Bloomberg Audio Studios, podcasts, radio news. With that question, this is the interview of the day for Global at Wall Street. Paul, can I dare say it's the interview of the month.
I'll go with that. 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 Golden 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 Paul, It's wonderful to be with you. You're a little exaggerating about me, but I'll take it.
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 two thousand and eight, two nine, and his little monograph thirteen Bankers, It's distilled your chaos. It was your fault. We had the credit
of seven and Simon Johnson, Lobel laureate did it. Here is Simon Johnson in thirteen Bankers, and I will take credit for really making this public the SEC Final Rule Alternative net Capital Requirements for Broker Dealers August twenty, two thousand and four, And three years later, that third week of August oh seven, libor Ois went out four standard deviations. Are we doing it again with private credit? Look?
I won 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 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 risks there, but it's a small part of our overall capital markets.
Don't us capital markets what one hundred and fifty trillion or so, and this is a two trillion dollar 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'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.
How do you respond to people that blame you as SEC chairman for opening up the door to this retail investment in esoteric things like bigcoin and others. But also, Paul, how would you phrase it a liquid private credit or less liquature? They blame Gary gainst the chairman, Gainstler, it's your fault. How do you respond to that?
That's a new one. I hadn't heard that top.
It's in the Zeist's Chunseler and Biden. Let this happen.
I repond, I 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 fifty years in the direct lending space. That started in two thousand and eight to twenty twelve. Mark Rowan started Apollo, Steve Schwartzman with Blackstone. They were building big engines, and it was already probably when I got there, at least approaching a trillion dollars. So I just think that that that was something that was.
Already was it? You haven't your four oh one k right. Of course.
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 of 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 five percent. They're talking twenty thirty forty percent. They're talking like they're in an endowment.
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 Blankfind said it well. He was asked recently about it. He says, I don't care why
they're doing this. When this goes down the institutions Washington, No, I don't care about but when it goes down for private individuals, it's going to be bad.
If you said, with the celebration of mister Blankfind's book, how many book parties does he having? You ben to them? All? Right?
No, But Lloyd and I we were at Going and Sachson, we were honored to make partner together. So he's a very clever and funny individual.
So I just preferred to Garry as Rob. You know why I did that. His twin brothers Robin, that's the right. He's a buddy of.
Marketing, my identical twin brother Rob.
Yes, Price's he's the guest across.
America with this Garry Gunsel, the former chairman of the SEC and celebration of his podcast with the Laureate Simon Johnson. It's Sloan Paul Sween.
So Gary, the investors have been dealing over the last three four weeks with all the issues going on in rants, whipping around energy markets, whipping around all kinds of risk markets. How do you view that when you 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 understand.
Perhaps, look, it's it's 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 this September and December prices for both oil and for natural gas. I'd 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. Like 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.
If you're at if you were back at the SEC, what would be your primary issue worry to do item?
Maybe, 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.
Tell me about the hedging risk here I brought 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 and celebration folks of his one 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 rehdge or dariusay out again, what is our risk right now of there's a point where you have to rehdge, you have to restructure all these derivative instruments.
Well, that is always a risk, particularly if a firm fails, and that's what we would look at when I was at US Treasury many years ago and long term capital management failed. So everybody has to rehatch. So when there's breakage in the system, it's as you just said, the rehadch 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 rehadge.
The certitude of the street. Gary Gunsler, is we fix this in seven eight the big banks are not exposed, but then they're the others. What are the shadows of the others that you're focused on.
I do think that the big banks have better capital position, are more resilient twenty twenty six than two thousand and seven. 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 of the private credit space. And now back to just private credit, we
or 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 other fields, have to decline.
Crypto.
Have we gained more any clarity on who is regulating it, who should regulate it, to what degree should be regulated? Where are we on net?
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 the investing public, I'm not saying they've moved on, but there's been a new darling at this little casino.
One of our colleagues of Bloomberg Television was just interviewing the CEO one of these prediction markets and adamant that it is not gambling.
Okay, yeah, there's no gambling in this town.
Right, No come out, And I'm not going to blame this on you, but I'm sorry, there's this huge thing I gotta make some news this morning. Do you look at these prediction markets as gambling, mister Gensler.
What parts of it are?
Sure?
Look, there's parts of it that is just hedging economic risk. But now you go all the way over to the sports world, and the sports world that's just gaming.
It is. 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 on the speculation within these markets. I mean it's basically a casino like people voting against Duke and basketball. I don't see Penn in the did you see the University of Pennsylvania in the bracket? Wait?
Wait, wait, that's my all my mind? Are you eating Yaleen?
Did you see this? I saw them? Are you in the second or third row at the game?
I don't want to give that up, Tom, 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 they're parts of the cryptocurrency markets that are just pure, pure speculation. And so you know, how do we protect the investing public in those worlds? How do we protect the investment public
and 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?
Mark? Okay, So Lexus's great grandmother took bitcoin from thirty thousand up to one hundred and ten thousand.
Your great grandmother, I love that.
About three years old, Gary, Come on, we've gone from one hundred and ten thousand whatever on bitdog back down to where are we seventy four thousand today? Should should four one case, should Ira Should Grandma's be playing with these fancy things where we question.
The underlying Look, we we let the investing public invest. We're merit neutral. That's our system. I believe that's a good system. However, we sort of have to have transparency. We have to have market integrity, right, and we have to make sure that people protect those investors that they're not getting picked off.
Okay, Paul wants to jump in. I got one more question. I'm going to shut up, Gary Gensel. You mentioned transparency. How should we mark the market private credit? I mean, is it by appointment? I mean, help me here.
That's the challenge at this If it were just a pure institutional market, it was some sovereign wealth run from Katar investing in private credit. And by the way, that might also change the valuations. What's happening in Iran could
be a little less money from sovereign wealth funds. But your question, I think it's hard when you have the general investing public and as you said in four to one, K's or rias and I think that's a very challenging and I would say problematic part of this private credit space.
Bloomberg News has had a good story yesterday about quarterly reporting for financial results for public companies. Europe and other parts of the world do it twice a year. We do a quarterly. What's your view there.
I'm very clear on this. I think it's one of the parts of the US capital exceptionalism, our capital market since nineteen thirty nine. The New York Stock Exchange put this in the nineteen thirties. And you're saying, not everything in the nineteen thirties, mister Genzer 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 Keane 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.
Yeah, you know, it's a former self side equity researchannel, so it was four times a year you had to gear up up. But arguably that is a backlone. The transparency one of the reasons that our capital markets are as deep as they are.
You did media years ago.
Right, Yeah, I advise the companies. Yeah, so I helped. I helped media companies buy and sell each other, the big newspaper companies, the new houses, the Yes.
Okay, so ZEVs loves Pocket and seven hundred million office transaction Sweeney's expert on as 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, mister Atkins, I don't think is weighed in on this, which is I know you don't want to comment on that, but but just your Gary Gonsler media thoughts on our media roll up.
I think it's we were in a better system and a better rule of law when these decisions were not made and 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.
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.
Region, lowering, lowering taxes on the company.
Since actually, how do you view the regulatory overview of the financial services industry today? Does anything need changes that need to be losing tightened?
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. And 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.
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 in 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 Section others frankly at the SEC, how do you do executive succession? Look? Correctly.
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 May is 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 the 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 suiteters don't want to stick around. You know, Jamie Diamond terrific run that firm for a long time. Well you've seen loads of really good folks in his senior suite say no, I'm going to I want that opportunity in my mid fifties 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 so we need this succession.
Should we have more people writing an annual note like mister Diamond, I have a very strong feeling or we should.
But let me ask you, well, look you bofeed Jamie right now, I hear.
To see also this managed pr event with forty seven people around a massaging paragraph message. It's blowney. We need it's better to know what they think.
And they're using AI now so sometimes as messages or AI slop too.
But do I got AI in your class? T Oh, good question.
Oh it's everywhere, Tom. The students are using it and and I don't use it to grade students, but I do use artificial intelligence to do research, to challenge to to to uh so, So I don't think you can say in a classroom, oh oh, we're going to 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. Uh you 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 anal final question YEP 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?
I think it's gonna. It is a field while you see winner take most, meaning there's going to be one to two big Michael Mobson models in the US and one to two big Consequence models in China. I'd be worried about China because China is doing more and open weight open 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.
One final, final, final, final question. Is Rubinstein doing okay with the Orioles, I mean bringing in Alonzo and all.
I don't have a view of that. No, David's had a lot of fun with the Orioles.
I know that he sits down front. You look at the game and he's down front of the cheap scenes.
I'll tell you there, Blucark stands the test of time.
Still, there is David who's run a big alternative asset management firm, Carlisle. He hasn't sort of been as troubled in that private credit space. He has the earls. He has kind of this version of a podcast where he does his interviewers, I mean talk about and he served in the American public. He served the public, So there's a there's a David if you're listening, a kind of hot tip to you. You're like a savant.
Yeah, people are 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, Surveyance and of course podcasts. Look for it with the Lord Simon Johnson out of M I T. I'll put that out on LinkedIn and Twitter