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- [00:00]
IBM Representative
So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions, not noise proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM,
- [00:33]
Bloomberg Audio Studios Host
Bloomberg Audio Studios podcasts, radio news with that question.
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Tom Keene
This is the interview of the day for global Wall Street. Paul, can I dare say it's the interview of the month?
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Bloomberg Radio Analyst
I'll go with that.
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Tom Keene
We'll go with that. Gary Gensler has a sterling effort of hard work and academic excellence across his career, spanning from a look at media and mergers and acquisitions with Goldman Sachs onto his public service, wearing numerous hats for the United States of America. Recently a chairman of the securities and Exchange Commission and he joins us in studio. Thank you for joining Bloomberg today, Tom.
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Gary Gensler
Paul, it's wonderful to be with you. You're a little exaggerating about me, but I'll take it.
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Tom Keene
We'll take it. Well, we do that as we can. You have the privilege of a podcast with one of my favorite people. Simon Johnson was my book of the summer 20082009 his little monograph 13 Bankers that's distilled your chaos. It was your fault we had the crash seven and Simon Johnson, Nobel Laureate did it. Here is Simon Johnson in 13 Bankers and I will take credit for really making this public. The SEC Final Rule Alternative Net Capital Requirements for Broker Dealers August 20, 2004 and three years later, that third week of August 07 LIBOR OAS went out four standard deviations. Are we doing it again with private credit?
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Gary Gensler
Look, I1 thank you so much and it's wonderful to be partnered up with Simon Johnson on our new podcast Power and Consequences. A little audacious because in the world of economic minstrels, do we need another two folks, you know, out there doing podcasts? But I we're going to have some fun with it and speak about that. Look, in terms of private credit, I think that it's there's some risk there, but it's a small part of our overall capital markets. Don't forget US capital markets. What 150 trillion or so and this is a $2 trillion corner. But there are some risk and I'm sure we'll get into it, particularly because they've offered to retail investors High net worth individuals. What, what's called the Wealth Channel to be part of this. And the Wealth Channel is turning on it. They're saying we don't want to, we don't want to be in here as much. Can we redeem out? And that's a little hard.
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Tom Keene
How do you respond to people that blame you as FCC chairman for opening up the door to this retail investment in esoteric things like Bitcoin and others? But also, Paul, how would you phrase it?
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Bloomberg Radio Analyst
Liquid private credit or less liquid? Sure.
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Tom Keene
They blame Gary Gensler, Chairman Gensler, it's your fault. How do you respond to that?
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Gary Gensler
That's a new one. I hadn't heard that, Tom.
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Tom Keene
It's in the zeitgeist. It's like Gensler and Biden let this happen.
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Gary Gensler
Firms, alternative asset managers and private equity and private credit and hedge funds, real estate and so forth have been around, you know, really for 50 years in the direct lending space that started in 2008-2012. Mark Rowan started Apollo, Steve Schwarzman with Blackstone. They were building big engines. And it, it was already probably when I got there, at least approaching $1 trillion. So I just think that that that was something that was.
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Tom Keene
You have it in your 401k, right? Of course.
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Bloomberg Radio Analyst
One of the things I noticed, Rob, is when we do go out and talk to registered investment advisors and we do that a lot at Bloomberg Radio, we go out to our sponsors. I'm shocked at the RAs, at the allocation to alternative investments. I would have thought it was 5%, 6%. They're talking 20, 30, 40%. They're talking like they're in an endowment.
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Gary Gensler
Look, I think that's where we have the risk. It's a structural risk. Alternative asset managers, private credit amongst them are bringing in institutions, sovereign wealth funds like insurance companies, and then about a third of private credit. The investors are everyday investors. Lloyd Blankvine said it. Well, he was asked recently about it. He says, I don't get why they're doing this. It's when, when this goes down, the institutions, Washington, who I don't care about, but when it goes down for private individuals, it's going to be bad. If you.
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Tom Keene
With the celebration of Mr. Blankfein's book, how many book parties is he having? You've been to them, all, right?
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Gary Gensler
No, but, but Lloyd and I, we were at Goldman Sachs and we were honored to make partner together. So he, he, he, he's a very clever and funny individual.
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Bloomberg Radio Analyst
So I just referred to Gary as Rob. You know why I did that? His twin brother's Rob that's the real I do that.
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Gary Gensler
He's a buddy of mine my identical twin brother Rob.
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Bloomberg Radio Analyst
Yes, you're a buddy of mine back in the day T row price he's the, he's the gun across America with
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Tom Keene
this Gary Gensler the former chairman of the SEC in celebration of his podcast laureate Simon Johnson at Sloan Paul Sweeney.
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Bloomberg Radio Analyst
So Gary, the investors have been dealing over the last three, four weeks with all this issues going on in Iran's whipping around energy markets, whipping around all kinds of risk markets. How do you view that? When we talk to investors I'm sure they come up to you and say what do I do here? Because it's so much stuff I don't
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Gary Gensler
understand perhaps look it's it's a multiple shocks it's shocked to the energy markets as we know and I would look in energy markets not at the current price. I'd look at the September and December prices for both oil and for natural gas. I look at fertilizer pricing and right now probably we're going to have higher prices for agriculture in the fall because the fertilizer pricing has gone up doubled in the last few weeks and this is spring planting time. I think it's also is going to hollow out some of our longer term growth. Look we've remarkably resilient economy. Jason Furman just wrote about this in the New York Times but I do think that our longer term growth rate is now clinked down a little bit more and so I'd be worried about multiples in the equity markets when you have lower growth.
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Bloomberg Radio Analyst
If you're at if you were back at the sec what would be your primary issue worry to do item maybe.
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Gary Gensler
So I would be getting the team together and say what do we know and can you pulse the various large banks, the JP Morgans and Goldman's about what's called prime brokerage where they have trillions of dollars loaned out to hedge funds. And then also I'd ask the bank regulators how does it look about their loans to private credit. We recently saw JP Morgan remarking those loans to private credit. I'd want those interconnections to prime brokerage hedge funds and the banks to the private credit space.
- [07:48]
Tom Keene
Tell me about the hedging risk here. I brought it up the last couple of days and all of this works off At New York University Professor Roman Friedman has been wonderful. There's a hedging and Greenspan would speak about this in celebration folks of his hundredth birthday. We have hedging. There's a Price to hedging always. And then oops, things go bad. And within a hedge, or out there a re hedge, or dare I say out again, what is our risk right now of there's a point where you have to re hedge, you have to restructure all these derivative instruments.
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Gary Gensler
Well, that is always a risk, particularly if a firm fails. And that's what we would look at when I was at the US treasury many years ago and Long Term Capital Management failed. So everybody has to re hedge. So when there's breakage in the system, it's as you just said, the RE hedge for the listeners. A bank is counting on its counterparty to be there tomorrow. But when the counterparty disappears, then they have to take that whole position, right? And re hedge.
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Tom Keene
The certitude of the street, Gary Gensler, is we fix this in 0708, the big banks are not exposed. But then there are the others. What are the shadows of the others that you're focused on?
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Gary Gensler
I, I do think that the big banks have better capital position, are more resilient 2026 than 2007. But I do look at the significant leverage. That's the borrowing in the hedge fund community. And yes, the interconnection between the banks and the alternative investors, the private credit space and back to this private credit. We are going to see some disruptions. I mean AI is changing the world right now. Right. And if it's a fast change, that means valuations are going to change a lot. This is like a barbell economy. If AI goes really well, that means some valuations, whether it's in software or other fields, have to decline.
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Bloomberg Radio Analyst
Crypto, have we gained more any clarity on who is regulating it? Who should regulate it, to what degree should it be regulated? Where are we on that?
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Gary Gensler
I think those are going to be questions that you'll have for my honored successor, Paul Atkins and others. But the American public, you know, they seem to be even more focused on prediction markets than crypto right now. So. So the investing public, I'm not saying they've moved on, but there's been been a new darling at this little casino
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Bloomberg Radio Analyst
and one of our colleagues at Bloomberg Television was just interviewing the CEO of one of these prediction markets and adamant that it is not gambling.
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Gary Gensler
Okay, Yeah, I just know gambling in this town right now, and I'm not
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Tom Keene
going to blame this on you, but I'm sorry, there's this huge thing. I got to make some news this morning. Do you look at these prediction markets as gambling, Mr. Gensler?
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Gary Gensler
Well, parts of it Are sure. Look, there's parts of it that is just hedging, right? Economic risk. But now you go all the way over to the sports world and the sports world, that's just gaming. It is.
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Tom Keene
I'm going to go mental here. Raphael Hour at the bank of International Settlements has written the smartest stuff I've seen on a broader statement of Bitcoin. They did a paper, eight single sentence, single spaces, eight pages of detail. And the speculation within these markets. I mean, it's basically a casino, like people voting against Duke in basketball. I don't see pen in the. Did you see the University of Pennsylvania in the bracket?
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Gary Gensler
That's, that's my alma mater. I know.
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Bloomberg Radio Analyst
Eating Yale.
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Tom Keene
Did you see this?
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Bloomberg Radio Analyst
I believe I saw them.
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Tom Keene
Are you in the second or third row at the game?
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Gary Gensler
I don't want to give that up, Tom. But, but look, I mean, investors can be taking a bet on things even when they're betting on an individual stock. But there are parts of the prediction markets and there are parts of the cryptocurrency markets that are just pure, pure speculation. And so how do we protect the investing public in those worlds? How do we protect the investment public in prediction markets or in the cryptocurrency markets? And importantly, how do we protect the integrity of the underlying. The elections? How do we protect the integrity that government actors aren't leaking information so that you can make a bet in prediction markets?
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Tom Keene
Okay, so Alexis's great grandmother took Bitcoin from 30,000 up to 110,000.
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Gary Gensler
Your great grandmother, I love that.
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Bloomberg Audio Studios Host
He used to be about three years old.
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Tom Keene
And Gary, come on. We've gone from 110,000, whatever on bit dog back down to where are we 74,000 today? Should, should for a one case and Ira, should grandma's be playing with these fancy things where we question the underlying.
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Gary Gensler
Look, we, we, we let the investing public invest. We're merit neutral. That's our system. I believe that's a, that's a good system. However, we sort of have to have transparency. We have to have market integrity.
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Tom Keene
Right?
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Gary Gensler
And we have to make sure that people protect those investors that they're not getting picked off.
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Tom Keene
Paul wants to jump in. I got one more question. Shut up. Gary Gensler, you mentioned transparency. How should we mark the market? Private credit? I mean, is it by appointment? I mean, help me here.
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Gary Gensler
That's, that's the challenge at this. If it were just a pure institutional market, it was some sovereign wealth fund from Qatar investing in private credit. And by the way, that might also Change the valuations. What's happening, happening in Iran could be a little less money from sovereign wealth funds. But to your question, I think it's hard when you have the general investing public and as you said in 401ks or RIAs, and I think that's a very challenging and I would say problematic part of this private credit space.
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Bloomberg Radio Analyst
Bloomberg News was had a good story out yesterday about quarterly reporting for financial results for public companies. Europe and other parts of the world do it twice a year. We do it quarterly. What's your view there?
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Gary Gensler
I'm very clear on this. I think it's one of the parts of the US capital exceptionalism, our capital market since 1939. The New York Stock Exchange put this in the 1930s. And you're saying not everything in the 1930s. Mr. Gensler is good. This is good. And yes, it's a little bit for the C suite. Yeah. Is it a little bit of friction? Is it a little bit like, oh, I have to meet with the analysts, I have to hear Tom Keene talk about my company. But overall it creates so much public good. It helps our economy, it helps investors, it helps the media. It does. But it's really an important piece. I wouldn't want to give that up.
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Bloomberg Radio Analyst
Yeah. As a former sell side equity research analyst, it was four times a year you had to gear up, gear up. But arguably that is a backbone, that transparency. One of the reasons that our capital markets are as deep as they are.
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Tom Keene
You did media years ago, right?
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Gary Gensler
Advise the companies? Yes, so I helped. I help media companies buy and sell each other. The big newspaper companies, the new houses that the.
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Tom Keene
Yeah.
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Gary Gensler
Yes.
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Tom Keene
Okay. So Zaslov's pocket and 700 million office transactions. Sweeney's expert on this. I'm the dumbest one in the room. Your thoughts here on the media roll up. In the politics of it, the idea of the White house directly involved. Mr. Atkins, I don't think is weighed in on this, which is. I know you don't want to comment on on that, but. But just your Gary Gensler media thoughts on our media roll up.
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Gary Gensler
Look, I think it's. We were in a better system and a better rule of law when these decisions were not made in the White House. They were made at a Federal Communications Commission, if they're made at all. A lot of buying and selling of newspapers aren't done at the federal level. Buying and selling of radio stations technically are, but they're really done away from that. I think that's a much better way. And you have rules of the road and you stick to them. The idea of a White House picking winners and losers, that's not good for the rule of law nor for our economy.
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Bloomberg Radio Analyst
One of the when President Trump his second term began, one of the themes was, boy, this is going to be really good for the financial services industry writ large. Maybe taking down some of the regulatory risk, maybe allowing some consolidation of regional
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Gary Gensler
lowering, lowering taxes on the companies.
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Bloomberg Radio Analyst
Exactly right. How do you, how do you view the regulatory overview of the financial services industry today? Does anything need to change? Does it need to be loosened, tightened?
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Gary Gensler
Look, there's an ebb and flow. Elections have consequences, as they should, and so there's that ebb and flow. I more am concerned in the longer term that as the US has stepped back from our leadership around the globe, that our capital markets stay the sweet spot that everybody wants to be at.
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Tom Keene
Gary Guesser, one final question here before we let you start your morning here in Manhattan. You have so much experience at this. You've seen the good and the bad. We had Disney with a succession yesterday, two days ago. How do you do executive succession correctly with all that you've, you know, Goldman Sachs and others. And frankly at the sec, how do you do executive succession?
- [17:19]
Gary Gensler
Look, it's hard. Simon Johnson and I just started this podcast, Power and Consequences. We don't know who would step in behind Simon or me. It's just a small little podcast. But when you're at a big company, you really have to have succession planning. And Tom, you're terrific at this show. You have to have succession planning even for this show. And that's a responsibility you have to your shareholders and to have that set up. But then it's hard because some of the most talented C suiters don't want to stick around. You know, Jamie Dimon, terrific. Run that firm for a long time. Well, you've seen loads of really good folks in his senior suites say, no, I'm gonna, I want that opportunity in my mid-50s to go run something. So that's. But you have to start with that. The board of directors also has to be very involved and say we need this succession.
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Tom Keene
Should we have more people writing an annual note like Mr. Dimon? I have a very strong feeling here we should. But let me ask you.
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Gary Gensler
Well, look, Warren Buffett, Jamie, who I know.
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Tom Keene
Who are these? The CEOs of this managed PR event with 47 people around him massaging a two paragraph message. Baloney. We need, it's better to know what they think.
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Gary Gensler
And they're using AI now. So sometimes those Messages are a slop, too.
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Bloomberg Radio Analyst
That's right.
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Gary Gensler
But I.
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Tom Keene
In your class at mit.
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Bloomberg Radio Analyst
Oh, good question.
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Gary Gensler
Oh, it's everywhere, Tom. The students are using it and I don't use it to grade students, but I do use artificial intelligence to do research, to challenge to. So I don't think you can say in a classroom, oh, we're gonna ban it. No, this is the calculator. Came along when I was a kid. We use it. The Internet came along. We use. Here's the thing, students, if you're listening, you have to command it, you have to challenge it. Don't let AI command you. You have to stay ahead of that. I call it the AI Bear will get you unless you really run faster and challenge the AI.
- [19:27]
Tom Keene
Can I do one final, final. The time. Final, final, final question with Gary Gensler. Are we going to see an AI roll up? There's just too many smart people running around not making money. Axios was brilliant on this yesterday. Are we going to see an AI roll up?
- [19:43]
Gary Gensler
I think it's going to. It is a field where you'll see winner take most meaning there's going to be one to two big Michael Maubous models in the US and one to two big consequential models in China. I'd be worried about China because China is doing more an. We're going to have wide distribution of this and dispersion of this. So my eye on the geopolitical thing is do never count China out.
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Tom Keene
One final, final, final, final question. Is Rubenstein doing okay with the Orioles? I mean, bringing in Alonzo and all?
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Gary Gensler
Look, I don't have a view on that, but no, David's had a lot of fun with the Orioles. I know that he sits down front.
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Tom Keene
You look at the game and he's down front in the cheap seats and
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Bloomberg Radio Analyst
tell you there's stands the test of time.
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Tom Keene
Oh, it does.
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Gary Gensler
And there is David, who's run a big alternative asset management firm, Carlyle. He hasn't sort of been as troubled in that private credit space. He has the URLs. He has kind of this version of a podcast where he does his interviews. I mean, talk about a guy. And he served in the American public. He served the public. So there's a. There's a kind of. David, if you're listening, a kind of hat tip to you. You're like a savant.
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Tom Keene
Yeah. My people saying, Tom, put a cork in it. Gary Gensler, thank you so much. The former chairman, the securities Exchange Commission, a great supporter of all we do here at Bloomberg surveillance and of course, podcast. Look for it with the Lloyd Simon Johnson out of MIT. I'll put that out on LinkedIn and Twitter.
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Bloomberg Audio Studios Host
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