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  • GARY GENSLER: Thanking everybody to coming back.

  • I think there'll be a few people coming in late,

  • still hitting the send button on the papers.

  • I want to thank everybody that submitted papers

  • before the ninth class, because I actually

  • had a chance to read those 26.

  • Since there are actually officially 84 or 85 people

  • registered for this class, I'm intrigued

  • to see if 59 papers came in a minute ago.

  • Human nature being human nature, these are just

  • the statistics on this class.

  • And as far as those of you who may have seen,

  • I chose that part of the experience

  • here is actually eyes on--

  • meaning my eyes on your papers--

  • and giving comments.

  • If you don't want the comments, you just want a grade,

  • you can always give me a heads up and send me an email,

  • and I will take less time.

  • I want to compliment everybody.

  • They're good.

  • I mean, there is a good engagement, a good dialogue.

  • You will see occasionally that I don't give you

  • everything you want back.

  • But a couple observations.

  • It's really an opportunity, on any topic

  • you want to choose in the second half of the semester up

  • to maybe the 23rd class, please, if 70 of you

  • hand it in on the 23rd class, that is your right, that

  • is your option, it's just--

  • it's just going to be harder on Sabrina, Thalita,

  • and me to grade.

  • But it's to use critical reasoning

  • about that week's topic.

  • So let me just mention two or three things some of you did--

  • I'm not going to be harsh about it-- but some of you

  • did that's not what I'm looking for.

  • I'm not looking for just addressing the three study

  • questions.

  • The three study questions are about us together here.

  • And just to sort of talk.

  • Secondly, I'm not looking for you

  • to take a reading from six weeks earlier

  • and describe that reading, or three weeks earlier.

  • So if you choose, in the future, to take November 15th--

  • I know November 15th, because we're going to--

  • it's going to be our second time with outside speakers,

  • and it's a really important time,

  • if you look at that class, to write something on that class

  • when it's--

  • we're fortunate enough that Jeff Sprecher, who

  • is the Chief Executive Officer of the Intercontinental

  • Exchange, and Kelly Loeffler, who is the Chief Executive

  • Officer of Bakkt, are going to come and do a class with us

  • about payment systems and what ICE and the New York Stock

  • Exchange is trying to do in payment systems.

  • I'm just using that.

  • If you write about that, it's really about that, not

  • about everything earlier.

  • And when we get earlier, I'll probably

  • say more about that class.

  • And we were fortunate to have one

  • of America's true great entrepreneurs

  • join us in Jeff Sprecher that week.

  • Who has, from scratch, created a $50 billion

  • market cap company in 20 years.

  • So those were my comments.

  • The papers were generally good.

  • Really looking for critical reasoning, ground truths.

  • Where did you take something?

  • Some of you brought a great narrative voice, by the way.

  • I have to compliment.

  • There were a couple-- a handful that I really

  • found you're really good writers and in addition to

  • being good business students.

  • So those are my thoughts today.

  • I'm going to go through--

  • oh, and we have we have an interesting guest next Tuesday,

  • but I'm not going to say anything more than that.

  • You'll find it fun.

  • Tuesday the 16th.

  • STUDENT: Nakamoto?

  • GARY GENSLER: What's that?

  • STUDENT: Nakamoto?

  • GARY GENSLER: Nakamoto!

  • Satoshi Nakamoto.

  • No, no.

  • Any other guesses?

  • I'm not giving any clues, but I will tell you you

  • will have fun next Tuesday the 16th.

  • It will be a guest you will not see at any other class.

  • So today, I want to talk about--

  • Ah, Tom's thinking about it, right?

  • Intrigued.

  • We're going to talk a little bit about finance.

  • Now, just as a way of background,

  • I've spent 39 years in finance.

  • So this is just my chance to take 80 minutes to talk

  • about finance with all of you.

  • We did have readings that will tie into it.

  • So overview, we're going to talk a little bit

  • about the readings, of course, as we always do.

  • Three slices of finance for a moment-- finance

  • and financial institutions.

  • What is a financial institution?

  • What does that word mean, and how do we think about it?

  • Finance and regulation, finance and technology.

  • So three quick slices of finance.

  • What is credit?

  • What's capital markets?

  • Again, a broad sort of Gensler's view of it,

  • maybe, but still I think you could--

  • it's grounded in academic literature.

  • Then what are the risks?

  • I spent a bunch of time at Goldman Sachs.

  • One of the last things I did as kind of the cofinance officer

  • was also sit on the firm-wide risk committee.

  • And so sort of bringing insight into,

  • what is risk management in finance?

  • Or at least in the capital market side of finance.

  • And crises.

  • I'm going to spend a couple of minutes on the OA crisis.

  • Some perspective from a guy who lived through it.

  • And then some of the opportunities

  • in the blockchain world.

  • We'll try to wrap and be out of here at 3:55, as usual.

  • So this study questions--

  • which, now I know there's probably 58 papers on this

  • in the inbox, I think.

  • But does anybody want to lend a hand?

  • I mean, it's getting shorter.

  • It's only 20 people on this list now.

  • But that means that 25% of you are

  • thinking that class participation is not

  • that important.

  • We're going to have to find a way that if somebody's still

  • on this list in a while that I don't give somebody

  • a terrible grade.

  • Because 30% of the grade is class participation.

  • I just say that.

  • I'm humorous about it.

  • I'm willing to work with people that,

  • if your language skills aren't there and you're just shy,

  • or you have an issue.

  • But does Monica want to help me out at all?

  • STUDENT: Yeah.

  • So, I'm back here.

  • So one of the trade offs that I talked about in my paper

  • was that we saw from one of the articles

  • that, as bankers were making more money,

  • there is a greater income disparity that we

  • saw in the entire sector.

  • And then one of the other things I talked about,

  • as some of these institutions combined,

  • they created like these huge conglomerates and the act

  • kind of deregulated the space that

  • allowed for that to happen.

  • GARY GENSLER: So Monica's raising two things, probably

  • from the Harvard paper, but two things that about income

  • disparities and also the concentration.

  • Anything else that people took from that Harvard--

  • I know it was a little dense, but the paper?

  • Is that a hand up?

  • Is that-- no?

  • You sure?

  • Oh, come on.

  • What's your first name?

  • STUDENT: Cece [INAUDIBLE].

  • Sorry, I'm not in the class list.

  • [INAUDIBLE] visiting MIT and hoping I

  • can audit this class today.

  • GARY GENSLER: All right. [? Cece ?]

  • is here as a listener.

  • Thank you.

  • Do you want--

  • STUDENT: Dan.

  • GARY GENSLER: Dan.

  • STUDENT: Yeah, in the Harvard paper, I just thought

  • was interesting.

  • It was that that act in 1994 that essentially caused--

  • it was the catalyst for just massive consolidation

  • of the financial services industry.

  • And so that's what ultimately led to disproportionate wages,

  • or disproportionate economic rents,

  • when related to productivity.

  • GARY GENSLER: OK.

  • So can you remind me which act?

  • Because '94 isn't ringing a bell.

  • I mean, the Gramm-Leach-Bliley was 1999,

  • and I don't know if there was something in '94 that--

  • [INTERPOSING VOICES]

  • GARY GENSLER: What's that?

  • STUDENT: Riegle-Neal.

  • GARY GENSLER: Riegle-Neal.

  • OK.

  • So Dan's raising that it's also regulation and law

  • has a lot of effect on it.

  • Consolidation is happening in many industries.

  • Finance is not separate from those industries.

  • 50, 60 years ago, you had the local drugstores,

  • now we have the big chains like CVS and the like.

  • So I just mention that the consolidation happens a lot.

  • One thing that I would say on the other side of that,

  • having actually watched and observed some of it,

  • is there was the desire to merge a lot of banking.

  • But the US, in contrast to other countries,

  • didn't have interstate banking.

  • All the way into the 1970s, banks

  • had to be within their own--

  • one of the 50 states, literally.

  • That started to break down in the late '70s.

  • It started-- Riegle Neal in '94, pretty much then it was,

  • Katie bar the door, we could have national banking.

  • And then by 1999, we also could have

  • commercial banking and investment banking together,

  • which is Gramm-Leach-Bliley.

  • I'm sorry.

  • I want to come back here, but next to Dan.

  • STUDENT: I was going to say that basically, the paper basically

  • went through a process of elimination of what

  • could explain the higher economic rents,

  • and basically checked everything off the list.

  • It said it was basically a bit of manipulation,

  • because there was more power by the banks that

  • had consolidated.

  • GARY GENSLER: Right.

  • Erin, do you see that as manipulation or just

  • an opportunity to get some oligopolistic or monopolistic

  • rents?

  • And I'm just discerning the word manipulation--

  • STUDENT: Yeah.

  • I guess what they were--

  • yeah, I mean I think it's--

  • I mean manipulation in the sense that, higher--

  • maybe taking advantage in a way that

  • wouldn't exist in a market that wasn't so consolidated

  • compared to other markets that were consolidated

  • and regulated, such as Canada.

  • Because he made a lot [INAUDIBLE]..

  • GARY GENSLER: I would note that every entrepreneur's desire,

  • in a business context, maybe not in a moral sense,

  • is to be able to collect economic rents.

  • Like you start out as a disruptor,

  • and along the journey, you would actually

  • wish to become somebody who collects excess profits

  • or becomes the monopolist.

  • I'm not speaking that you literally

  • want to take advantage of people,

  • but you do want to sort of collect excess rents.

  • And so it's a sort of natural transformation.

  • I'm sorry, there was a hand here.

  • STUDENT: Yeah, similar to what Eric said last, compare also--

  • concentration by regulation, or concentration

  • by deregulating the market, and by regulating it,