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Quest Means Business
The G20 Summit Split By Controversy Over Currency Value, Trade Imbalance, Solutions To Sovereign Insolvency; New Rules for Hedge Funds; Fast Trak; Potter Premier
Aired November 11, 2010 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: There are riffs amongst the leaders, riffs in the U.S., rumors about the Irish economy. And the G20 has only just got started.
CISCO inferno, its shares dropped more than 15 percent.
And in this weeks' "Q&A" it is all about gold.
I'm Richard Quest live from CNN Abu Dhabi, where, yes, I mean business.
Good evening.
Divided they stand in Seoul. As Europe's debt crisis seems to be getting worse. And it highlights the persistent problems left by the global financial crisis. G20 leaders are trying to find a way forward at their summit in Seoul. And they are trying to dodge the very deep divisions that exist between the member countries.
The summit is set against a back drop of rising distress in the Euro Zone's most indebted countries, the so-called peripherals. The challenged now is to resist the temptation to beggar thy neighbor and de-value to grow; tinkering with currencies, gaining a competitive advantage.
And it is time to iron out stark trade imbalances, which threaten to overturn the whole economic applecart. It is no easy task at a time when some nations are struggling to return to solid sustainable growth. Barack Obama told delegates his priority number one.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The most important thing that the United States can do, for the world economy, is to grow. Because we continue to be the world's largest market and a huge engine for all other countries to grow; countries like Germany that export heavily, benefit from our open markets and us buying their goods.
(END VIDEO CLIP)
QUEST: Now U.S. efforts to kick start the economies are at the heart of what this rift is all about. Not only within the G20, but also within the United States itself. Take for example, the former Fed Chairman Alan Greenspan. Now, he embroiled in a public disagreement with the Treasury Secretary Timothy Geithner, over controversial policy of QE2, creating cash. Greenspan wrote in the "Financial Times" that the United States is deliberately weakening the dollar. That goes contrary to everything the U.S. has always said.
So, Tim Geithner said the U.S. would never do that, whether to boost the U.S. economy or to gain competitive advantage. In a TV interview he insisted the dollar is weakening because of confidence in global recovery.
For some nations the situation may still get worse before it gets better. Ireland says the situation is very serious as it struggles to convince investors it can remain solvent. Borrowing costs have soared to a crippling 9 percent on the 10-year bonds, effectively freezing Ireland out of the credit markets.
Ireland doesn't need to borrow until 2011 and EU officials deny the government has asked for funds. The president of the European Commission Jose Manuel Barroso said the ECB and the community stands by ready to help if needed. Mark Cliffe is the chief economist at ING Group. Mark joins me now from our London studio.
Mark, the litany of disasters or potential landmines on the economic front it doesn't bode well for a G20 success.
MARK CLIFFE, CHIEF ECONOMIST, ING GROUP: No, it doesn't. We have some pretty profound disagreements in terms of how to go about rebalancing the global economy, and for that matter the European economy. But I think they will probably come up with some face-saving compromise, after all. Because they realize the consequences of failure could be pretty dramatic in terms of the financial market reaction.
QUEST: So what is the best that we can hope for? After all, the finance ministers pushed this down the road to the leaders. The leaders have got nowhere else to push it, except perhaps, onto the backs of say the IMF, the World Bank, some form or stability forum for a study.
CLIFFE: I think that is probably going to be what it is. Because, of course, we've had some very harsh words expressed over the last couple of weeks. If we get any hint of that again, before the end of this summit. Then I think there will be big trouble in the markets. So I think they will be desperate to avoid that kind of language. And I think, indeed, they probably will try and kick the can down the road, as you put it, with their examination of how to go about it. Because I think everybody agrees on the need for rebalancing. What they don't agree on is how to do it and when.
QUEST: But you see if we take, for example, the last time this was done, in a major way after the Second World War, we had the Bretton Woods Agreement. Do you think that a Bretton Woods, or something similar, is inevitable at some point?
CLIFFE: No, I don't think so. I think it is going to be an incremental process. I think we are going to see step-by-step measures taken to calm the situation down. Obviously, it very much depends on how global economic activity unfolds from here. As President Obama indicated, the big goal that they have is getting the economy growing and, frankly, they don't really care too much how, but they want growth. So if the growth comes through then I think we can go through this whole process in a very gradual fashion. And I think the first thing that we need to see is some kind of signal from the Chinese that they are letting the currency appreciate, albeit in a stable, gradual fashion.
QUEST: We need to just briefly and finally talk about the dollar. The market consensus -- and anyone else I spoke to -- seems to suggest the U.S. is quite happy to let the dollar slide, a tad or two. So why is Tim Geithner continuing with the charade?
CLIFFE: Well, of course, if he said anything different there would be an absolute riot in the markets. I think the dollar would come under severe pressure if they were to formally change the so-called strong dollar policy. So, I think they are just locked in to the rhetoric at the moment.
QUEST: Mark Cliffe, joining me from CNN London. We'll talk more about this in the days ahead. Now as G20 leaders work on rebalancing that global economy thousands of protestors outside the event say that people, not money, should be at the top of the agenda. CNN's Paula Hancocks joined the demonstrators on the streets of Seoul.
(BEGIN VIDEOTAPE)
PAULA HANCOCKS, CNN INTERNATIONAL CORRESPONDENT (on camera): There are 84 different liberal civic and labor unions out on the streets of Seoul today to protest against the G20 meeting which is going on right now.
Now, the police estimate there are around 5,000 on the streets, but if you compare that to the number of police on the streets, there is something like 40,000. They are really taking no chances in making sure there is no, or very little, trouble when it comes to this G20 meeting. Now the main protests according to these people is they want the G20 to focus on people and not money.
Now the slogan is, "Put People First." The are angry, they believe the man on the street is shouldering the burden of the financial crisis and bailing out the banks. They want financial institutions to shoulder that burden. They want a strict regulation when it comes to financial institutions. And many of them are particularly angry at the taxpayers that are bearing the brunt of this.
Even the heavens opening has not dampened this spirits of 5,000 people here. With every clap of thunder there was a cheer that went up from the protestors. But this is the end of the line. This is the end of the legal protests. This is where the police want to disperse the crowd. You can see the line, there, they are not allowed any further. Beyond that is where the leaders are, at this point; about a kilometer on to that direction. And certainly the police do not want the protestors getting too close to the leaders.
(voice over): Just before the crowd dispersed, a funeral pyre was lit. Symbolic, the protestors say, of the pain that workers are going through.
(On camera): But it has been very good-natured, and certainly they will be watching very closely for the meetings tomorrow, on Friday, and that is when the leaders will be talking about the things that these people are very concerned about. Paula Hancocks, CNN, on the streets of Seoul, in South Korea.
(END VIDEOTAPE)
QUEST: Coming up, in just a moment. CISCO stutters, the high tech giant has left analysts disappointed and taken a beating on the trading floor. What is the company's take, in just a moment, QUEST MEANS BUSINESS from Abu Dhabi.
(COMMERCIAL BREAK)
QUEST: QUEST MEANS BUSINESS, let's turn our attention to a news agenda, and developing news from Iraq. At long last the parliament has elected a speaker and we're told there has been a walk out. Arwa Damon is in Baghdad for us this evening.
Who has walked out, and why?
ARWA DAMON, CNN INTERNATIONAL CORRESPONDENT: Richard, this is a potentially disastrous development. The walk out happened when members of the Iraqiya bloc wanted to have that power sharing agreement voted on. The Iraqiya bloc is headed by former Prime Minister Ayad Allawi, it got the highest number of seats in Iraq's inconclusive March elections. It is largely backed by Iraq's Sunni Arabs.
This agreement was to see the formation amongst -- its key point was the formation of a council, the National Council for Strategic Policies. This council was supposed to have power to pass binding legislation. It was supposed to be headed by former Prime Minister Ayad Allawi. And it would serve to curb the powers of Prime Minister Nouri Al Maliki, who would be serving a second term. The walkout happened after other members of parliament, including Nouri Al Maliki, objected to the vote on that power- sharing, agreement.
Initially, the new speaker of Parliament, Osama al-Najafi, who is also a member of Iraqiya, did not walk out, saying he was now a speaker, not a member of a certain list, but then eventually he, too, left the parliament session. Saying that he had reservations about continuing the session when it was so obvious that there was widespread mistrust amongst Iraq's various politicians.
Now, the session has resumed in the sense that those parliamentarians who stayed behind did have a high enough number where they are able to vote on the president. That is what is happening right now. But this is a move that is really shattering this effort of trying to form a unity government. And it also could potentially see a new government form that would again alienate Iraq's Sunni population. And that type of a move in the past has lead to more violence, Richard.
QUEST: Arwa Damon in Baghdad, with the parliamentary goings on. We'll have more from Arwa in the hours ahead.
To our business agenda, and shares in CISCO Systems took a real beating on the Nasdaq. They fell around 16 percent, after the company's outlook for the year fell well short of expectations. CISCO's own Q1 profits rose 8 percent to $1.9 billion. It is the company's outlook forecast that investors were most distressed about. CISCO said they expect revenue growth to between 3 and 5 percent. But analysts had thought, year on year, 13 percent. Chris Dedicoat is the president of CISCO's European operations and says a struggling public sector was responsible for the missed targets.
(BEGIN VIDEO CLIP)
CHRIS DEDICOAT, PRESIDENT, CISCO EUROPE: As we look forward, you know, we have seen some challenges around the globe. We still have some challenges here in Europe. And that was particularly around public sector spending. So, public sector spending, without doubt we know the austerity measures. That is causing some concern, some uncertainty. Is it a trend? It is really a little bit too early to tell. But certainly we saw and impact and expect to see an impact in Q2.
(END VIDEO CLIP)
QUEST: There isn't much joy to be found elsewhere on the U.S. markets. Alison Kosik gives us an update from New York and joins me now.
Why is the market down more than 80 points -- oh, now 77 points? It can't all be CISCO?
ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: It is, well, first of all, a lot of it is CISCO. You know, it has been like this, first of all, all the entire day. You know we were down in the triple digits as well. CISCO really is the main culprit that is dragging on sentiment.
As you said, it issued a cautious outlook after the close of trading Wednesday. Since then CISCO shares have tanked. Right now they are down over 16 percent. Keep in mind, Richard, CISCO Systems trades on both the NASDAQ and the Dow. So it is hitting the market hard, very broadly. You know, also because it is considered a technology bellwether. Investors see CISCO's earnings as an indicator for the broader market as well.
And sure CISCO is not the only thing that is hanging on the market today. Traders are also concerned about the stronger dollar. That is why we are seeing a sell off today. Also, what you talked about earlier. Ireland's financial troubles, they are causing the market to pull back. Of course there are concerns of a Greek style bailout. And what is interesting about today, Richard, is that, you know, today is a holiday. It is Veteran's Day, usually a slow day for the markets. The bond markets are closed. Some banks are closed but we are seeing a lot of action on Wall Street here today, because of CISCO, because of the stronger dollar, and because of the Ireland's debt problems, Richard.
QUEST: Alison Kosik, in New York, on Veterans' Day when the market still manages to fall out of bed by the best part of 90 points. Alison, many thanks.
The iPhone has been knocked into third place, according to Gartner, phones running Google's Android software, are ahead of Apple in terms of global smart phone share. Now if you take the way it looks at the moment, third is Apple, second is Android, so clearly, Nokia's Symbian is holding onto the top spot.
Apple might have more than just its phone share to worry about. Samsung has released its own Android Power Tablet, going head to head with the iPad. You saw it first, here, on this program when it was just released. But now, Maggie Lake tried them both out for size.
(DESK BELL CHIMES)
(BEGIN VIDEOTAPE)
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT (voice over): It was a surprise appearance by Apple's enigmatic founder on a conference call, which escalated tensions.
STEVE JOBS, CO-FOUNDER, APPLE (voice over): We think the current crop of seven-inch tablets are going to be DOA, dead on arrival. Their manufacturers will learn the painful lesson that their tablets are too small and increase the size next year.
LAKE: In the crosshairs the new Samsung Galaxy. The company is trying to target consumers looking for something more compact.
UNIDENTIFIED MALE: The iPad is a little bit too big for me to carry along. And this, this is the feeling in my hand.
LAKE: Convenient, but can it perform? We asked the tech experts at Gizmodo to put it to the test.
BRIAN BARRETT, REPORTER, GIZMODO: It takes good pictures, good video, neither of which the iPad can do.
The Tab is easier to type on. So, because of the smaller screen I can do it all with my thumbs. Whereas on the iPad, it is a little broader, a little bit more awkward, I can still reach but it is not a comfortable reach.
LAKE: While there are some distinct advantages, the Galaxy failed to live up in other critical areas.
The first thing you notice about the two is the interface. Here the icons are really spaced out nicely. Very clear what everything is. Here a little more cramped, just because of the size. A little more scattered. In terms of readability, neither is perfect, but the Tab is pretty much not readable. The font is so small and the images, too. The touch interface is a little bit jittery, so it is not quite as responsive.
The Tab has a really nice bright screen, but it is smaller, whereas this takes full advantage of the 10 inches. It is a nice good aspect ratio for watching. So, this is something that I wouldn't really want to watch for a long period of time.
LAKE: But what about that convenience factor? Samsung is pushing it hard in their ads and it seems to resonate with one key group.
UNIDENTIFIED MALE: Mostly like it is a guy thing. Because usually I don't have a handbag with me.
LAKE: The Tablet set free, or is it?
STAN PARISH, EDITOR, STYLE BIBLE, GQ: : It is billed as something you can put in your pocket, but let's take a look. As a guy, going to work, you are wearing a suit. You can slip into your suit pocket. It does fit.
LAKE (on camera): Right.
PARISH: But you run into this issue, if your jacket fits correctly.
LAKE (voice over): Stan Parish, editor at "Style Bible, GQ", says while smaller the Galaxy isn't exactly pocket sized.
PARISH: Technically, it is true. It does slip into the back pocket of your jeans. If you are not planning on sitting down, ever, that's fine.
LAKE: Bottom line from the style experts, you'll need a bag, even for the Galaxy. Just make sure you choose wisely.
(On camera): What do you think?
PARISH: Well, I don't know. Alicia's great for your English bulldog. For your electronics and your accessories, I'm not so sure.
LAKE (voice over): Maggie Lake, CNN, New York.
(END VIDEOTAPE)
QUEST: Now in just a moment it is time for "Q&A" on QMB. You can print money, but you can't print gold. So, could the gold standard be the solution to the currency wars. Ali Velshi and I will be talking about that, next. This is QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
ALI VELSHI, CNN ANCHOR, "NEWSROOM": QUEST MEANS BUSINESS and so do I. We're here together in the CNN NEWSROOM around the world.
Hello, Richard.
QUEST: Hello, Ali. In fact, we are both in different spots from normal today. You are in New York. I'm in Abu Dhabi, in the Gulf. The delay between us is probably horrific. But it won't stop us tackling key topics of the day. And today it is the gold standard.
VELSHI: That's right. Nothing will stand in our way, Richard.
The president of the World Bank flipped flopped this week on his own opinion on the importance of gold and its role in the international monetary system. So we are going to set our own standards, Richard. Last week I went first, so this week, it is your turn. Put 60 seconds on the clock for Richard.
QUEST: And here we go, 60 seconds.
When it comes to actually investment and what is valuable, people have always prized this, the gold stuff. People love it. People will do almost anything for it. Which is why we tied this to this, by making currency convertible into the gold standard. That was always the way it was meant to be, until the 1970s and the Nixon shock, which destroyed the two. Since then the money has become worthless. But gold is now trading at $1,400 an ounce.
Not surprisingly at this record level everybody wants a little bit of it. So much so, that now people are saying we must go back to the gold standard. It is all about gold, because only by linking currency to gold people believe that it can actually have value. Think about the word, "gold", the golden rule, the golden girl, and after all, remember, "Gold Finger."
No, Mr. Bond, I expect you to die.
(BUZZER SOUNDS)
And that's what might happen with gold.
VELSHI: Richard, pretty good. The problem with your theory is that that value of gold has turned into, when it comes to money. The chocolate that you cheated by using. So, I'm going to bring you the real thing.
(BELL DINGS)
The gold standard is a monetary system in which the standard economic unit, a nation's currency, is fixed against a weight of gold. That means the supply of money is strictly tied to the amount of gold that a country holds. Real stuff, if people felt insecure about the U.S. dollars that they hold, they could conceivably trade them for a pre-determined weight of gold with the Federal Reserve.
Nobody uses the gold standard anymore because it restricts the ability of central banks to increase, or decrease the supply of money, especially during economic downturns. The world now uses a system of fiat money, which is pegged to nothing but people's perceptions of its value, generally determined by the amount of money that is in circulation. The more money a nation prints the less it is worth.
A return to some form of gold standard would stabilize currency exchange rates against each other, because governments couldn't go out and print as much money as they like, whenever they feel like it. But countries like to set their own economic direction, Richard.
(BUZZER SOUNDS)
So a return to the gold standard isn't likely to happen anytime soon. Get yourself some real gold. Never mind that chocolate.
QUEST: Hey, at least I can eat my gold.
OK, time for The Voice, who will really sort us out, one from the other. And this week The Voice, what have you got for us?
THE VOICE: OK, gentlemen, time to go for the gold. Last week, Richard, you won. Took the gold last time, Ali took silver, which in itself also kind of first place. First place of all the people who didn't win.
This week is a fresh start. Resetting the scores to zero. Gentlemen, here is your first question about gold.
Why is an ounce of gold called at Troy ounce?
It was, A., named by Helen of Troy; B., established in Troyes, France; C., is from the Latin, "trey"; D., who knows?
(DESK BELL CHIMES)
THE VOICE: Richard Quest.
QUEST: I'm going for C., it is from the Latin, "trey."
THE VOICE: And I'm going for, you are wrong.
(BUZZER SOUNDS)
(BELL DINGS)
THE VOICE: Ali?
VELSHI: B., established in Troyes, France.
(BELL RINGS)
THE VOICE: Exactly, it was named after Troyes, France. In Medieval times the city of Troyes was host to a large annual merchant fairs. At those fairs, standards for weights and measures were established for all of Europe, like how to measure quantities of gold. Or how to calculate the incredible cross continental time delay Richard Quest must endure during this segment.
(LAUGHTER)
Question no. 2, which of these countries is currently the number one producer of gold? Is it A., South Africa; B., Canada; C., China; D., Australia?
(DESK BELL CHIMES)
THE VOICE: Richard Quest.
QUEST: It's China.
(BELL CLANGS)
THE VOICE: You are correct. China, South Africa had been the top producer for most of the last century, but now South Africa ranks fifth, behind the U.S., Australia, and Russia. And No. 1, China.
One last chance, it is question No. 3, time to calculate. Now to be conservative I'll set the price of gold at $1,000 an ounce. Also, The Voice is a little iffy with math, so simply multiplying by 1,000 makes it easier for me. According to the World Gold Council, what is the approximate value of all the gold that has ever been mined?
Is it, A., around $600 billion; B., around $900 billion; C., around $20 trillion; or, D., around $5 trillion?
(DESK BELL CHIMES)
(BELL DINGS)
THE VOICE: Richard Quest.
QUEST: $5 trillion.
(BELL CLANGS)
THE VOICE: Is correct! Of course, the actual total fluctuates with the price of gold, but it stays in the same ballpark of $5 trillion.
Gentlemen, this time around our winner was Richard Quest. Congratulations.
VELSHI: I think I got the bell before him, but I was going to give the wrong answer. I was going stay $20 trillion, so you know what? Richard, you go eat your chocolate, and I'll just keep my gold.
That will do it for this week, but remember, we are here each week on QUEST MEANS BUSINESS, at 1900 GMT.
QUEST: And here in the CNN NEWSROOM, at 2:00 p.m. Eastern. Keep the topics coming on our blogs, at CNN.com/QMB, CNN.com/Ali. Tell us, each week, what you would like to see us talk about.
I wish I hadn't eaten that chocolate, Ali.
(LAUGHTER)
VELSHI: I'll see you next week, Richard. You have a good one.
QUEST: In just a moment, when I've finally got rid of all this chocolate, we're going to take a closer look at the issues at the G20 Summit. With much of the focus on China, we'll look at how the 18 other players fit in.
QUEST MEANS BUSINESS.
We're in Abu Dhabi.
Good evening.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN. And on this network, well, you know, the news always comes first.
And these are the headlines.
Trouble in the Iraqi parliament as factions consider a power sharing agreement. A Sunni Arab lawmaker was elected the parliamentary speaker and a key part of the deal. But a potentially serious setback came with a walkout from parliament when a vote on a new government was called.
The Pakistani Taliban are claiming responsibility for a suicide bombing in the city of Karachi. At least people were killed and more than 100 wounded in the blast at the police facility. A Pakistani official says gunmen cleared the way for the car bomb by firing on security personnel at a checkpoint and then the vehicle rammed into the building.
More than 500 riot police turned out today in the Egyptian capital to control a protest of around three dozen people. It happened outside Cairo University. The small crowd was protesting against continued police presence on Egypt's college campuses. Egypt's Supreme Court ruled last month that their present -- presence is unconstitutional. Police have not complied with the court's order to leave.
In Europe and Commonwealth nations, today is Armistice Day and Remembrance Day. Today created to mark the end of World War II, which is why London's Big Ben tolls every year on the 11th hour of the 11th day of the 11th month. In the United States, it's called Veterans Day. It honors those who fought in America's wars. They are commemorating the day and celebrating the occasion with parades and speeches to those who served and fell.
Now, our top story tonight, the meeting of G20 leaders in Seoul in South Korea.
Joining me now, CNN's John Defterios, anchor of "MARKETPLACE MIDDLE EAST" -- John, the -- the failure to agree a deal -- or will they just create a fudge and somehow just ignore the whole thing and pretend it never happened?
JOHN DEFTERIOS, CNN CORRESPONDENT: Well, it's quite extraordinary, Richard. You make a great point here. It's the day before the -- the final day of the summit. And usually, in the old G8 terms and now it's in the G20 terms, they'd have had this communique done. So it shows the rift that's in play.
We had the bilateral meeting today with President Obama and the chancellor of Germany, Mrs. Merkel, and also with President Hu of China. And both of them disagreed with the tactic the U.S. is taking into this meeting, that is, to get the currency revalued, particularly the renminbi for China.
The surplus countries, China, Germany and Japan, all resisting this effort right now. And this is a problem. They're going to have to probably paper over the cracks as they move forward.
But this is not a great vote of confidence for the G20. It's only two years old. So when they had a crisis at the doorstep during the financial crisis of 2008, they had to take action. This is a big fundamental shift on trade surpluses, current account surpluses and the U.S. dollar and they can't reach an agreement so far.
QUEST: The failure to reach an agreement, though, cannot countries just continue in the sense that what's the urgency?
If they don't manage to sort it out, surely, everyone just muddles through.
DEFTERIOS: Well, I think there's a -- quite a slippery slope here. The U.S. is trying to play a balancing act in getting this currency to go down, number one, for political reasons. There's a very high unemployment rate in the United States right now. They're printing a lot of money, so the debt levels are going up. And this quantitative easing that was taking place by the Federal Reserve is not well received in Germany, because there's concerns about inflation. And the Chinese, of course, don't like this political pressure being applied to raise the value of the renminbi.
Yes, you could go on with things like the way they are right now. But President Obama has to come back with a face saving measure when he goes back to Washington, saying that the G20 Summit was successful and he was fighting for American jobs.
And there's another side to this here. I had some meetings today in Abu Dhabi and was on the phone with other ministers in the region. And they're pegged to the U.S. dollar, so they're not big fans, either, of the fact that President Obama is looking to get a revaluation of the currencies. Because they're pegged to the dollar, their assets, their U.S. bond holdings are going down in value. The same thing with the Chinese. The same thing with the Japanese right now.
So President Obama is not a hugely popular fellow in Seoul at the G20 Summit if they cannot paper over these cracks.
QUEST: All right, John Defterios here in Abu Dhabi with the G20.
And we'll talk more about this, John, in the days ahead.
The European Parliament has given its firm backing to a new set of rules that could put limits on how hedge funds work in Europe. Members voted 513-92 in favor of the rules. They could come into play as early as 2013.
Hedge funds would need approval from an E.U. member state to trade across the continent. It's like getting a passport. Some hedge funds have a reputation for being secretive. These rules would force funds to give up more information to shareholders.
Groups that take over companies would be limited in how much they could rearrange or sell off in the first two years. That's to stop the problem of asset stripping.
And bonuses for hedge fund managers will become tied to how well their investments do. The payment of those bonuses will be staggered over four years.
So will these new rules have hedge fund managers running for the hills?
Or is it a storm in a teacup?
Tonas -- Thomas Deinet is the executive director of the Hedge Fund Standards Board in London.
He joins me now.
Thomas, how much of -- of any protest is me thinks you protest too much and actually, these rules don't make much of a difference, in the long run?
THOMAS DEINET, EXECUTIVE DIRECTOR, HEDGE FUND STANDARDS BOARD: Well, actually, we are not unhappy that these have been approved now. I think it's actually a step in the right direction. The major components that irked us in the beginning, including the protectionist elements, have been taken out of the directive and you have seen significant improvement in relation to this regulatory approach. So, actually, things are not as bad as many people believe.
Clearly, it's a good and right step in -- in the direction of a uniform marketplace in Europe, where hedge funds can be marketed across Europe and investors ultimately will have success not only through European hedge fund mgrs, but can invest more broadly all over the world.
QUEST: The problem is, of course, the hedge fund industry, even as we speak, are working out ways to get around these rules. Now, I know the hedge funds weren't the bogeymen the press would like to make out, but they do contribute quite a lot of -- of -- for want of a better word -- useless activity in the market.
DEINET: I would not agree with that -- with that view. Hedge funds contribute a lot of value to the investors. That's why investors invest with them. And, actually, if you look at the marketplace, the fact that we have active and well-informed investors out there is a very beneficial thing. Imagine everyone going passive and no one investing into information acquisition in the marketplace anymore. All prices would just move in parallel and people wouldn't trust the marketplace anymore.
So the fact that we have active investors that follow a sophisticated strategy will not only cater well for the investors, but actually enhance the efficiency of the marketplace, is a very positive thing.
And I must say, there is a broader rela -- realization on the continent among European policy leaders that hedge funds bring a lot of benefits to the table in Europe and to European capital markets.
So I would not agree that they contribute to useless activity in capital markets. Ultimately, investors can sanction them. If an investor is not happy with the performance or the standards that a certain investor had -- the manager has, they can withdraw their investments and the manager just goes away, without any systemic implications and concerns.
QUEST: All right, but you'd agree with me, the sort of derivative hedging that we saw during the crisis, where people have no interest in underlying securities, where it was de facto gambling with the global economy, that's exactly the sort of thing that still has to be rooted out.
DEINET: Well, let's look more precisely into this issue. Number one, I would agree with you that empty voting is something that does not make sense. If someone has the ability to vo -- vote, but is not economically exposed in an equity, in a -- in a company, the person should not vote. And that's actually something that we have said already since 2007. That's the Hedge Funds Standards Board.
Now, if you think about derivatives and hedging, this contributes a lot to investors being able to take risky positions. If we forbid standstill, if we forbid derivatives or restrict activity in that arena, investors will completely withdraw from the marketplace --
QUEST: No, no, no, but --
DEINET: -- in -- and the world has --
QUEST: But hang on, now -- no, no, no and -- no, let me just interrupt you. I'm not suggesting -- no, you're -- you're taking an extreme point. I'm not suggesting that things are banned. I'm simply saying that the sort of naked selling and the naked activity that we saw, that has no socially useful activity, that's the sort of stuff that should be banned.
Surely you'd agree with me on that?
DEINET: I would agree, actually, naked short-selling is not a major compan -- component in the marketplace. You know, before there has been a lot of noise around it. It's not a common feature and not a column -- common element in the marketplace.
The more important observation here to look at is that we need efficient capital markets that investors trust in. And short-selling is a very important component in that, to ensure that we avoid bubbles. Short- selling actually is -- it's a mitigant of bubbles. And if we want to see less of that sort of exuberance, then this is actually a very positive thing.
I agree with you, there needs to be regulation and there needs to be an element of disclosure vis-a-vis regulators. That's the important thing. Regulators need that reform and this is what current regulatory proposals have in mind, to ensure that regulators can assess these things properly.
So that's the way we have (INAUDIBLE) at the Hedge Funds Standards Board. Ultimately, we care a lot about better outcomes in markets --
QUEST: OK --
DEINET: -- and better outcomes for investors.
QUEST: Thomas, we thank you very much for joining us.
Thomas Deinet joining me from London.
They get millions of people to work everyday. In the U.S., high speed trains aren't quite as fast as a speeding bullet.
Will they get a turbo boost from the taxpayer?
QUEST MEANS BUSINESS, in a moment.
(COMMERCIAL BREAK)
QUEST: A couple of centuries ago, the humble railroad helped shape the United States as we know it. But for U.S. consumers, taking the train these days means making a morning meeting can be a real drag. Plans for a new super fast train link could change all of that.
But what will it take to get on track?
Poppy Harlow brings us up to speed.
She joins me now.
How bad it is going to be, Poppy?
And how expensive?
POPPY HARLOW, CNNMONEY.COM: Just an incredible price tag, of course, Richard. We're talking about high speed rail in the United States, which is astonishing to note that we don't even have true high speed rail in this country. China has it in a very massive way. Japan has it. It's all over Europe. We don't have it. It would cost, Amtrak is saying, $117 billion to build high speed rail just from Boston to Washington, DC.
Is it worth it and is it worth taxpayer money?
We took the train to find out.
Take a look.
(BEGIN VIDEOTAPE)
HARLOW: (voice-over): This is the fastest train in China. It averages 217 miles an hour. And this is the fastest train in America, Amtrak's Acela Express. It averages just 86 miles an hour.
(on camera): All right, so it is 5:45 a.m. here in New York. I'm at Penn Station. I have a 9:00 meeting in Washington, DC. I'm going to hop on the 6:00 a.m. Acela train, but it's going to take me almost three hours just to get to Washington.
UNIDENTIFIED FEMALE: All aboard.
HARLOW: (voice-over): Over the next 30 years, Amtrak wants to spend more than $100 billion to dramatically speed up that trip, hitting 220 miles per hour.
AL ENGEL, V.P. FOR HIGH SPEED RAIL, AMTRAK: If you're on the express, the first stop you're going to make it Philadelphia. That's 30 --
HARLOW: (on camera): Right in Philadelphia?
ENGEL: -- 38 minutes later. You stop there for two or three minutes. And you'll be in Washington, D.C. in 96 minutes.
HARLOW: (voice-over): And while the Acela can reach 150 miles an hour, it rarely does. True high speed rail would require brand new tracks, tunnels, stations and trains on a new route from Washington to Boston. In the heavily populated Northeast, there's going to be expensive -- really expensive.
(on camera): The cost is significant, $117 billion over the next 30 years.
ENGEL: Right. But if you -- it -- it's a 25 year minimum construction project. So we're only talking $5 billion a year. But think about the -- the GDP of this region. It's $3 trillion. So if you take $117 billion as a -- as a percentage of $3 trillion of the annual GDP, it's about 2.5 percent.
HARLOW: (voice-over): But it would be the most expensive engineering project undertaken in the U.S. since the 47,000 mile interstate highway system.
ENGEL: It's a project of national significance. In this region, the culture is already to use trains to get to work.
HARLOW: (on camera): Right.
ENGEL: So and -- and you look, you know, these trains are -- are full of people. So the vision, the new high speed rail system, which is happening everywhere else in the world, will provide an 84 minute trip time between Boston and New York.
HARLOW: (voice-over): But is it worth taxpayer money?
UNIDENTIFIED FEMALE: Yes, it's a lot of money.
Is it worth it?
It's hard to say.
UNIDENTIFIED FEMALE: I think it's about time that we be competitive with Western Europe and their rail service. It's a big number. But if we can bailout the motor industry, we can have a rail service that's a fast speed, a competitive service.
(END VIDEO TAPE)
HARLOW: You know, Richard, on that $117 billion note, let's not forget that Amtrak is already pretty much owned and funded by U.S. taxpayers, by the U.S. government. This would be part taxpayer money, part private investment. The Obama administration has dedicated $10.5 billion, a lot of that through the stimulus program, to high speed rail. That is a tenth of what Amtrak is saying this single project could cost.
But, again, if you want it, I suppose you have to build it now. It's going to take 30 years, if they can even get approval. But, Richard, I'd love to see this one play out in Congress. It's going to be a huge battle for that money right on the heels of the deficit commission trying to cut $4 trillion in terms of our -- our budget deficit.
So an interesting time for Amtrak to be asking for this money -- Richard.
QUEST: Poppy, I wish we had longer to talk about it, because I find your report there fascinating, particularly when you compare it to the amount of money that was used to bail out AIG, Citi and --
HARLOW: Right.
QUEST: -- a variety of other institutions.
Poppy Harlow with the fast train -- or, rather, the slow train that is getting, maybe, possibly, perhaps, faster in the future.
OK, the weather forecast. It's unsettled in Europe. It is warm and pleasant here in Abu Dhabi.
And Pedram is at the CNN World Weather Center.
PEDRAM JAVAHERI, CNN METEOROLOGIST: We envy you, Richard, 32 degrees, enjoying a nice evening out there in Abu Dhabi. A far different story across portions of Europe. And take a look. You really could easily pick out the storm system. There's the broad feature right here. That's the cool front working its way into Germany. Behind it, as blustery as they come. We have a very tight pressure gradient or a difference between high pressure to the south, low pressure out there over portions of the U.K.
Put them together, you have your winds well over 100 kilometers per hour. Ireland coming in at 115; Shannon at 102. You can see how there in portions of Dublin, wind gusts reported at 100 kilometers per hour, getting close to hurricane force now. And the current wind speeds out there getting as far as 30 kilometers in Southampton. You can see Dublin currently locked in at 61 KPH, and even out toward Amsterdam, calming down a little bit, to 24 kilometers per hour.
But fortunately, this storm system moves out of here. The winds will begin to settle down in the next 24 hours. Yet another storm system lines up behind it. That's going to produce more of a weather concern. But if you've got travel plans, you've got to check this out, because we have 45 to 60 minute delays at any airport you choose out there in London. Glasgow, about 60 minutes to 90 minutes, with the winds being the primary concern. And even around Brussels, Frankfurt and also Munich going to have concerns out there with the weather pattern setting up.
And real quickly, the latest information coming out of a flooding pattern out there in Sri Lanka, taking you to Colombo, Sri Lanka, take a look at the rainfall total. Nearly 500 millimeters in just 24 hours. That way outdoes their average monthly rainfall total of about 325 millimeters of rainfall. And, again, this is a record amount of rainfall, the most they've seen since 1992, going back to the data out there. So certainly unsettled weather, also, to speak of also Richard out there, with some photographs coming out of Sri Lanka this afternoon -- Richard.
QUEST: Pedram, many thanks.
Tomorrow I will require from you, please, a forecast for the Formula One here in Abu Dhabi over the weekend.
JAVAHERI: I'll be there for you.
QUEST: We look forward to talking about that.
Thank you.
Now, in a moment, how high fashion is bewitching customers with technical wizardry and the real thing -- or at least the movie premier. We'll talk to the man who made Harry Potter. And it's not Dumbledore.
(COMMERCIAL BREAK)
QUEST: The premier of the latest Harry Potter film is take place in London right now, the penultimate installment in the story.
Becky Anderson caught up with the producer, David Heyman, and asked him how it felt to be part of the Potter franchise.
(BEGIN VIDEOTAPE)
DAVID HEYMAN, FILM PRODUCER: Well, it feels great. I mean it feels great that it's not raining tonight, I should tell you that, because I think the last three or four Harry Potter premiers, it's been pouring with rain. So, now that's great.
But it's great. It's very exciting when you see the fans come out in such -- in droves and be as enthusiastic and supportive as they always have been.
BECKY ANDERSON, HOST, "CONNECT THE WORLD": When you started this, could you and did you imagine that it would be the biggest movie project the world has ever known?
HEYMAN: It was?
No. I didn't have a clue. I mean I loved -- I read the book. I loved the book -- the first book. Actually, it wasn't yet published. And I just loved it. And I thought it also not keeping -- it might be, you know, a nice, modest sized British film. But I've been here 13 years later after reading it, 10 years after starting filming, talking about it, not a clue.
ANDERSON: What is it?
Is it -- is it the story?
Is it the cast?
Is it the way it was directed?
HEYMAN: Oh, I think, you know, the books are obviously fundamental. You know, they are -- they are key to -- to making it work. Joe has given us such great material to work with. And I think that, you know, we've got these great young actors, and, obviously, older actors we're working with. And I think we have grown. The audience has grown. The films have grown. The characters have grown, the actors have grown and the producers and directors have grown, too.
So I hope that we keep making, you know, pushing the envelope a little bit.
ANDERSON: This is, of course, the last installment. But some people might accuse you of milking it somewhat by -- by splitting it into two.
Why did you do that?
HEYMAN: Well, frankly, when the idea was initially mooted (ph), I thought it was a terrible idea.
We hadn't done it before, why do it now?
But when we started to break down the book into script form, it became very clear that there was just too much in this book to do in one film. So much is resolved. And it -- when we started the third film, we -- we had shifted our approach to adaptation. We told the story from Harry's point of view and other things fell by the way -- wayside. In this one, everything is about Harry and nothing fell out easily. And we wanted to make sure we ended it on the right note. And the only way to do that was two films.
Actually, once we made the decision, Steve Slovis (ph) was writing away. And he e-mailed me. He said, by the way, there is enough here for three.
(LAUGHTER)
HEYMAN: But (INAUDIBLE) with two.
ANDERSON: Well, we've got two. I've seen the first one. It's very dark. It's very challenging. But it's very, very good.
What's next for David Heyman at this point?
HEYMAN: Oh, you know, I'm -- I'm -- I've got another film to finish on Potter. I'm working with our Potter Alfonso Cuaran, who directed the third film and directed the films "Y tu Mama Tambien" and "Children of Man." I'm -- I'm working with him on something, working. And there are other projects. I'm working with David Yates on a few things. So I'm very excited about what lies ahead.
ANDERSON: How does the Harry Potter franchise stack up, do you think, to the other work that you've done?
HEYMAN: Well, all I can tell you is that there will be -- there has been nothing like Harry for me and there'll never be anything like it again.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
Oh, say it isn't so. Say that the G20 can come to a worthwhile agreement. Well, maybe they can. But any realist amongst us knows that this is most unlikely.
It is going to take more than this two day meeting in South Korea to reorganize the global economy.
But truthfully, that is the job at hand that needs to be done. Those like the president of the World Bank, who's mooted (ph) a new Breton Woods, have been laughed away.
But if we are not to see more protectionist measures slowly but surely introduced, then there's no choice -- there will have to be such a meeting. After all, when the Treasury secretary is forced to disagree with Alan Greenspan, we know there are real difficulties ahead.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest live in Abu Dhabi.
Whatever you're up to in the hours ahead, I hope it's profitable.
"WORLD ONE" now.
END
