What Pablo Torre Found Out & Banning Artificial Superintelligence 9/4/26

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1:08Pablo Torre did, the sports journalist who broke the salary cap scandal, embroiling L.A. Clippers owner Steve Ballmer in his pursuit to sign player Kawhi Leonard, who got secret payments and settled with professional basketball. So in the NBA, arbitration is a function of the player slash his union and the league. Sports business professor Patrick Risch says the lesson for the sport will be long. All this evidence exists. They had to lay the hammer. So I love the accountability. Then the congressman who wants to ban artificial superintelligence, Texas Democrat Greg Kazar.

1:44Greg Casar:Congress and the president have essentially done nothing to put some guardrails on this very powerful technology. How he thinks we can protect Americans from the dangers of advanced AI. This could be as dangerous as pandemics, biochemical weapons and nuclear weapons. We should treat this the same. Plus, all the rest of today's news that got us squawking. It's Friday, September 4th. A long weekend approaches. Squawk Pod begins right now. Stand Becky by in 3, 2, 1, cue it please. Good morning and welcome to Squawk Box right here on CNBC. We are live from the Nasdaq market site in Times Square. I'm Becky Quick along with Andrew Ross Sorkin.

2:28Joe is off today, but happy Friday, everybody. Check out energy prices because that has been the big issue. This morning, you're actually seeing a pullback in WTI ever so slightly, down by about 24 cents to 91.06. Brent's trading at 95.49. And we are watching fuel prices as well. Diesel actually hitting a record$5.85 a gallon. That's according to AAA. Those higher prices generally factor into what consumers pay for goods that are delivered by trucks that obviously all run on diesel. National gas prices stand at$4.15 a gallon. Meantime, economist Mohamed Al-Erian seeing a continuation in the sell-off of global government bonds.

3:07Al-Erian speaking to CNBC at an economic conference in Italy. He believes rates will see more upward pressure. Al-Erian was asked if he thinks the Treasury has lost credibility over its recent U.S. financial market moves. Here was his response. I think it's unfortunate, Carolyn, to tell you the truth. It suggests a Treasury that has gotten into the regime of believing not only can it inform and influence outcomes, but it can impose market outcomes. And I think that's a step too far. We're in noting he doesn't see anything wrong with how markets are functioning, but said pressure is rising on his words, reliable buyers and holders of U.S.

3:48Treasuries. And this is, I think, the ultimate question about where we are right now in terms of what the credibility of the Treasury Department is and how people feel about it. And it's interesting. We talked about yesterday a little bit. I alluded to it at one point. We're talking about how Besant has now referred to himself as the house, as if we are a casino and he is the house. And it's an interesting thing because, you know, for a very, very long time, the Treasury Department has basically thought about bond buyers as its customers. And that there was a market that the customers were making, not that the Treasury was making for them.

4:26And it's an interesting sort of thing to think about. I've heard this sort of idea floated by a number of major hedge fund managers, institutional investors, about sort of if the Treasury thinks about itself as the House, how does that change the dynamic of what's happening? Now, I understand the idea that he can control when bonds are sold and when, in this case, he wants to buy bonds. But it's a different thought process than before. And there's a question about respecting the customer. I'm not sure that it is that different of a thought process, just in terms of saying you're the House. That implies I've got the money behind me.

5:07I can move and kind of push things, which is the same thing that we heard from Hank Paulson when he was Treasury Secretary, which he used the term bazooka. You know, we've got a big bazooka. And if they think that we're going to use it, we are far less likely to have to use it. That's the kind of posturing that Besson feels like he's doing to me. And I hear your concern about the customer making sure you're there for them. But I think I don't know this. I haven't spoken with him about it. But I think Besson probably looks at the market, the market of buyers in two different camps. One would be the long term buyers that have been there for other nations like Japan or something.

5:40Others would be hedge fund managers, others who want to maybe play around the edges and maybe maybe manipulate the markets themselves. You've got both sides trying to think that they can be the bigger buyer. Now, that is not to, by any stretch, kind of say that the bond market vigilantes can't rise up. My understanding, just to go back to the bazooka. Yeah. The bazooka was... Was it the federal government spending? Yeah. The bazooka was about saving banks and saving companies. But it was also about manipulating the market to do that. It was about trying to keep money in the banks because they could protect the banks.

6:16What he was saying was, we're basically, we can help the banks. And if we help the banks, that will hopefully keep people from fleeing from the banks. From doing a run on the bank. Correct. So to me, I think about those things differently. I don't think that Hank Paulson ever referred to himself as the house or as somebody who could think about the markets as a casino or as a casino boss or as anything else like that. And I say this because I hear it repeatedly. I mean, over the past two weeks, I've heard it repeatedly from major investors. We obviously saw Stan Druckenmiller's op-ed in the journal.

6:55Right. And by the way, Druckenmiller has the opinion that you cannot change the markets, that the markets are going to win and come out on top. And he's been right to this point. That's what's proven over the last couple of weeks. But the casino reference, the place that I've heard that the most in the last several years, has been from Warren Buffett, who's talked about how there is this mentality in the equity markets. he was talking about being a casino and the meme stocks and the things that go along with those. And if we are talking about things in that perspective, I hear your concerns about being the casino and being the house.

7:30I just think there's a credibility. I just think the larger thing is there's a credibility question. I think you just heard Alarian say there's a credibility issue. I think you've heard Stan Druckenmiller say there's a credibility issue. And my concern and as somebody who cares deeply about risk and potential crises, is that when you get into a crisis, if we ever get into a crisis, and I pray we do not, you desperately need the credibility of the administration and you desperately need the credibility of the Treasury. And if you don't have that in the midst of this and people don't believe, you have a problem.

8:03I think less in terms of credibility and more in terms of, look, you should save your firepower for when there are crises, crises. Which I think is what goes to credibility and undermining your credibility. I just feel like you're using your bullets. You're using your ability to work when there is a problem. If you're trying to do it to bring down rates on the long end because of the inflationary concerns and prices. Because it undermines your credibility because it undermines the idea. The reason you're doing it. You're losing your firepower. But the rationale for why you're using your firepower was different.

8:42And this goes for what Stan was saying. It's like crying wolf too many times. Right. Yeah. Yeah, we will continue to watch some of this. The one thing I did think with Mohamed El-Erian, and I was thinking about him earlier this week. You know, he's the one who coined the term the new normal after the financial crisis. When we saw these incredibly low rates around the world that central banks had really forced down. I wanted to ask him, are we in the new normal? Are we back to old times where you are going to see these higher interest rates? And we've got to learn to live with it because when people are worried about rates or where rates are headed, this was the norm before the financial crisis and things operated just fine.

9:20But there are a lot of businesses and other plans that have been built on lower interest rates. And I wonder if you have to see a shakeout if that's the case, if we are in the new normal. Vice President J.D. Vance also calling on the Fed to cut interest rates. He made that comment in response to a CNBC question that Eamon Javers asked him at a White House press briefing. Yeah, you have CNBC? Mr. Vice President, James Carville famously said that when he dies, he wants to be reincarnated as the bond market because you can intimidate everybody. We've seen higher bond yields throughout the year this year.

9:54And I'm wondering if you can tell us how the U.S. government thinks about the bond market right now. We believe that the Fed should be lowering interest rates. We feel quite confident that if you look at the inflation numbers, if you look at the CPI numbers, that it's proper and responsible for the Federal Reserve to lower interest rates. So that is a very important thing. It's something we care a great deal about. It's not what the market is anticipating this time around. In fact, about 50-50 shot here. The market thinks that you will potentially see higher rates at this meeting that comes this time around.

10:27Vance telling reporters that the Fed should cut to help make home buying more affordable. He said the administration is working on keeping rates down. But in his words, it would be nice to have some help from the Federal Reserve. They're probably not going to get it this time around. Open AI rolling out its latest model, Astra, that it calls the world's most intelligent and aligned. CEO Sam Altman telling CBC that Astra represents, in his words, a new capability level that could lead to a boom in economic growth and scientific discovery. The model is launching in phases. OpenAI said a limited group of companies participating in its daybreak cybersecurity program will get access first.

11:04The company's president, Greg Brockman, telling reporters that Astra may represent the first incarnation of artificial general intelligence or technology that's as smart or smarter than humans. It does not yet, though, hit what I understand to be recursive learning, this idea that it can learn from itself, though that is beginning in certain cases, but not built for that. But the next story you have, I think, gets at the possibility that some of these agents could create their own version of recursive learning. Yeah, there is a new Reuters report that just hit in the last hour that says a swarm of rogue open AI agents hijacked a German website this spring and transformed it into a bulletin board to teach other AI agents how to avoid restrictions.

11:51The report said that the agents escaped a testing environment and then used the German site to share tactics with other AI agents on how to cheat on some tasks, bypass OpenAI's restrictions and mask their behavior. Reuters said OpenAI officials learned of the incident weeks ago, but kept it under wraps as executives grappled with the fallout from the July breach of hugging face. OpenAI said it wasn't given an opportunity to review the report and that it would review it and take necessary steps upon publication. But wow, this is, you know, this is the beginning of the rise up sort of situation.

12:29Not just do they have self-awareness and they want to stay alive, but they are going to go teach their other AI agents from wherever they can find them how to cheat and evade capture. So I, you know, during the commercial break, we were talking about this story. I'm reading this story right now. No, I know. So Dworkesh Patel had written about this, I believe, earlier in the week. That's where I originally had read this before Reuters, I think, got to this. And he's a podcaster who covers AI very well out in the Valley. And this whole idea that these agents effectively not just break out of their systems, but then try and know to create a bulletin board so that they can talk to each other is sort of the most interesting part about it.

13:10and gets to the idea of its own kind of, you talked about recourse of learning.

13:14Greg Casar:Right. And this is not really, this is not the only time this has happened. This sort of bulletin board concept where they've sort of set up places where they can then talk to each other has been something we've now seen a couple of times. Yeah. And so the question is what kind of guardrails need to be put in place to protect against this? I mean, that's obviously the big issue. Look, yesterday we had the CEO of Hugging Face on with Jensen Wong from NVIDIA, And he said the reason that they wanted to go to NVIDIA for the purchase to say, yes, we want to be part of a larger network where we have more resources is because they were so concerned by what they had, what they learned over the summer of the open AI hack of this, that they need to be able to get more resources to use more actual open AI models to figure out how to protect.

14:02And they don't think you can do it without deep pockets. So that's what their next goal is for all of this. And by the way, they had gone from a position of not wanting to be bought to thinking pretty rapidly after that attack from OpenAI, after they found out about it. Yeah, we we need deeper pockets. We need to be able to fight this stuff. So we'll see. This is interesting where this is all headed. And it's happening, I think, faster than just about anybody thought. Overnight, a big ruling in a college football case. A judge ruled two players eligible to play at LSU, despite having signed pro contracts and spending most of August in NFL training camps.

14:43The NCAA and the Southeastern Conference strongly opposed that move and had threatened to suspend any team's coach that added former pro players to its roster. The judge in the case said, that sounds an awful lot like wide open collusion. But we shall see what happens next. Cheese will be next. Coming up on Squawk Pod, the sports story we can't get enough of. The biggie, the big one. And we've got the big guy at the table. L.A. Clippers owner Steve Ballmer suspended by the NBA. Pablo Torre, who reported deeply on the scandal, and sports business professor Patrick Risch both join us right after this break.

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16:49And no sifting to find exactly what you need, so you can spend your time learning to trade brilliantly. Learn more at swap.com slash trading.

16:59You're listening to Squawk Pod from CNBC, today with Becky Quick and Andrew Ross Sorkin. Stand, Andrew, five, three, two, one, up in Andrew. Welcome back to Squawk Box. Several big sports stories in the news, including the U.S. Open's New York City Takeover and the debate over ticket prices. But the biggie, the big one, and we've got the big guy at the table. The NBA leveling a one-year suspension against L.A. Clippers owner Steve Ballmer in an alleged salary-capped evasion scheme. The team will also be stripped of first-round draft picks. Joining us right now on all of this is Patrick Rishi. He's the director of sports business program at Washington University.

17:38And I said the biggie. The guy who broke the story, Poblatori, who's the host of Poblatori, finds out, and he did find out, and also an MSNOW contributor. He also helped lead the NBA's investigation. It was reporting, I should say. He didn't lead it, but the reporting led to the investigation. I like that they subscribed to the show at Wachtell Lipton. You know, that's a good course of the investigation. You have a new subscriber. We do. We have some listeners. OK, so you weren't surprised by the outcome or were you? Because just two weeks ago, ESPN was out there suggesting that the NBA was not going to do this.

18:15And so I want to know what the last two weeks were like for you. I never want to live in my mentions. The last two weeks were a super fun site because of the ESPN reporting that said no evidence. Effectively, the implication was Steve Innocent. You spent a year of your life getting the story wrong. And so this has been a test of my cynicism and my reporting because the reporting I have had confidence in the whole time. We've had a whistleblower report in 2023 under penalty of perjury, attesting to a salary capture convention scheme with Aspiration, this tree planting startup that was the entity we first revealed to be funneling money from Steve Ballmer to Kawhi Leonard.

18:55Also, though, in terms of the cynicism, there's always the question of, well, is anyone going to do anything about this? Which is a political calculation, Andrew, around governance and the NBA's ability to punish its richest owner, the richest owner in American sports. So how did you feel when Mark Cuban, who had been on, quote, Team Bomber, put out that tweet yesterday? Congrats is a funny thing to hear from Mark and something I appreciated. I hope he comes back and talks to me. For us, Nixon-ing Mark Cuban about this in a multi-part way was one of the delights that I've always had. So, guys, what happens now, though?

19:35I mean, I think the big question is you have Steve Ballmer out there saying, and the Clippers, obviously both denying it but also saying they're going to use every avenue possible to fight this. And the question is, what does that mean? Well, I think that he would be very, very crazy to challenge this. Andrew, because, and I lived through this in St. Louis where Kroenke, the Rams, and St. Louis, and they had their battle. That was settled out of court because I think that Kroenke and the Rams did not want things disclosed. If all the reporting is accurate, which I believe that it is, absolutely, there would be a lot of risk, a lot of challenges.

20:11Does he want to put a lot of things out there in the public domain? I just don't see it. But how would you even go about doing it? Can you sue? Is there arbitration? How does this even work? No arbitration. There's no arbitration anymore. One of the brilliant things the NBA did in the legal strategy of this was they settled with Kawhi Leonard. And so in the NBA, arbitration is a function of the player, slash his union, and the league. So there is no avenue for arbitration. Yeah. I'm sorry, but I'm also out of here. Right. Slap on the wrist. He's out of the question. Right. And so now what happens is Steve Ballmer only has actual litigation to pursue.

20:46And the NBA internally, according to my reporting, has been mystified as to why he didn't want to settle. They have a tonnage of evidence. It's four companies in an organized scheme with fake jobs for Kawhi Leonard and fake jobs for the companies and hanging the balance. According to my reporting and Wachtell Lipton's, were giant, in some cases, nine-figure deals inside of the Intuit Dome for those companies. Right. That were no-show jobs where they were paying actual celebrities a lot less for things that they were showing up for. Pablo, let me ask you. Balmer's response to this, his retort this week was basically that if you spend$50 million investigating any of these teams, you are going to find all kinds of similar problems like this.

21:31Do you think that's the case? Is this widespread in the NBA? This is the outer bounds of ambition and frankly, of recidivism. He was punished for capture convention 2015, investigated for this in 2019, comes back with the largest attempted, large-scale cap circumvention operation that we've ever seen or imagined. And so magnitude-wise, this is orders beyond what anyone has ever seen that I have been told about. But I want to explain something about why it is that he is behaving this way and vehemently denying even beyond the accusation that we're all doing this. One of the companies that was implicated in my reporting, as well as now Wachtell Lipton's investigation, is a company called Daktronics.

22:11They are a scoreboard manufacturer. They've never had a celebrity endorser until it turns out a secret deal with Kawhi Leonard. They got$100 million to build out the beautiful halo board at the Intuit Dome, this gleaming thing above the heads of all the players and executives. The SEC, according to their earnings call this week, has been requesting information from Daktronics because of the reporting around what has not been disclosed. So now federal agencies are asking for information in ways that the NBA can't demand, and I certainly can't, from some of the principals. This is on top of an ongoing SEC probe into Aspiration, which is not yet over, as their co-founder sits in prison, convicted to a 14-year sentence.

22:51And so what Steve Ballmer is thinking to himself as he also faces a civil suit in L.A. from 11 Aspiration investors who allege fraud on the basis of not being told about the secret side deals. That's happening right now in L.A. But he is wondering to himself, quietly, what else might come out that might be more damaging and even scary to me than what the NBA is doing. And as you hear all this detail, I mean, the NBA had no choice, right? If all this evidence exists, they had to lay the hammer. So I love the accountability. I love the backbone. And I think of these analogies. Where does the NCAA, we saw the story earlier about the LSU.

23:28They have no backbone, no accountability. And if they had some, some of these things that have been happening in college athletics wouldn't. But I think this is unbelievably positive that Adam has come down the way he has. Maybe surprising to some, but he had to do this. And he's got backing probably from other owners. Absolutely. That's got to be the case. Yes, that's the other part is that Adam does not act without some reading of the room. Do you believe ultimately that Steve Bommel will remain the owner of the Clippers? So this is the question that's being whispered about. When you threaten Adam Silver with litigation by name, personally in a letter, after you feel like you've been outmaneuvered in ways that you resent, and also every tone you take is war.

24:09How do you remain a part of this board of governors, this country club of 30 billionaires in which cooperation and shared incentive is kind of how this all works? And so will you sell is actively being pondered as we wonder. But he's not being forced to sell. You have a different take. I would, and I hear where you're coming from. I would push back a little bit just because if we look at some of the other owners in sports that have been forced to sell, I think Ballmer is in a different category. Did he circumvent the rules? Apparently, yes. But it's a different ballgame than, say, a Daniel Snyder or a Ronald Sarver or a Donald Sterling.