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Quest Means Business

Goldman Sachs Hit With Another Fine; OECD Chief: World Economy Needs More Stimulus

Aired September 09, 2010 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

MAX FOSTER, HOST, QUEST MEANS BUSINESS: Growing, but slowing. The OECD warns the world economy needs more stimulus to keep going at its current rate.

Golden Goldman, slightly more tarnished, Goldman Sachs is handed another fine.

And a flash of hope for Adobe, Apple loosens its restrictions on app developers.

I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS.

Hello to you.

The OECD says the global recovery is slowing at a faster rate than initially thought. For the G7 nations it expects an annualized growth of 1.5 percent in the second half of the year. That is down from its-that's down from its May estimates of 1.75 percent. Now you can see here how quickly the organization expects G7 growth to slow. It is pretty rapid according to the graph. Expanding by just 1 percent in the last quarter of this year, compare that to 3.6 percent growth seen at the end of last year.

Let's break those numbers down by region now, for the euro three, comprised of France, Germany and Italy, growth will hover at around 0.5 percent each quarter for the rest of the year. In Japan, there will be just a fraction above that. And in the U.S. a more substantial 2 percent growth in Q3, but dropping to 1.2 percent by the end of the year.

Earlier I spoke with the OECD's Chief Economist Pier Carlo Padoan at the organization's headquarters in Paris, and asked him where we are in this global recovery.

(BEGIN VIDEOTAPE)

PIER CARLO PADOAN, CHIEF ECONOMIST, OECD: Well, we are in a phase of recovery, which however is slowing down. We believe it is a temporary slowdown but also we acknowledge that there increasing uncertainty about the direction of the economy going forward. Because there positive and negative elements that weigh on the degree of certainty of this stage of the recovery.

FOSTER: You've looked at the numbers, how likely is another downturn?

PADOAN: We don't see a downturn in the numbers, however, given the uncertainty we cannot 100 percent rule out the downturn in the coming quarters. As I said there are negative facts, especially in the consumer side, weighing down on the economy. But on the other hand there are positive facts on the investment side, which could lift up the recovery again.

FOSTER: So you are not ruling out a double dip recession?

PADOAN: At this stage we do not see it in the numbers. Of course, a double dip or a downturn is the consequence of several factors happening at the same time, a weakness spreading and we do not see that in the data now.

FOSTER: So is your argument then for more stimulus, or for going the European way, which is more cuts in public spending.

PADOAN: Well, given the assumption that it is only a temporary slowdown we recommend to continue on the monetary policy stance, which is cumulative. And to continue fiscal consolidation, which let me remind our viewers, that it is going to bite in terms of only in 2011. If however, a downturn materializes in the months ahead, we recommend more monetary support in terms of quantitative easing. And if there are some countries- and there are countries with so-called fiscal space, they could be in the position to delay fiscal consolidation.

FOSTER: Am I right in saying in laymen's terms that means putting more cash into the economy, into the financial system.

PADOAN: That's right. That would be monetary quantitative easing.

FOSTER: Which is the exact opposite of what they are doing in Europe, so are you critical of European governments cutting back on spending?

PADOAN: No, no, no. I was talking about monetary policy. Monetary policy stance in Europe and the United States is not that different. As far as fiscal is concerned, all countries, in Europe and in North America need to address fiscal consolidation. That can be done at different speeds. In Europe, in some cases, it must be done very quickly, because as everyone knows there are some peripheral European countries that are in bad shape from the point of view of fiscal.

FOSTER: But I'm just wondering, how you can separate monetary and fiscal, because they are both having an impact on economic growth. So they have to work together. How can you have cut backs and put more money into the system? That just balances out, doesn't it?

PADOAN: Well, there are different channels of transmission, as the economists say. Monetary policy affects activity through the cost of borrowing through liquidity, while fiscal policy affects the economy through direct spending decisions, or taxing decisions. So there are different channels and different impacts.

FOSTER: Are some countries more of a concern to you than others, if so, which?

PADOAN: Well, of course, there are a number of peripheral European economies which, as I said, are in bad shape and are now undergoing major fiscal and structural reforms programs. Then of course, on the other side, there are the strong, fast-growing emerging economies, where, however, there is also some slowdown in growth. And then there are the U.S. and Europe, and the rest of Europe, which are moving more or less at the same speed but with different problems to deal with.

(END VIDEOTAPE)

FOSTER: Chief economist with the OECD. Not everyone agrees with him and we'll speak to an economist later, who is one of those who disagrees.

Well, unemployment is another major problem in the global recovery. The International Monetary Fund and the International Labor Organization says 30 million jobs have been lost since 2007. On Monday the IMF and ILO will hold a conference in Oslo on that. They will be looking at what can be done to sustain job growth and development. I asked the IMF Chief Economist Oliver Blanchard, if the 30 million lost jobs are the cost of this financial crisis?

(BEGIN VIDEOTAPE)

OLIVER BLANCHARD, CHIEF ECONOMIST, INT'L. MONETARY FUND: In terms of jobs, yes, that is the right number. Although, you know, when you have 30 million people unemployed, you also have a lot of people who are worried about their own job security. So the right number, clearly, is much larger; but 30 million is already an amazingly large number, yes.

FOSTER: It is quite-as you say it is a very large number. And how easy is it going to be to get those jobs back? It is going to take years, isn't it?

BLANCHARD: It is probably going to take years and that is why it is so important to have this conference and to think about what can be done to get there faster. We'll get there, but clearly we have to work hard at it.

FOSTER: It is going to get worse before it gets better, though, isn't it? With all these cuts in Europe, for example?

BLANCHARD: No, it is probably not getting worse. I mean, most of our forecasts are for unemployment to stabilize or decrease, especially in Europe. But very slowly, which means that when unemployment remains high, you get a lot of long-term unemployed. And these people are likely to suffer for the rest of their lives in some ways. I mean, you are scared by high unemployment, by long term unemployment.

FOSTER: But how can you argue that things aren't going to get worse, where, for example, in the U.K., we haven't had the full details about spending cuts yet. So we don't know how many public sector workers are going to loose their jobs. So how can you say it is not going to get worse?

BLANCHARD: Well, some people are going to get laid off, and some people are going to be hired. What we look at, in general, is the total number of unemployed. This we expect to slowly decrease, but again, only slowly decrease. That doesn't mean that nobody is going to loose their job and people always loose their jobs. But the total number of unemployed is likely to slowly decrease if we look forward.

FOSTER: OK, as you say, the big concern is the long-term unemployed.

BLANCHARD: Right.

FOSTER: Because if you are out of work for say six months you have a pretty good chance of getting another job. Your skills are still there. You are still attractive to an organization. How concerned are you that people will slip into this long-term unemployment trap? Which is a trap, isn't it?

BLANCHARD: We are concerned. I mean, we have seen it in Europe, during the `80s and the `90s, and the trap is there. In the U.S. you have something like 40 to 45 percent of the unemployed now unemployed for more than six months. What we find in the studies that have been done is that the problems really start being awful when you've been unemployed for more than a year or so. And so far not too many people have been, but yes, we have to work very hard on finding jobs for these people. And basically getting the economy to go faster and for firms to create more jobs.

FOSTER: The risks, though, are much worse, aren't they, now than they were in the `80s or `90s with those recessions?

BLANCHARD: No, I'm not sure they are much worse. I mean the difference is that this is affecting the world. This is affecting the U.S. The U.S. never had since the Great Depression the kind of long-term unemployment it has today. But it was very bad in Europe and the effects are still visible today.

FOSTER: OK, finally, what is the solution, do you think, that governments right now to help deal with this jobs crisis, and particularly this trap that we may end up in with many millions of workers in long-term unemployment?

BLANCHARD: Well, there is no secret. I mean, the secret is faster output growth. We have to do everything we can to make sure that demand growth is there. Remove all the obstacles to spending by firms, investment by firms, hiring by firms. There is a fairly large number of things which can be done. It is not going to create miracles, but it may make a difference and that is very much what this Oslo conference is about.

(END VIDEOTAPE)

FOSTER: There you are, the chief economist of the IMF speaking to me earlier.

Now, a question of transparency in London City for the $27-million answer. Find out why U.K.'s financial watchdog is going for Goldman.

(COMMERCIAL BREAK)

FOSTER: Let's check what happened to Europe's markets today then. A positive day in London where the FTSE ended more than 1 percent higher, but not all shares did hit the right notes. (UNINTELLIGIBLE) lost 11 percent, a big fall. The reason for the slump was the Football World Cup. The company says takings suffered as publishers held back on new releases during the tournament in South Africa.

Meanwhile, the Bank of England decided to leave interest rates steady at a record low of about half of 1 percent. Rates have remained at this level now since March of 2009.

Over in Paris the CAC gained more than 1 percent, too. Banks stocks were the big gainers there. Credit Agrico adding more than 4 percent of the close over there in Paris. And the Frankfurt DAX also ended on a high. Automotive stocks led the charge. Volkswagen and Daimler doing particularly well.

We head now to Alison Kosik, who is standing by at the New York Stock Exchange.

Alison, investors received upbeat jobs data earlier today, but that doesn't seem to be translating into gains.

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Exactly. We saw those gains earlier, Max. But in the past hour we have watched stocks pull back quite a bit. They are pretty much at the flat line right now. We are watching industrial stocks fall. Bank shares are also taking a hit. That is after a report that European banks may be raising capital soon because of new regulatory requirements.

But overall traders are telling me there is a general consensus that has come over the market today that has gotten a head of itself. That it was just overbought. So we did get some jobs news. That definitely looked brighter as of this morning. Weekly jobless claims tumbled by 27,000 last week, to just over 450,000. That is a much better decline than Wall Street was expecting. And it is actually the third week in a row that claims have fallen. It also brings claims down to their lowest levels in two months.

Now, we also may be seeing stocks off their highs because of the reality of the underlying weakness in the U.S. jobs market as a whole. So despite stocks having a relatively strong time of it lately. You know, Max there is still that underlying skepticism that remains about the strength of this recovery, Max.

FOSTER: OK, Alison, thank you very much indeed for that.

KOSIK: You got it.

FOSTER: We'll hear more on the markets as it closes.

Now, a hefty fine or a slap on the wrist for Goldman Sachs' international arm based here in London. The bank must pay $27 million to Britain's Financial Services Authority. It is one of the biggest penalties ever set by the U.K. regulator.

The FSA (ph) says Goldman failed to inform it of a U.S. investigation into the banks so-called Abacus Affair. And it is a far cry from the $555 million settlement that the U.S. regulator, the SEC, struck with Goldman back in July, because of Abacus and Goldman's role in the subprime crisis.

Goldman has spent much of this year attempting to rebuild its reputation and its top business units. Jim joins me now.

Because this sounds like a lot of money, but it is not, for Goldman.

JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: It is not really. You know this is a company that is one of the most profitable companies on earth. It makes billions of dollars in a good quarter.

OK, the second quarter this year hasn't been that great. And that is one of the reasons we talk about its reputational damage. Was there some damage? Well, there seems to be and Lloyd Blankfein says he needs to start rebuilding. Like all these banks did, because of their involvement in the sub-prime areas. And Goldman, because it is on top, sometimes people hit it the most and even the other banks don't seem to like Goldman very much. But let's not forget they are number one in so many issues.

FOSTER: Yes, explain what Goldman actually does.

BOULDEN: Yes, as an investment bank, of course, it doesn't actually deal with you and me very much, unless you are a high net-worth individual. I'm not sure, but I'm not.

FOSTER: No, not yet. I hope to be one day.

BOULDEN: So we are not Goldman clients. It is not like Barclays or Nat West or you know, Bank of America. Their number one in many deals, especially, M&A. And you see here they took it back from Morgan Stanley, who were No. 1 before. So the first half of this year. They were involved in 142 deals worth some $190 billion. And so a lot of people talked about the fact that Goldman has gone right back to the top of the M&A chart when it comes to the value of deals. Also No. 1 in Japanese equities underwriting, No. 1 in fixed income. You know, just such a powerful, powerful bank, in so many different areas.

FOSTER: Yes, truly global, as well, as you say, referring to Japan.

It is often seen as a sort of private club. Sometimes seen as quite secretive. Extremely wealthy people being created, and they go on to great things, don't they? Just explain a bit more about that.

BOULDEN: I find it so interesting that they have a lot of turn over. And you would think that turn over would be a bad thing. But at Goldman it is not. They have so many people and so many smart people down there they don't want to loose them when they are younger. They want them to keep rising. The only way they keep rising is if people at the top leave.

So you have people like Hank Paulson, who was the U.S. Treasury secretary during the darkest part of the economic crisis. You have people like John Thain who went on to the New York Stock Exchange and then Merrill Lynch and is now at CIT. Bob Zelnick, you see there, at the very end there, at the World Bank. And Mario Drocki (ph), who is one of the people most interesting to me, because he is the head of the Bank of Italy right now. So it is not just Americans here. And a lot of people think he could one day be the head of the ECB and others have said in the past he might even run for prime minister of Italy. So you could have a former Goldman executive as prime minister.

FOSTER: Do they keep their contacts going with the bank, as they go into these new jobs?

BOULDEN: Well, that is interesting, because Hank Paulson talked about it. In fact, I brought his book just because I remembered this. He talked about the economic crisis and some of the issues, because he went on-there are people from Goldman who could help him during the crisis. So he had to always be very careful that it didn't look like he was giving Goldman business during the economic crisis. But there are so many smart people.

FOSTER: Yes.

BOULDEN: And every time he would call somebody it would be like, "Oh, yeah, he used to work for Goldman. Oh, yeah, he used to work for Goldman." So, it is that way. So critics say that that is not necessarily a good thing. But others would say that shows the talent and the type of person they can recruit.

FOSTER: OK, Jim. Thank you very much indeed.

BOULDEN: Yes.

FOSTER: (UNINTELLIGIBLE) battle a slowing recovery one of Europe's poorest countries is actually growing, would you believe? Just ahead, Kosovo's finance minister tells us how they have dodged the worst of the down turn and why a TV ad campaign is actually helping build a better future.

(COMMERCIAL BREAK)

FOSTER: As part of our look at how economies are fairing in this fragile recovery, we turn now to one of Europe's youngest and poorest countries-the poorest. Two and a half years after declaring independence Kosovo is now a member of the International Monetary Fund and the World Bank. And in July it secured the $140-million stand by loan from the IMF.

Kosovo's economy is expected to grow at least 5 percent this year, though. And there is still a long way to go. It is still heavily reliant on foreign aid. Reuters estimates that Kosovo has swallowed up more than $5 billion since the end of the war in 1999. Close to 50 percent of the population is still unemployed; 15 percent live in extreme poverty, according to the World Bank.

Unlike many countries right now though, Kosovo's economic troubles are not a direct result of the global economic crisis. I asked Kosovo's Finance Minister Ahmet Shala to explain why.

(BEGIN VIDEOTAPE)

AHMET SHALA, KOSOVO FINANCE MINISTER: Being small in the global economic crisis we did have a kind of benefit, I would say, because our economy was too small to be exposed to international financial markets. And that is why Kosovo did not-or has not been directly hit, or even-

FOSTER: Haven't been affected at all.

SHALA: Indeed. I mean, that is the beauty of being small, sometimes, in a globe. And Kosovo is still, in the region, one of the fastest growing countries. I mean, around 5 or 6 percent of GDP growth in the last two years. And for another three or four years, the same projection, around 6 percent on the average.

FOSTER: So you have been growing during this financial crisis?

SHALA: Indeed.

FOSTER: It's an amazing story.

SHALA: And all-and none of the banks have been at all hit. In fact, the loans and the deficits (ph) are growing.

FOSTER: So it has been an opportunity for Kosovo. It needs that opportunity, doesn't it? It is Europe's poorest country. What is the GDP per head, right now?

SHALA: Well, our total GDP is 4 billion euros, which will be around $5 billion, and around $2,500 per capita.

FOSTER: So that is much less than say, Slovenia, or a country like that?

SHALA: Indeed. I mean, Slovenia and Kosovo were nearly at the same stage in 1945, or we joined Slovenia, in one state, but unfortunately for 40 years Kosovo has been left in a kind of colonial or semi-colonial position. And now Slovenia has around 11 percent-11 times more developed than Kosovo. Having in mind that the war and all the destruction, what happened 10 years ago. I think still, now, moving ahead we have tripled the GDP per capita within six years.

FOSTER: You are still very dependent on foreign aid, and also on foreign investment. You need foreign companies to come into your country. We're just going to see an advert that you have been using to try to make an appeal to foreign countries.

(BEGIN VIDEO CLIP)

(MUSIC, SINGING)

(END VIDEO CLIP)

FOSTER: So, an advert to try to get foreign investment into Kosovo, and actually it has been very successful, hasn't it?

SHALA: I think our objective is to inform the general population. We felt a big differentiation on investors or politicians or others, that we are building a new country. And we are sweating a lot, we are thinking a lot. We are working and incorporating with everybody to build a new spirit. And this is a-and a new image. And that new image is Kosovo, young Europeans. We are the youngest state, the youngest philosophy, the youngest spirit. And I think this is something that we have a picture.

Now, we are moving ahead on more specifics, and we are planning to put more information, more advertisements on our wealth, our industries, our miners, on what are our human resources, the youngest population in Europe. The tourism and other investment opportunities. The lowest burden of tax country in Europe. So these are the things we are planning to put ahead in the future.

(END VIDEOTAPE)

FOSTER: A positive message there from Kosovo.

And looking past Kosovo, "BEYOND BORDERS", the global economy, the OECD has warned that slowdown in the recovery is worse than first thought. We'll crunch the numbers with one of the world's leading economists next.

(COMMERCIAL BREAK)

FOSTER: Welcome back. I'm Max Foster in London. More QUEST MEANS BUSINESS in just a moment. But first here are the main news headlines.

(NEWSBREAK)

FOSTER: Let's get back, though, to our top story, the slowing of the global recovery. The OECD has cut its growth forecast for G7 nations for the second half of this year. It is estimated that 1.5 percent annualized growth, that is down from the 1.75 percent forecast in May. The OECD says more stimulus may be needed and planned spending cuts may need to be delayed, where public finances permit.

David Blanchflower, though, is a former member of the Bank of England monetary policy committee. He is now professor of economics at the Dartmouth College in the U.S. I asked him what he makes of the OECD's report.

(BEGIN VIDEOTAPE)

DAVID BLANCHFLOWER, PROFESSOR OF ECONOMICS, DARTMOUTH: I think it is a bit confusing to say that we need stimulus and we need monetary policy stimulus at a time of fiscal tightening. The evidence from around the world, OECD evidence, all the evidence from surveys in the last couple of weeks suggest economies are slowing. So, I think it is really somewhat strange to say you want stimulus of the military kind, when you can have fiscal tightening. It is just looking absolutely clear that this is the wrong time to be doing fiscal tightening as the economies are slowing. And Obama has exactly that view. So this is just seems very strange and very dangerous.

FOSTER: In terms of monetary policy then, governments need, according to you, and it seems the OECD as well, to find money to keep pumping into the system. Do you think that will increase the rate of recovery? Because the OECD is warning that the recovery is actually slowing down quite badly now?

BLANCHFLOWER: Well, the recovery has actually slowed. The sensible thing to do right now, if you could do it, would be to cut interest rates. But they're essentially sitting at -- at what's called the zero lower bound. So there's nowhere to go. Governments are unable -- central banks aren't able to affect the price of money, so they have to affect the quantity. And it looks like we should be seeing a lot more quantitative easing. The Bank of England today made a decision. It didn't do more. But -- and -- and, as I said, the ECB doesn't look like it wants to do more. But that's really the only show in town, especially if governments are starting to cut fiscally. So we may need huge amounts more of quantitative easing if there -- to compensate for the lunacy of cutting in the depths of a terrible great recession.

FOSTER: Are you able to put a figure on that, say -- you referred to the U.K.

So if you refer to the U.K., how much more stimulus is needed and how on earth is David Cameron's government going to afford it?

BLANCHFLOWER: Well, David Cameron's government has actually talked us into a serious recession. All the indicators look like from the moment this government got into power, consumer confidence collapsed, business confidence collapsed and there's a -- a survey out today by RET KPMG which shows that the labor market turned at that time.

So the problem is you can't really afford not to do it, because growth looks like it's about to plummet. So the problem is that what's happened over the last two years, the Labour government prevented the economy going into a serious depression. That risk isn't over. And the great danger is if you make the wrong policy moves right now, it puts the country back into recession, back into a depression.

The problem is you have no other alternative. All the alternatives are worse. You have to start stimulating. You have to start giving business confidence again. And the last thing in the world you should be doing is going to do 25 percent spending cuts in the public sector. It's the economics of madness.

FOSTER: Well, we're talking about the U.K. business it's a good example of what a lot of Western economies are facing right now. And you are talking from an economist's point of view.

BLANCHFLOWER: Yes.

FOSTER: If you're a politician, actually, the idea of getting into more debt is -- could be political suicide for politicians operating in the U.K., for example.

BLANCHFLOWER: The problem here is that the politicians are going to have to be driven by the data. They can make stuff up and say that we have to worry about the deficit and so on. But the economics is what's going to drive things. And the data are going to drive things. And you can say all along, we're going to re -- reduce the deficit by our strategy, but it turns out that the markets will speak to that. And markets are really, it looks to me like now demanding that we don't destroy growth. The strategy of raising unemployment is a -- is a real problem.

And essentially what's happened in the U.K., no one has actually felt the affects of these cuts yet. We are seeing markets turn, confidence collapsing even before these things have hit. And so the problem is that you can say the politics are demanding it, but actually, in this case, the economics and the data are going to determine what's happening. And it certainly looks that these policies just look wrong. They look like they're going to be impossible to implement and the markets are going to move against this government.

(END VIDEO TAPE)

FOSTER: David Blanchflower there.

Now, the traditional image of homelessness is shocking and all too obvious to many of us. But the volatile state of the global economy could be changing that. And we'll show you how that even amongst the destitute, there are haves and there are have-nots.

(COMMERCIAL BREAK)

FOSTER: The homeless -- it conjures up certain images, but those may no -- no longer reflect reality. In the U.S., the number of families, rather than individuals, in homeless shelters has jumped nearly 30 percent. It's a similar picture here in the U.K., where a new report shows that people applying to state housing is creeping up.

Offering a hand up, not a hand out, is one of the key ideas behind "The Big Issue" magazine. It offers the -- the homeless opportunity to earn an income. Launched in the U.K. nearly a decade ago, it now has local editions in 10 other countries.

CNN's Ayesha Durgahee spent the day with one "Big Issue" vendor here in London.

STEVE FARRELL, BIG ISSUE VENDOR: How many do we not know?

Those who are amongst the (INAUDIBLE) just with radar. Amongst these are the abused, (INAUDIBLE) who, because of you and me, may never be. So, open your eyes.

AYESHA DURGAHEE, CNN INTERNATIONAL CORRESPONDENT: Steve Farrell, poet, painter and a "Big Issue" seller and mentor.

FARRELL: And you mate, I'm pleased to meet you and to get to know the people that are there, all right?

DURGAHEE: Here in Convent Garden, Farrell mans the distribution point for "Big Issue" magazine, where vendors come to buy their copies for a dollar to sell on for a profit.

FARRELL: Lots of the public think that our vendors are given things. He's not. They have to purchases the magazine. So you've got that total responsibility of you need to manage your finances.

DURGAHEE: It's a way for the homeless to start rebuilding their lives. "The Big Issue" also has a program to refer people for drug and alcohol rehabilitation and to get them re-housed.

FARRELL: It's not a crime to be homeless. It's a crime that there aren't enough houses for the homeless, but it's not a crime to be homeless.

This is going to sound really odd to -- to anyone who hasn't experienced it, but I found becoming housed a damn sight more stressful than becoming homeless. When I had a house, I had a wife and I had two children. You know, it was just that kind of setup. And then suddenly being housed in a different way, I mean I found it like whoa and, you know, I wanted to go back to the parks.

Unfortunately, within the first six months, a lot of people being housed, they give up their flats, they give up their houses. They just don't want to pay the bills.

DURGAHEE: In London, there are around 500 "Big Issue" vendors and around 3,000 in the U.K. They've seen more people on the streets since the financial crisis.

FARRELL: I can take you to the park in Waterloo. There are 10 people sleeping there every single day. And that is almost -- I would say it's a direct result of the fact there is no work. Homelessness goes across all socio-economic and cultural groups. You've got a chap here from Denmark who's a professional in linguistics and he sells "The Big Issue".

It's a huge family. Everybody is welcome.

DURGAHEE: Steve had been sleeping in a cemetery for two years before he started selling "The Big Issue." He was re-housed three years ago in a one bedroom flat in South London.

FARRELL: This is my space not, not just the bricks and mortar, just for the work I do inside. I can paint and sculpt when I can't work.

DURGAHEE: Steve uses his own experience to help and support the homeless people that he works with every day at his stand.

FARRELL: The point is, they're human beings like you and I.

UNIDENTIFIED FEMALE: "Big Issue," please, to help the homeless. "Big Issue".

FARRELL: Invisible lives and rainy days -- how many shall we see when the blindfold is lifted, shifted, discarded. And so to conclude, hand in hand, coming through the circle I see, with you as my witness, 1,001 visible lives and each and every count.

DURGAHEE: Ayesha Durgahee, CNN, London.

(END VIDEO TAPE)

FOSTER: I'm joined now by John Bird.

He is founder of "The Big Issue".

He joins me now.

Thank you very much for joining us.

An amazing success story, really, and something that everyone approves of, because there's debates about how money should be passed on to the homeless.

But I just want to ask you, there has been a slight change in the type of people now working for you.

What sort of people are coming into your business?

What -- who are the sellers now?

JOHN BIRD, FOUNDER, THE BIG ISSUE: Well, we always have people who have long-term problems and that's always been -- you know, we'd meet somebody with a very long historical profile of homelessness, of abuse and all that. But now, increasingly, we're meeting people who are people who have suddenly been traumatized -- the loss of a job, the breakdown of a family due to the loss of a job, the loss of the home -- home base -- all these things and which are almost like a kind of sudden instant...

FOSTER: So two weeks before coming to you, they could be in a nice house in a suburb with the great job, a car, a family...

BIRD: They could...

FOSTER: -- and suddenly they'd be on the street?

BIRD: They could be there. Bear in mind, the loss of purpose in your life -- and work is about purpose as much as about earning a living -- can really affect your mental health. That's why it's so important that this government doesn't just cut to such an extent that it creates this vast army of people who, when the recession is over, we are left repairing them over the next 10, 15, 20 years. That's my big problem. I don't want (INAUDIBLE) people. You say we're very successful. We've been here 19 years. I would have hoped, after 19 years, we would have done our -- done our job...

FOSTER: And you weren't there...

BIRD: -- and we -- we were no longer needed. But now we're needed even more, because we're needed by people who are instantly throw not a kind of cold, sharp bath. And they are left with us. And what we need to do is get them out of that bath as quick as possible and back on the road. We need social enterprises. We need the help of charities. We need the help of the government to actually support the organizations that we work with.

FOSTER: You're actually saying a very similar thing to the International Monetary Fund, who we were speaking to earlier on today. Their concern is that people being made unemployed right now could slip into long -- long-term unemployment. And that's a real problem, because it's then with them for life, a lot of the time.

Just explain the difference between being short-term and long-term unemployed and then coming out of that and getting a job.

BIRD: Well, the thing about long-term unemployment, people who have been on benefit for many, many years -- and we work with people who have been in and out of benefit, whose family have been in benefit. You -- you put on various -- varying levels, almost sediments of social failure. And it means that to actually get down to the way in which we can get you out may take five, 10, 15 years.

What we've got now is this terrible situation where people are immediately falling into selling "The Big Issue." I'll give you an example. Just outside Birmingham, there was a farmer a few months ago who could not meet his -- his payment. So he had to rent his place out. He couldn't pay his mortgage. He rented it out and then he was homeless. So what -- this farmer ends up selling "The Big Issue" in Birmingham city center...

FOSTER: And yet he's got a house?

BIRD: He's got a house. But if we didn't support him, if we had pulled the rug of support from under his feet, where would he be?

He would be lumbered. And the thing is, what he didn't want to do, he didn't want to go on social security, because he then knows he goes into a process which, at the end of that process, he will feel low, he will feel as that he's a sponger, he will feel that he hasn't done anything for himself, he will feel that his family will look down upon him. So therefore, he'd rather work. So he works strenuously hard all the hours that God sends him selling "The Big Issue," making money, trying to get back into a situation where he can, after a period of time, say to the people in the farm, I'm now able to pay my own mortgage.

So we're having a really weird collection of people coming to us who are not the traditional poor, but they are the new broken -- broken by this economic turndown.

FOSTER: Are there more new broken than there were in the '90s, in the '80s?

BIRD: There -- the interesting thing about the early '90s is when we started "The Big Issue," the thing about, in the -- in that period, there was quite a number of support mechanisms and they got back pretty quick, back into work programs.

FOSTER: And that's the secret, isn't it, getting them back in?

BIRD: Getting them back into work. The problem we have now is we have people who have been so traumatized by all the bad news, by all the sense of -- of regret, by all the reversals in the Wall Street and the city, that they, in a way, are even more unprepared for any social change.

FOSTER: John Bird, thank you very much, indeed.

And talking of Wall Street, we can go to Poppy Harlow now, who is in New York, to give us the American perspective.

We were hoping to, but we will be coming back to her a little later on.

We're having some technical problems with that.

We're going to go to a break instead.

(COMMERCIAL BREAK)

FOSTER: It is a story of interest to the millions who've downloaded apps onto their iPhones and their iPads. Apple announced on Thursday that it's making big changes to the way it approves apps and the kind of apps it will allow people to download. Many call it a surprise move. But Maggie Lake is going to explain to us how this actually happened, because there was a lot of pressure, wasn't there, on Apple?

MAGGIE LAKE, CNN CORRESPONDENT: A huge amount of pressure, you're right, Max. Everyone, you know, Apple is so concerned about security and having control over its products and developers have long been complaining they've been hamstrung by that.

Well, today, Apple coming out and giving a little on that, loosening it, saying that they're going to allow the developers to use other software tools and -- and basically, one of the big ones they're talking about is Adobe Flash Systems. And what this means is developers can make an application and it can run on various platforms, both the iPhone and Android. A lot of them had been pushing for that to happen.

It -- it is a big change and it means a lot. It's one of the hottest, as you mentioned, hottest trending topics in the social media networks.

Some interesting comments coming through. Most people incredibly enthusiastic about this, it's what they've been waiting for, although we do have one Tweet saying that Apple blinked in the game of chicken -- it loses the game of chicken.

And another one -- this is really interesting -- saying Jobs once called Flash the number one reason devices crash.

What changed?

Well, we'll tell you what changed, Android. Of course, Apple is still, you know, the big gorilla when it comes to the apps store. They've got over 200,000 apps and growing by the moment. But Android has really been catching up. They have about half. But right now, they're about 17 percent of the Smartphone market. I mean, this is, of course, Google's Android operating system, which runs on various different kinds of phones.

By -- Gartner says they've got about 17 percent. But by one estimate, IGC, they could have as much as 25 percent of the Smartphone business by -- in a few years.

So they're growing fast. A lot of -- Apple feared developers were going to start to -- to defect and move away from Apple if they kept these stringent rules in place so they agreed to loosen up a little bit.

So, certainly, Apple giving but clearly, they're not willing to -- to cede their superiority and give up this competitive fight very easily -- Max.

FOSTER: Yes, it's certainly a big debate, isn't it, Maggie?

I'm just wondering, for customers, really, when they go to the iTunes Web site, are they going to see a wider range of apps now available?

How many changes are going on there?

LAKE: Yes, I think they -- I think this mean -- means that they will and they might see a little bit of diversity in what's coming forward. But another interesting change, they're -- there are some that they might not see there, and with good reason. One of the other changes Apple came out with today is they're being a lot more transparent about why they reject and accept apps. So far, it's been a real mystery. You submit it, you sit there and wait and it's silence. You don't really know what's going on.

Today, they came out with a -- a set of guidelines. They say they're going to be really clear about it. And very uncharacteristically blunt about some of the rules. Listen to one of the things they said: "We have over 250,000 apps in our apps store. We don't need anymore fart apps." Being very straightforward about that. They say they've got to be different, they've got to be unique. They're talking about not crossing a line and they'll decide when that is.

And they also say, adding, : "If you run to the press and trash us, it never helps in getting your app approved."

So a little bit of tongue in cheek and a lot of humor injected into this, as they try to open up and be a little bit more transparent, try to whack back out that criticism that they're secretive and so furious, I think.

FOSTER: Those apps, I thought, were the ones that made money -- Maggie.

LAKE: That's true. And, listen, I just bought some apps this weekend. And I couldn't believe, some of them are fantastic. And some of them, I was thinking, do people really buy this?

And you're right, they buy them by the load. But, obviously, they're -- they're maxed out on some of those categories -- Max.

FOSTER: OK, Maggie, thank you very much, indeed.

Tropical storm rains have battered parts of the U.S. state of Texas, while parts of China are just getting ready for another round of tropical rains. It's pretty grim out there.

Meteorologal -- meteorologist Pedram is at the Weather Center -- hi, Pedram.

PEDRAM JAVAHERI, CNN METEOROLOGIST: Hey, Max.

Yes, a lot of activity out there across portions of the Gulf of Mexico the last 24 or so hours. And, of course, what's been happening in Texas we've talked about. Some video coming out of Dallas, Texas that I want to share with you. As a tornado touched down right near the heart of downtown in Dallas yesterday afternoon. We had all the moisture. We had the ingredients in place thanks to Tropical Storm Hermine. And this is what we saw with it. And a lot of times, you know, you see these in major cities and you think to yourself, it's not as bad as the one you see out in the rural areas. And then a lot of that has to do with the dust, the debris in the fields out there that can get picked up into the storms and make it look a little more threatening.

But this right here, again, shows you what a tornado could do across a major city. Fortunately, only one injury associated with this, that of a driver in a big rig out there.

But I want to show you on Google Earth exactly how lucky the folks got there in Texas, as we go in for a closer look toward the Dallas metro area, four reports of tornadoes within the metro region.

But when you go in for a closer look, the one we just showed you video of, only four kilometers from the city skyline. So, again, it shows you how lucky some of the folks, perhaps, got, because had it been just a couple of kilometers inland, it could have been a different story, with large scale buildings across that region.

And take a look. The rainfall totals certainly impressed us, upwards of 280 millimeters. Austin, the state capital, 285 millimeters. Fort Worth had 155 millimeters of rainfall. And the moisture with this is not done yet. Still remnants of it pushing in some rain across Northern Arkansas and the Upper Midwest, into Illinois the Ohio Valleys could get some rainfall associated with what's left of Hermine at this point in the next couple of days.

But tracking another feature, off the coast of Africa, there it is -- that's the Cape Verde Islands. And this is Tropical Storm Igor. It developed fairly quickly. Now, a tropical storm warning had been in effect for portions of the Cape Verde Islands for the first time, we think, in at least five years they've been tropical storm watches. But notice the models. Three days out, we do think this could become a hurricane. At this point, the models differ on where it's going to go, but the general consensus is we think this storm system is going to veer back out into the Atlantic, and, again, become a fish storm, but one storm that's certainly not a fish storm out there across the Taiwan Straits and that is the next typhoon in line, Meranti.

And as we go in for a closer look, a broad area of convection has developed rather quickly here, as the upper level wind shear or the different directions the winds move in the upper level of the atmosphere, that has tapered off. So this storm has been allowed to straighten a little bit. As you can see what it was doing last night as it was beginning to develop, Max.

Hong Kong reporting over 5,500 strikes inside of just one hour of cluster cloud and cluster ground lightning. So certainly not a storm to be reckoned with here -- Max.

FOSTER: What a picture.

What are the chances of capturing that picture?

JAVAHERI: Yes.

FOSTER: Thanks very much.

Now, we were talking about homelessness. It is a global problem, of course. But each city seems to have its own particular problem.

We're joined now by CNNMoney.com's Poppy Harlow, who's in New York -- Poppy.

POPPY HARLOW, ANCHOR, CNNMONEY.COM: Max, it's interesting, you know, you had John Bird on the program a little earlier, the head of "The Big Issue." He talked about this -- this situation in London and talked about the new broken, right, what the economic situation around the world has done to people in terms of homelessness, their jobs.

Well, we met a woman living in Connecticut, here in the United States. Her name is Damita. You see her right there. She is the mother of four and she was living in a shelter all summer in Connecticut, even though she had a job, she was going to school to become a nurse. But it wasn't enough to put a roof over her head.

Here's part of her story.

(BEGIN VIDEO CLIP)

DAMITA, CAREWAYS SHELTER RESIDENT: I'm juggling school, work, the kids. Fourteen, five, three and 11 months. And, you know, sometimes, they're in Miss. Cleo's (ph) little classroom.

UNIDENTIFIED FEMALE: Sometimes the kids come in here with their moms and they play.

DAMITA: This is paradise to them. Yes, paradise.

I'm trying to find housing and hopefully a full-time job. I had to dip into the savings just to get the laptop so that way I don't have to flunk class.

Most of the time I'm in here making dinner or breakfast for the kids.

KELLYANN DAY, EXECUTIVE DIRECTOR, NEW HAVEN HOME RECOVERY: We tracked the number of people who have been turned away, so to speak, from us just because of a lack of space. And that -- that's gone up 105 percent just since January.

DAMITA: You don't have to have that image of looking disgusted, smelling, you know. You can actually look good, have a job. But it's just that your job is just not enough.

I'll see you later on.

Ooh, it's going to rain. Off to work.

It's not easy, but, you know, if it's what I have to do for my kids so that they can see me not being depressed or whatever, that's what I have to do, keep my smile on.

(END VIDEO CLIP)

HARLOW: Certainly a positive outlook.

Now, we met Damita about a moment ago, Max. Since then, we talked to her on the phone yesterday. She has gotten a job at Walmart. She got an apartment. She's going to get three months of help paying for that apartment from the state and from the federal government. She's still in nursing school.

And it's interesting, you know, she said I -- I don't have any furniture, my kids and I are sleeping on the floor, but at least they have a place now that they can call her own. And she said I might not have it altogether, but it could have been a lot worse. At least I am out of the shelter.

But interesting, you don't think of a woman so put together like this, with four kids and a job, as someone you'd find on the street -- Max.

FOSTER: That's it.

Is that a sign of the times, that -- the changing face of homelessness?

HARLOW: I think exactly. I mean you heard what the woman who runs this shelter said. They have many, many more families in them than individuals. Damita is getting her nursing degree. She's someone that clearly has chosen education over putting a roof over her head, be she needs that education, she says, to get a full-time job that's going to pay enough to put her and her four children in a house and give them that long- term future. You know, you -- you saw a laptop on her bed. You don't think of someone who's homeless as having a laptop computer or driving their own car to work, but that's exactly what she had to do.

And I think that the most important point, at least what we're seeing here in the United States, is more and more families, because of this recession, having to be in shelters, not just individuals -- more and more children having to live in this situation, as well.

But good news for Damita. She has her own apartment now; hopefully some furniture soon. And we'll -- we'll keep track of her story -- Max.

FOSTER: Yes, we hope to hear more from her.

Thank you very much, Poppy.

We'll back in a moment with the market update for you.

(COMMERCIAL BREAK)

FOSTER: Mixed signals today, really, on the economic recovery. But actually the Dow is up because job claims were unexpectedly lower than expected.

Here in Europe, that upbeat jobs data also helped bring forward strong gains on the markets here. The main markets all closed around 1 percent higher. Music company HMP dropped 11 percent in London, as the World Cup hit sales.

Banks were big gainers in Paris.

And car makers led the way in Germany.

That is QUEST MEANS BUSINESS.

I'm Max Foster.

"WORLD ONE" starts right now.

END