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Indiana University Announcer
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Gary Gensler
Bloomberg Audio Studios Podcasts, Radio news and joining
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Kelly
me now for more on this here in our Washington D.C. studio is Gary Gensler, the former chair of the securities and Exchan Commission. Mr. Chairman, welcome back to Bloomberg TV and Radio.
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Gary Gensler
It's good to be with you Kelly.
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Kelly
It's good to see you. It strikes me that we did see SpaceX debut today after Senator Elizabeth Warren wrote to the SEC and requested a delay over concern about the valuation, concern about how this could impact retirement accounts. If you were still helming the sec, would you have shared those concerns? Would you have let this go forward?
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Gary Gensler
Other people are in this job right now but some of the concerns that I think she also wrote another letter to the index provider and Romaine was just speaking about that. And one of the things is that NASDAQ made an accommodation. They changed the rules. And for your listeners this is important because it's when do the index companies purchase these securities? And what's interesting is at SpaceX they have an arrangement where a lot of their insiders and venture capital firms and so forth aren't going to have the traditional lockup for 180 days. It will be a faster phasing of this. And in fact what will be interesting under the NASDAQ rules, once about a third of the stock 33% is no longer locked up, which could happen as quickly as July of this year, then they count all of it in the index so all of a sudden pop into the NASDAQ 100.
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Kelly
Well so let me ask you this as you speak to the unique nature of this in so many ways do you see this as being unique to Space X and an Elon Musk led company and changes being made with that in mind or is this really set setting new precedent and this is the way we're going to see these things work going forward?
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Gary Gensler
Well, we're, we're in this little era of mega IPOs and we don't know what will happen with, with anthropic and open AI. We just have this Google offering of 80 that's a sign of this enormous interest in artificial intelligence and in this case in space. I do think there's a shift that's gone on here in this particular offering. I mean the valuations kaylee, with the 19% pop today are about 120 times revenues, not earnings.
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Kelly
Now there's no, there's no profit here.
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Gary Gensler
There's no profit here. And two of the businesses are pretty understood, their space launch business and their Starlink, which is called connectivity. Those two businesses combined only had about $16 billion in revenues in the last 12 months. Their artificial intelligence business, duking it out Grok is not currently thought of as one of the leading three. That's Google OpenAI anthropic and don't count the Chinese models out. So you know, where does that play out over the next two to five years and are these valuations taking some of those risk in to that?
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Kelly
Well, and I also wonder how much of the valuation is valuing the man at the top and Elon Musk, he's going to have 85% of the voting share here. There are major governance questions that were raised as this company went public. How, how great of a concern is that, is that to you?
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Gary Gensler
Well, they also shifted some things. They, they did a little bit of we're not going to be in Delaware anymore, we're going to be in Texas. Right. We're going to be under a little bit different governance. And they also, the securities and Exchange Commission changed some things that shareholders can't sue the company, they have to go to arbitration. And so the governance has really shifted and those risks or have to be understood by shareholders. I do think as you start to see these shares come available out of lockup and so forth, you'll see where this stock will trade. And your earlier segment said, well, it's all about will they deliver on this big commitment of the new Starship. But I also think the uncertainty is about how the shares come out of lockup. And there's a lot of venture capitalists that will say listen, I love this but let me take some risk off the page, right? I mean this is at 120 times revenues. Maybe, maybe I should take some of the profits off the page.
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Kelly
Well, it's lofty to say the least. Of course we had a sense this was an unusual pricing, not the typical discovery process, it was just set. But we did have a sense of what the demand would be based off of private market behavior and also prediction market behavior. I want to talk to you more about the prediction markets overall, Mr. Chairman, because we have also seen as maybe we're reaching the end of it now. Open question as to whether we reach a memorandum of understanding with Iran. But we have frequently seen bets being placed on this conflict. Actually things moving in futures markets. I know the CFTC is looking into this. But do you think people should be concerned that the US Capital markets, which are renowned for their transparency, that perhaps some people are getting an edge that others don't have?
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Gary Gensler
I think there are always those concerns. But these, this corner of the market, so called prediction markets, where you can effectively make bets on whether the President of the United States is going to settle with the Iranians or not, or on sports or on politics, it's very hard to protect the integrity of the underlying events. And so I think that's a challenge. I think that we'll see how if, if investors get burned in those markets, then they'll back away. But can it also undermine the integrity of our traditional financial markets? That's what I would worry about too, if it undermines the oil, energy and stock markets.
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Kelly
Do you believe that ultimately prediction markets should be overseen by federal regulators versus the states?
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Gary Gensler
Well, I just, I followed an amicus brief in the sixth Circuit just yesterday and I think this is settled, actually that at least on sports betting, Congress in 2010 in no way said that sports bets or swaps, nor did they say the Commodity Futures Trading Commission, which I was proud to run, really is, is the federal regulator to oversee it. I talked a lot about prediction markets and with Simon Johnson on this podcast that I have power and consequences. But we're, I think that the Supreme Court will ultimately decide what's going to happen there. But just a mere assertion by a federal government actor that they control this 39 states, blue states, purple states and red states have taken the other side. When does that happen in America?
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Kelly
Well, we're seeing things happening in America, like someone becoming a trillionaire. Perhaps it's capitalism at its finest. If I could just quickly ask you whether it's anthropic or OpenAI or if GROK eventually gets there. When we see the power some of these artificial intelligence models have in the cyberspace, specifically, how concerned are you that the things that are supporting our capitalism and financial markets actually could create great financial stability risk?
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Gary Gensler
I wrote about this years ago. I think it's even more the case now. I think we will have a financial stability event and it will ripple through with millions of people. Yes, yes. But it might well be just that a bunch of banks or trading shops are relying on the same model and the model goes offline. Like in that wonderful romantic comedy when Scarlett Johansson was playing the romantic interest, the love interest was a computer. Her.
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Kelly
Yes, her.
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Gary Gensler
And she goes offline. And so that's, I love romantic comedies, but that's, I think the the issue. But in addition, you're right, the threat actors, and they can be state threat actors, North Korea, Russia, China, or just crypto related ransomware actors. And those ransomware actors, they're probing. They're probing, they're probing and I was glad to see the anthropic figured out
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Kelly
how to control it in some sense.
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Gary Gensler
And I would say mitigate it. Okay, mitigate it. But I think the threat actors will use and are using AI to probe for vulnerabilities at Bloomberg and at Goldman Sachs. All right.
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Kelly
What an optimistic note to leave things on. Mr. Chairman, thank you for joining us. The former chair of the sec, Gary Gensler, and let the record show he brought up crypto in this conversation, not
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Indiana University Announcer
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