The Goldman Sachs Exec on AI, Wall Street & the Firm That Went Bankrupt in 40 Minutes

**Eric Newcomer** (0:00)
Marty Chavez got his AI PhD back in 1991 How many AI jobs did he have to choose from when he graduated?

**Marty Chavez** (0:06)
Exactly zero.

**Eric Newcomer** (0:07)
So he went to Goldman Sachs and spent decades building the machines that took over Wall Street. Now he's at Sixth Street, sits on Alphabet's board, and helped launch Isomorphic Labs. Few people have watched more AI hype cycles come and go. Fewer still have profited from them. This is my conversation with Marty Chavez from the Stribble Valley AI Summit in London. I'm Eric Newcomer, author of the Newcomer Substack. Let's get into it.
When you think about institutions like Goldman Sachs, they're certainly more cutting edge than many. So when you think of the big, old guard, powerful industries, where do you think they are right now on this AI journey? Are they fatigued where it's been oversold? They're true believers? Or what is your sense of these mass enterprises and their relationship to this AI mania?

**Marty Chavez** (0:58)
Well, this will be a little bit particular to Goldman Sachs. So I'm old, so I like to think that this is the most exciting time ever to be alive and to be a computer scientist, and also there's nothing new under the sun.

**Eric Newcomer** (1:12)
That's crazy before.

**Marty Chavez** (1:15)
All those two thoughts at the same time. So at Goldman, we've been working on the frontier of AI for a long time. It's just that the names keep changing, right?
So why did I end up at Goldman? Because I got a PhD in AI in 1991 Do you know how many AI jobs there were in 1991?

**Eric Newcomer** (1:37)
Not a matter, yeah.

**Marty Chavez** (1:38)
Exactly zero, right?

**Eric Newcomer** (1:40)
So instead you were like, I'm the smart guy, I guess I go to Goldman Sachs.

**Marty Chavez** (1:43)
I've just got a random letter from a headhunter. And the letter said, I've been instructed to make a list of entrepreneurs in Silicon Valley with PhDs from Stanford in computer science and you're on my list. And I had bills and student loans. And so that's how I ended up there. And at that time, I wouldn't even say I got a PhD in AI, or machine learning, or I just say computer science. Why? Because it was embarrassing. Because AI couldn't do anything then.
And so I ended up at Goldman and they had this crazy idea, let's build a digital twin of the trading business.
Let's build a piece of software that models everything that happens in the trading business so that we can lose a lot of money and then say, oh, it was only a simulation, okay? As opposed to losing it in real life. But then around 2011, we started to see something different happen, and it's kind of cute, we called them ALGOs. Does that name?

**Eric Newcomer** (2:47)
Algorithmic trading.

**Marty Chavez** (2:48)
Algorithmic trading. But it's the same thing exactly as agents.

**Eric Newcomer** (2:53)
It's humans out of the loop making trading decisions.

**Marty Chavez** (2:55)
They were pieces of software that put orders to buy and sell stocks into the exchange. What could possibly go wrong?
Everything went wrong. There are many companies that no longer exist because they bankrupted themselves. There's a legendary example of a company that thought it was trading in a simulated test environment, except the trades were being routed to the actual change, and in 40 minutes, they were bankrupt. That was night trading.
This stuff has been around for a while. We just didn't call it agents. At Goldman Sachs and many other places, this is just the next iteration of something that's been around for a long time. I think we already know how it's going to go. So there's a lot of concern about jobs, for instance, job loss. Well, so here's what happened in the trading business of Goldman Sachs over 15 years of bots or algos or AI or whatever you want to call it. There are, would you guess if there are more people in the business?

**Eric Newcomer** (4:01)
I assume way more people.

**Marty Chavez** (4:02)
Way more. The business is way bigger.

**Eric Newcomer** (4:05)
Complexity gives people a lot of stuff to do.

**Marty Chavez** (4:07)
It makes way more money.
It does very much more complicated trades. But if you were to list all the activities of the people 15 years ago and the activities of the people now, they're completely different.

**Eric Newcomer** (4:24)
And do you think the same people kept their jobs? I guess one of the issues with, and I want to get into sort of the public policy stuff more after we get through this. But just given you brought that up, do you think the same people kept their jobs or new jobs and created some people's lives?