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tv   The David Rubenstein Show Peer to Peer Conversations  Bloomberg  November 20, 2021 9:00am-9:30am EST

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david: this is my kitchen table and my filing system. over much of the past three decades, i have been an investor. the highest calling of mankind i often got his private equity, and then i started interviewing. i have learned in doing my interviews how leaders make it to the top. >> i asked him how much he wanted, he said i said fine. 250. i did not negotiate. i did no due diligence. david: and how they stay there.
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the current chairman of the fcc is gary gensler. he is a former partner at goldman sachs, former professor at m.i.t., and a well recognized expert in financial markets. i had a chance to sit down with him recently to talk about some of the issues facing them, and how to deal with new technologies affecting our markets. your main principal at the sec is fairness and disclosure and equity. everyone is treated the same. everything is fair. every thing is disclosed, and do not rate the relative merits of investments. that is the principal, right? gary: we talk about a three-part mission. investor protection. which embodies much of what you just said. facilitating capital formation. companies that are raising money. entrepreneurs, but, also those
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of us who are homeowners who take out a mortgage, we are issuers as well. we are raising money. and those in the middle with orderly and fair markets. investors, capital formation, and the markets in the middle. david: since the great market recession of 2008 and 2009, you were than the head of the cftc, which regulates commodities, futures, since that time, the markets have changed dramatically because of technology developments. are you thinking that the sec and other regulators have been able to keep up with the technological changes? gary: it is a real challenge. to stay up with the remarkable innovations, the last time we updated our rules for the stock markets, the equity markets in a significant way was in 2005. 16 years later, those rules, are they really ready for the 2020s?
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nearly half of our stockmarket does not trade in the transparent lit exchanges, like nasdaq or the new york stock exchange, but there are dark holes or wholesalers. i asked him, what can we do to update these markets given their rapid change of technology? david: let's talk about that particular change. you have said and others have said that the markets are supposed to be equitable and fair. so much of the markets are now controlled, some say, by a limited number of market makers who may not give everyone the fairest price. that is the argument some make. how are you going to do with that? is that a big concern or modest concern? gary: it is important for an agency like ours to constantly bring up to date our rules set. i would say it is a central concern. if i could use a different word than you did.
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our regular investors, who we have seen an increase in retail participation, but the big institutions are having efficient markets, and are they getting best execution? we said you are supposed to get the best execution out of your brokers. they that happening when a few wholesalers are buying the order cloud and a lot of that is getting concentrated around a few wholesalers? david: let's talk about other technology changes. one is called a spac. it enable someone to go public without going through the normal ipo process. is that offend you that people are going around the ipo process you have at the sec, or do you say, ok, as long as some disclosure occurs? gary: i think we at the sec are committed to being technology neutral, and innovations like special acquisition companies, which have been around for quite
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some time, they took off in the last two years, and there has been hundreds of them, as you know, and well over $100 billion raised through these, fundamentally blank check companies. what we are looking at is how do we show the public disclosure, but there are also significant fees as it promotes, and we have two years to invest the money, they are encouraged to invest the money because they want to get that 20%, and then what sort of conflicts does that set up? what do diligence are they doing when they buy those target companies? having said that, we are looking at how we can bring greater disclosure, transparency, and deal with inherent conflicts. david: there is another issue called game with occasion -- gameification.
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you have day traders with young people. are you worried? gary: we live in a new digital age, where applications can use massive amounts of data and predict our behavior. this is true outside and inside of finance. outside, streaming apps figure out a while ago that i am a rom, type of guy. that is figured out. in this space, whether a rowboat advisor or brokerage app, if they figure out by giving you, david rubenstein, a certain signal, color, or behavioral prompt that you might trade more or you might buy a higher revenue credit for them, therein lies a potential conflict. what do we do when digital algorithms are maximizing for
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companies' revenues rather than our returns? we are trying to think that through. it is not just gamification. there is a conflict between the app and our investment returns. ♪ david: ceos today are more outspoken about public policy issues. is that a good thing or should ceos worry about the share price, earnings, things like that, or should they comment on voting rights, climate change things, what should they do? gary: we hear from market participants and that helps us be better at what we do. we hear from advocates all across the markets and all
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across the political spectrum. that helps the five of us in the commission to hear from the public. whether it is chief executive officer or someone buying their first 50 shares of stock in a company do we benefit from hearing from folks. and my call lists are made public on a monthly basis. you will see that some ceos get in touch, they want to say something about -- maybe it is about equity market structure, climate risk disclosure, spac's, crypto, and we do not have to necessarily agree. when we disagree to disagree agreeably, as my uncle norman used to say, but it is helpful to hear from people in the markets. david: today, what would you like most people who are not knowledgeable about the sec, who are watching this interview and want to learn a little bit, what would you like them to most know about the sec?
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gary: markets work best when we have rules on the road. i think those of us at the sec are interested to ensure that the markets are free of fraud, manipulation, and that you as investors get to decide what risk you take. ♪
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david: they are not subject to accounting oversight in the same way that american companies are. are you worried about that? is there anything you can do about that? gary: we are both baltimore boys. we remember our senator in maryland for 30 years. paul and mike came together in 2002. president george w. bush worked with them on something called the act. there was another basic bargain. if you wanted to raise money from the public, you had to provide financials. your auditor had to be subject to inspection. basic bargain. nearly 20 years later, companies from 50 jurisdictions have allowed their books and records to be looked at. the auditors to be audited. two jurisdictions have not. china and hong kong. last year, congress said that enough is enough.
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they said a three year clock in place. 2021 is year one. that if we cannot work this out, if the auditing firms of these china related companies don't open up their workpapers, that -- then what congress said is, we have to suspend trading. these companies should not be able to access u.s. markets through our stock exchanges. david: you are too modest to point this out, but the senator's principal staff person drafting this was gary gensler. you know this pretty well. gary: there were others involved as well. i learned working for a senator, it was all there. if it went well, it was theirs. if it went pear-shaped, it was the staffs. i do know it. it was after enron failed. congress stepped in and said they had to change this and up their game, up the rigor with
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regards to auditing in the united states. david: as you pointed out, both of us are from baltimore. we did not know each other growing up. i am 10 years plus older than you. you grew up in baltimore. were you in a very wealthy family? was it a blue-collar family? what kind of family was it? gary: neither of my parents went to college. in fact, three of my grand folks didn't even go to high school. my dad started a small business with his mustering out pay after world war ii. while he never had more than three dozen employees, it sent all of us to college. it helped pay down the mortgage over the years. we lived a good life around this small business. and through the community where i grew up in. david: you had four other siblings. one of whom is your twin brother. gary: i have an identical twin
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brother. watch out if he goes on tv. david: who is smarter? you or your twin brother? gary: rob is. david: you went to pikesville high school, a very well-known high school. i assume you are near the top of your class. you went to the university of pennsylvania for undergrad. gary: yeah, rob went there, as well. we both went to warden. he got in a little earlier than i. i was accepted. we were both kind of math kids. i was accepted to m.i.t. my twin brother had gone to wharton, had already accepted, and i decided to go the same place. it worked out for me. i ended up at m.i.t. many years later. david: you graduated after wharton and then went right to goldman sachs? gary: i joined a group called the merger and acquisition area. it was about a dozen people. it grew. it was throughout the 1980's. it grew rapidly. david: you become one of the
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earliest organist partners at goldman, is that right? -- earliest and youngest partners at goldman, is that right? gary: i was honored to make it into the partnership while i was in the merger and acquisition area. david: you are making a great deal of money. why did you leave goldman sachs? gary: i spent 18 years there. i did a number of things. not just the merger and acquisition area, but i went to the trading side and helped run part of the back office. it was really just a remarkable experience and opportunity. i felt some connection to public service, maybe as a kid there was a class treasurer and senior class president. i always had this connection. i felt public service was something, if i had the opportunity, i wanted to be part of. one of my mentors and bosses at
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goldman sachs, bob rubin, had been chosen by president clinton to be his national academic advisor and later treasury secretary. secretary rubin knew i would be a soft touch for service. when president clinton won a second term, an opportunity arose. i competed for it. an opportunity arose, and i went down to the clinton treasury as an assistant secretary for financial markets and i have not looked back. it has been a terrific 24 years. david: after you left the clinton administration, did you decide to go back in the investment world? or did you do? gary: no. the first thing i did along with a colleague from the treasury department is we wrote a book. we thought of it is a common sense book on investing. which really was promoting the use of low-cost index funds for people who have their retirement
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savings and saving for their futures. that was the first thing. then i started working on this accounting law. david: ultimately, president obama is elected and he asks you to be the head of the cftc, is that right? gary: yeah, i had been working on then senator clinton's campaign, the 2008 campaign, as a senior advisor. i was particularly honored that he reached out and gave me the opportunity to serve once again. david: when you headed the cftc, we were going through a recession, so you had to pick up a lot of pieces of failed investments. was that a more challenging position than the one you have now? gary: they are both remarkable organizations. the cftc is smaller. the cftc is interesting. it was set up to oversee
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commodity futures. or derivatives for corn, wheat, and then in the 1970's, it was expanded to energy products. yes, interest-rate products, and even the s&p 500 stock futures. these derivative products and and innovation had come up called squabs, which are similar to futures, another form of derivatives, had not been regulated. and in the middle of that 2008 crisis, swaps led to some of the instability in our market. working with some other people at the sec, working with all the members of congress across the aisle, we cobbled together reforms for this swap market. david: you had a very impressive career. it is still very impressive. at one point you had a tragedy, your wife passed away. you had to raise your three
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daughters essentially by yourself. how did you do all that? gary: i am not sure i did it all that well. i was actually off the grid. we lost francesca in 2006. she had first had cancer when we were kids. she was not but when she first 30 had cancer when we were dating. we were blessed to go on and get married and have three wonderful daughters. we did lose francesca to cancer in 2006. i was off the grid for three years, four years, pretty much a stay-at-home dad. david: have any of your daughters been influenced to go into financial services? gary: no. one is a remarkable artist on a political cartoonist, one has a phd in cultural anthropology, and one is working in immigration law. david: he finally got your taste of m.i.t., so i did you decide
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to leave and comment on the sec? gary: when a president asks you to do something, it is really hard to say no. ♪
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david: so president biden asked you to head up the sec. at the time you are at m.i.t., you finally got your taste, so why did you decide to leave and run the sec? gary: when a president asks you to do something, it is really hard to say now. let me just say that. it is also an incredible privilege and honor. i had been around capital markets my whole adult life, starting as a 21-year-old at goldman sachs. and here, some four decades later, i was asked once again to serve. it is a hard thing to say no to. i will say this, being a
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professor at m.i.t. is an incredible experience. the vibrancy of the student body, the faculty, the staff. even there i was studying the intersection of finance and technology. i was spending a fair amount of time on that intersection in the new innovations around fintech and more precisely around artificial intelligence and cryptocurrency. it started with the white paper 13 years ago. david: let's talk about that. you did teach at m.i.t. about things -- you don't like to use the word cryptocurrency -- but essentially cryptocurrencies. what is the sec doing about that? are they a security or not a security? is the currency -- what is it? gary: it is clear that if you are using this new technology to raise money from others, and those other people, the public, are anticipating profits on the efforts, that brings it into an
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investment contract. congress backed it back in 1933 and 1934. congress painted with a very broad brush. they painted with a broad brush to protect the public from fraud when people were raising money from the public and the public is anticipating a profit based on those individuals raising the money. it depends on the facts and circumstances. it depends obviously on each individual token. many of these, maybe even the majority, are tokens raising money from the public. where the public anticipates profits based on the efforts of the others that promote. david: should we anticipate that you will have regulations clarifying with the sec is going to do on cryptocurrencies and related types of things in the near future? gary: i think it is pretty clear
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my predecessor said this more than once, that many of these tokens, and his words were that he had not seen many that were securities, what we have asked the trading and lending platforms and other various venues is to continue to work with us to get registered. because if a platform has 50 or 500 tokens on their platform, the probability is that they're not all not securities. david: how do you get ideas from the white house? you were appointed by the president. you are the head of a independence agency. if the white house has policies, do they call you up? or once you are appointed, you don't see the president again? gary: we work very closely with the treasury department and the other financial regulators. of course, the cftc, the
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federal reserve. i am a member of the financial stability oversight council. something congress set up after the 2008 crisis. yet, we are an independent agency where if we write a rule and certainly if we do enforcement actions, we do not check in with the white house. that is why congress will. congress wrote the law that way. there is a certain independence from that daily back and forth. david: so president biden is not calling you sane, good job, gary? gary: i probably wouldn't want to disclose any of that. that would be a pretty unusual precedent. i know my predecessor may have played golf but that is not happening. david: how do you stay in shape? you look pretty fit. how do you exercise on your
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chairman of the sec? gary: you are kind to say that. i have been a lifelong runner. i learned a little bit about athleticism. that fateful decision to go to the university of pennsylvania, because my twin brother was there, i ended up being a coxswain and i learned from my coach this incredible sense of it is important to think about our bodies. even to this day, i still try to get out and run. i am not as good a runner as i once was. i have done a fair amount of biking and mountain climbing. my eldest daughter, youngest daughter and i also trekked together. my middle daughter, the anthropologist, but these are some of the things i tried to do. david: the pleasure of being the chairman of the sec, why do you enjoy doing this? it is a 24 hour day kind of job. you are always going to have critics.
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why do you enjoy this job? i assume you enjoy it. gary: i do enjoy it. everybody is going to find their passion. i was intrigued about finance. we got this gift of math and numbers. i always felt like what we could do to leave our world a better place. when we get to the end of our lives and look back, it is about family, loved ones, and friends. timmy, can we leave the world a -- to me, can we leave the world a little bit better off? can we do something that is better for working families? for people starting out in their lives saving and investing for their future? and to tip the scales a little bit in their favor for the folks in the middle. david: does your twin brother ever say you did a better job
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than he did in your career? does your twin brother say you got a little lucky? does he say he was smarter than you, i just did not want to be chairman of the sec? gary: rob is a terrific friend and brother. he usually just says, go get them. ♪ so many people are overweight now,
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♪ emily: jeff bezos shocked the world when he stepped down as ceo of amazon. less shocking was his choice for successor. andy jassy was the architect of amazon's multibillion-dollar cloud business amazon web services, a moonshot that helped transform amazon into an e-commerce juggernaut. he needed to find his own successor, tapping a colleague who


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