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And joining me now for more on this here in our Washington, DC studio is Gary Gensler, the former chair of the Securities and Exchange Commission. Mister Chairman, welcome back to Bloomberg TV and Radio.
Oh, it's good to be with you, Kayley, 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?
Other people? We are in this job right now, but some of the concerns that I think. She also wrote another letter to the index providers, and Romayne was just speaking about that. And one of the things is that NASDAK made an accommodation. They changed their rules. And for your listeners, this is important because it's when to the
index company niece 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 lock up for one hundred and eighty days, so it will be a faster phasing
of this. And in fact, what will be interesting under the Nastak rules, once about a third of the stock thirty three percent 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 Nastik one hundred.
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 SpaceX and an Elon Musk led company and changes being made with that in nine or is this really setting new precedent and this is the way we're going to see these things work going forward.
Well, we're in this little era of mega IPOs and we don't know what will happen with anthropic and open AI. We just have this Google offering of eighty five billion. 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 nineteen percent pop today are about one hundred and twenty times revenues not earnings.
Now, there's no profit here.
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 sixteen billion dollars in revenues in the last twelve months. Their artificial intelligence business dooking it out Grock is not currently thought of as one of the leading three. That's Google, Open Ai, anthropic, and don't count the Chinese models out.
So where does that play out over the next two to five years And are these valuations taking some of those risks in that 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 eighty five percent of the voting share here. There are major governance questions that were raised as this company went public. How great of a concern is that is that?
To you? Well, they've also shifted some things. 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 is really shifted, and
those risks have to be understood by shareholders. I do think as you start to see these shares come available out of lock up 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 lock up. 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 one hundred and twenty times revenues. Maybe I should take some of the profits off the page.
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 market's overall mister Chairman, because we've also seen as maybe we're reaching the end of it now open questions to whether we reach a themorandum 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.
I think there are always those concerns with this corner of the markets, 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 investors get burned in those markets, then they'll back away.
It could 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.
Do you believe that ultimately prediction markets should be overseen by federal regulators versus the States.
Well, I just followed an Amacus brief in the Sixth Circuit just yesterday, and I think this is settled. Actually that at least on sports betting, Congress in twenty ten in no way said that sports bets are swaps, nor did they say the Commodity Futures Trading Commission, which I was proud to run, really 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 they control this. Thirty nine states, Blue States, Purple states, and Red states have taken the other side. When does that happen in America?
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 open AI, or if Grock 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 are capitalism the financial markets actually could create great financial stability risk.
I wrote about this years ago. I think it's even more of 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, yes her, and she goes offline, and so that I
love romantic comedies. But that's I think the issue. But in addition, you're right the thread actors, and they can be state thread 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 how to control it. In some sense,
I would say mitigate it, mitigate it. But I think the thread actors will use and are using AI to probe for vulnerabilities at Blumberg and at Goldman Sachs.
All right, what an optimistic note to leave things on, mister Sherman, thank you for joining us. The former chair of the SE see Gary Gensler, and let the record show he brought up crypto in this conversation.
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