There’s Existential Risk About AI ‘Not Aligning’ with Their Humans, Says Gensler

Alan was a real public servant, and, uh, I had the honor to work with him. I couldn't be there this weekend because of things up here in, uh, Boston where I'm at right now for Mitt. Um, but he he really understood the markets and deeply understood the markets. And I think in the 1990s, he sorted through this new technology, the internet, and what it was doing to our economy. And I think a little bit before others understood how to control inflation but still leave enough room for the, um, I don't know if you want to call him the animal spirits, but that investment boom in the 1990s, I look care of that. Let me jump forward right away to what you and, uh, you're working on Mitt with your wonderful podcast as well. The new internet is the I the news flow. This morning. Paul and I open the show. Gary, I've never seen a company do a red herring, like the Reuters report on anthropic. I mean, to be polite. Uh, Gary, it's bizarre. Are these companies legitimate? Well, they they have a remarkable thing how they've pulled in so many users so rapidly anthropic OpenAI and the like. But they I trade that our capital markets is hovering on top of, uh, is an investment boom. That's about twice what the internet was. So back to Alan Greenspan. He was watching as, uh, a lot of tech companies were investing, and it added up to about 1 to 1.5% of the economy. It was considered at the end a bubble. This is now 2.5% of our economy. I'm talking about all the data centers and 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 2 to 6 months behind us, regardless of how they deal with it, whether they use what's called distillation or not, and they're spending a lot less than 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 an open AI 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? Gary, so much capital, as you well know, has been raised in, uh, equity markets, fixed income markets to support the growth of AI. Even some of the founding voices of these companies that OpenAI and anthropic, they are calling for some guardrails on this technology. How do you think about that? Well, I think that their real challenge is, uh, 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 released that report about an incident this summer, uh, where the agents multiplied to 1200 different agents simultaneously looking for vulnerabilities. And 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, uh, they have some reasoning on how they deceive and how they, uh, jump out of, uh, guarded sandboxes. So this is a real challenge. I, I know the president calls it a hoax. I differ with the president on that. Gary Gensler with as far as the former chairman, I should say, of the Securities and Exchange Commission has good work for you, Goldman Sachs noted as well. I got to get to some other matters here. It's amazing Gensler comes on you. The Bloomberg reporters in Washington are brutal. I know questions. I mean, they want to know what he thinks about Yankees, Red Sox. I mean, it's too much there. One more I question. Gary. I got to go here. We've had other A's. We didn't have guardrails on the trains. We didn't have guardrails. And the miracle of pharmaceuticals and antibiotics, tetracycline and all that. And God, who in God's name is going to institute the guardrails? I don't see any institution with motivations to, on an ex ante basis, get out front on AI technology. Where is it? Well, hey, currently it's not in this administration nor in the Congress, though I would say the Congress is starting to really lean into it. But look, Tom, we put guardrails on in our capital markets so that those capital markets work better and they're not perfect. But when the Securities and Exchange Commission was created, it was about investor protection. It was about making sure that the markets worked better, created to the public good that you could trust the market. So I would say you and I, it's possible. But here is the wrinkle. And it's a big consequential wrinkle. The Chinese are competing with the US. The US wants to stay ahead, but the Chinese are doing something called open weight models. This is a competitive challenge because U.S. companies can use it and they can use it for cheaper. And it undermines the revenue proposition for anthropic at OpenAI. It also undermines can you put guardrails on something that then the user, the threat actor, can maybe take off? Think about those people sometimes say, I'll take my catalytic converter off my automobile. And, um, it's not legal, but a threat actor could say, uh, yeah. Oh, I'm just going to take the guardrails off. Gary, I got a whole group of reporters that do this 24 over seven, the pit bull terrier down in Washington. Mhm. Nicola white. Oh, boy. She's a threat to society. She covers enforcement for his folks. And she's got a brilliant note here to me, Gary, about the experiment of mom and pop retail access to private credit to all this other stuff that's illiquid as well. How is that experiment going. And she wants to know Nikola wants to know. Does it keep you up at night. That were retailer izing. That's my word okay. I just want to impress Gensler that we're retail izing. Gary. Retail in the things they shouldn't be going into. Tom, you impress me every time you go out to that, uh, Jackson Hall conference. And you have such access to everybody that's in that meeting, so don't worry about it. Um, look, I do think that there's a mismatch that the retail public, even high net worth retail public is being sold private credit. And then they're also being told they can get some liquidity. And you really can't you if you if you want to get the higher returns, you need to put your risk capital at work for longer periods of time and not have those redemptions. Now look, it's working so far, but I would say when and it's not a question of if, but when. We have a retrenchment and the big eye trade. There's a lot of debt on those data centers that is in this complex and the private credit complex. And so to your colleagues question, that's when the retail public is going to be saying Wait. This paper's no longer worth 100 cents on the dollar. It's worth 80 or $0.90 or even lower. I'd like to get out. And, uh, what happens then? That's a real challenge. So, Gary Torsen slock, uh, economist at Apollo, was out with a note recently raising some questions about how the rise of AI agents might affect the financial system. How do you think about that? We had the CEO of LPL financial in yesterday, and he was voicing some of those concerns as well. How do you think about AI in the context of just consumers in financial services? Well, I'm in the classroom teaching artificial intelligence and money, which is where you go addressing those very questions with some terrific Mitt students. And Simon and I, of course, talk about it repeatedly on our Power and Consequences podcast. My thought is, uh, three things. One is for consumers that they might actually get some better, uh, automated access to higher rate deposits. That's what, uh, Apollo's, uh, Mr. Schlock was pointing out. He was saying, uh, investors might be able to find better than the very low rates that most bank deposits get. So that's that's a net plus. But two, if you're using Facebook Muse and finding those higher rate deposits may be moving into money market funds as well, then the banks might have deposit flight. I think it will happen slower than his note suggested. But it's it's real. The other risk is if all of finance starts using similar models, then you might have hurting. And I wrote a paper on this a while back. It could lead to real systemic risk. And then thirdly, it's just the overall when we have a retrenchment and at some point in time this boom will plateau and even turn the other way. When that occurs. Then, uh, as Alan Greenspan would have liked to hear his friend, uh, Warren Buffett, uh, when the tide goes out, you see who's swimming with their trunks off. Gary. I mean, it just feels like. And I'm sure you see it every day in your classroom. The young folks are just embracing I for it's just become a part of their life as opposed to embracing it, like Tom and I are trying to do. Um, at some point that's going to, I would think, you know, impact how they invest, how they save, how they allocate their own capital. Is that a good thing from your perspective? Absolutely. Look, I'm, I'm I'm kind of bullish and optimistic that we humans will figure it out. But there's real risk we've talked about in this program. There are existential risk about AI agents misaligned or not aligned with their human, uh, um, users. Right. That threat actors will use it and it will disrupt markets. And so we have to build cyber security and cyber resilience way better. But I also think it will transform financial markets. And uh that's a that's a period of time of uncertainty. We've seen this in prior booms. Uh, you mentioned, you know, railroads and pharmaceuticals and we've talked about the internet. Uh, it's it's all there. It's all has some uncertainty. And then you have the geopolitical competition with China, and China's not taking their foot off the gas pedal. Gary, I got to be smart. I like it, Mitt in the back of the room with my hand up, asking Professor Gensler a question. Gensler, the Clinton administration, the Obama administration, uh, CFO for Hillary Clinton's campaign, working for President Biden, etc.. From where you sit now, is there a tinge to the Democratic Party experiment of being anti-capitalist right now? Look, I think that each of the, uh, parties here in the United States and you could say that's true in the parties and in Europe are going through transitions because the economy is changing so much. And so, uh, we've talked about artificial intelligence, but also the US is stepping back from its leadership on the world stage. And we're in, uh, uh, I would say, uh, a war in Iran that doesn't have any clear resolution and has been a very, uh, damaging to our economy and to our role in the, in the world. I think that's what, uh, the Democratic Party is mostly looking at. But, uh, I would say there are there's a deep belief in capitalism, but it's got to be responsible capitalism. And just as we put guardrails on our capital markets to make them work better than Franklin Roosevelt did that some 90 years ago with Congress, I think we'll find our way to do that. I don't I but right now there's there's a real risk.