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Chapter 1: What are the recent developments surrounding SpaceX's IPO?
Last week, SpaceX's initial public offering was the largest in history. And on the morning we're recording this, Tuesday, it briefly passed Microsoft as the fourth largest company by market capitalization. All the while, Elon Musk, the owner of SpaceX, has become the world's first trillionaire thanks to his shares in the AI to rockets business.
But for some, the SpaceX listing and its blockbuster valuation is a reason to worry, not celebrate. In the run-up to the IPO, U.S. Democratic Senator Elizabeth Warren wrote to the head of the Securities and Exchange Commission asking the regulator to delay the listing. Warren is a ranking member of the Senate Banking Committee.
She joins me now to talk about why she opposed the SpaceX IPO and what it tells us about the American economy. Senator Warren, welcome.
Thank you very much. Thanks for having me.
So let's start with the most recent updates. SpaceX has shot up in value by more than a trillion dollars within just several days of going public. That's from an initial valuation that was already the highest in history. What are your thoughts as you're watching this?
Look, I want Americans to have opportunities to invest in companies that help our economy grow. But the confidence of investors is a big reason why our markets are the envy of the world. And this particular IPO has enough red flags on it that it should stop anyone in just thinking about it. So look at it this way. First of all, the valuations.
Elon Musk valued his company with numbers that analysts call nonsensical and out of this world. In part, he based it on the merger of SpaceX and XAI, which means, I guess, Elon Musk got in a room with Elon Musk and negotiated on how much the merger should be worth. Then, secondly, SpaceX...
push the major index providers to change their rules to force SpaceX into index funds at record speed, which will artificially boost the stock price in the short run. And then they've set it up so that insiders will have an opportunity to sell their shares into the market. And when they do, they will have this captive audience of the index funds.
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Chapter 2: Why does Senator Warren oppose the SpaceX IPO?
And then the third is that this IPO really undercuts shareholder protections that have been in place for a long time, so that Elon Musk basically keeps all of the control for himself rather than the ordinary way. And that is, you know, if a CEO is running a company into the ground, shareholders can actually get rid of the CEO.
I'd like to drill down on one of those concerns in particular, and that's indexing. Sure. As you mentioned, this will affect a lot of people, whether they are interested in investing in SpaceX or not. Tell me a little bit more about what exactly has you worried?
Well, when an IPO comes out, and this is true across the board, a lot of froth, right? Not always, but a lot of the time. So the index funds that have said, we are the sober investors, we are the non-fancy, a little piece of everything across the market, Say, in effect, we're going to let everything calm down for a while before we start bringing in that new IPO into our mix of index companies.
And here what's happened is that allegedly under pressure from Elon Musk, they changed those rules and said they were going to bring them in much faster. And that means for lots of investors who bought into funds, they find themselves in the roller coaster ride along with Elon Musk and SpaceX at a time when it appears those traditional rules are more important than ever.
Senator Warren, there are some folks out there who would consider the nearly $2 trillion initial valuation of SpaceX justified, saying that Elon Musk has the ability to turn a business around. They point to Tesla. Do people have a case there?
Look, my job here is not to give investment advice. My concern is about the rules and whether the rules are followed, because these are not rules on the stock market that are put in place just to be cranky. They're rules that say, before you do an IPO, you gotta show us the numbers, show your homework.
And when experts, financial analysts, are calling those numbers nonsensical, then the job of the SEC in general is to say, whoa, whoa, whoa, let us see just a little bit more about how you got that number.
Well, let me ask you, Senator Warren, how do you think this would have gone differently under a different administration?
I think there would have been a lot more questions asked to start with about valuation. And I think there would have been a lot more show your homework before the IPO comes out.
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Chapter 3: What red flags does Senator Warren see in SpaceX's valuation?
Do you think he will push at some point to increase rates?
I don't know, but what I do know is what you've just identified, and that is that costs are up for American families. Remember, Donald Trump ran for office promising he would lower costs on day one, and the cost of groceries is up, the cost of gasoline is through the roof, the cost of healthcare is up, the cost of housing is up. So we have a question around inflation and the Fed.
But again, I'll go back to the point I was making earlier. The pieces are tied to each other. The American consumer is showing a lot of economic stress, and that in turn will echo through our economy. Donald Trump's policies, one after another, his policies on energy, on health care, on starting a war halfway around the world, have all driven up costs for families.
And the consequence is to put more pressure on our economy overall.
Do you think that Kevin Warsh can maintain Fed independence? It seemed like it was something that you were worrying about during the vetting process as he vied for chair.
He's going to have to prove himself. Remember, Kevin Warsh was always an inflation hawk. He was actually very well known for it, even at times when I certainly would argue and many others would that he was wrong. But he stuck to his guns right up until a few months ago when Donald Trump said,
that he needed a new Fed chair, and he was only going to take a Fed chair who agreed with him on lowering interest rates. And suddenly, Kevin Warsh was no longer an inflation hawk. In fact, Kevin Warsh could not identify in the Senate hearing one single statement that Donald Trump has ever made about the economy with which Kevin Warsh took the slightest bit of disagreement.
So let's just say he's got a lot of ground to make up to prove his independence.
Senator Elizabeth Warren from the state of Massachusetts, thank you so much for your time.
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