Gary Gensler Talks AI Competition with China

SPEAKER_1 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Tom Keene (0:07)

Joining us now, someone that should have been there yesterday, Gary Gensler, of course, a legendary in Wall Street and the former chairman, Securities and Exchange Commission. Gary Gensler, what did Alan Greenspan do within the ups and the downs, the right and the wrong? How did he advance the American experiment?

Gary Gensler (0:27)

Well, Alan was a real public servant and I had the honor to work with him. I couldn't be there this weekend just because of things up here in Boston, where I'm at right now for MIT.

But he really understood the markets and deeply understood the markets. And I think in the 1990s, he sorted through this new technology, the Internet and what it was doing to our economy. And I think a little bit before others understood how to control inflation, but still leave enough room for the, I don't know if you want to call them the animal spirits, but that investment boom in the 1990s.

Tom Keene (1:09)

I look here, then let me jump forward right away to what you and you're working on at MIT with your wonderful podcasts as well. The new Internet is the AI. The news flow this morning, Paul and I opened the show.

Gary, I've never seen a company do a red herring like the Reuters report on Anthropic. I mean, to be polite, Gary, it's bizarre. Are these companies legitimate?

Gary Gensler (1:39)

Well, they have a remarkable thing how they've pulled in so many users so rapidly, Anthropic, OpenAI and the like. But the AI trade that our capital markets is hovering on top of is an investment boom that's about twice what the internet was. So back to Alan Greenspan, he was watching as a lot of tech companies were investing and it added up to about one to one and a half percent of the economy. It was considered at the end a bubble.

This is now two and a half percent of our economy. I'm talking about all the data centers and so forth. And here's the challenge for Anthropic and OpenAI is the Chinese models, they might not be quite at the frontier, but if they're two to six months behind us, regardless of how they do it, whether they use what's called distillation or not, and they're spending a lot less in the Chinese economy. A lot of US companies are saying, look, I'll use the Chinese model to do my reasoning, and maybe I won't use OpenAI or Anthropic. So that's the challenge for them. They're spending so much, but will it lead to the revenues to justify that spending?

Paul Sweeney (2:59)

Gary, so much capital as you well know has been raised in equity markets, fixed income markets to support the growth of AI. Even some of the founding voices of these companies at OpenAI and Anthropic, they are calling for some guardrails on this technology.

How do you think about that?

Gary Gensler (3:20)

Well, I think that they're real challenges. AI's capabilities, the ability to do coding on its own, you know, write the software, the ability to replicate itself and then send agents out on the internet. OpenAI's released that report about an incident this summer where the agents multiplied to 1200 different agents simultaneously looking for vulnerabilities and they found them at Hugging Face. And the last thing I'd say is beyond their capabilities, alignment. Are the models aligned with their human overlords, if you wish? We, the humans. And more and more, they're showing that they're, they have some reasoning on how they deceive and how they jump out of guarded sandboxes. So this is a real challenge.

I know the president calls it a hoax. I differ with the president on that.

Tom Keene (4:22)

Gary Gensler, with this voice, the former chairman, I should say, of the Securities and Exchange Commission, his good work for years at Goldman Sachs noted as well. I got to get to some other matters here. It's amazing. Gensler comes on.

The Bloomberg reporters in Washington are brutal.

Gary Gensler (4:37)

You should see the questions.

Tom Keene (4:39)

I mean, they want to know what he thinks about Yankees Red Sox. I mean, it's too much there. One more AI question, Gary.

I got to go here. We've had other AIs. We didn't have guardrails on the trains.

We didn't have guardrails on the miracle of pharmaceuticals and antibiotics, tetracycline and all that. And who in God's name is going to institute the guardrails? I don't see any institution with motivations to, on an ex-ante basis, get out front on AI technology. Where is it?

Gary Gensler (5:15)

Well, currently, it's not in this administration, nor in the Congress. Though, I would say the Congress is starting to really lean into it. But look, Tom, we put guardrails on our capital markets so that those capital markets work better. And they're not perfect, but when the Securities and Exchange Commission was created, it was about investor protection.