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Quest Means Business
Obama's New Budget Includes $1.5 Trillion Deficit; Toyota Announces Safety Problem Fix; Interview With Britain's Prince Andrew
Aired February 01, 2010 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Obama's big budget. The U.S. president says he'll spend more to save the economy.
Toyota says it can fix its safety problem. What about its credibility?
And a reminder of realism from a royal, His Royal Highness Prince Andrew.
I'm Richard Quest, back in London, where I still mean business.
Good evening.
President Barack Obama has today promised he will save where he can so he can spend where we need. But he is spending a lot of borrow money; $1.5 trillion. In fact that is a record for the U.S. deficit, more than 10 percent of the budget in the red.
The budget President Obama is proposing looks to tackle the number one issue in the U.S. job creation. And tonight on QUEST MEANS BUSINESS, we ask does the U.S. budget have legs?
President Obama has outlined some far-reaching changes since the turn of the year. He has taken aim at all parts of the U.S economy. Let's start, for example, with Wall Street reducing government deficits and creating jobs. It is going to be a tricky balancing act. And most of it is still in the planning stage. And many of the critics say really it will never get much further.
For instance let's begin-that he wants to ensure no institution is too big to fail. And he wants to ensure a reduction of systemic risk in the system. So, breaking up the banks by limiting the size of the banks, and the activity that they can take part in. No, prop trading, proprietary trading, for banks with federally insured deposits, all those that borrow from the Federal Reserve.
This, from Wall Street's point, is probably the single most controversial piece of legislation or proposal that the Obama administration has come up with.
But then there is the bankers' levy, aiming to recoup $117 billion in TARP asset relief, over the next quarter of a century. Foreign banks will hit as well. Attempting this, basically, the idea is to make the government whole again from the troubled asset relief program. But, of course, it also has a wonderful bit of populism involved. Most big banks have, of course, now repaid their TARP money. If passed, the levy comes into effect in the middle of the year.
And last week, in his State of the Union, President Obama said the job creation was job number one. Of course, there were many proposals to bring down the U.S. unemployment rate from its 10 percent level. But very few facts on how that would actually be done. A collection if you like, a variety of different proposals by the U.S. president.
Maggie Lake is in New York.
And this budget that we saw today, $1.5 trillion deficit. I mean, you and I have been around this game long enough to but had you ever thought of that before, Maggie?
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes. No, it is incredible. Huge, huge numbers. In fact, Richard, I got a message from a viewer saying to them it was simply mind-boggling. "That is almost twice the GDP of my country."
In fact, if you look at the World Bank rankings, the U.S. deficit, not the country, just the deficit is about as big as the 10th biggest economy in the world, Spain. It is unbelievable. Unsustainable, and even the president himself said so.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We simply cannot continue to spend as if deficits don't have consequences, as if waste doesn't matter, as if the hard-earned tax dollars of the American people can be treated like "Monopoly" money, as if we can ignore this challenge for another generation. We can't.
(END VIDEO CLIP)
LAKE: That is how a lot of American people feel. Like they do think it is "Monopoly" money, especially on Capitol Hill. So, in order to try to tackle that as you know, the president is vowing to try to freeze spending on that discretionary spending that is in the budget. They are also talking about the banks fee, the responsibility fee, ending fuel tax subsidies, the cap and-letting some of those President Bush, the former President Bush tax cuts expire for the wealthiest American; all of that to try to rein in the spending.
But, Richard, you also pointed out they are spending more money on things that they need-they think the economy needs.
QUEST: Right.
LAKE: A lot of concern is coming from economists as well, that the economy is not strong enough to withdraw this stimulus, the government stimulus. So, job creation, student loans, that type of thing. But, Richard, very important to remember? None of this tackles the big issues at the heart of the deficit, entitlement and war. Nothing in any of these proposals addresses those two big things. And if you are going to get the deficit in order eventually you are going to have to.
QUEST: Because if I remember correctly, the vast majority of the U.S. budget is pretty much entitlements, it's spending, it is non-discretionary. There is not a lot you can do about it?
LAKE: That is absolutely right. And you need to know that when you hear about freezing spending, discretionary spending, it is like this much of the budget. It is what to do with the aging population, the seniors, the baby boomers, and it is of-it is an absolute third rail of American politics.
QUEST: But, Maggie, one of the questions that people continually need to get to grips with, with the budget, if they do not deal with this, where will the ramifications be seen? Will it be seen in-in long-term bond yields, that will have to be jacked up to pay for it? Is it going to be seen in currency markets? In a weakness of the dollar? Because unless we can actually put perspective into this it is just financial-ese.
LAKE: Right. And why does it matter? And that is exactly what the deficit hawks, some of the economists here in the U.S. and around the world are worried about. It is the American gold standard. If you start to get the dollar affected, basically a loss of investor confidence in America, the dollar weakens, inflation goes up, interest rates here have to go up substantially in order to try to-you know, have investors come here, attract capital. It is going to mean a significant slow down in the U.S. economy, its growth ability. That is the pain later.
But if you try to address the problems now, which is what some are encouraging, you are also talking about pain. You are talking about higher taxes and cuts in spending. Both are hard to sell to both congressman and the American people.
QUEST: All right, Maggie Lake, who is in New York. We will talk more about this, no doubt in the weeks and months ahead. Of course, whether or not this budget ever actually gets passed and gets further than it does, is an interesting point.
Maggie, many thanks indeed. Suzanne Malveaux will be joining us a little bit later from the White House to give us the political aspects on the same story.
Bring in the Big Board. And you can see, straight away, need one of those-95 points higher for the Dow Jones industrials. It is trading at 10,162. As long as we stay around this level we know that a gain of 100 is-in fact, it is exactly, look at that, because of the numbers it is up just under 1 percent. Stocks are starting the month on the front foot. That is an expected report.
By the way, a lot of you will have known this old adage about, how so goes January, goes the year. January was a down month, but can we say that is the way the rest of the year will be. I sincerely doubt it.
To European markets now and how the European bourses fell. They managed to shake off some of the January blues, all the markets closed higher. I think I just said "fell". I meant "faired". They actually faired rather well. The London FTSE was good. The banks and mines had a report showing manufacturing expanding in the U.S. and in the Euro Zone, higher metals prices.
Our old friend RBS up nearly 8 percent on reports it is making progress in selling off some of its assets. RyanAir, 7 percent, it raised the profit guidance for the year. Utilities stock rose in London, on speculation Northumbrian Water may attract a take over bid.
Bet you'd never thought we'd be talking about Northumbrian Water. And perhaps before the end of the show I'll even tell you where Northumbria is!
The Obama budget, back to this interesting story. Congress, of course, actually has to pass the budget. It is the president's budget. It is Congress' decision whether to spend the money. To Washington, Suzanne Malveaux on the battle lines.
And, Suzanne, the core question, is this one of those budgets that is dead on arrival?
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: I don't think it is dead on arrival. But I do think it is going to create quite a bit of a battle, a mess, if you will, in Congress when people are-actually they are combing through this right now. And it is up to them, obviously, to write the check, not to the president. And he is basically giving one big suggestion to them.
But I think there is going to be some back and forth on both sides, because obviously the Republicans want to see some deeper cuts and some fiscal responsibility and the Democrats are quite upset about some of the cuts that are already being made.
The president, as you know, Richard, he has got a real delicate balancing act here. He is got to prove, on the one hand, that yes, they can make the cuts that are necessary to balance the budget. The federal deficit is out of control. They are going to try to get that back in control. But he is also saying that his number one priority now is creating jobs for Americans. And that is going to require, in this administration's view, spending some serious money, some serious cash here.
Here is how the president suggested that he was going to try to walk that line.
(BEGIN VIDEO CLIP)
OBAMA: I propose a freeze in government spending for three years. This won't apply to the benefits folks get through Social Security, Medicaid or Medicare. And it won't apply to our national security, including benefits for veterans. But it will apply to all other discretionary government programs. And we're not simply photocopying last year's budget.
(END VIDEO CLIP)
MALVEAUX: So, what are we talking about here, Richard? A couple of things, some highlights here on the side of actually making those serious cuts that the president talked about. He's speaks about it very much like the way we heard from the former President George Bush saying these are tough choices. These are programs that are duplicates, or they are not efficient types of programs.
So, first eliminating subsidies for oil and gas production. They are trying to encourage alternative sources of energy. That saving $2.6 billion in 2011.
QUEST: All right.
MALVEAUX: He also mentions discontinuing the military cargo plane, the C-17. They say that is going to save $2.5 billion this year. They say it is just not necessary for the Pentagon to have this.
And then terminating NASA's Constellation systems program. We know that as the moon mission here. And they say they are going to save anywhere from $2.5 to $5 billion, per year, on that. They are going to actually use private contractors to provide the kinds of funds for the moon mission.
So, those are just some of the cuts that they're making. On the flipside, Richard, they are also talking about these are the investments, this is how we are going to spend money to get people back to work. Somewhere in the tune of $100 billion to create new jobs, to invest in infrastructure as well as tax credits for small businesses; $28 billion for elementary, secondary school education' and then, finally, $61.6 billion for research and development. Again, to get those projects underway, new industries to try to create some jobs.
A tough sell for this president, Richard.
QUEST: Suzanne Malveaux, at the White House. Thank you. You are up to date with both sides on this story, the financial and the political and the market reaction.
We now need to hear from Fionnuala Sweeney, who is at the CNN News Desk.
(NEWS BREAK)
QUEST: Now there is a man who know something about how to brand and to put some money behind the project. Absolutely. Fionnuala, many thanks. "WORLD ONE" coming later.
Toyota finds a fix for its accelerator problems. It is getting faster to make the fix, but is it slowing the company's reputation?
(BEGIN VIDEO CLIP)
JIM LENTZ, PRES., TOYOTA MOTOR SALES, USA: What's most important right now is making sure that customers understand we have the fix, and that we are going to take care of their cars as quickly as we possibly can.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
QUEST: After 11 days of uncertainty Toyota in the U.S. says it can finally start fixing millions of cars with faulty accelerator pedals. It said today, new parts were on their way to dealers. And now dealers will be opening for longer hours to do the repairs.
Toyota badly needs to repair the damage to its reputation, until now a by word for reliability. If you combine the number of cars in Europe and the United States, this is how many it is believed; up to 4.1 million cars have been affected. Now, in China, it is over 75,000 cars and even that is a PR disaster when competition in the world's biggest auto market is so stiff. And China is, now, the largest single market for automobiles, overtaking the United States.
Toyota has launched damage control on line and exercise on TV and in the press. There is a ripple effect from all of this and it is impacting other car makers. Jim Boulden is here to explain.
Jim, surely, one man's meat is another man's poison, or visa versa in this case?
JIM BOULDEN, CNN INT'L. CORRESPONDENT: Well, we have had, you know you had more than just 4.1 million. You have to remember, late last year, Toyota announced a 5 million car recall as well. Same problem, they had a different thing, they thought the floor mats might be the problem. So, you are talking-you add in all these cars around.
Then you add in Peugeot's Citron, who announced today, 90,000 cars. Now why is that important? Well, they have a joint venture with Toyota. Toyota owns the plant where some Peugeot Citron cars are made. This is the new era of car making. This frenemies, right? You make them together, you share parts.
QUEST: Right.
BOUDLEN: That was supposed to be the good idea. Now look what's happening.
QUEST: OK, just remind me, and I don't want to be crude about this.
BOULDEN: Mmm?
QUEST: How many accidents have there actually been? How many people have died? I mean, this is an enormous recall.
BOULDEN: Yes.
QUEST: For what problem?
BOULDEN: Since 2007 there have been talking in the States that there was a problem with the Toyota truck. They were talking about a dozen or so deaths. In Europe, Toyota Europe will tell you they don't think there has been a single accident, yet they still announced that 1.8 million car recall. And they haven't even given us the details. We were hoping to get some more tonight. We might those details tomorrow.
QUEST: Now, obviously, Toyota isn't going to have the chutzpa to charge people to have their cars repaired, I would assume?
BOULDEN: No, no, no. People going in, it is going to take 30 minutes. But one analyst estimated this could cost Toyota in the U.S. $1 billion, alone, just to fix this problem. And we are not talking about the reputation or the car sales that never happened. We won't know, of course, what car sales hadn't happened because people are afraid to drive them, if in fact they are.
QUEST: Is there any evidence-and this is an impossible question, I suspect.
(LAUGHTER)
QUEST: But come along with me for the ride for pity's (ph) sake.
BOULDEN: OK.
QUEST: Is there any evidence that the public will have a backlash against Toyota? Or maybe the public is pretty addled about these sort of things and say, look, Toyota is a very good company. It has had a bit of bad luck here. We don't think there is anything systemic about it. These things happen in life.
BOULDEN: Yes, we have been talking about, is this because Toyota ramped up too quickly to be the world's number one. They say, no, that was not our goal. But that is what people have been talking about. GM had the same problem. GM went through a terrible time. But so did Mercedes Benz, when they had quality problems a few years to.
QUEST: They heard they had rust problems.
BOULDEN: And that had nothing to do with ramping up to be the world's largest. It is just-just part of the-but you know what? Most of these recalls happen, you and I don't even talk about them. Let's be honest about that. This one is different because it took to it a long time, and then they actually made a huge announcement, you know, that 5 million, in November. And that caught people's attention. \
Now, of course, Congress, in a week is going to have a huge hearing about this. And we know that is going to be a lot of-a lots going to come out of that, as well.
QUEST: Keep a watch and the moment there is more to tell us about when the first repairs, actually, I should be there to watch those repairs. Is it a difficult repair?
BOULDEN: 30 minutes. They are mailing the kits tomorrow to-and in the next couple of days in the U.S. and the dealerships and the repair shops will have them in a few days.
QUEST: Jim, many thanks. Jim Boulden.
If you have a Toyota in your drive, you may be wondering why it has taken the company so long to work out what to do about this. As indeed, Jim Boulden has been explaining. Why so long? CNN's John Roberts put that question to the head of sales for Toyota in the U.S.
(BEGIN VIDEO CLIP)
JIM LENTZ, PRES., TOYOTA MOTOR SALES, USA: I think what is most important is we put all of our efforts against making sure that we knew exactly what the situation was, developing the fix, and then developing the solution that we could fix our dealers-fix the cars at our dealerships as rapidly as possible.
So, I know many have criticized us, but I think it is most important that customers understand that we understand the problem, we have the fix, and our dealers are ready to take care of customers later on this week.
JOHN ROBERTS, CNN ANCHOR, AMERICAN MORNING: There are some charges, by automotive experts, in building, to where I guess you become in some surveys either the seventh or eight most valuable brand in the world, you ignored problems like this, because you didn't want to tell the boss what was going on. I mean, not necessarily, you didn't want to tell the boss, nobody wanted to bring it up the line or the chain of command, because Toyota was growing to become the world's largest car company. Nobody wanted to knock that off the rails?
LENTZ: Well, I-I-you know, first off, our desire and goal is never to be number one. Our desire and goal has always been to take care of customers. And we were doing a great job. And as a result it created a lot more demand for our products. So, one could question, did we expand too quickly? And now that is something that we could debate and study down the road.
ROBERTS: What do you think?
LENTZ: I think we may have. I think we may have. But it wasn't at the desire to be number one. It was taking care of customers that were demanding the product. We are redoubling our efforts to make sure that safety and that quality, again, is the most important thing for us.
(END VIDEO CLIP)
QUEST: Now that corporate honesty for you. I think we may have, he said, when asked did you go too fast to be number one.
Well, the Toyota story is making a mess of the company's reputation. And that, of course, will affect the value of the whole business. Just a couple of weeks ago-let me have a look at the share price-and you will start to see exactly how that has affected it. The share were fetching around 4,200 yen. Now they are down to 3,500, give or take, 18 percent has been wiped off. That is about $28 billion of the company's value. A clear indication, reputational damage, financial effect.
OK, when we come back, in just a moment, a royal reality check. I speak to His Royal Highness Prince Andrew, the Duke of York. He says pragmatism is the key in this fragile economy.
(COMMERCIAL BREAK)
QUEST: In a global crisis the recovery must also be an international effort. Prince Andrew, the Duke of York, has spent eight years serving as the U.K.'s special representative for international trade and investment. He promotes British business and expertise abroad. He talks to the business leaders and knows what their private thoughts really are. I caught up with His Royal Highness in Davos and asked him for his perspective on 2010.
(BEGIN VIDEO CLIP)
PRINCE ANDREW, DUKE OF YORK: We have just, in the U.K., as it were, crept out of recession, which is a good thing, which is a start. But I don't think 2010 is going to be easy. Because there were a lot of very complex issues that still need resolution.
QUEST: And the interesting thing about the realism is that, from what I hear, companies are not yet saying they are prepared to invest. They are ready to think about it, but actually taking the actions there is some way to go. Demand isn't there yet.
PRINCE ANDREW: No. And also those businesses that want to invest in themselves, rather than something else, in themselves in order to be more ready for when the recovery comes, are finding it just as difficult to get the finance to do that, as it was last year. So there is no-not really any improvement in that.
QUEST: It is, I mean, to use your word, "realism", I might say it is bleak.
PRINCE ANDREW: There is a realistic attitude to recovery being slow and painful. If I-in the sense that-that means in your language a bleak outlook.
(LAUGHTER)
QUEST: Just one final area to touch on. When we look at banking regulation, and we look at the-which we know reform is coming, we know financial regulation is coming. Do you worry that the U.K.'s in-service sector, banking as such, could be adversely affected in a race of regulations.
PRINCE ANDREW: My hope is that we would get better regulation. There were definitely things that were wrong with the regulatory system. I would prefer to see, as it were, better regulation that is new and old that is bad, got rid of, rather than added regulation. There is a subtle difference to that. Because I'm not necessarily sure that just regulating- because that is what people think is-what is wrong with it, is actually going to be the right answer. Because in some respects it may actually dampen the activity that we actually want to encourage.
Because if we have banks that are successful, that are able to lend, it will mean that they are then in a position to be able to create activity.
QUEST: Right.
PRINCE ANDREW: By lending to small business, which means they are then going to be able to employ, which moves the whole process forward. But it is rather like a chicken and an egg. And I don't know which way `round we-we-
QUEST: But do you worry that Britain's role in that, and London's role in that, could be the egg that gets scrambled? To take up your-
PRINCE ANDREW: All right. OK, now I'm not sure that-I'm not sure that I'm that concerned about it. What I am concerned about is that I think that international regulation does-if we are going to go for global regulation?
QUEST: Yes.
PRINCE ANDREW: Then it must be done at the G20 level. And it must be, as it were, a coordinated approach from everybody. With national regulation that only impinges, to a small extent, but can only cover certain issues that are domestically important. But the whole thing must be done on a principles level, at the G20, and it must be coordinated. That would be my hope.
QUEST: Yes.
PRINCE ANDREW: And I think that there is-after Pittsburgh, I think, that there is more chance that that will happen.
(END VIDEOTAPE)
QUEST: His Royal Highness The Duke of York, Prince Andrew, talking to me in Davos.
Now, maybe there has been a bit too much realism in the stock market in the past month. Things have turned sour after last year's steady gains; when we return an update on market movement.
And saving capitalism, the French way, we'll hear from the economy minister in just a moment.
(COMMERCIAL BREAK)
QUEST: Hello. I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN.
Good evening to you tonight.
There's a saying that we talked of earlier, as so goes January, so goes the year. The idea is very simple -- as the market goes -- well, you can work it out for yourself. After the month that we've just had, this had better not be the case.
Let me show you what I mean. Join me in the library, if you will.
January blues -- the Dow Jones 30 was down 3.5 percent for January, largely, President Obama's plan to limit banks and levies, it all -- it all knocked the stuffing out of it. And this despite the fact that we had some good, solid numbers for the fourth quarter reporting season.
But as they say, what have you done for me lately?
Those good numbers were factored into the market already. The S&P 500 down 3.7 percent. China took steps, of course, to begin the tightening. It increased some liquidity requirements. It made various regulatory changes. That gave the idea that, perhaps, things weren't going to be as good as we maybe had hoped. And, as a result, the S&P, the broader market, fell.
The NASDAQ saw the worst of that, down 5.4 percent for January. That, of course, was much more predicated by the worries over technology and consumer spending.
Does the consumer simply have any money left after a robust Christmas or a Christmas that wasn't that bad -- to go into the market in January, at least and spend -- now come over here.
And Stephanie Elam is in New York -- Stephanie, do we give any credence to as goes January, so goes the year?
STEPHANIE ELAM, CNN CORRESPONDENT: I think, in general, you do. If you look at what has happened from the 1950s on, it generally has turned out true, that if January turns out to be a down month, it turns out to be a rough year.
The thing is, I don't know how much you can compare that, because this recession that we've seen has been much different than the ones that we've seen in recent years. Obviously, we talk about this being the Great Recession -- the worst recession that we've seen since the Great Depression. Obviously, that could factor into things differently.
Also, Richard, you keep in mind that we were on a tear from March of last year all the way through the end of the year. So at some point, people felt like there was going to be a need for a correction.
Was this the January effect or did the correction just happen to land in the first month of the year?
That's what we have to wait and see.
QUEST: OK, so factor that in. The market's first day of Feb and have we shrugged off January's cold chill?
ELAM: Well, at least for now.
QUEST: Oh.
ELAM: At least we have triple digit gains right now on the Dow, I mean, for this moment in time. But, you know, the last couple of days of last week we saw we had solid gains and then it petered out at the end of the day.
So if you take a look at it at that -- that 3.5 percent drop that you're talking about on the Dow is the worst drop that we've seen since February '09. So it's possible that we could see people coming back at this point.
Others are looking past January's problems and are just focusing on the corporate earnings season. And a lot has shown that these companies are really beating expectations on both revenue and profits. For example, today we heard from Exxon Mobil. And they had tough profits. They fell 23 percent. But it still managed to beat the Street.
And, also, the gains are being boosted by two separate economic reports that we had today -- personal spending -- personal income and spending both increased in December; and then, also, the manufacturing sector -- it actually had its best performance in more than five years in January.
So there's a few things going on today that are...
QUEST: Right.
ELAM: ...adding to this today.
QUEST: Right. But...
ELAM: But, overall...
QUEST: Whoa, whoa, whoa...
ELAM: ...we'll have to be keeping our eyes on it.
QUEST: Whoa, whoa, whoa, whoa, whoa. Whoa, wait a minute. One second, though.
ELAM: Whoa.
QUEST: Whoa, yes. I mean people who -- those who have just joined us at half past the hour will be -- will need to be, of course, reminded that today, President Obama came out with his budget. Now that had a $1.5 trillion deficit in it, the largest in history.
ELAM: Yes, the largest in history. And, also, a lot of people are going to be talking about how this happened, how did we get here and the fact that the further you go in history, the more often that it gets that things -- numbers get larger and larger. So that's not too surprising in that way. But there are a lot of people looking at it, saying there's a lot of place that it could be cut. More people are saying that you're cutting too much in certain areas.
I do think that it's going to take much more than just 2010 to get the United States economy back on its feet. That's for sure. People are still very hesitant and very reserved. And while people may want to see companies spending, they want to see lending come back, it's just not coming back as fast and people are way more cautious now.
QUEST: All right. Bottle of champagne time. Bottle of champagne time.
Are you in -- a fan of as goes January, yes or no?
ELAM: Well, if I look at the stats and break it down...
QUEST: Oh...
ELAM: ...then I would say, yes, I generally am. But...
QUEST: Oh, oh.
ELAM: ...but...
QUEST: Oh.
ELAM: ...but this year -- this year, I do not think it's going to necessarily be the case, because I think that it could have just balanced out, the correction may have just come at the first month of the year.
QUEST: Oh.
ELAM: So many people have been expecting this.
QUEST: I've no idea whether I've just potentially got a bet for a bottle of champagne by the end of the year or not. Whatever it is, you get a bottle of champagne by New Year's Eve.
Stephanie Elam, who is in New York.
I have a feeling I've just been conned.
President Obama made his position very clear on Wall Street -- no financial institution must be too big to fail. President Sarkozy of France was also quite clear when he said that this was a battle for the future of capitalism.
What sort of capitalism did we want?
At Davos, I spoke to Christine Lagarde, the French economy minister, and asked her if France would come down hard on the banks.
(BEGIN VIDEOTAPE)
CHRISTINE LAGARDE, FRENCH ECONOMICS MINISTER: To me, it's -- it -- this direction is -- is really interesting and worth exploring because what -- the message he's giving is, number one, we need regulation. Number two, we need, you know, a -- a more -- a more level playing field in which to operate. And, clearly, he's proposing measures that are especially intended for the American market, which would not work in Europe, for instance, when he proposes to slice the -- the banking into commercial banking, on the one hand, and investment banking on the other. That hasn't proven efficient in Europe.
And, to the contrary, a mixed model has been crisis resilient, so why do away with that?
But directionally, he's -- he's really making some interesting proposals.
QUEST: So you can see good scope within the G20 framework and other few more weeks for consensus that will bring about rules or new changes by year's end?
LAGARDE: Well, we are under the obligations to deliver. I think public pressure, public opinion will -- will be such that it -- it will be irresistible. And we have committed to deliver in relation to capital requirements, in relation to liquidity, in relation to supervision, in relation to compensation, in relation to tax havens. I mean on all those subjects, we'd better deliver, yes.
QUEST: When you look at the -- you -- you survey the totality of the -- of (INAUDIBLE), we are clearly in a better shape than we were this time last year.
LAGARDE: Yes.
QUEST: Nobody can deny that.
But do you believe that sufficient progress has been made?
LAGARDE: No, because I'm never satisfied with -- with progress. We always want more. And when we are out of the -- the -- the eye of the storm, if you will, and we are away from the -- the line of the cliff, we still have a lot to do, because our economies are not creating jobs. And jobs will be the key and the tester of the success of our policies.
QUEST: Were you as horrified, as some have said, that they were at the -- at the fourth quarter, the way in which banks rushed to pay themselves such large sums of money?
LAGARDE: Well, I'll tell you something, I would have been happy to waive the legal recourse that we have in case of concerted practices if all banks had agreed that in relation to 2009, there was no bonus. I think it would have been a fair proposal, frankly.
QUEST: President Sarkozy's speech and -- on the opening of the Forum -- was an absolute barnstormer of a speech, wasn't it?
It came right into the lion's den and probably shot the lions. It was -- it was -- it was very aggressive, but it raised that fundamental point - - what do we want capitalism to look like in the future?
LAGARDE: I think he made one point very clear -- we support capitalism. We support a free market economy. But we have to be extremely careful, because if we do not do certain things like better regulation, a bit of common sense measure and reason applied to the economy, then capitalism and the free market economy will be turned upside down because it will generate so much frustration, so much anxiety, so much anger in some corners, that it will be in jeopardy.
So he's -- he -- in a way, he was controversial on some points. But it's with a view to rescue and save the system, not to destroy it.
(END VIDEO TAPE)
QUEST: Christine Lagarde, the economics minister of France.
When we come back, we turn to the question of sin. A tight economy has forced a lot of people to tighten their belts. There's still plenty of people ready to spend on the so-called sin taxes. In the Biz Clinic, alcohol, tobacco and casinos -- are they a good bet?
(COMMERCIAL BREAK)
QUEST: The Biz Clinic is open.
When it comes to investing, you might just want to check your moral compass at the door. Stock market history shows there are returns to be had. If you're to invest in businesses such as casinos, alcohol and tobacco, you may have to hold your nose at the stench and look the other way at some things you'd rather not see.
But Eunice Yoon on how to make money from what people call the sin stocks.
(BEGIN VIDEOTAPE)
EUNICE YOON, CNN CORRESPONDENT (voice-over): For years, Canadian rocker Tony Abiad earned a living playing guitar. But now it's his dancers who steal the show.
(VIDEO CLIP)
YOON: Abiad ditched his music career to open this bora lounge (ph) in Macau, a career move he says has proven to be extremely rewarding.
TONY ABIAD: If you have the attitude, you will make a lot of money, yes.
YOON: Since opening his doors five years ago, Abiad says he's earned back his initial investment and his profits have jumped five fold. No matter the economy, he says, people need a place to loosen up and not always be on their best behavior.
ABIAD: You come here to forget about your problems.
You're not here to have a problem, you know?
So we end -- we encourage good feelings, good vibes.
YOON: Those vibes have been driving all kinds of businesses socially responsible investment funds wouldn't touch, companies that make alcohol or cigarettes and casinos. Yet a recent study from American university professors at NYU and Princeton show these so-called sin stocks have outperformed the broader market every year for decades.
MARCIN KACPERCYZK, PROFESSOR, NEW YORK UNIVERSITY: That's really what we call the price of sin, that people who do not invest in this asset, at times, they lose, actually, a significant portion of their wealth by ignoring what the sin stocks can offer, actually.
YOON (on camera): Opening a nightclub may not be for everyone, but if you want to get a piece of the action, how do you make money out of sin?
(voice-over): One option is to invest with a vice fund. Portfolio manager Charles Norton says his fund focuses on four so-called vice industries -- alcoholic beverages, tobacco, air-space defense and gaming.
CHARLES NORTON, THE VICE FUND: And we're not advocating these businesses in any way. We're -- we just happen to find extremely compelling investment reason to focus on them. And whether or not a company or an industry makes you feel warm and fuzzy is just not part of that analysis.
YOON: Since its inception in 2002, the Vice Fund has outperformed the S&P 500. But 2008 was a miserable year. The Fund fell by 42 percent, mainly because of its bet on casinos.
(on camera): The major casino stocks plummeted because of the financial crisis. Investors were worried that the companies were expanding too fast and taking on too much debt.
(voice-over): The Fund now concentrates on what it calls consumer staples, like Altria, formerly known as Philip Morris, and beer maker, Carlsberg.
NORTON: These companies have been around for a long time. But businesses themselves have -- have been around for hundreds of years in terms of the activities of smoking and drinking.
YOON: Some of the businesses are highly regulated and are constant targets of criticism.
KACPERCYZK: To the extent that someone does not feel comfortable investing in these kinds of industries for reasons other than financial profit, I clearly would say then don't invest.
YOON: After all, despite the financial allures, investors need to sleep at night.
Eunice Yoon, CNN, Macau.
(END VIDEO TAPE)
QUEST: There's money in sin. There always has been, there always will be.
There is a lot of snow across large parts of Europe. I discovered that for myself last week in Switzerland. But those...
GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes?
QUEST: Guillermo is at the World Weather Center.
It's not just Switzerland. It's quite widespread now.
ARDUINO: Yes, especially in the east and in the Baltics -- a lot of snow, a lot, a lot of snow. Germany watch out, because you're getting more. Poland getting more. In Germany, I would say it's more severe in the Berlin area here and into Schleswig-Holstein in the north and in Mecklenburg, also. So it's north and east of Germany, here, this portion.
But then we have a lot in the Alpine Region. We have a lot -- we have some snow, actually, in the forecast here for Romania, Bulgaria and Ukraine, once again. We have more.
You see, Richard, you left Davos and we get more snow there -- but a lot more, see?
Especially Switzerland and all over. I have reports of snow right now in Zurich and in Geneva, as well. Look at Germany. Look at the snow in the south, too. Munich is reporting snow right now, too.
Let me see what other cities I have. Munich and Zurich, also, as I said.
Well, here in Romania, we are expecting some more action. Zurich, Munich, Mannheim, Leipzig in the east, you see, and Cologne, as well.
Well, Frankfurt, Munich, Zurich, Vienna with some snow in the forecast. We're going to see some more.
London -- let me tell you about London, what's going to happen. I think that what we're going to see is a little bit of a change in England right now. We have three systems that are coming. England is coming out of like sort of dry weather. Now in the evening, we're going to see some rain. And then it's going to increase from the west and we will get more rain, heavy rain, in the next two days, not only in the south, in England, but also in the Midlands. And we may see Northwest England, some snow, too.
Now, temperature wise, we're not doing that poorly, especially early in the morning. And then we get seven degrees or so. But Stockholm bitterly cold; minus four in Kiev; Berlin, freezing point, not bad at all.
If you have friends who are vacationing right now in Rarotonga, in Tahiti, in all the islands here, the Cook Islands, we have a tropical system coming. It's not going to go directly into Tahiti or into Rarotonga, but it will blow in between Bora Bora and Rarotonga. But we have some islands over here. It's going to be a typhoon or hurricane strength sort of system.
In Aitutaki, Manuay (ph), Takutea, Mitiaro, Mauki (ph), Mingaya (ph), all these islands -- teeny islands, a paradise for vacationers, are going to see the impacts of the system.
And before I go, grim news for Vancouver. On the 12th, we have the Winter Olympics. We have no snow at all. We're above average. El Nino is causing problems in here, typical conditions. If we get any precipitation, we'll get rain, but no snow in store, unfortunately.
We'll see Richard on the other side of the break.
Stay with us.
(COMMERCIAL BREAK)
QUEST: Welcome back.
If you're flying from Britain's Heathrow or Manchester Airport, the days when only your luggage could be scanned are now long over. Full body scanners came into operation on Monday and the government says they'll be introduced at other airports soon.
Security staff will only ask a minority of passengers to go through this particular process, where you are held and scanned and -- well, you know, your private bits are seen. Anyone who refuses won't be allowed on the plane. The move follows a failed attempt to blow up the plane bound for Detroit from Amsterdam on Christmas Day.
Civil liberties activities have criticized the scanners as an invasion of privacy. Now, a top law enforcement official is questioning their effectiveness.
At the World Economic Forum, I caught up with Ronald Noble, the secretary general of Interpol, the international, of course, law enforcement organization.
Mr. Noble told me instead of machines like that, he would like to see greater emphasis on collecting intelligence before passengers get to the airport.
(BEGIN VIDEOTAPE)
RONALD NOBLE, SECRETARY GENERAL, INTERPOL: My view is, with all due respect, is we're wasting too much time screening people whom we don't need to worry about screening to try to get the needle in the haystack and hopeful that the needle in the haystack is actually carrying explosives, as opposed to planning to do something in a country.
So I believe that the -- the system should be to try to get a trusted travelers program, screen those people out and focus on travel documents and the people who give us reason to wonder.
QUEST: If we go down that road -- and let's just put documents to one side for a second. But if we go down the -- this other road, do we end up with an element of profiling?
And -- and you can take that either way. It can either be as blunt as you're from a country X, therefore we're going to take more interest in you, or it -- it can be as wide as we're more interested in these people.
NOBLE: I believe that we should give everyone the chance to demonstrate that they're not a security risk or a terrorist risk. Let anyone apply for this program and be eligible and then let them go through quickly and not be treated as though they're suspected terrorists when they're no risk whatsoever.
My mother is 86 years old. My father is 88 years old. When they go through an airport, they're treated as though they could be terrorists. I know my parents aren't terrorists. You know people aren't terrorists, no risk. So let's focus on the people who we don't know anything about and who aren't willing to go through the extra -- extra mile to have their security checked.
QUEST: The U.K. raised its terror threat alert recently. You'll be aware of that. They talk about it being a risk of a -- of an attack, but not a likelihood of an attack -- a higher risk.
Is this the way forward now?
Are more countries going to raise their alerts, do you believe?
Are we safer today than we should be?
NOBLE: Yes. I -- I believe we're safer today than we were years ago, but I still believe we're not safe. And unfortunately, when you raise the terror level, people worry and start looking at everyone, wondering who might that terrorist be?
And I believe we need to have a methodical way of checking the people who give us concern and letting people like you or me or my mother and father go through quickly without incident.
(END VIDEO TAPE)
QUEST: Ron Noble, the head -- the secretary general of Interpol on the safety of intelligence gathering.
When I return in a moment, a Profitable Moment on some difficult choices.
This is QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
From Washington to London, to Madrid, Athens and beyond, the economic chickens are coming home to roost. It doesn't matter how the politicians spin it, the fact is spending is being cut, taxes are being raised. And it is still questionable how politicians and governments can balance the books. Just think about it, today's deficit number from the U.S. for 2010 will be more than 10.4 percent.
After previous recessions, a sharp V-shaped recovery has blunted the effect of cutting back. Economies got back to normal quickly. Well, you and I know it's not going to happen this time around. The forecasts are for sluggish growth this year and a need for governments to carry on spending.
So what recovery there is doesn't get snuffed out yet. And yet, if the politicians don't start bringing down deficits, then, as Greece is finding out, the bond market gives a disastrous verdict. So leaders like Mr. Obama find themselves having to calm markets but know they dare not make most of the cuts just yet.
And that's QUEST MEANS BUSINESS for this Monday.
I'm Richard Quest in London.
Whatever you're up to in the hours ahead, I hope it's profitable.
"AMANPOUR" is after the news headlines.
END
