Traders Have Data, Fedspeak and AI to Navigate

SPEAKER_1 (0:02)

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Tom Keene (0:27)

Yesterday, I was in Washington for a wonderful memorial service for Alan Greenspan. It was people pawed by Republicans and Democrats.

SPEAKER_1 (0:36)

Okay. Very good.

Tom Keene (0:37)

Lots of media type where there are all the people covering economics and that. Of course, also, all the people wrapped around a gentleman of 100 years old who worked within government and within regulation. Gary Gensler should have been there. It was just spectacular. I thought Robert Rubin was particularly eloquent and Al Hunt stole the show, driving all of Bloomberg News in Washington for years on the Wall Street Journal. Al Hunt just absolutely stole the show with his comments. Joining us now, someone that should have been there yesterday, Gary Gensler.

Of course, a legendary in Wall Street, 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 (1:26)

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. I think in the 1990s, he sorted through this new technology, the Internet and what it was doing to our economy. 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 (2:08)

I look here, then let me jump forward right away to what you, and you're working 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 (2:38)

Well, they have a remarkable thing how they 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 (3:59)

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 (4:19)

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 (5:22)

Gary Gensler with us, folks. The former chairman, I should say, of the Securities and Exchange Commission, has good work for you, Sikolman Sachs, noted as well. I got to get to some other matters here. It's amazing. Gensler comes on.