaker 3>I'm at MIT now, so I just have to give

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<v Speaker 3>that shout out. But in terms of private credit, look,

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<v Speaker 3>this is a field about give or take two trillion

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<v Speaker 3>dollars of lending and assets under management that has come

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<v Speaker 3>peeded with commercial banks, and we made sort of a

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<v Speaker 3>conscious decision to move some of these risks out of

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<v Speaker 3>commercial backs and into private credit.

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<v Speaker 1>I think it's good.

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<v Speaker 3>It's competition in the capital market.

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<v Speaker 4>Am I really look to the Chase of Sloan. You're

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<v Speaker 4>at Sloan with a piece of chalk in your and

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<v Speaker 4>what's the haircut? Right now on private credit, is it

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<v Speaker 4>eighteen percent? Is it greater?

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<v Speaker 3>Or if you're talking about valuations, it really depends on

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<v Speaker 3>what the large companies, the Apollos and the Blackstones and

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<v Speaker 3>so forth, how have they valued it so that if

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<v Speaker 3>they're valuing it properly, then it's not a haircut. But yes,

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<v Speaker 3>they usually charge higher interest rates.

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<v Speaker 5>Gary, how do you think the US should from a

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<v Speaker 5>trade perspective and economic policy perspective, deal with China?

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<v Speaker 1>Right now?

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<v Speaker 5>It feels like the globalization trend that you and I

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<v Speaker 5>and Tom grew up with that seems to have lost

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<v Speaker 5>a lot of steam. It's out of favor now. Maybe

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<v Speaker 5>that's a short term trend. I don't know, But specifically

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<v Speaker 5>with China, how do you.

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<v Speaker 3>My experience, and we had to negotiate when I was

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<v Speaker 3>at the SEC, a big consequential, transactional situation. Can China

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<v Speaker 3>keep their companies in the US stock market? And China

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<v Speaker 3>was not playing ball and following the rules about inspections.

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<v Speaker 1>We were able to sort that through.

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<v Speaker 3>And my experience is as you treat them with respect

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<v Speaker 3>and dignity and consistency, and this oscillation, this big volatile

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<v Speaker 3>changes of policy I think is not doing the US. Well,

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<v Speaker 3>I think, yes, the President is a risk taker. I

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<v Speaker 3>respect that he is a fundamentally He's come into office

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<v Speaker 3>very determined and he wants to readjust with China.

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<v Speaker 1>But I think China is very savvy.

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<v Speaker 3>They're going to be able to compete with this in

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<v Speaker 3>artificial intelligence, even if we clamp down on export controls

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<v Speaker 3>and they have those rare earth minerals that they're a to,

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<v Speaker 3>they have leverage points, is what I'm trying to say.

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<v Speaker 2>I've got to go to a new topic here, But

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<v Speaker 2>Gary Goenster, to get to that topic, I used AI.

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<v Speaker 4>I went to Gemini here and.

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<v Speaker 2>I tipped in the difference between the Genstler and Atkins SEC.

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<v Speaker 2>First of all, Gary Gensler, with all as you mentioned,

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<v Speaker 2>Paul Esteemed at GOLDBN Sachs is Paul, and I would

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<v Speaker 2>editorialize you would be on a shortlist to run any

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<v Speaker 2>major firm in America. Fine, Gary Gensler on AI, what

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<v Speaker 2>are our kids? What does Lisa Mataio need to know?

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<v Speaker 3>Well, I would say this it's one It's been around

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<v Speaker 3>at least ten years even longer, so it's not just

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<v Speaker 3>new with open AI and chat Chept two, it's the

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<v Speaker 3>most transformative technology of the time, and I find myself

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<v Speaker 3>thinking I'm more of the optimist. I think there'll be

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<v Speaker 3>a lot of new productivity that comes from this, but

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<v Speaker 3>also a lot of changes in the job market.

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<v Speaker 1>Bloomberg will be different.

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<v Speaker 3>Bloomberg Radio maybe not so different, all right, but I think.

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<v Speaker 1>It will be very different.

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<v Speaker 3>And so I think the US versus China is an

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<v Speaker 3>interesting thing. The big hyperscalers, the big you know, CHAP,

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<v Speaker 3>GPT and Gemini and so forth. Those companies are competing

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<v Speaker 3>with China, and China's got natural.

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<v Speaker 4>Deep deep seek whatever it is.

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<v Speaker 1>Yeah, well they have deep seek, but they have something else.

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<v Speaker 3>They have one point four billion people, so they have

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<v Speaker 3>data advantages over we're big, but we're only three hundred

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<v Speaker 3>and forty million people.

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<v Speaker 2>Let me go to what I was on with a

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<v Speaker 2>Gemini here and also the AI effort of Bloomberg, and

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<v Speaker 2>that is the shift from the Genstler sec over what

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<v Speaker 2>Paul Atkins has been charged by the President of the

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<v Speaker 2>United States. You're going to tell me collegially that the

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<v Speaker 2>ven diagram of Gensler and Atkins is pretty tight. There's differences,

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<v Speaker 2>but there's a collegial agreement.

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<v Speaker 4>Baloney.

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<v Speaker 2>People see this, Gary Gensler, it's a sharp shift that

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<v Speaker 2>we're seeing right.

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<v Speaker 4>Now, is it.

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<v Speaker 3>Look, elections have consequences, and I have a deep respect

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<v Speaker 3>and you're right, I'm going to be respectful. Chair Atkins

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<v Speaker 3>has served at the SEC not once but twice before.

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<v Speaker 3>He knows the agency well, and I think whether it's

0:12:15.559 --> 0:12:19.640
<v Speaker 3>Republican or Democrat, what this show is focused on is

0:12:19.679 --> 0:12:22.960
<v Speaker 3>the markets, the capital markets, and the capital markets do

0:12:23.080 --> 0:12:25.839
<v Speaker 3>best when there's rules of the road. And that's been

0:12:25.840 --> 0:12:28.760
<v Speaker 3>true for ninety years, and that's what's really critical.

0:12:28.800 --> 0:12:28.959
<v Speaker 1>Now.

0:12:29.000 --> 0:12:32.400
<v Speaker 3>The SEC has shrunk about twenty percent, so it's not

0:12:32.760 --> 0:12:36.640
<v Speaker 3>as able to surveil the markets and make sure that

0:12:36.800 --> 0:12:38.800
<v Speaker 3>it's free of fraud and manipulation.

0:12:38.920 --> 0:12:41.120
<v Speaker 2>Where are your shadows right now? If we go to

0:12:41.200 --> 0:12:43.280
<v Speaker 2>a more what's the word swashbuckling?

0:12:43.360 --> 0:12:43.760
<v Speaker 4>Is that right?

0:12:43.880 --> 0:12:47.920
<v Speaker 1>Yeah? Swashbuckling works. That works if we go to a more.

0:12:49.840 --> 0:12:54.720
<v Speaker 2>Trumpian SEC. Where are the Guenstler's shadows now? Within Global

0:12:54.760 --> 0:12:58.560
<v Speaker 2>Wall Street? Where's the leverage, the thing, the portfolio insurance

0:12:58.559 --> 0:13:02.600
<v Speaker 2>of eighty seven prizes of August nineteen ninety eight, where's

0:13:02.640 --> 0:13:04.520
<v Speaker 2>the shadows for you in the system?

0:13:04.760 --> 0:13:05.000
<v Speaker 1>Look?

0:13:05.040 --> 0:13:09.559
<v Speaker 3>I think that overall it's much beyond the Securities and

0:13:09.600 --> 0:13:13.400
<v Speaker 3>Exchange Commission. It's in terms of the whole financial markets,

0:13:13.880 --> 0:13:17.480
<v Speaker 3>you probably will have a tendency the greater leverage, meaning

0:13:17.520 --> 0:13:21.800
<v Speaker 3>more borrowing. But we are also in a heightened risk

0:13:21.960 --> 0:13:26.240
<v Speaker 3>environment geopolitical, as we lay out in this book, we

0:13:26.280 --> 0:13:29.679
<v Speaker 3>are pulling back the US from global alliances. So there

0:13:29.720 --> 0:13:33.360
<v Speaker 3>is definitely a bit more inflation risk, There's a lot

0:13:33.400 --> 0:13:37.839
<v Speaker 3>more leverage in the system. Investors are less well protected

0:13:37.920 --> 0:13:42.960
<v Speaker 3>with the Frankly, this sort of a large dismantling of

0:13:43.000 --> 0:13:49.160
<v Speaker 3>something called the consumer financial the CFPB, and so investors

0:13:49.200 --> 0:13:51.000
<v Speaker 3>have to be a little bit more.

0:13:52.360 --> 0:13:52.800
<v Speaker 1>Aware.

0:13:53.520 --> 0:13:57.640
<v Speaker 3>There's more risk in the system, big risk, and there's

0:13:57.679 --> 0:14:00.400
<v Speaker 3>also I would say the US dollar is under pressure.

0:14:00.400 --> 0:14:03.600
<v Speaker 3>It's down ten percent this year so far. And this

0:14:03.679 --> 0:14:06.040
<v Speaker 3>is in the environment where the stock market has been

0:14:06.120 --> 0:14:10.280
<v Speaker 3>quite resilient. You know, we're almost at near all time highs,

0:14:10.800 --> 0:14:13.120
<v Speaker 3>and so that investors have to say, is there more

0:14:13.160 --> 0:14:15.160
<v Speaker 3>downside rest than upside potential.

0:14:15.520 --> 0:14:18.400
<v Speaker 5>Another big area of change within the second Trump administration

0:14:18.440 --> 0:14:23.120
<v Speaker 5>has been immigration. How is that impacting effectively shutting down

0:14:23.120 --> 0:14:26.680
<v Speaker 5>the southern border, How does that impact the US labor market?

0:14:26.720 --> 0:14:27.200
<v Speaker 4>Do you think?

0:14:27.280 --> 0:14:27.360
<v Speaker 2>So?

0:14:27.400 --> 0:14:31.920
<v Speaker 3>It's interesting again in our book, this economic consequences of

0:14:31.960 --> 0:14:36.360
<v Speaker 3>the second Trump administration a preliminary assessment. We have a

0:14:36.480 --> 0:14:41.320
<v Speaker 3>really interesting chapter or in this question and overall the

0:14:41.360 --> 0:14:44.880
<v Speaker 3>forecast is that it will cut growth by about one

0:14:44.880 --> 0:14:48.640
<v Speaker 3>point seven to one and a half percent, and in

0:14:48.720 --> 0:14:52.520
<v Speaker 3>terms of the labor market itself, interestingly, it's going to

0:14:52.640 --> 0:14:55.760
<v Speaker 3>hurt rural America a lot. Now, rural America will also

0:14:55.800 --> 0:14:59.320
<v Speaker 3>be hurt by medicaid cuts because believe it, medicaid is

0:14:59.360 --> 0:15:02.960
<v Speaker 3>more used raw America than an urban America. And also

0:15:03.040 --> 0:15:07.479
<v Speaker 3>the tariffs, so there's like a triple threat to rural America,

0:15:07.560 --> 0:15:12.320
<v Speaker 3>which again politically it's an interesting conundrum for this White

0:15:12.320 --> 0:15:14.840
<v Speaker 3>House what to do. But on immigration, I would say

0:15:15.440 --> 0:15:21.040
<v Speaker 3>it's a downward pressure on the economy these policies, in

0:15:21.080 --> 0:15:23.680
<v Speaker 3>addition to the downward pressure from tariffs.

0:15:24.000 --> 0:15:25.520
<v Speaker 2>Gary, I want to get this in. I think it's

0:15:25.520 --> 0:15:28.200
<v Speaker 2>too important. And this goes to your colleague, the Nobel laureate,

0:15:28.240 --> 0:15:29.760
<v Speaker 2>Simon Johnson and.

0:15:29.800 --> 0:15:31.600
<v Speaker 1>The wonderful friend in college in.

0:15:31.560 --> 0:15:34.360
<v Speaker 2>The heart of the world blowing up for me personally,

0:15:34.880 --> 0:15:38.440
<v Speaker 2>and there was Andrew Ross Sorkin's wonderful book, and any others,

0:15:38.520 --> 0:15:41.760
<v Speaker 2>rogy rajam Out at booth. That's a Chicago. That's a

0:15:41.800 --> 0:15:43.720
<v Speaker 2>school gary out in Chicago.

0:15:43.840 --> 0:15:44.960
<v Speaker 4>You may not be familiar with that.

0:15:45.920 --> 0:15:51.840
<v Speaker 2>But Simon Johnson's monograph Thirteen Bankers was the definitive book

0:15:51.880 --> 0:15:56.800
<v Speaker 2>to described the moment where we lost control in five six,

0:15:57.120 --> 0:16:02.280
<v Speaker 2>where the SEC opened the flood gates to certain transactions

0:16:02.320 --> 0:16:05.440
<v Speaker 2>and leverage. Are we at a risk now where we

0:16:05.480 --> 0:16:10.560
<v Speaker 2>could repeat what Professor Johnson wrote about chapter four of

0:16:10.640 --> 0:16:14.160
<v Speaker 2>Thirteen Bankers. This is the piece of paper that open

0:16:14.240 --> 0:16:17.120
<v Speaker 2>the risk gate floodgates? Can we do that again?

0:16:17.480 --> 0:16:22.040
<v Speaker 3>Look, I think we're human Tom and humankind we eb

0:16:22.120 --> 0:16:26.080
<v Speaker 3>and flow on risk. The financial system written large.

0:16:27.840 --> 0:16:30.240
<v Speaker 1>Is in good shape. But will it.

0:16:30.400 --> 0:16:36.680
<v Speaker 3>Tend towards greater borrowing against risk assets? And that's when

0:16:36.720 --> 0:16:39.760
<v Speaker 3>you have challenges. And I think we have a US

0:16:39.800 --> 0:16:43.280
<v Speaker 3>dollar that people have some question about. You have inflation

0:16:43.520 --> 0:16:46.920
<v Speaker 3>moving up, you have greater leverage, and you have a

0:16:46.920 --> 0:16:51.960
<v Speaker 3>tremendous amount of uncertainty policy and geopolitical uncertainty. And those

0:16:52.040 --> 0:16:56.200
<v Speaker 3>are times you can see, you know, I'll call them

0:16:56.280 --> 0:17:00.320
<v Speaker 3>spills on Aisle five. And you know financial spill hills

0:17:00.360 --> 0:17:03.680
<v Speaker 3>on all five hurt millions of Americans.

0:17:03.680 --> 0:17:07.000
<v Speaker 1>When you lose your jobs or your mortgage rates go