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Indiana University strengthens tomorrow's workforce with practical real world experience. IU grads make a difference in your community, serving as teachers, nurses and engineers who rise to tomorrow's challenges and meet them. Learn more at iu.edu impact
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Bloomberg Audio Studios Podcasts Radio News we now commence
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a three hour interview. Gary Gensler joins us now. He's a former chairman of the secur Exchange Commission, a modest tenure of duty at Goldman Sachs as well and critically, long ago and far away writing legislation. Sarbanes Oxley is is well, well, well over 20 years ago. Gary, I've been dying to talk to you. I read all the wonderful comments on this Life of Alan Greenspan and I get the criticism about interest rate dynamics in 2005, 2006 and that. But I'm going to go to a guy that you have a nodding acquaintance with, one S. Johnson up at mit. I've quoted this many times, folks. Simon Johnson and his magisterial 13 bankers, the SEC, not Gensler's SEC. Final rule alternative Net capital requirements for broker dealers that are part of consolidated supervised entities. August 20, 2004 Gary Gensler we can criticize Chairman Greenspan, but he had a lot of help in screwing us up into the financial crisis, didn't he?
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Well, there is a broad miss I don't know how else to say it. Policymakers across the spectrum and the American public paid the price and we exported, by the way, that crisis around the globe. But in terms of Alan himself, I worked with him closely in the late 1990s, actually met Alan in the 1980s at a wonderful dinner at Larry and Billy Tisch's house in the mid-1980s. And Alan was a dedicated economist, a dedicated public servant and looked, Tom, none of us get everything right. And yes, in those key years going into that crisis, there was too much leverage being built up in the housing market, too much leverage being built up in the financial markets.
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One final question and Chairman Greenspan, just as Paul and I feel the news flow right now, Gary Gensler is just so important. He was, in my estimate, a market economist. I love what Greg Yep. Said, more accountant than theorist. Do we need more central bankers steeped in trucking data in Nebraska? I mean, do we need a more of a tinge of Alan Greenspan in our future economist types?
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Well, I'll tell you the other thing about Alan. Having worked closely with him for three or four years, maybe not as closely as others, he also was really steeped in the financial market. So there's all sorts of different types of economists and we've had leaders of the Federal Reserve that were lawyers. We've had leaders of the Federal Reserve that have come from all sorts of places. William McChesney Martin famously from the 1950s and 60s had run the New York Stock Exchange. Alan understood markets. He as a young guy used to trade futures in the old Chicago mercantile type of futures markets. And I remember conversations with Alan about futures in the 1990s. And then when I took the role at the Commodity Futures Trading Commission, Alan and I would sometimes get on the phone and he'd say, well, this is how futures markets really work and this is how energy markets. And he'd be into the backwardization of the markets. That was remarkable about Alan. I think he had a sense of financial markets. He had too much of a trust though in them to right themselves when there were imbalances and there were big imbalances. He navigated during the Internet enthusiasm, but he didn't quite navigate that on the housing markets.
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Paul Sweeney, you get lucky. You have Gary Gensler on in moments ago across the Bloomberg is a five tranche Space X benchmark debt offering. Perfect timing, Gary.
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We're at a time here in the markets here where we're getting just these mega IPOs, Space X, you know, they went public. We've got anthropic and open air. Does that send a signal to you and to others about where we are in this market cycle?
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Well, I think so. You use the word signal, I use the word tell Simon Johnson who you mentioned earlier. He and I do this podcast and we just put one out on the mega IPOs just this morning on power and consequences. And I think the overall equity markets like Alan Greenspan's 1990s Equity Markets is funding this big burst of infrastructure build in AI $750 billion this year, up threefold in just two years. And to scale that that's about 2 1/2% of our gross domestic product. And so then you have like space that go public and maybe anthropic and open. I will say I think that's somewhat of a tell. Google raising 85 billion and the markets have to digest this. And then there's valuation questions at 100, 140 times revenues without earnings. This will all sort out. But it also might be that six months from now we look back, it was fine, but there's an equal and better chance that six months from now we look back and we say as all those venture capitalists and sovereign wealth funds start selling those shares, that you see a downward pressure on the not just SpaceX, but the whole market.
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You're up there at MIT, Gary, and as I understand, there's some pretty good engineers and computer geeks up there as well. What is kind of your understanding? What's the understanding up there at mit just about AI today? Because initially we in the marketplace we just said let's just buy the chips. But there's more to it than that. Market seems to be trying to discern some winners and losers. How do you guys think about that?
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Look, there's thousands of remarkable research scientists and faculty here, so I can speak for just maybe myself. I think AI is the most transformative technology of our times. But we've had this before. If you go back over the last 200 years, from canals to the Internet to this, what happens? And Ray Dalio talks about this too. We get an over enthusiastic financial market support and then at some point we build so much infrastructure we have a reckoning. And I think that's what you learn from history is that we tend to have reckonings. Now is it a calamitous reckoning like with railroads in the 1870s where we had disastrous recessions? Is it reckoning like after the 1920s we had a big boom on electrification, mostly in utilities, or is it like the Internet where you have a modest reckoning, still a recession. And that's so AI is transformative. One last thing, Paul. I think of it a little bit like a parlay bat. You know, the prediction markets, you have to have two things. You have to have AI hyperscalers and open AI be able to build the revenues. Right now they don't have the revenues. And two, you need to build productivity in the economy enough for the capital markets to overlook all the disruption. All the companies that are going to be disrupting value with a successful I.
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We continue with Gary Gensler, the former chairman of the securities Exchange Commission. His commitment to Sloan, where he's won a couple like student trophies, was that right? I didn't fall asleep in his class.
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Trophy does a wonderful time. You're too kind.
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He does a wonderful podcast with Simon Johnson. I want to go two questions here. Gary, quickly. A lot of people went retail on bitcoin and they enjoyed buying at 100 or 110. What do you say to the retail crew that have losses in bitcoin?
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Look, markets both trade on sentiment and fundamentals. And the challenge for those purchasers are, is what are the fundamentals? We were just talking about that as with Space X, but there's a real business there. I mean Elon Musk has Built a real business. It's just a question of where do you value it? Here the ebb and flow of any purchaser of Bitcoin has to think, all right, what are the real use cases? And particularly to be even more careful with the rest of that asset class crypto. It's like meme stocks. You have to be very careful that you're not trading just on sentiment.
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I'll refrain from editorializing here for Tom Keene. I've got a chart from Jeff Jacobson. Thank you Zero Hedge for this. Gary Gensler. To me, it's manipulated. They do an IPO which is 5% of the SpaceX float. They tranche it out August 11, 21st, September 10th, September 25, they get 50% of the stock out. October 10th, they finally get out to 60% of the stock out December 9th. Is it just a manipulation of folding the the stock into the public in a way that keeps the fervor up? It doesn't seem like the old days
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where a company went public well, so here's the other thing. NASDAQ made an accommodation in how they do their index, the NASDAQ 100. And once there's 30% of that stock outstanding, which might happen as soon as mid August after the earnings release. Once that happens, the entire free float is counted into the indexes, which put out Elon's 42%, 58% might fold into the indexes and then there's a buy. But here's the other side. I caught the great rebalancing. All those venture capitalists and sovereign wealth funds, they're going to want to take risk off the page. I mean, Tom, they're not going to want to just leave their profits in and say let's go for more. They got to take, you know, a third, a half, maybe three quarters of the risk off the page. And so there's going to be a lot of selling pressure too, as these lockups come off.
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Gary, as we think about the continued rollout of AI across the economy, what do you think the regulatory framework should be going forward?
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Look, I think with any great technology, society adapts and says, listen, there's public goods and we have to promote them, call it responsible AI. I started doing work on this 7 years ago and tried to move the ball on that, even at the securities and Exchange Commission. I think the most it's happening is at the states about protecting people against bias, protecting people's privacy, of course, the accuracy of it. But when the algorithms are making decisions on our behalf, who gets health care, who gets a job, who gets credit, it's important that they are accurate. And I think that right now this current president is more into, let's just support a competition with China. Let's, you know, as they say, just take off the regulatory guardrails. And yet I think society is reacting and starting to say, what about my kids? What about addiction? What about the use of this? What about my lost job potential, maybe. And so it'll be a very interesting next several years in terms of the politics of all this.
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Paul, what's it like working with Simon Johnson? I mean, I've known him for years, we're quite close, etc. But I'm not in the trenches where Gensler has to walk in the room with the Nobel Laureate. What's it like working?
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He's Johnson, it's, it's fabulous. He's a very gracious colleague. He's got a fertile mind. I mean, his mind just. I mean, how did he come up with those ideas? In the 1990s, working with Jerome Acemoklo and Jim Robinson at led to that Nobel Prize. But it's a remarkable collaboration. Sometimes we in the classroom have to make room for each of us. And he's a remarkable chalkboard teacher as well. This is a secret of his. But he loves being at the chalkboard and summarizing things and then bringing students into that conversation. Here at mit, Stanley Fisher has a great story.
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Gary of Samuelson was so angry at his incompetence that he ripped the chalk out of Stanley Fisher's head and threw it across the room. Some of them, some of the intensity. At the Massachusetts Institute of Technology, their next podcast will be how to fix the Red Sox. Gary Gensler is the former chairman of the sec and we greatly appreciate a remembrance of for the life of Ellen Greenspan.
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