Few predicted—and most were unprepared for—the enormous challenges that have kicked off this decade: pandemic, economic collapse, social unrest, and political divisions around the world. Yet it’s the job of a Wall Street executive to factor in all the unknowns.

So Bloomberg Markets asked three of the wisest and most visionary people in the industry about their worries for the next five to 10 years: R. Martin Chavez, who helped build Goldman Sachs Group Inc.’s trading and technology departments before he became a senior director in 2019; Eileen Murray, a Morgan Stanley veteran who was co-chief executive officer at Bridgewater Associates LP before stepping down in March 2020; and David Siegel, co-founder and co-chairman of quant trading giant Two Sigma Investments LLC. Their comments have been edited for length and clarity.

Safeguarding Systems
R. Martin Chavez
Senior director and former global head of securities, Goldman Sachs

If I lie awake thinking about bad things that can happen, my concerns—and this may say more about me than anything else—are almost all about cybersecurity. Can we actually rely on, for instance, the integrity of core systems?

Here’s a scenario that is not contemplated in CCAR [the Federal Reserve’s Comprehensive Capital Analysis and Review, an annual assessment of the largest U.S. banks]: What about the Fedwire? The Fedwire is the definitive central book that says, “Who’s the beneficial owner of which Treasury security?” We rely intensely on that infrastructure. And of course, the Fed has done a very great deal to have hot backups and warm backups and cold backups. I don’t know that we’re putting enough time and energy into modeling what a disruption of banking systems—core banking systems, payment systems such as the Fedwire—what that would do to our economy.

You remember from a few years back that some hackers managed to get a hold of the Swift [Society for Worldwide Interbank Financial Telecommunication] credentials of Bangladesh Bank, the central bank of Bangladesh, and caused several tens of millions of dollars to disappear from Bangladesh Bank’s master account at the Federal Reserve Bank of New York. Some of the money was recovered, but some of it seems to have disappeared into casinos in Macau—walked out the door and was never recovered. In this case it was not a failure of the Federal Reserve. Someone managed to get access to the Swift credentials of a bank that had an account at the Federal Reserve, and they drained that bank’s master account.

The whole point of being a risk manager is not to say that something’s going to happen and to be an alarmist, it’s just to open your mind to a lot of possibilities of things that could happen—and then get yourself comfortable that they’re really unlikely. So I just don’t know about all of the security arrangements of the Federal Reserve, for instance, or of the ECB [European Central Bank]. I have confidence that they take these matters with extreme seriousness, but I personally don’t know exactly what they are doing, what kinds of technologies they’re using, to safeguard the system.

Almost all U.S. Treasuries do not exist in the form of a paper certificate—over 99.9% of them exist purely in electronic form. And Treasuries are the beating heart of the global financial system. Every country has its inventory of U.S. Treasuries. Treasuries are used as collateral for everything.

“I worry more about nonfinancial companies than I do about financial companies”

And yet, if you ponder that they exist entirely in electronic form, you’ve got to really start worrying about that electronic form. I am actually less worried that [these systems] could be hacked and simply halted. The thing that I think worries me more is, could it systematically be corrupted by a hacker? So instead of having confidence in who is the beneficial owner of every Treasury, [you might wonder] in whose possession is that Treasury at every moment in time? Because that’s the core of the financial system: moving Treasuries around. But when you think about it, the Treasuries are electronic—they’re not actually being moved in physical space; there’s just a computer somewhere that’s keeping track of who owns them. And if someone could get into that record and cause us to lose confidence in who owns the Treasuries, that would be, I mean—it’s so hard to even think about that outcome—it would be so extreme and so dire.

However, I worry more about nonfinancial companies than I do about financial companies. If you looked at the pandemic, there was very little concern about the integrity and stability of banks. Think of how startling that is, right? Compare that to the financial crisis, which was all about concerns about participants in the financial ecosystem. In the current crisis, the concern has been about everybody except banks, and I would say an important reason for that is CCAR.

Should there be a CCAR equivalent for systemically important nonbanks? As we discovered in the pandemic, there’s a lot of systemically important companies. It suddenly became obvious to everybody. Without Amazon or Google or our internet service provider, our problems would become even greater. And so, do we want to have some kind of framework so that we can have confidence in nonfinancial companies in a crisis?

There’s been a lot of concern over the past few years about artificial intelligence. Will some AI take over, and then we become the AI’s pets? Well, I’m actually more worried about something that I think has already happened.

We already have massive AIs in the form of these tech companies. Their data centers are running software on those millions of computers, and collectively they are artificial intelligences. And they’re artificial intelligences that are systematically exploiting weaknesses in human psychology: our tribalism, our gullibility, or wanting to be told what to believe, our wanting to be liked, our wanting to be told that we’re right. And they’re exploiting it to the end of maximizing advertising revenue. So, yes, I think we have to ask ourselves: Should we even allow this model of targeted digital ads? I worry a lot less about subscription services. If I’m paying someone a subscription like Netflix, their job is to keep me happy so I keep paying that subscription. But you know that old saying: “If you are not paying for some product or service, then you are the product or service.” So, yeah, I spend a lot of nights lying awake thinking about the extent to which we have become the product of artificial intelligences that are selling our attention and our behavior to advertisers. I think that core business model is extremely problematic in a way that untrammeled, undercapitalized trading and inventory of risk was a problem that was part of the financial crisis.

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