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Quest Means Business
US Treasury Secretary Issues Debt Ceiling Warning; "Green Eggs" in Congress; US Markets Bored; US Financial Woes; French Budget; European Markets Mixed; Ericsson Announcement; Technology Revolution; Elop Fights Back; UK Tax Protest; Libor Charges
Aired September 25, 2013 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: Abenomics comes to Wall Street. The prime minister of Japan ringing the closing bell. A few seconds of trading still to go on today, Wednesday, 25th of September.
Tonight, a catastrophic warning from the top: raise the debt ceiling or else.
The New York attorney general joins me tonight, furious about leaks at the Fed.
And Stephen Elop's costly divorce from Nokia apparently due to his costly divorce.
I'm Richard Quest, I mean business.
Good evening. The United States facing trouble on two major financial fronts tonight: how to pay its bills as it's reached its overdraft limit, and how to budget for the future when it can't agree on money to spend.
Now, today, the US Treasury secretary issued his strongest warning yet to Congress on the consequences of not raising the so-called debt ceiling. This is the authority that the US government has to borrow money.
Jack Lew wrote, "If we have insufficient cash on hand, it will be impossible for the United States of America to meet all of its obligations for the first time in our history." Coffers will dry up by the 17th of October, and this is the word that he uses to describe what would happen if the debt ceiling is reached. Priorities have to be made on spending and eventually, of course, bills cannot be paid.
"Catastrophic" on the debt ceiling. But there's another, of course, major budget issue in the United States. When it comes to the US fiscal woes, two issues -- and please, we need to bear in mind, these are the two.
The debt ceiling, think of it as this side. It's the overdraft of the United States. This is where money has been spent by Congress, the bills have arrived, and now they have to be paid.
And then you've got the other side, the checkbook of the United States. The budget battle. This is what the government's checkbook looks like. The government -- that's Congress -- must agree how much to spend, and that must be done by September the 30th. That risks a government shutdown.
Two sides of a budget battle. How much to spend, how much to borrow. And those are the problems facing the US budget and federal government at the moment.
Well, we've had developments in the budget battle in the last couple of hours, something of a turnaround from one of the political parties, the Republicans. Our correspondent Lisa Desjardins is on Capitol Hill for us. So, we're looking now at the checkbook side of the equation, and this is the Congress deciding how much they're going to spend.
LISA DESJARDINS, CNN CAPITOL HILL CORRESPONDENT: That's exactly right, Richard. What's amazing here is this is essentially one of Congress's only must-do jobs. They have to pass the spending that keeps government operating. Right now, that runs out, as you say, on September 30th. And Richard, the news from today is that the Senate has moved ahead
QUEST: Right.
DESJARDINS: -- with its version of a spending plan.
QUEST: They only did so after one member of the Senate -- I won't say filibustered -- spoke for an enormous amount of time, and this book came to our attention. It is Dr. Seuss, "Green Eggs and Ham." It's from the beginner book series, and it's part of, of course, "I can read all by myself." But more than just read all by myself, one senator treated us to the words. Tell me.
DESJARDINS: That's right. This was -- Senator Cruz was on the floor of the Senate chamber for 22 hours last night, Richard. Now, this actually didn't delay anything, it didn't change the votes at all, but he was trying to make a statement that he opposes the president's health care plan, Obamacare. He was trying to hold up this spending bill if the government continued to fund Obamacare.
So, if you will, he was sort of threatening things. So, as part of those 22 hours, Richard, obviously, you've got a lot of time to fill. And late last night, he said he was going to read this book to his kids. Here's what it sounded like.
(BEGIN VIDEO CLIP)
SEN. TED CRUZ (R), TEXAS: "I do not like them in a box, I do not like them with a fox. I will not eat them in a house, I do not like them with a mouse. I do not like them here or there, I do not like them anywhere. I do not like green eggs and ham."
(END VIDEO CLIP)
QUEST: "And I will eat them in the rain, and in the dark, and on a train, and in a car, and in a tree, they are so good, so good you see." What on Earth is going on when this is being read in Congress?
DESJARDINS: Yes. It's gotten beyond convoluted, it's gotten strange, and maybe a little entertaining, but not in necessarily a good way. This is really the divide here in America. Those who oppose President Obama are willing to do everything they can to block his legislation --
QUEST: All right.
DESJARDINS: -- including reading Dr. Seuss books. Later on, by the way, Senator Cruz started making "Star Wars" references. You know, it's unfortunately, because this is a serious debate. It does not at all feel serious when you look at things like that. But I've got to tell you, Richard, it's all leading, possibly, to a head this weekend.
QUEST: All right.
DESJARDINS: That's when we think version one of a spending bill will come out of the Senate, and the House may add other demands --
QUEST: Enough!
DESJARDINS: It's a ping pong match --
QUEST: Enough!
DESJARDINS: -- it's a bit of a nightmare.
QUEST: Enough!
DESJARDINS: Yes. Yes. It's insane.
QUEST: Lisa, thank you very much, indeed.
DESJARDINS: You've got it.
QUEST: So, how did the markets react? We know we've got these two divisions. You've got debt ceiling and the warning from Lew, and you've got the budget and the nonsense with "Green Eggs and Ham." Alison Kosik at the Exchange.
(LAUGHTER)
QUEST: What were they dealing with in the Exchange?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: You know what? They were pretty bored today, one trader telling me, Richard, we just -- everyone's bored. There's this directionless trade going on, this apathetic sort of trade, and more than anything else, the selling pressure you see today, it wasn't very intense, but buyers are definitely getting fatigued and reluctant to step both feet into the weakness.
All eyes are on Washington today, and while Wall Street feels the odds of a shutdown continuing to shrink, the debt ceiling, the budget battle, they remain unresolved, and things are amping up for a last-minute battle.
So, you're seeing Wall Street continuing to be on edge about it and sort of -- that sort of directionless, apathetic trade going on, Richard.
QUEST: Alison Kosik at the New York Stock Exchange as we look at a picture from Washington. How to make sense of it all and what's been happening. Evariste Lefeuvre is the chief economist for the Americas at Natixis Global Asset Management. Good to have you, sir.
EVARISTE LEFEUVRE, CHIEF ECONOMIST FOR THE AMERICAS, NATIXIS: Thank you.
QUEST: Don't worry, we won't quote anymore from --
LEFEUVRE: Actually, this is my son's favorite book. And in this case, I will not use "The Cat in the Hat," because the Cat in the Hat gets into the house, puts everything upside down, and then he comes back, and then leaves everything side up, and when he comes back, everything's clean.
So, that will be a good metaphor as well. There is a huge mess in Washington, and out of it, nothing will come out. So, I love your preference for this reason.
QUEST: Right.
LEFEUVRE: There are so many books by Dr. Seuss that could highlight today's information.
QUEST: So, as an economist, which of the two battles that we talked about then are you worried about, and how serious is that worry?
LEFEUVRE: It's always serious. Ben Bernanke, the president of the Federal Reserve, even decided to scale back the tapering of monetary policy because of that risk. So, it's a serious risk.
But there are two kinds of risk, of course. The first risk, which you just mentioned, which is the budget negotiation, was all about Obamacare behind the scenes. But it's a trap. No read is able to get this away from the bill.
QUEST: But you're worried about the other one, aren't you?
LEFEUVRE: I'm more --
QUEST: The debt ceiling.
LEFEUVRE: Yes, because the shutdown -- the budget risk is a shutdown. The debt ceiling, which is an anachronism anyway, but it's a real risk anyway, is about shutdown plus default. And default is more serious for market.
QUEST: You don't believe that they -- a real default. But do you believe that there is the possibility of a technical default?
LEFEUVRE: That might happen. But basically, it might happen, but it looks like 2011 to all of us in the marketplace that we are, of course, worried by what's happening now, but probably no one believes that it might happen.
QUEST: So, we have the US with its budget woes. You've then got Europe, Spain coming out of recession. France got a budget.
LEFEUVRE: Yes!
(QUEST RINGS BELL)
LEFEUVRE: France got a budget, finally. They have got a budget which is clearly above what was broadcasted previously. They were supposed to bring the budget back close to 3 percent of GDP in 2014. Actually, it will be 3.6 percent.
The big news is, actually, in France, we are 46 percent of taxes. So, what you have to do is cut spending, but cutting spending in France is something very difficult, it never happened about the last 25 years, so it's a little bit of a big light.
QUEST: You don't like the budget?
LEFEUVRE: It's not that I don't like it --
QUEST: You don't believe it.
LEFEUVRE: I don't believe that French government can manage to have the 1.2 percent growth next year --
QUEST: All right.
LEFEUVRE: -- and reduce spending by that much.
QUEST: Are you in the camp that believes there will have to be a further debt restructuring in Greece and other periphery countries?
LEFEUVRE: If they will -- there will have to be a third plan, that's for sure.
QUEST: Yes?
LEFEUVRE: A restructuring.
QUEST: Private debt initiative?
LEFEUVRE: That's right, but the problem is especially after the German election is not so much that private involvement but about official involvement, which means more or less debt forgiveness. And given the reason that we are, I think it's very likely in the short run, actually.
QUEST: We're not out of this yet, are we?
LEFEUVRE: No, we're not.
QUEST: Many thanks, indeed.
LEFEUVRE: Thank you.
QUEST: I would give this for your son, but he's probably beyond this by now. We'll leave it to the members of Congress.
LEFEUVRE: Exactly.
QUEST: All right. Not a lot of movement on the US -- on the European stock markets. Have a quick look and see how they were.
(RINGS BELL)
QUEST: They're looking to the budget battle in the US. European stocks gaining in midday trading. They turned on the disappointing numbers for the US durable orders. The FBC in Britain, as well, also said it had - - saw no immediate threat -- no immediate threat -- to the housing bubble that is clearly building up.
But as you can see, two up, two down, new home sales in the US rose in August, second-worst month of the year so far.
When we come back, Ericsson has found a way to make your mobile work in the basement. And when we come back, the chief executive of Ericsson is joining me. Come and join me, sir --
HANS VESTBERG, CEO, ERICSSON: Thank you.
QUEST: -- over in the C Suite.
VESTBERG: Thank you.
(COMMERCIAL BREAK)
QUEST: Now, welcome to the C Suite. The chief exec of Ericsson's with us tonight. Ericsson's found a simple way to bring cell phone coverage into hard-to-reach areas like the office, the kitchen, or the television studio.
It's called the Dot, and it's one of the many things we need to address today with the chief exec of Ericsson, Hans Vestberg, good to see you.
VESTBERG: Good to see you.
QUEST: Thank you for joining us. Now look, Hans, let's get to grips here.
VESTBERG: Yes.
QUEST: What's this all about? Another gadget that we may or may not need?
VESTBERG: No, I think this is extremely needed, as a lot of the mobile coverage going indoors, it has been many ways of doing it. This is reshaping the whole way of getting mobile coverage indoors.
So, this is a 3G, 4G, wifi in this dot, and you use the ethernet cables in the house -- we have patents on it. So, you send a radio signal and they're powering it. So suddenly, you get good mobile broadband coverage inside the building.
QUEST: But I had a -- I was going to say booster.
VESTBERG: A booster.
QUEST: I used to have a booster, came out of my wall and went into the wires in the house and went around. Why is this different?
VESTBERG: Because this is connected straight to the mobile network, so you're operator can give you an experience that you should have on mobile broadband.
QUEST: Who's buying this? Are big companies like CNN Time-Warner buying them, or are little people like Richard buying them?
VESTBERG: This particular one is geared for large buildings, medium- sized stadiums, et cetera, and you put one at each floor, and it's an operator doing it for US enterprise.
QUEST: We need to talk about the industry at the moment.
VESTBERG: Yes.
QUEST: Whichever way -- BlackBerry -- poor old BlackBerry. Nokia now with Microsoft. And iOS 7 comes along. What is happening?
VESTBERG: I think you need to start to think about what is happening with our industry. We are into the fifth technology revolution, which is iCity and telecom. And we have just passed the first phase of it where we build coverage for voice all around the world.
Right now, everything's going data, and of course, in that movement, in that inflection point, we are shakers and losers and gainers. And that's what's happening.
QUEST: So, not everybody's going to survive in this game.
VESTBERG: Usually in a technology revolution, the winners in the first round --
QUEST: I'm dying to ask you if you think BlackBerry will survive. I mean, that's what everybody wants to know.
VESTBERG: I think that -- I don't know. I think the most important is that in this transition, going to new business models, using the networks in a new way, all of us are going to be challenged.
I'm challenged at Ericsson. I need to transform constantly, and I think that everybody has to do it, because we're going to use data in a totally different way than we ever thought about from the beginning.
QUEST: That use of data, which of course will come at a price to the consumer.
VESTBERG: Of course --
QUEST: I can hear the viewer saying, it's a chance for the telcos to empty my wallet for me.
VESTBERG: No, I don't think so, because efficiency wants to exist here, so of course, data will be cheaper. But it's also going to be high quality services where you need very secure data links, et cetera. So, it's going to be a range of data services.
QUEST: The -- the speed of change that's happened in the last few months with Nokia going one way and BlackBerry and Apple and -- you believe that the next 18 months will be crucial in many ways.
VESTBERG: I think that, actually, the speed of change of both technology and our industry will go even faster going forward because of this transformation of data, consumer products coming into the networks. I think we're going to see continuously changes, and it will go even faster.
Because there's going to be more and more people on this Earth having access. Think today, there's 7 billion mobile subscriptions. By 2018, there's going to be 6.5 billion mobile broadband subscriptions. That means three times as many people on this Earth will have access to the internet.
QUEST: Oh! I think I've just broken it.
VESTBERG: No, no, it should be like that.
QUEST: I guess it's no good me taking it home, I'll leave it there.
(LAUGHTER)
QUEST: Good to see you. Many thanks, indeed, for joining us.
VESTBERG: Thank you very much.
QUEST: Hans Vestberg, chief executive of Ericsson joining me in the C Suite. Now, let's stay with the question of telecoms and telecoms companies, and the public row over Stephen Elop's enormous payoff has taken an abrupt turn in the private goings-on.
Elop is reportedly ignoring pleas from Nokia to hand some of the money back. The former chief exec says he needs $25 million for his divorce, that's according to the Finnish newspaper "Helsingin Sanomat." I'm sure I've mispronounced the name of the newspaper.
Matti Tyynysniemi is their reporter who's been digging into the story. What is your understanding of why he won't hand the money back?
MATTI TYYNYSNIEMI, BUSINESS REPORTER, "HELSINGIN SANOMAT": Well, we don't know under which jurisdiction his divorce will be dealt with. It's probably not the Finnish one. But at least under the Finnish law, when you divorce someone, you have to give half of your money to them. And now, even if you voluntarily give away your money --
QUEST: Right.
TYYNYSNIEMI: -- your spouse will still be -- entitled to that money.
QUEST: Right.
TYYNYSNIEMI: So, if you make a quick math, up until now, Stephen Elop has gotten in total a pay of 9 million euros out of Nokia, and now as his final payout, if that is what you want to call it, he will be getting 18 million euros.
Now, if he does not receive that 18 million euros from Nokia, but he's forced to pay half of it to his wife even still, his final compensation for his three years in Nokia will be approximately zero.
QUEST: OK.
TYYNYSNIEMI: So, that might explain what's happening.
QUEST: Let's come back to this argument. We were talking yesterday on this program to the leader of the opposition, one of the opposition politicians, who's basically angry, and another CEO I've spoken to basically says if this was anywhere else, there'd be even more anger. Describe for me the deep feelings in Finland at what has happened.
TYYNYSNIEMI: Well, I'm not so sure about there being more anger if this was somewhere else, because you have to understand, back in its heyday, Nokia was huge even globally. You can imagine how huge such a company is for a country -- a remote country of 5 million people.
The popular notion is that Nokia single-handedly lifted Finland from the deep depression of the 1990s and also transformed the Finnish way of thinking about ourselves.
When I was a kid, and I saw Nokia phones in Hollywood movies, that was like, wow. And now, when you see something like that finally and totally taken away from you, that's bound to hurt.
QUEST: Right.
TYYNYSNIEMI: So, it's understandable that the feelings are rage and hate and blame games and stuff like that.
QUEST: Rage, hate, and blame games. And on that note, we'll leave it there. Thank you very much, indeed, sir, for joining us from Finland tonight.
When we come back, it is a protest in a pub over the price of a pie and a pint. British bars and restaurants want the ax to fall on a common tax. We will explain what they did next. This is QUEST MEANS BUSINESS.
(RINGS BELL)
(COMMERCIAL BREAK)
QUEST: Thousands of pubs and restaurants across the United Kingdom dropped their prices today, and it was a drop in protest against the country's Value-Added Tax. Campaigners say if VAT were slashed from 20 percent to 5 percent, the extra sales would generate billions of pounds for the British economy. In London, CNN's Jim Boulden explains.
(BEGIN VIDEOTAPE)
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): It's the end of another bustling lunch service at the Lord Moon of the Mall pub in London. Sitting quietly in the corner is an 86-year-old Frenchman, a man on a mission.
JACQUES BOREL, VAT CLUB: If you reduce the tax, you will reduce the prices.
BOULDEN: Jacques Borel is spearheading a campaign across Europe to cut the tax paid on food in restaurants, pubs, and for catering. His claim: less tax means more jobs.
Hundreds of pubs in Britain joined his one-day tax revolt and cut the bill. The former restaurateur expects pubs to enjoy a 10 percent jump in business.
BOREL: It's 10 to 12 percent more, you have to have 8 to 10 percent more employees, cooks, in order to cook the additional food and waitresses in order to serve it.
BOULDEN: This pub brought on four extra staff to meet the expected demand. Pubs have complained for years that current tax laws encourage people to eat and drink at home and drain the lifeblood of the good old traditional pub.
MICHAEL CHAMBERS, MANAGER, THE LORD MOON OF THE MALL: We pay 20 percent VAT on foods here in pubs, where supermarkets pay zero percent. That is a big difference from the word go.
BOULDEN: On this day, they charged 12.5 percent instead of the usual 20 percent, the current Value-Added Tax or VAT.
BOULDEN (on camera): Of course, I'll have the fish and chips.
CHAMBERS: Thank you. Would you like garden peas or mushy peas.
BOULDEN: Mushy peas, please BOULDEN (voice-over): So, I ordered my usual lunch and some bread and, well, a pint. Why not?
BOULDEN (on camera): Well, as I wait for my food, I thought I'd calculate how much I saved with lunch today. Well, the total bill was 11 pounds and 77p. And then, I saw the bill came down to 10 pounds 84p. That's 95p off the bill for the fish and chips, bread, and the pint of beer. That's about $1.50 in savings just for lunch.
BOULDEN (voice-over): Like the Tea Party debate in the United States, this pub grub revolt goes to the heart of tax and spend.
BOULDEN (on camera): Brits part, the government says that this campaign would cost the budget around $14 billion a year and that it would have to raise taxes elsewhere and it would cost jobs in other sectors. In other words, the government is not about the cut the rate of VAT for restaurants and catering.
Jim Boulden, CNN, London.
(END VIDEOTAPE)
QUEST: I'm guessing that Mr. Boulden's fish, chips, and a pint of beer would have ended up on his expenses, so whether or not the government cuts the rate of VAT, I'm guessing somebody else has picked up the bill.
Well, there's no such thing as a free lunch, @RichardQuest. There's all sorts of interesting issues that we've got on our program tonight that you'll be wanting to discuss --
(RINGS BELL)
QUEST: -- the bell should go over there. @RichardQuest. I'm doing my best to keep up-to-date with my tweeting, and as and when we can have that discussion offline, particularly what's the view on this whole Elop business, the payoff in Nokia? And also, the whole BlackBerry question, @RichardQuest.
There was a very dangerous crackdown on another case of rate-rigging. New York's attorney general is warning of a new generation of market manipulators. This is QUEST MEANS BUSINESS, we're back after the break.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.
At the United Nations, the five permanent members of the Security Council are close to an agreement on placing Syria's chemical weapons under international control. According to a US diplomat -- a UN diplomat, that is -- the source says Russia has basically agreed to three key premises. The specifics are now being worked out.
A forensic investigation is underway in Kenya into the Westgate Mall siege in Nairobi. At least 61 people died in the attacks. Recovery workers are still searching for bodies beneath the collapsed mall.
The surveillance video of the naval yard shooting in Washington earlier this month has been released. In a press conference on Wednesday, an FBI spokeswoman said that Aaron Alexis acted alone and was not targeting specific people. It was also revealed that Alexis was under the delusional belief that he was being controlled by electro-magnetic waves.
A group of Syrian rebel brigades has rejected the leadership of the Syrian National Coalition, the opposition group supported by the West. The group has just announced the formation of a government in exile.
Rescue workers are still working to find those trapped by a deadly earthquake in southwestern Pakistan. Pakistani officials say the quake killed at least 330 people on Tuesday. The rescue effort has been complicated by the remote location.
UK broker ICAP, I-C-A-P, has paid $85 million to settle claims with UK and US authorities as the libor scandal lumbers on. Three of its traders, Darrel Read, Daniel Wilkinson, and Colin Goodman, have been charged with wire fraud. Join me at the super screen and you'll see.
The regulators say they conspired with a now ex-UBS trader to knowingly disseminate false and misleading information about yen borrowing rates to other banks. The goal, of course, was to influence submissions.
And what we've now seen from a very long report is the way in which ICAP sent the trades backwards, basically as an inter-bank dealer, they were responsible for negotiating the transactions between ICAP and other transactions -- UBS, backwards and forwards, backwards and forwards, so that the final rate would help the UBS trader make money on derivatives. And what's staggering is the sheer arrogance, according to the correspondence between them.
First of all, look at this. "Hi, Darrel will be looking to move these libors up tomorrow, three-month, eight-month, and six-month." And look at this: "Milord libor."
"Much appreciated, Colin. Make sure you cane the wine bill when out with the UBS boys on the 25th." That's the wine bill.
"Have promised to line Colin's pockets with silver to keep six-month libor up." On and on and on, these e-mails went, all designed to show how ICAP and others were fixing this crucial rate. ICAP will pay $65 million to the regulators. There's Commodity Future Trading Commission. Bart Chilton is the commissioner, the CFTC's commissioner, joins me now.
Sir, you and I have spoken before on Libor and the mess just goes deeper.
BART CHILTON, COMMISSIONER OF THE COMMODITY FUTURES TRADING COMMISSION: Yes, absolutely, Richard. I mean, sadly, here we are again with traders, brokers behaving badly, and as you say, they are arrogant, and brazen and not just the things that you were saying, but you know one fellow says `Next year I'll buy you a Ferrari' and `We're sending over the bubbly' and another fellow says `And I'm sending over your curry dinner.'
QUEST: OK. OK, but --
CHILTON: -- in response for couriering favors I suppose.
QUEST: -- right, right. However, let's just - I'm not denying what you say, but I'm saying there was a culture of doing this. And what we've now seen from Barclays from UBS, from RBS, and now ICAP, is that what was taking place was the norm. So you can't really blame them.
CHILTON: Well, yes, I can blame them, I'm a regulator. I can blame them, fine them and the Department of Justice can try to put them into jail. But, you can say that there was a culture of corruption, that there needs to be a culture shift and that we have all become too sort of I think jaded by one thing after another. The large banks here, a dealer broker there. It just seems like it's coming to us like head-on traffic and so I hope that by you covering this, Richard, and others looking at it, that these traders get a message. You know, stop the crap. If you do the crime, you're going to pay a fine and you're going to do the time.
QUEST: OK, but here's the problem. And I sympathize with what you're saying. But let's just take the subprime crisis where arguably it was incompetence, stupidity, rather than criminality, but we can argue about that. But let's look at for example JP Morgan Chase with the London whale. Or we look at Libor, or we look at the fixing of the energy in California, or we look at the mis-selling of personal insurance in the UK. I ask you, sir, why has this culture been allowed to fester, do you think?
CHILTON: Well I think - you know -- in 2008 and leading up to 2008, I think it was a decade - and a global decade of deregulation, Richard. You know, everybody said let's let the free markets roll, and they rolled right over consumers. And we gave them too much power, too much freedom and they made, as you say, dumb, risky bets. They could get away with it they thought, and that crashed the global economy. I think that culture has just continued in making sort of risky bets. And sometimes it's paid off. And it's the cost of doing business.
QUEST: Yes, but the worrying part about this is that the Libor stuff happened after the crisis began. The JP Morgan London whale only happened a couple of years ago, so it begs the question, has anything changed and will it change until you, sir, and the regulators, start locking people up which you have been singularly unsuccessful to do?
CHILTON: Well, I mean I think we're doing a lot better - and some of this Libor by the way actually occurred in 2006, 2007 --
QUEST: All right, right.
CHILTON: -- it continued through 2010. But you're absolutely right. Look, we've had - we have more enforcement cases out there than we've had ever. And the same thing with other financial regulators. Not just to the U.S. but around the world. So there is, like I say, sort of a culture of corruption that's out there and it is going to take people getting locked up, people sending a message. And we've been pretty successful actually at doing it but we're overwhelmed with the amount and at the same time here in the U.S., Richard, we're going to - about to be shut down and the market, sir, is going to be a free and open season for the crooks to go out there and get away with fraud --
QUEST: I want to ask you -
CHILTON: -- manipulation and other things if we don't watch out.
QUEST: -- I want to ask you - you've seen this story no doubt. There are questions about a couple of weeks ago when the Fed announced it wasn't tapering, and there was this massive spiking gold, and it all happened within milliseconds, and the experts that worked out it could not have happened under normal trading conditions because of the time for the information from Washington to New York to Chicago. Do you fear that a little bit of insider trading's going on here, and that somebody got ahead of themselves? Or is this - is it mess up or cock up?
CHILTON: Well, those are things we look at all the time, and you're absolutely right, it was actually last Friday 1:57 eastern for about three minutes, the price of gold moved up seven bucks. And then in the four minutes after the hour, it moved up another $23 or so. So, it's a big anomalous behavior. We look at it and we're working. We're going to be reaching out to the Fed. I can tell that at this point - and you never say never - that it doesn't appear that something was nefarious, but in general, Richard, all these reports and these millisecond markets - whether or not it's a labor report or a crop report, we've got to look at them differently because of the speed as you suggest, that these high-frequency `cheetah' traders are trading. You know, just a two or three seconds could make them millions of dollars. So, we got to look at these things differently. It requires an entire government - global government, worldwide look at how these reports are released when they impact markets.
QUEST: As you were speaking, two or three seconds could make them a million dollars, 20 or 30 years for the rest of us. Many thanks indeed, sir, for joining us. Always a pleasure to have you on "Quest Means Business." I do hope you'll come back again. We'll talk about these serious issues. Thanks, now -
CHILTON: Thank you.
QUEST: (Inaudible) after the break, Berliners and city visitors are sharing the steering wheel in a new way. We're going to the relatively traffic-free German capitol when we return. It's the issue of car-sharing.
(COMMERCIAL BREAK)
QUEST: Oh, "Business Travellers" coming to New York this week really had their work cut out for them because there were business travelers of a diplomatic kind -- the United Nations General Assembly - which means one thing for New Yorkers and those visiting - traffic jams just about all over the city. A hundred leaders from around the world shuttling around Manhattan with their security details in tow. New York will become gridlock city. In Berlin, well as I discovered earlier, it's a lot easier to get around even if you don't own a car of your own, as long as you are prepared, as I was, to share.
QUEST FROM VIDEOCLIP: We're in a new city and we've got to get around. How can we do this and still continue the policy of sharing? Hah! You can get a whole group of new friends and make them pedal. Or you can abandon the friends and still take to the road. The streets of Berlin are remarkably traffic free. Two major car-sharing schemes exist here, one of them, DriveNow is a joint enterprise between BMW and the car hire firm Sixt. On a rain-filled afternoon we joined its MD for a quick spin around town. How significant do you expect car sharing to become for you?
NICO GABRIEL, MD OF DRIVENOW FROM VIDEOCLIP: We have a vision (inaudible) sales that we say, OK, we believe that in 2020 we will have one million members. And we seek about 50 cities worldwide, where we're offering our service. If you look at the latest figures in Germany, for example, they see that the number of people who actually using floating services like DriveNow or flexible car-sharing services, are increasing heavily, especially where we're coming from zero, now we're looking at more than 200,000 (basically).
QUEST FROM VIDEOCLIP: Are you looking for residents who are using this as an alternative or are you also looking for the traveler, like myself, who might go to different cities and previously would rent a car but now says, well I'm a member of this, this is here.
GABRIEL FROM VIDEOCLIP: Now, we see that the more cities we actually are offering, the more interconnect the traffic is coming. For example, we say, OK, people from Berlin fly into Munich - in Munich you can actually take a car from the airport, you go to your business appointment -
QUEST FROM VIDEOCLIP: So that is something you are aware of -
GABRIEL FROM VIDEOCLIP: Yes.
QUEST FROM VIDEOCLIP: -- the business there - the business traveler?
GABRIEL FROM VIDEOCLIP: Especially if it is a one-day trip, you know, you need a car in the morning and evening to go back, and that's pretty much it, and DriveNow is an alternative.
QUEST FROM VIDEOCLIP: Your floating model is different to traditional car sharing. And to some extent, it takes away the big weakness of car sharing.
GABRIEL FROM VIDEOCLIP: Yes it does.
QUEST FROM VIDEOCLIP: (Throw away) rental.
GABRIEL FROM VIDEOCLIP: Yes - QUEST FROM VIDEOCLIP: But then it puts you into this hybrid of a car rental company and a car sharing.
GABRIEL FROM VIDEOCLIP: Yes, it depends on - this can be fixed basically because you can use different price models for example. What we do, we obviously charge per minute, right? So we don't incentivize longer rentals for a day or something. We don't have daily prices. There's no (inaudible), so what we're looking at is shorter rentals for A to B traveling, and we're offering additionally - we're offering like hourly packages where we say, you want to rent a car for three hours or six hours or nine hours? Then you can actually get it.
QUEST FROM VIDEOCLIP: It's a bit different for BMW to be getting into this.
GABRIEL FROM VIDEOCLIP: I think it has been very courageous of BMW to get into it because -
QUEST FROM VIDEOCLIP: (Inaudible) work.
GABRIEL FROM VIDEOCLIP: Yes, of course, but - look, if we trade in new market and make money with it, nobody will ask why we did it. It's just that we're offering a new product into the BMW and Sixt portfolio. So, at the end of the day, to be successful with this product, I think - I think the question will not be asked.
QUEST: It was appalling weather as I was driving around Berlin on that one. Jenny Harrison is at the World Weather Center. It was one of those days, started beautiful - rain, rain, rain. What have you got for us tonight in the German capitol and beyond?
JENNY HARRISON, WEATHER ANCHOR FOR CNNI: Well, can I - can I just say not was it just BMW is courageous, I think that passenger of yours -- he was a very courageous man, Mr. Quest.
QUEST: He was very polite about my driving. He was extremely polite.
HARRISON: Well, yes.
QUEST: I'm not a good driver, I'm not a good driver.
HARRISON: Uh, oh, OK. Hm, yes. Right, what have I got for you? You mentioned the weather in Germany, well there's (possible) rain actually where that rain was coming from. But let me start with the temperatures because I've been talking about the fact that we've had some very mild air coming in from the southwest, so right now, even at this time of the day or the evening, 27 in Madrid, we've got 19 for London and Paris, the same in Rome as you can see. And it's pretty much the same weather pattern, it was the same the last couple of days. Little bit of clouds streaming across central (Aries) - it's actually helping to keep the temperature up as well for a certain point. And then we've got that low pressure still sitting and spitting out in the Atlantic and of course, more of the cool weather further towards the east. So, the showers have been coming through but as I say the temperatures have been holding up fairly well at the same time, so this is the picture as we continue through Friday. So, it's a little chilly with those rain showers across much of the east. We've got that warm air actually pushing out right the way into more central Aries (ph) as well, then the air of low pressure is actually pushing a little bit further south., so we could see one or two showers just pushing into Perivale (ph) certainly along those coastal areas. Now you mentioned Germany, and of course Oktoberfest is continuing, but for the next couple of days, cloudy with quite a bit of rain, so the temperature is being cut down there - just 17, 18. A little bit milder maybe on Saturday with the clouds retreating as the sunshine comes back into play certainly should be a drier start to the weekend and end of the week. But look at the temperatures in London, and particularly (Paris). Look at this - mid-20s for Friday and Saturday, so well above the average, particularly for this time of year. Berlin, though, unfortunately, the temperatures are below the average and of course that well come with some rain. This is the picture for the next few days. We have got those rain showers coming across, and as I said, that system of low pressure - it is slipping further southward and in fact quite a bit of heavy rain likely to come on to those coastal areas in Perivale (ph) and eventually work its way across into areas of Spain as well. Delay-wise at the airport from Thursday, not too bad. Munich, again, like a lot of Germany, you've got some lower clouds, so in the afternoon delays could actually begin to stack up, maybe as long as 45 minutes, and then time which is (inaudible), just 14 in Berlin, 13 in Copenhagen. And a pretty nice 28 Celsius if you're over there in Athens. Richard.
QUEST: Jenny Harrison with the World Weather Center. We thank you - many thanks -- of the World Weather Center. Now, in just a moment, the dangers of high-speed trading, and the questions of who might be to blame. Or whether or not there's been some nasty things going on. Joining me is the attorney general of New York
ERIC SCHNEIDERMAN, ATTORNEY GENERAL OF NEW YORK FROM VIDEOCLIP: Good to see you, Richard.
QUEST: We'll be talking in the C suite, come and join me, sir, after the break.
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QUEST: U.S. regulators are investigating an unusual wave of trading activity. You heard me talk about it with the commissioner of the (CTFC). It occurred after the Feds' statement last week. Trading in financial instruments linked to gold and others intensified in milliseconds after the statements came out. Now it usually takes two milliseconds for the information to reach U.S. traders, some suggested they knew ahead of time. New York's attorney general says this kind of access to early data is a growing threat to the integrity of the financial market. Eric Schneiderman joins me now, Mr. Attorney General, thank you.
SCHNEIDERMAN: Good to be here, Richard.
QUEST: Let's deal with the Feds and this announcement last week - the commissioner just a second or two ago says he doesn't think anything nefarious perhaps but there's certainly a problem with this release of information and the high-speed trading.
SCHNEIDERMAN: Yes, this is - we - something I gave a speech yesterday where we describes this in our office as insider trading 2.0 because in the United States, and in other jurisdictions, we've had laws about insider trading, about using proprietary material, non-public information to buy or sell a security in a way that gives you an edge on the market. But insider trading in the traditional terms never took into account the potential market abuse of high-frequency trades coupled to computer programs, so we now have to redefine -
QUEST: But it's not abuse as such, is it? They're merely taking advantage of technology. So you can't - I see your dilemma - you want to stop it because you want to make the markets equal for all, but it's so difficult when you've got this new technology.
SCHNEIDERMAN: Well, but this is always the case with the law. Regulators and prosecutors, we always follow the law. Before there were telephones and telegraphs, there was no such thing as wire fraud. The internet has brought us - you know - reforms in the laws in a variety of areas. High-frequency trading - there are two issues. One is, we need to get a handle on this generally because as we know, market glitches, even in the absence of manipulation, can have devastating effects. I think there was a hack Tweet that drove the Dow down 143 points - false report of a bombing at the White House.
QUEST: Right.
SCHNEIDERMAN: And -
QUEST: The Flash Crash -
SCHNEIDERMAN: The Flash Crash of 2010 that introduced that phrase into our international lexicon, but so - I have to give credit to Mary Jo White at the SEC, she's now called for a circuit breaker - that's one issue. The other issue though is when you get an edge of information and it's non-public information, you get it a second, two seconds ahead of everyone else, you didn't used to be able to do anything with it. It was not a problem from insider trading. It now has become an issue.
QUEST: So, can you say now on this program tonight - you're going to be looking at those situations, whether it's something relatively obscure like the Michigan sentiment survey or mainstream fed because you're in the lockup room and you've got your information to your server quicker than anybody else. Is this on your agenda?
SCHNEIDERMAN: It's on our agenda, and it's on our agenda in two different ways. First of all, we have - we are looking at specific firms, and we've reached an agreement actually with Thomson Reuters that was in fact providing a two-second edge to some - an elite group of subscribers - for the release of the University of Michigan Consumer Sentiment Survey. This is not super-secret research. This is not, oh, someone has discovered a new drug to cure cancer, this is just market moving information. In that two seconds, the market was moving. I'm pleased Thomson Reuters has agreed to hold up pending the outcome of the investigation. There are other problems like this, but we're also calling on our colleagues in financial services and our colleagues in the federal government for us to address this more comprehensively. This is something that given the notorious gridlock of Washington, the timing of the gridlock and the emergence of the technology, is creating a particular moment of challenge and that's something that we're trying to address.
QUEST: A moment of challenge and a moment of opportunity for those to take advantage of it.
SCHNEIDERMAN: You could look at it that way -
QUEST: I am.
SCHNEIDERMAN: -- but I will tell you this, I have a lot of friends and I used to represent a lot of people on the street. Lots of people complain about the problem, it's time for us to take action. And we do require help from the good actors in the financial services system.
QUEST: The only time you're - I was talking about this again with the commissioner - the only way you're going to get results is either prosecute, lock up or fine.
SCHNEIDERMAN: Well, I think that's true, but I think it's also true that you can - as we have in other areas in the past - if you get the industry to agree together that there's some things you can't do - then -
QUEST: They won't follow it - come on -
SCHNEIDERMAN: -- No. No, no, no -
QUEST: -- because you know as well as I do, they won't follow it.
SCHNEIDERMAN: Well, they're not going to follow an artificial rule, but they are going to be able to get us to get some changes done at the federal level. We can't move Washington without the industry, and it is in everyone's interest to stop the Flash Crashes, to stop the market distortions. We're talking about things that aren't traditional insider information. But if you can bring the Dow down 142 points with a hacked Tweet of a fake explosion at the White House, all of us who care about the integrity of our markets have to be conscious that this is a new issue.
QUEST: We need to talk briefly about Libor. I mean you've been in securities and law for a long time. Did you ever think you would see the sort of - that -- we had - the ICAP's settlement today -- we've had UBS, we've had RBS. We've had Barclays. Some $2.4 billion in settlements. What's gone wrong with the markets and the securities?
SCHNEIDERMAN: Well this is - I'm sure we're now moving from financial analysis probably into psychology --
QUEST: Yes, yes.
SCHNEIDERMAN: -- not politics. I do think that there has - is a sense - look, when I was young, everyone wanted to be in the market. People held stock in the 1960s for an average of five years. Incredible now, right? But no one buys for five seconds or five minutes to build value to create jobs, to develop products. We've lost that sense of long- term advantage, and there are a variety of ways to deal with it. There are ways that you can charge people for short-term trading. A lot of those are much more threatening than some of the more simple proposals on the table. I do think that if you had - if we had less gridlock in Washington, we had a little more of an aggressive posture from our federal counterparts, you would see folks in the market stepping up to - for better solutions.
QUEST: Do you --
SCHNEIDERMAN: Now, unfortunately it's the other way around. I have to get my friends on the street to put pressure on Washington to take action.
QUEST: Do you now see it as part of your responsibility - a growing part of your responsibility - to pick up the slack where Washington is maybe not pulling its weight?
SCHNEIDERMAN: Well, I think we have to help our friends do better is the way I choose to look at it.
QUEST: You're very - a very diplomatic way of saying yes.
SCHNEIDERMAN: But it's also a way of saying that in the - I'm used to - I grew up in the tradition of having leaders of industry who would help move government to develop prudent regulations that were good for the long term. It's time for industry leaders to step up again on this issue because high-speed trading, combined with computer algorithms is a danger to anyone who cares about the integrity of the markets and we would be working together to solve it.
QUEST: It's a danger to everybody's wealth.
SCHNEIDERMAN: It is indeed. And the more wealth you've got, the more you're in danger.
QUEST: Mr. Attorney General, thank you so much.
SCHNEIDERMAN: Thank you very much, Richard.
QUEST: Very good to have you in the C suite tonight. When we come back, a `Profitable Moment' all about a man who's got a very big payoff.
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QUEST: Tonight's `Profitable Moment'. Senator Ted Cruz began to read from his copy of "Green Eggs and Ham" in the U.S. Senate. It may have been the most surreal indictment of the U.S. budget crisis yet. So allow me to pay tribute to the esteemed Dr. Seuss with a poetic `Profitable Moment' of my own based on "Green Eggs and Ham."
I do not like the budget fight, not in the day, nor late at night. I would not like the bitter pill, the one that comes from Capitol Hill. I would not like the spreading blame, I would not like the selfish games. From Democrats or GOP, it certainly would be hard to see. The Congress leaves things far too late, from coast to coast, from state to state. It's not a joke, it would be bad and soon drive economists mad. They would not, could not dare to think to kick up an almighty stink. Would you? Could you at this time? While the recovery's in its prime. I would not like it trading, stock markets, they would be on the rocks. In fact, I'd say to Uncle Sam I'd much prefer green eggs and ham. Many thanks to Mr. Foster for that.
And that's Quest Means Business" for this midweek edition of our program. Delighted that you're with us. I'm Richard Quest, live in New York. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see you tomorrow.
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