Look, I won. Thank you so much. And it's wonderful to be partnered up with Simon Johnson on our new podcast, Power and Consequences. A little audacious, because in the world of economic minstrels, do we need another two folks out there doing podcasts? But we're going to have some fun with it and speak about that.
Look, in terms of private credit, I think that there's some risks there, but it's a small part of our overall capital markets. Don't forget U.S. capital markets, 150 trillion or so. And this is a $2 trillion corner. But there are some risks and I'm sure we'll get into it, particularly because they've offered to retail investors, high net worth individuals, what's called the wealth channel to be part of this. And the wealth channel is turning on it. They're saying we don't want to be in here as much. Can we redeem out? And that's a little hard.
How do you respond to people that blame you as SEC chairman for opening up the door to this retail investment in esoteric things like Bitcoin and others? But also, Paul, how would you phrase it, illiquid, private credit or less? Look what you're they blame Gary Gensler, Chairman Gensler, it's your fault. How do you respond to that?
That's a new one. I hadn't heard that topic. It's in this case it's counsel and Biden let this happen. And I look, firms, alternative asset managers and private equity and private credit and hedge funds, real estate and so forth have been around, you know, really for 50 years. In the direct lending space that started in 2008 to 2012, Mark Rowe and started Apollo, Steve Schwarzman with Blackstone. They were building big engines. And it was already probably when I got there, at least approaching a trillion dollars. So I just think that that was something that was one of those, oh, you have it in your 401k. All right. Of course.
One of the things I notice, Rob, is when we do go out and talk to registered investment advisors and we do that a lot in Bloomberg Radio, we go out to our sponsors. I'm shocked at the allocation to alternative investments. I would have thought it was 5%. So you're talking 20, 30, 40%. You're talking like an endowment.
Look, I think that's where we have the risk. It's a structural risk. Alternative asset managers, private credit amongst them are bringing in institutions, sovereign wealth funds like insurance companies. And then about a third of private credit, the investors are everyday investors. Lloyd Blankfein said it well. He was asked recently about it. He says, I don't get why they're doing this. It's when this goes down, the institutions Washington won't care about. But when it goes down for private individuals, it's going to be bad.
If you with the celebration of Mr. Blankfein's book, how many book parties have you been to them? All right. You know, but Lloyd and I, we were at Goldman Sachs and we were honored to make partner together. So he's a very clever and funny individual.
So I just referred to Gary as Rob. You know, I did that. His twin brother's Rob. That's the way I do that. He's a buddy of mine, you know, the day my identical twin brother, Rob. Yes. You're somebody might be in charge. He's the guy across America with his Gary Gensler, the former chairman of the SEC in celebration of his podcast, or the laureate Simon Johnson at Sloan, Paul Sweeney.
So, Gary, the investors have been dealing over the last three or four weeks with all these issues going on in rates, whipping around energy markets, whipping around all kinds of risk markets. How do you view that when you talk to investors? I'm sure they come up to you and say, what do I do here? Because it's so much stuff I don't understand.
Perhaps. Look, it's a multiple shocks. It's a shock to the energy markets, as we know. And I would look in energy markets not at the current price. I'd look at the September and December prices for both oil and for natural gas. I'd look at fertilizer pricing and right now, probably we're going to have higher prices for agriculture in the fall because the fertilizer pricing has gone up, doubled in the last few weeks and this is spring planting time. I think it's also going to hollow out some of our longer term growth, like a remarkably resilient economy. Jason Furman just wrote about this in the New York Times. But I do think that our longer term growth rate is now clinked down a little bit more. And so I'd be worried about multiples in the equity markets when you have lower growth.
If you were back at the SEC, what would be your primary issue worry to do item maybe?
So I would be getting the team together and say, what do we know? And can you pulse the various large banks, the JPMorgan's and Goldman's about what's called prime brokerage where they have trillions of dollars loaned out to hedge funds. And then also I'd ask the bank regulators, how does it look about their loans to private credit? We recently saw JPMorgan remarketing those loans to private credit. I'd want those interconnections to prime brokerage hedge funds and the banks to the private credit space. Tell me about the hedging risk here. I brought up the last couple of days, and all of this works off at New York University. Professor Roman Friedman has been wonderful. There's a hedging and Greenspan would speak about this in celebration, folks, of his 100th birthday. We have hedging. There's a price to hedging always. And then, oops, things go bad. And within a hedge or out there, a re-hedge or dare I say out again, what is our risk right now of there's a point where you have to hedge, you have to restructure all these derivative instruments? Well, that is always a risk, particularly if a firm fails. And that's what we would look at. When I was at the U.S. Treasury many years ago and long term capital management failed. So everybody has to re-hedge. So when there's breakage in the system, it's, as you just said, the re-hedge for the listeners. A bank is counting on its counterparty to be there tomorrow. But when the counterparty disappears and they have to take that whole position right and re-hedge the certitude of the street.
Gary Gensler, we fixed this in '08, the big banks are not exposed, but then are the others. What are the shadows of the others that you're focused on?
I do think that the big banks have better capital position or more resilient 2026 than 2007. But I do look at the significant leverage that's the borrowing in the hedge fund community. And yes, the interconnection between the banks and the alternative investors, the private credit space. And now back to just private credit, we are going to see some disruptions. I mean, AI is changing the world right now. Right. And if it's a fast change, that means valuations are going to change a lot. This is like a barbell economy. If it goes really well, that means some valuations, whether it's in software or other fields, have to decline.
Crypto. Have we gained more clarity on who is regulating it, who should regulate it, to what degree should it be regulated? Where are we on that?
I think those are going to be questions that you'll have for my honored successor, Paul Atkins and others. But the American public, you know, they seem to be even more focused on prediction markets than crypto right now. So the investing public, I'm not saying they've moved on. They've just been a new darling at this little casino.
And one of our colleagues at Bloomberg Television was just interviewing the CEO of one of these prediction markets and adamant that it is not gambling and it's okay.
Yeah, there was no gambling in this town, right? There is no doubt about it. I'm not going to blame this on you, but I'm sorry. There's a security. I have to make some news this morning. Do you look at these prediction markets as gambling, Mr. Gensler? Well, parts of it are sure. Look, there's parts of it that is just hedging, right? Economic risk. But now you go all the way over to the sports world and the sports world. That's just gaming. It is. I'm going to go mental here, Rafael, our at the Bank of International Settlements has written the smartest stuff I've seen and a broader statement of Bitcoin. They did a paper eight single sentence, single spaces, eight pages of detail. And the speculation within these markets, I mean, it's basically a casino like people vote against Duke in basketball. I don't see that in the debate. Did you see the University of Pennsylvania in the bracket? Hey, wait, wait, wait. That's my arm. Am I no beating Yale. Did you see this? I saw them. Are you in the second or third row at the game? Yeah. I don't want to give that up, Tom, but. But look, I mean, investors can be taking a bet on things even when they're betting on an individual stock. But there are parts of the prediction markets and there are parts of the cryptocurrency markets that are just pure, pure speculation. And so, you know, how do we protect the investing public in those words? How do we protect the investment public? And prediction markets are in the cryptocurrency markets. And importantly, how do we protect the integrity of the underlying the elections. How do we protect the integrity of the government? Actors aren't leaking information so that you can make a bet in prediction market.
