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Well not commence a three hour interview. Gary Gensler joins us now. He's a former chairman of the Securities Exchange Commission, a modest tenure of duty at Golben Sachs as well and critically long ago and far away writing legislation Sarbaines Oxley is well, well, well over twenty 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 two
thousand and five, two thousand and six 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 thirteen Bankers the SEC not Unstler's sec Final Rule Alternative net capital requirements for broker dealers that are part of consolidated supervised entities. August twenty, two thousand and four.
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.
Well, there was 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 Allan himself, I worked with them closely in the late nineteen nineties, actually met Allan in the nineteen eighties at a wonderful dinner at Larry and Billy Tish's house in the mid nineteen eighties. And Alan was a dedicated economist, a dedicated public servant. And look, Tom, none of us
get everything right. And yes, in those key years going into that OA crisis, there was too much leverage being built up in the housing market, too much leverage being built up in the financial markets.
One final question in Sherman green Span, just as Paul and I feel the news flow right now, Gary Gunsler is just so important. He was, in my estimate, a market economist. I love what Greg Hips said, more accountant than theorists. 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.
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 leader of the Federal Reserve that were lawyers.
We've had leaders of the Federal Reserve that have come from all sorts of places. William Mtchesney Martin famously from the nineteen fifties and sixties had run the New York Stock Exchange. Alan understood markets. He is a young guy. He used to trade futures in the old Chicago merket
TIL type of futures markets. And I remember conversations with Alan about futures in the nineteen nineties, and then when I took the role at the Commodity Futures Trading Commission, Alan and I would sometimes get on the phone and he said, well, this is how futures markets really work, and this is how energy markets. And he'd beg 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 they were in balances, and there were big imbalances. He navigated during the Internet enthusiasm, but he didn't quite navigate that on the housing markets.
Paul Sweeney, you get lucky. You have Gary Genslron and moments ago across the Bloomberg is a five trunch SpaceX benchmark dead offering right, perfect timing.
Gary.
We're at a time here in the markets here where we're getting just these mega IPOs SpaceX, you know, they win public and we've got anthropic and open AI. That's send a signal to you and to others about where we are in this market cycle.
Well, I think so you used 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 green Spence nineteen nineties, equity markets is funding this big burst of infrastructure built in AI seven hundred and fifty billion dollars this year, up threefold in just
two years. And to scale that, that's a about two and a half percent of our gross domestic product and so then you have like space Echo Public and maybe anthropic and open AI.
We'll see.
I think that's somewhat of a tell Google raising eighty five billion and the markets have to digest this, and then there's valuation questions, you know, at one hundred, one
hundred and forty times revenues without earnings. So this will all sort out, but it also might be 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, we say, as all those venture capitalists and sovereign wealth funds starts selling those shares, that you see a downward pressure on the not just SpaceX, but the whole market.
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?
Look, there's thousands of remarkable research scientists and faculty here, so I can speak for just maybe myself, and I think AI is the most transformative technology of our times.
But we've had this before.
If you go back over the last two hundred years from canals to the Internet to this and 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 eighteen seventies where we had disastrous recessions.
Is there reckon like after the nineteen.
Twenties 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 those the prediction markets. You have to have two things. You have to have AI hyper scalers 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 AI.
We continue with Gary against the former chairman of the Securities Exchange Commission as commitment to Sloan, where he's won a couple like student trophies.
Is that right?
I didn't fall asleep in his class trophy? Does it wonderful?
Tom? You're too kind?
He does a wonderful podcast Assignon Johnson. I want to go two questions here, Gary. Quickly, a lot of people went retail on bitcoin and they enjoyed buying it one hundred or one hundred and ten. What do you say to the retail crew that have losses in bitcoin?
Look, markets both trade on sentiment and fundamentals, and the challenge for those purchasers who are is what are the fundamentals we were just talking about that is with SpaceX. But there's a real business there. I mean, Elon Musk is 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.
I'll refrain from editorial lensing here for Tom Kean, I've got a chart from Jeff Jake. Thank you zero Hedge for this. Gary Gensler to me, it's manipulated. They do an IPO which is five percent of the SpaceX float. They trunch it out August eleven, twenty one, September ten, September twenty five, they get fifty percent of the stock out October ten. They finally get out to sixty percent of the stock out December ninth. 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 where a company went public.
Well, so here's the other thing. Nasdaq made an accommodation in how they do their index, the NASTAK one hundred and Once there's thirty percent 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 for fifty eight percent 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 let's go for more. They got to take you know, a third 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.
Gary, as we think about the continued rollout of AI across the economy, what do you think the regulatory framework should be?
Dung forward? Look.
I think with any great technology, a society adapts and says, listen, there's public goods and we have to promote them.
We call it responsible AI.
I started doing work on this seven 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 healthcare, 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 guard rails. 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 will be a very interesting next several years in terms of the politics of all this.
Paul, what's it like working with Simon Johnson? I've known him for years, We're quite close, et cetera. But I'm not in the trenches where gunstlers to walk in the room with the Nobel Lauriate. What's it like working he's Johnson?
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 nineteen nineties, working with Drona s and Oaklow and Jim Robinson. It led to that Nobel prize. But it's a remarkable collaboration. Sometimes sometimes we in the classroom have to make room for each each of us. And he's 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 Gary of Samuelson was so angry at his incompetence that he ripped the chalk out of Stanley Fisher's heads threw it across the room. Some of that 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 remembrance for the life of Ellen Greenspan.