This is my kitchen table and also my filing system over much of the past three decades. I've been an investor the highest quality of mankind. I've often thought his private equity and then I started interviewing on my watch here. INTERVIEWER I know how to do it. I've learned in doing my interviews how leaders make it to the top. I asked him how much he wanted. He said 250. I said fine I didn't negotiate with him. I did no due diligence. I have
something I'd like to sell and how they stay there. You don't feel inadequate now because the only the second wealthiest man in the world. Is that right. The current chairman of the FCC is Gary Gensler who headed the CFTC under President Obama. Gary is a former partner at Goldman Sachs a former professor at M.I.T. and a very well recognized
expert on the financial markets. I had a chance to sit down with him recently to talk about some of the key issues facing the S.E.C. including how to regulate crypto currencies and how to deal with the enormous new technologies affecting our markets. So Gary your main principle though the FCC as I understand it is fairness and disclosure and equity. Everybody is treated the same. Everything's fair everything is disclosed and do not rate the relative merits of investments. That's the principle right
now. I mean we talk about it as 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 of us who are homeowners and take out a mortgage. We are issuers as well. We're raising money. And then that which is in the middle fair orderly and efficient markets investors capital formation and then the markets in the middle. So since the great market recession the Great Recession of 2008
and 2009 at which time you were then the head of the CFTC which regulates commodities and futures since that time the markets have changed dramatically because of technology developments. Are you thinking that the FCC and other regulators have been able to keep up with all these technological changes. It's a real challenge David for across our government to stay up with the remarkable innovations. The last time we updated our rules for the stock markets the equity markets was in a significant way. It was in 2005 and 16 years later those rules that may have been fit for purpose then are they really ready for the twenty twenties. And nearly half of our stock market does not trade in the transparent what's called lit exchanges like the New York Stock Exchange or Nasdaq. But there are dark pools are there and wholesalers. So I've asked staff well what can we do to update
these markets for the 20 20. Given the rapid change of technology. So let's talk about that particular change. You have said and others have said that the markets are supposed to be equitable and fair to everybody. But so much of the markets are now controlled. Some people say by a limited number of market makers who may not give everybody the
fairest price. That's the argument some people make. How are you going to deal with that. And is that a big concern or is it a modest concern. Well it's it's important I think an agency like ours to constantly bring up today our rules set. So I would say it is a central concern if I can use a different word than you did about our regular investors. And we've seen an increase of retail participation but our regular investors as well as the big institutions having efficient markets. And are they getting what's called best execution. We wrote a roll years ago about that. You're supposed to get best execution out of your broker. And is that happening
when as you said a few wholesalers are buying the order flow and in a lot of that's getting concentrated around a few wholesalers. Let's talk about some other technology changes since you were last in government. One of them is something called a spark a spark as a new device to enable somebody to go public without going for the normal IPO process. Does that offend you that people are going around the IPO process you have at the SCC or do you say OK as long as some disclosure occurs. I think that we we at the SSA are committed to be technology neutral and innovations like special purpose acquisition companies which actually have been around for quite some time. It's just they took off in the last two years and there's been hundreds of them as you now and well over one hundred billion dollars raised through these. Fundamentally blank check companies. What we're looking at is how do we guard the public not just in
disclosure but also there's very significant fees that the sponsors generally take about 20 percent as a promote. They have two years to invest the money. They're encouraged to invest the money because they want to get that 20 percent. And then what sort of conflicts does that set off. What due diligence are they doing when they're buying those target companies. Having said that we're looking at how we can bring some greater disclosure or transparency and deal with some of those inherent conflicts. Now there's another issue that has arisen which is called gamification which is to say people are making a game out
of trying to buy stocks and very young people are caught up in it. You have very very young. Day traders. Are you worried about this phenomenon. So if I could take just a step back. We live in the 20 twenties in the new digital age where we're applications when our phones can use massive amount of data and then predict our behavior. And this is true outside of finance and inside of finance. Outside of finance. The streaming apps figured out a while ago that I'm kind of a rom com type of guy. OK. That's
figured out now in this space whether it's a robo adviser or a brokerage app. If they figure out by giving you David Rubenstein a certain signal a certain color a certain prompt behavioral prompt that you might trade more or you might buy a higher revenue product for them. Therein lies a potential conflict. What do we do when the digital algorithms are maximizing for the companies revenues rather than our returns. And so we're trying to think that through it's not just gamification it's a little
bit more than that. It's whether there is a conflict between the app and our investment returns. Now many companies that are based in China are now traded I think in the New York Stock Exchange or NASDAQ but they are not subject as it turns out to accounting oversight in the same way that American companies are. Are you worried about that. Is there anything you think you can do about that. You and I are both Baltimore boys. So remember fondly Paul Sarbanes who was
our senator here in Maryland for well I think 30 years. And Paul and Republican Mike Oxley came together in 2002 and President George W. Bush worked with them when something called the Sarbanes-Oxley Act. And there was another basic bargain. That basic bargain was if you wanted to raise money from the public not only did you have to provide financials that were audited but your auditor had to be subject to inspection. Basic bargain. So to your story is nearly 20 years later.
Companies from 50 plus jurisdictions have allowed their books and records to be looked at inspected. In essence the auditors to be audited it. Two jurisdictions have not. China and Hong Kong. And so Congress last year said all right enough is enough. And they said a three year clock in place a three year clock. Twenty
twenty ones year one that if we can't work this out if the auditing firms of these China related companies don't open up their their work papers then what Congress said then we have to suspend trading that these companies should not be able to access U.S. markets through our stock exchanges and the like. So you're too modest to point this out. But Senator Sarbanes principal staff person drafting this Sarbanes-Oxley was Gary Gensler. So you know this ball pretty well right. Yeah there were there were others involved as well. And I I learned working for four a senator. I mean it was all there. And it went well.
It was theirs. But if it went pear shaped of course it was maybe the staffs. But yes I do know what it was. It was after Enron and WorldCom failed. And so Congress stepped in and said they had to change this. And up up they game up the rigour with regard to auditing in the United States. So as you pointed out both the both of us are from Baltimore though we didn't know each other growing up. I'm a you know 10 years plus older than you. So you grew up in Baltimore. Were you and a very wealthy family or was it a blue collar family. What kind of family was it. Well neither of my parents went to college and packed. My
grand folks didn't. Three of them didn't even go to high school. But my dad started a small business and with his mustering out pay after World War Two. And while I never had more than I think three dozen employees it was a vending business in the bars of Baltimore and so forth. It sent all of us kids to college. It helped pay down the mortgage over
the years. And we lived a good life around this small business and through the community of Pikeville that I grew up in. So you were four other siblings one of whom is your twin brothers right. Yeah. I have an identical twin brother. Watch out if he goes on TV. So who's smarter. You were your twin brother. Roberts So you went to Pikes for High School a very well-known high school in that area. I assume you're near the top of your class and you went to University Pennsylvania undergrad. Is that right. Yeah yeah. Rob went there as well. We both went to Wharton had a fateful
decision. He had gotten in a little earlier than I. And I was I was accepted. We were both kind of math kids. Now he's accepted to M.I.T. and my twin brother has gone to work and already accepted. And then on a fateful day I decided to go the same place. Way it's worked out for me. And I ended up with my team many years later. So. So you graduated after Wharton and then you went right to Goldman Sachs. Yes. I joined a group called the Merger and Acquisition Area. It was about a dozen people
headed by Steve Friedman and Jeff Suozzi at the time. You might have later known. And then it grew. It was throughout the 1980s grew rapidly. And you became one of the earliest or youngest partners at Goldman. Is that right. I was honored to make it into the partnership while I was in the merger and acquisition area. That's right. So you're a partner at Goldman. You're making a great deal of money by any normal human standards. Why did you leave Goldman Sachs. My time there was I spent 18 years there. I did a number of things not just this merger and acquisition area but I went to the trading side. I went and helped run part of the back office. It was really just a remarkable experience and opportunity. But
I felt I felt some connection to public service maybe as a as a kid. That was the class treasurer and lost for senior class president. I always had this connection and I thought public service was something if I had the opportunity I wanted to be part of. Well one of my mentors one of my bosses at Goldman Sachs Bob Rubin had been chosen by President Clinton first to be as national economic adviser and later as treasury secretary. And Secretary Rubin knew I'd be a
soft touch for service. And when President Clinton won a second term an opportunity arose. I I I guess I competed for it but an opportunity arose. And I went down to the Clinton treasury as an assistant secretary for financial markets. And I haven't looked back. It's been it's been a terrific twenty four years. Right. So after you left the Clinton ministrations when it ended. Did you decide to go back in the investment world or what did
you do. Now the first thing I did along with a colleague from the Treasury Department is we wrote a book a week. We thought of it as a commonsense book on investing which really was promoting. The use of low cost index funds for people that have just there their retirement savings and saving for their futures. So that was the first thing. And then I started working with Plus Sarbanes on that which you said became this accounting law called Sarbanes-Oxley. And then ultimately President Obama was elected and he asked you to be the head of the CFTC is that right. Yeah. I had been working on then as Senator Clinton's
campaign the 2008 campaign as a senior advisor. So I was particularly honored that he he reached out and has you know gave me the opportunity to serve once again. So when you head of the CFTC ISE I mentioned earlier we were going through a recession. So you had to pick up a lot of pieces of failed investments and so forth. Was that a more challenging position than the one you have now at the S.E.C.. They're both remarkable organizations. The CFTC is of course smaller and the CFTC is interesting. It was set up to oversee commodity futures or derivatives for corn and wheat. And then in the 1970s it was expanded to energy products and yes interest rate products and and even the S&P. Five hundred stock
futures. So. So these these these derivative products. But an innovation that come up called swaps and swaps which are very similar to futures another form of derivative had not been regulated. And in the middle of that crisis the 2008 crisis credit default swaps and swaps led to some of the instability in our markets. So working with Tim Geithner working with Mary SHAPIRO at the S.E.C. working with all the members of Congress actually across the aisle we cobbled together reforms for this
swap market. Now you had a very impressive career and it's still very impressive. But at one point you had a tragedy. Your wife passed away and you had to raise your three daughters essentially by yourself. So how did you do all that while you were doing all these other things. Well I'm not sure I did it all that well but I was actually off the grid. So we lost Francesca in 2006. She had first had cancer when we were I guess you'd say kids. I mean she was in but 30 when she first had cancer and we were dating. We
were blessed to go on and get married have three wonderful daughters. But we did lose Francesca to cancer in 2006. And I was kind of off the grid and for three or four years pretty much stay at home dad. Are your daughters any of them now influence to go in the financial services world. No one's a remarkable artist a political cartoonist an artist. One's a Ph.D. in
culture anthropology and one's working in immigration law. You've finally got your taste of M.I.T. So why did you decide to leave M.I.T. and come in and run the SSA one. When a president asked you to do something it's really hard to say no. So President Biden he asked you to head up the FCC were you interested in doing that at the time you were teaching at M.I.T.. You've finally got your taste of M.I.T. So why did you decide to leave M.I.T. and come in and run the FCC. One when a president asked you to do something it's really hard to say no. Let me let me just say that. But it's also just an incredible
privilege and an honor. And I've been around capital markets my whole adult life starting as I said as a 21 year old at Goldman Sachs. And here some four decades later on I've asked once again to serve. It's a hard thing to say no to. I will say this though. Being a professor at M.I.T. is an incredible experience. The vibrancy of that student body the faculty the staff. So even there I was studying the intersection of finance and technology spending a fair amount of time on that intersection and the new innovations around fintech and then more precisely around artificial intelligence and also cryptocurrency sort of that it started with the Satoshi Nakamoto white paper 13 years ago. Well let's talk about that. You did teach at M.I.T. about things that you don't like to use this word crypto currency I guess but essentially crypto currencies. What is the FCC doing about that. Is is it is our crypto currencies are security or are they not a security. Is it a currency or is it. Well what is
it. It's clear if if you're using this new technology to raise money for mothers and those other people that the public are anticipating profits based on the efforts that that brings it into this what's called an investment contract. Congress backed it back to 1933 and 1934. Congress painted with a very broad brush David. They painted with a broad brush to protect the public from fraud when people were raising money from the public. And the public is in anticipating a profit based on
those individuals raising the money. So look it depends on the facts and circumstances. It depends obviously on each individual token. But many of these maybe even the majority of them are tokens raising money from the public where the public's anticipating profits based on the efforts of the others that promoters. So should we anticipate that you will have regulations clarifying what the S.E.C. is going to do on crypto currencies some related kinds of things in the near future. I actually think David it's it's it's pretty clear. My predecessor Jay Clayton said this more than once that he thought it was pretty clear that many of these tokens may be actually his words or he hadn't really seen many that weren't securities. Well what we've asked the trading platforms the lending platforms the other various
venues to come in to work with us to get registered under the securities laws because of a platform has 50 or some of them five hundred tokens on their platform. Probabilities are they're not all non securities. So how do you get ideas from the White House. I mean you were appointed by the president. You're the head of an independent agency. But at the White House ISE policies do they call you up or are you basically once the president appointed you you don't see him again. We work very closely with the US Department of Treasury with the other financial regulators of
course their sibling market regulator the CFTC and the bank regulators and the Federal Reserve. And I'm I'm a member of something called the Financial Stability Oversight Councils. Again something Congress set up after the 0 8 crisis. And yet we're an independent agency where if we write a rule and certainly if we do enforcement actions we don't we don't check in with the White House and that's by Congress. Will. Congress broke the law that way. And so there's a certain independence from that that daily back and forth with President Biden. Isn't calling you saying good job Gary you're really doing a good job
there right. Well you know I wouldn't I wouldn't probably want to disclose any of that but that's a that's a would be a pretty unusual precedent. SSA chair. I mean I know my predecessor may have played golf or something but that's not happening here. Speaking of golf how do you stay in shape. You look like you're pretty fit. I mean well how do you exercise or stay in shape when you're chairman of the FCC. Well you're kind you're kind of say that I've been a lifelong runner and I learned a little bit of athleticism that decision that fateful decision to go to University of Pennsylvania because my twin brother who was there is. So I ended up being a coxswain for crew and I learned from coach Ted Nash this incredible sense of. He was an Olympic horseman and Olympic gold medalist. This incredible sense of of of that it's important to
think about our body as well. So I try even to this day I try to still get out and run. I'm not as good a runner as I once was. I've done a fair amount of biking in my life and mountain climbing and tracking my eldest daughter and my youngest daughter. And I've all sort of track together. My middle daughter the anthropologist doesn't like that. But these are some of the things I try to do. So the pleasure of being the chairman of the FCC is what you've obviously been trained for it. Why do you enjoy doing this. Because it's a 24 hour day kind of job. You're always going to have critics. Why do you enjoy this job. I assume you do enjoy it. You know I do enjoy it David. I think.
Look everybody got to find their passion. I was intrigued and interested in finance I was my twin brother and I guess God's gift of math and numbers. And what I was also always like felt like that what we can do to leave our world a better place. You know when when when when we get to the end of our lives and look back it's our family it's our loved ones it's our friends. And to me. Can we leave the world a little bit better off. And that's that's what motivates me in this job. Can we can we do
something that's better for working families or people starting out in their life saving and investing for their future and tip the scales a little bit in their favor away from the folks in the middle. So is your twin brother ever say you did a better job than I did or than he did in your career as a twin brother. Say you got a little lucky. Or does he ever say I was really smarter than you. I just want to be the chairman of the FCC. What does he say about this. Rob's a terrific friend and a terrific brother. And he says usually just Gary. Go Dan.
2021-11-23