Former SEC Chair Gary Gensler Talks Economic Consequences of a Second Trump Administration
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Bloomberg Audio Studios. Podcasts, radio, news. Gary Gensler, he's a former chairman of the Securities and Exchange Commission, professor of practice of global economics and management at MIT. Did you ever study under Stanley Fisher? Did you have the privilege years ago? I got to know Stan Fisher, terrific public servant. I got to know him when he served in

here at the US, he was in international finance. I also got to know him a little bit when he ran the central bank over in Israel.

Katie Greifeld called me up earlier this morning and she said, and folks, Gus, the horse is okay and the heat, it's serious. And Katie said that the horses are doing fine this morning. And Katie said, can you do the entire interview on crypto? And I said, with all that's going on from the Gensler to the Atkins SEC, we're going to get crypto out of the way now, folks.

And I'm sorry, Gary Gensler, it is breaking news. I got Chris Giles in the FT this morning, highlighted the Bank of International Settlements research. I adore Raphael Auer's work.

At BIS, I got Rogoff in Chapter 17, 18, and 19 going after stablecoin. We need a Gensler update. What are we getting into with Tether and stablecoin? So, Tom, I couldn't agree with you more about your earlier statement. There are so many bigger items going on in this economy, the tariffs, immigration, frankly, a whole attack on science funding, a lot of things that are going to

I think, hurt long-term economic growth. And that's why I joined Simon Johnson and other colleagues from the Center of Economic Policy Research to do a book, a rapid response book about the economic consequences. But in that book, you're asking about stable coins. It's interesting. The worldwide dollar market is about $45 trillion. That's when you add everything up, $45 trillion. And stable coins are about a quarter trillion.

And so, you know, the question is, is Scott Besant, Secretary of Treasury, right? He says that's gonna grow to two trillion. It starts to say, what's the use of one of these? We already have digital dollars. You and I, we all, Lisa earlier was saying, I don't understand stable coins. We have stable coins. They're called US dollars, deposits, money market funds, and so forth. The only thing that these companies are offering is an alternative way to move dollars

outside of the banking system, which means outside of sanctions, outside of any money laundering laws. And so that's the real risk. It could undermine the U.S. geopolitically. Paul's got any questions. Let me get this in right now because I think it's so important. The bravest book in my career here was

was Ken Rogoff, The Curse of Cash. He got death threats off that book. It's nothing more than a use for criminal activity. It replaces illegal $100 bills in briefcases. How simplistic is that statement that I just made?

Well, you're talking about these stable coins? Tether, stable coin, the whole thing. It's nothing more than a walk around the SEC and the rest of the financial world. Look, stable coins, tether was...

invented early on, about 10, 11 years ago, to be the equivalent of the poker chip at the casino. You could use it to move crypto versus crypto because these large exchanges couldn't get bank accounts.

And so instead, you could sidestep any money laundering and sanctions. At a quarter of a trillion dollars, it's starting to be somewhat meaningful. And here's the cool question, the interesting economic question, who gets the interest payments? Who gets the float, the three and a half or 4% on, you know, for every billion dollars, that's 35 or $40 million of interest. And who gets that interest? I'd rather have a money market fund where I get the interest, the investor.

Gary, the economic consequences of a second Trump administration, a preliminary assessment. We're six months into the second administration of President Trump. There's lots of unique economic policies coming out of Washington. Let's start with tariffs. When I was in business school, tariffs were kind of a targeted thing you'd do once in a while if somebody was dumping steel or something else in there. We've never really seen them as a whole policy across countries.

the globe across all of our trading partners. How do you think about the presence of Trump's economic policies focusing on tariffs? I think, and thank you for mentioning this book that we did together. It was a rapid response book. But overall, all our experts said tariffs are going to put downward pressure on economic growth and upward pressure on inflation.

And that's the history of these things. We have seen worldwide movements to tariffs, and it was right before the 1930s Great Depression, and Congress got in and weighed in and so forth. And I would remind listeners that tariffs are only on goods, not on services. And about 90% of workers in the U.S. are working outside of the manufacturing field.

And one of our authors, Michael Strain, wrote an excellent chapter. And Michael says it won't even help manufacturing because manufacturers have to buy all these goods, these intermediate goods from overseas, and the tariffs will be higher. So I don't think the tariffs are going to help.

I think they're going to hurt. And interestingly, they're going to particularly hurt also in rural communities, because rural communities have to sell their farm goods, their agricultural products overseas. So it doesn't even necessarily help the president and some of his political base in rural states. A lot of... I'm just going to...

preempt a lot of email I'm gonna get today in my social saying, we haven't seen any of it. Tariffs are working just fine. Inflation's not there or is it just too early? - So it's a bit early, but I'd say this to any listeners. You've just had the largest tax increase that you've had in generations.

Average tariffs in the U.S. were 2.3 percent. Globally, adding everything up, 2.3 percent. And that was even after the first Trump administration raised tariffs in China. They are now over 10 percent. So the overall tariff rates have gone up fourfold. That's a big tax increase. It takes time, but time.

the International Monetary Fund lowered our growth estimates for this year a full point. So, you know, we're seeing that happen. Right. I've got to ask, we've got all sorts of topics to talk to with Gary Gensler, former Securities and Exchange Commission chairman at MIT, out with a wonderful, what do you call it, like a Kindle book? Is there like a... Well, it's a real book. We do have it physically, but it's online at the Center for Economic Policy Research, which

is a remarkable organization in Europe and you can get it for free right at the CEPR website. Wonderful. So I'll get that out on LinkedIn and Twitter as well. So I got to get this straight. You're at Pikesville High School. You end up at Wharton. You do better than good in your academics.

The world's imploding in private credit, right, Paul? Sure. Everybody needs a valuation. You have to be the first call for the University of Pennsylvania. Do you have any handle on the new valuation, the mark-to-market of private credit, and dare I say private equity as well? Well, you're kind. I mean, the University of Pennsylvania was terrific. I'm at MIT now, so I just have to give that shout out. But in terms of private credit, look, this is a field about...

give or take two trillion dollars of lending and assets under management that has competed with commercial banks. And we made sort of a conscious decision to move some of these risks out of commercial banks and into private credit. And I think it's good. It's competition in the capital markets. I really do. Cut to the chase of Sloan. You're at Sloan with a piece of chalk in your hand. What's the haircut right now on private credit? Is it 18 percent? Is it greater?

If you're talking about valuations, it really depends on what the large companies, the Apollos and the Blackstones and so forth, how have they valued it? So if they're valuing it properly, then it's not a haircut. But yes, they usually charge higher interest rates.

Gary, how do you think the U.S. should, from a trade perspective and economic policy perspective, deal with China right now? It feels like the globalization trend that you and I and Tom grew up with, that seems to have lost a lot of steam. It's out of favor now.

Maybe that's a short-term trend. I don't know. But specifically with China, how do you think the policy should be? Well, my experience, and we had to negotiate when I was at the SEC, a big consequential transactional situation. Can China keep their companies in the U.S. stock market? And China was not playing ball and following the rules about inspections. We were able to sort that through. And my experience is, is you treat them with respect and dignity and consistency, right?

And this oscillation, this big, volatile changes of policy, I think is not doing the U.S. well. I think, yes, the president is a risk taker. I respect that. He is a fundamentally he's come into office very determined and he wants to readjust with China. But I think China is very savvy.

they're going to be able to compete with this in artificial intelligence, even if we clamp down on export controls. And they have those rare earth minerals that they're able to, they have leverage points is what I'm trying to say. I've got to go to a new topic here, but Gary Gensler, to get to that topic,

I used AI. I went to Gemini here and I tipped in the difference between the Gensler and Atkins SEC. First of all, Gary Gensler, as you mentioned, Paul, esteemed at Goldman Sachs. Paul and I would editorialize, you would be on a short list to run any major firm in America. Fine.

Gary Gensler on AI. What do our kids, what does Lisa Mateo need to know? Well, I would say this. One, it's been around at least 10 years, even longer, so it's not just new with OpenAI and ChatGPT. Two, it's the most transformative technology of the time.

And I find myself thinking I'm more of the optimist. I think there'll be a lot of new productivity that comes from this, but also a lot of changes in the job market. Bloomberg will be different. Bloomberg Radio, maybe not so different. All right, Lisa. - Don't change with the times. - But I think it will be very different. And so,

I think the US versus China is an interesting thing. The big hyperscalers, the big, you know, CHAP-GBT and Gemini and so forth.

Those companies are competing with China and China's got natural... Deep Seek, whatever it is. Well, they have Deep Seek, but they have something else. They have 1.4 billion people. So they have data advantages over... We're big, but we're only 340 million people. Let me go to what I was on with Gemini here and also the AI effort of Bloomberg. And that is the shift from the Gensler SEC...

over what Paul Atkins has been charged by the President of the United States. You're going to tell me collegially that the Venn diagram of Gensler and Atkins is pretty tight, there's differences, but there's a collegial agreement baloney. People see this Gary Gensler as a sharp...

Shift that we're seeing right now is it look elections have consequences and I have a deep respect and you're right I'm gonna be respectful Chair Atkins has served at the SEC not once but twice before he knows the agency well And I think whether it's Republican or Democrat what this show is focused on is the markets the capital markets and the capital markets do best when there's rules of the road and

And that's been true for 90 years. And that's what's really critical. Now, the SEC has shrunk about 20 percent. So it's not as able to surveil the markets and make sure that it's free of fraud and manipulation. Where are your shadows right now? If we go to a more, what's the word, swashbuckling? Is that

Right. Swashbuckling works. That works. If we go to a more Trumpian SEC, where are the Gensler shadows now within global Wall Street? Where's the leverage, the thing, the portfolio insurance of 87, the surprises of August 1998? Where's the shadows for you in the system? Look, I think that overall, it's much beyond the Securities and Exchange Commission. It's

in terms of the whole financial markets.

you probably will have a tendency to greater leverage, meaning more borrowing. But we are also in a heightened risk environment, geopolitical. As we lay out in this book, we are pulling back the U.S. from global alliances. So there is definitely a bit more inflation risk. There's a lot more leverage in the system. Investors are less well protected with, frankly, this sort of –

large dismantling of something called the consumer financial, you know, the CFPB. And so investors have to be a little bit more aware there's more risk in the system, big risk. And there's also, I would say, the U.S. dollar is under pressure. It's down 10% this year so far.

And this is in the environment where the stock market has been quite resilient. You know, we're almost at near all time highs. And so then investors have to say, is there more downside risk than upside potential? Another big area of change within the second Trump administration has been immigration. How is that impacting effectively shutting down the southern border? How does that impact the U.S. labor market, do you think?

So it's interesting, again, in our book, this Economic Consequences of the Second Trump Administration, a Preliminary Assessment. We have a really interesting chapter on this question. And overall, the forecast is that it will cut

growth by about 0.7 to 1.5%. And in terms of the labor market itself, interestingly, it's going to hurt rural America a lot. Now, rural America will also be hurt by Medicaid cuts, because believe it, Medicaid is more used in rural America than in urban America, and also the tariffs. So there's like a triple threat to rural America, which

Again, politically, it's an interesting conundrum for this White House what to do. But on immigration, I would say it's a downward pressure on the economy, these policies.

in addition to the downward pressure from tariffs? Gary, I want to get this in. I think it's too important. And this goes to your colleague, the Nobel laureate, Simon Johnson. Wonderful friend and colleague. In the heart of the world blowing up for me personally. And there was Andrew Ross Sorkin's wonderful book and any others, Raghuram Rajam, out at Booth. That's a Chicago, it's a school, Gary, out in Chicago. You may not be familiar with that. Very, very familiar.

Simon Johnson's monograph, 13 Bankers, was the definitive book to describe the moment where we lost control in 05-06, where the SEC opened the floodgates to certain transactions and leverage.

Are we at a risk now where we could repeat what Professor Johnson wrote about where chapter four of 13 bankers, this is the piece of paper that opened the risk floodgates? Can we do that again? Look, I think we're human, Tom, and humankind. We ebb and flow on risk. The financial system writ large.

is in good shape, but will it tend towards greater borrowing against risk assets? And that's when you have challenges. And I think we have a US dollar that people have some question about. You have inflation moving up, you have greater leverage, and you have a tremendous amount of uncertainty, policy and geopolitical uncertainty. And those are times you can see

You know, I'll call them spills on aisle five. And, you know, financial spills on aisle five hurt millions of Americans when you lose your jobs or your mortgage rates go up. For enterprise organizations, managing all your food needs is a tall order.

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