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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
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Studios Podcasts Radio News.
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Joining us right now is the former chair of the cftc, the former chair of the sec, former banker at Goldman, and now a professor lecturing on quite an array of things in the world of Wall street and technology. Great to see you. Gary Gensler.
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Great to be with you. Remain Sorry Katie couldn't be with us as well.
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She could not. She sends her best. And I'm actually going to start with a question that she actually raised and this surrounds the Space X IPO and the corporate governance structure which we Learned from the S1. And we are awaiting an updated S1 filing later today that will give us a little bit more clarity about what this is going to look like. I do wonder, given your past at the sec, given the work you did on Sarbanes Oxley, would this IPO have seen the light of day under the previous regulatory regime?
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I haven't looked at it that with that in mind. But you know, we have a great capital markets in the US and we basically say that we're merit neutral. Whether it's under Democrats or Republicans, it doesn't matter. It's merit neutral as long as there is the full disclosure about the material risk. And there are a lot of material risks when you're trying to offer something to the public at around 100 times revenues. That's not 100 times earnings, it's 100 times revenue. So, so it's really about whether there's all the material disclosures and particularly around the governance, as you said.
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Well, I mean, you know, in fairness, the disclosures are there. I mean it's a pretty intertwined ecosystem if Elon Musk Musk is interests and properties, so fair enough to that. But then when you start to go through some of the regulatory sections out with regards to independent audit committees, independent pay compensation committees, self dealing loans, things like that, there do seem to be a lot of issues with regards to what we've seen in that S1 filing and why it's able to get to market without those being addressed.
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And many companies have had control shareholders take things public. But this is one where it's really even more, one might say, dominated by that control shareholder. And so anybody investing in it has to sort of really take that risk in mind.
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Are we reading too much into this one particular IPO. We've had several other IPOs this year that have run into these issues.
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I think it's a remarkable year when we see that Space X Anthropic is apparently now filed. Open Air wants to tap in all these, I'll call mega IPOs. And yet Google also is tapping the market for $80 billion of fundra. So we've got 85 billion.
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They've actually raised it because of demand.
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There we go, there we go. Look, we are in this AI boom and the question on investors mind, is it a bubble? But we're in this AI boom where we're spending as a nation $750 billion on AI infrastructure and that's tripled in just two years. And I think that each of these three companies, Space X Open Air, Anthropic, want to tap into that enthusiasm. And if I were their bankers back at Goldman Sachs, I might say, you know, you want to tap in when the mood is there. Yeah, but you just talked about private credit earlier and there's deep valuation questions and concerns in private credit and private equity in part because if AI is disruptive, it's going to probably destroy some value. And here these three big companies still have to figure out a revenue model.
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Yeah, and look, I mean We've had numerous IPOs over the years in the US where companies have come to market with maybe not a fully articulated long term business model and that hasn't stopped them. And some companies that have gone on to great things, I think about Amazon, Metta, a lot of questions surrounded those companies when they came public and they've proven themselves over time. When you look at the AI boom, or at least the interest in it right now, do you look at the technology itself? Just set aside the money for a second. The technology itself as being really transformative of our society, economy, whatever.
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I'm at mit. Yes. So you teach a class on AI and I teach a class money. Simon Johnson and I have this Power and consequences podcast we talk about, I like every four or six episodes because it just. Yes, I think it's really transformative. But remain, if you look at the last 200 years of transformative technologies, you pick your favorite 8 to 10, from canals to this.
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Mm.
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You usually have a boom period. We spend a lot. We usually peak around 2 to 3% of gross domestic product on the build. We often then have a retreat, sometimes a recession, sometimes big depressions like that, 1870 depressions around railroads. Okay, you weren't around.
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I've read about it.
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But you've read also about The Internet. And you were. You were reporting when we sort of had that retreat. Mm. So it's quite plausible we'll have that reckoning at some point in time. When you're spending 7,800 billion dollars on all the data centers and the native AI revenues right now, or maybe 100 to 150 billion, that's got to right itself. And so how does OpenAI make money? They got to raise more revenues, raise
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more revenue, and it's certainly possible they can do that if you absolutely get the market. I mean, there's been a lot of statistics showing the percentage of our population that's really using these tools, which is still relatively small. So if you believe this is going to be a big thing, you can say, okay, there's an addressable market there that's yet to be.
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All of their challenges is amongst themselves. They have competitors. Anthropic may pass. Yeah, right. Open AI and Google. And then it's China as well, because China is taking another strategy where they're using AI and they're putting a lot of this out in what's called open weight models, where you can get the secret sauce, you can get the weights and use it. And I think that Chinese want to diffuse that around the globe. And I'll say this. US Companies will take a look at Chinese models if the US Models don't stay sufficiently ahead.
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Did you get a chance at all to look at any of the contours of the executive order that Trump signed this week on kind of providing some sort of AI oversight? I mean, yes, I know it's very contentious for both reasons. Some people thought it doesn't go far enough. Some of the tech community thinks it's unnecessary. And a lot of those people will point to the progress that China has made and that fear.
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Look, it's a fascinating time. Anthropic has this new computer coding model. It's their fourth generation. It's called Mythos, and it's really successful. It can find thousands of problems in computer code that we humans haven't found. And so Anthropics has held it back and so forth, and the US Government has taken note. What's fascinating is what the President just did is said, all right, let's have a voluntary system where these big model Companies will, for 30 days, give the US government a look, see. Well, President Biden, who I worked with, had done something a little bit more robust, but was like, give the Department of Commerce a chance to look, see. And when President Trump came in, he said he tore that all up.
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Yeah.
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And now I think there's. There's a debate inside his administration and the national security crowd.
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Yeah.
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Is saying we need to be more careful. This too late, though.
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I mean, it's been a year and a half, and you see the pace of this technology.
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This is again, one of those things Simon and I just recently debated. Can I behave responsibly and can we humans deploying it behave responsibly? I think that's going to be the challenge for our times. I think that is the challenge in the next couple of decades, but it's really here right now. We allocate jobs using AI. We allocate credit using AI. You probably decide what shows you put on this tv.
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Yeah, we do a lot with AI.
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With AI, absolutely. But that's okay. But now when militaries use it, when you cyber attackers, I tell the students at mit, I say cyber attack, remember?
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Yeah.
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The threat actors are using AI as well.
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I am curious just from your perspective, as, as someone who's at a university, I know MIT is kind of a. Probably a little bit of outlier to ask this question, but we heard a lot of anxiety amongst graduating students this year, particularly with some of the commencement speeches kind of extolling the, the potential of AI and some of the heckling that those speakers got in return. Are your students relatively receptive to, I guess, what's out there now and what may come?
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They're, they're great students across the university, undergraduates to PhD students at MIT. I think that they'll do really well. But I tell them, I said, you can't let your guard down because you individually have to train the most important processor, your own mind. And you don't want to have like some cognitive offloading become like, oh, my God, I can't reason and write and think on my own. And whether you go to a state school or mit, that's what I advise people to do, is, is still train this and you'll do all right. But there is going to be disruption. Every general purpose technology leads to big disruptions in the job forces and, and social chains. And so now you see a lot of Americans not only worry about jobs, they're worried about addiction to these platforms. And so I think the political center is moving on this president and this executive order was just a little, little bit of a leaning. Yeah. In that direction. Yeah.
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And you're also starting to see it become a bit of a debate with regards to the midterm elections and how rank and file voters you have. Gary, great conversation. Gary. Gensler there. He's the former chair of the sec. He's now at mit. He's got a great podcast with Simon Johnson that everybody should check out.
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