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Quest Means Business
Turkey Mine Disaster; "New York Times" Executive Editor Replaced; UK Runway Rivalry; Pfizer-AstraZeneca Deal Questioned
Aired May 14, 2014 - 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)
PAULA NEWTON, HOST: Oh, those record highs were tantalizingly close today on Wall Street, but it was not to be. The Dow flirting with triple- digit losses, people not convinced that a recovery is underway. It's Wednesday, the 14th of May.
Rescuers in Turkey are desperately searching for hundreds of miners trapped underground.
CitiGroup sackings. Eleven employees are fired for alleged fraud.
And "The New York Times" are a-changing. The editor, Jill Abramson, is suddenly replaced.
I'm Paula Newton, and this is QUEST MEANS BUSINESS.
Two hundred and seventy-four people have been killed in the worst mine disaster Turkey has ever seen. Outside the site in Soma, hundreds of people are waiting for news about their loved ones. These are live pictures you're looking at now.
As many as 120 miners may still be trapped. It is agonizing for everybody out there today. The search for survivors, continues, though, as hope is fading. Bodies continue to emerge from the mine -- that is not survivors -- bodies are continuing to emerge.
Rescuers say conditions in the burning tunnels are absolutely horrific, filled with smoke and deadly carbon monoxide. The blaze started Tuesday after a power transformer exploded.
Turkey's prime minister declared three days of national mourning. Erdogan visited rescue workers and victims' families today. He was met, though, by some angry crowds, like this one outside a grocery store in Soma, chanting calls for his resignation and calling him names, like "thief." Opposition leaders say the government had not done enough to ensure safe working conditions.
Meantime, anti-government demonstrators also took to the streets in Istanbul and Ankara. Police fired teargas and water cannons to disperse protesters. Ivan Watson now joins us live from Soma in Turkey.
Ivan, you've been there for so many hours, so grim. I've been watching, obviously, the bodies emerge today. And what you wanted to see were people that would come out alive, and that just didn't happen.
IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, certainly. And I think what was pretty chilling was to hear some of the miners who were performing this grim vigil, the miners themselves saying we really think there are little to no chances whatsoever that our friends, that our cousins, that our relatives, will emerge alive from this mine.
And that was coming from the people who know the shafts, who know the depths of this complex certainly better than the rescue workers themselves, who are toiling here, late into a second night, really holding out hope that perhaps they can find somebody who would've made their way to find some kind of source of oxygen, of clean air to survive the poisonous gas that seems to have killed so many of the unfortunate workers who have been killed by this terrible, terrible, fire. Paula?
NEWTON: From a technical perspective, now, Ivan, what can be done in terms of searching there to try and find those survivors and actually get to the 120 still trapped?
WATSON: Well, the workers that I've talked to, they say the depths, the distances that have to be traveled are quite large. They say, for example, that workers on an ordinary day would have had to have traveled at least 45 minutes to get to the areas where they would then be mining coal itself.
So, there have been descriptions of up to 10 kilometers of tunnels here that the people have to work through. And the conditions that the rescue workers are working in are quite difficult. They're emerging covered in soot. They say there are enormous amounts of smoke down there, that there are high temperatures as well.
So, all of this is combining to make this process much more difficult, of course. And it also helps explain the enormous death toll, now, again, the deadliest mining disaster in Turkish history. And Turkey does have quite a bad record of deaths in its mining industry.
In 2009 and 10, dozens of people killed in two separate incidents of fires that erupted at different coal mines around the country. This is a country that has had a problem with deaths.
And the Turkish prime minister, when he was trying to defend the government's record here, tried to argue that there are deadly mining disasters in other countries, too. For example, he cited deadly mining disasters in the United Kingdom -- in 1930 and in 1860 -- as justification for the horrors that we've seen in the mountain behind me here.
And I think that those arguments have fallen on rather deaf ears, certainly among the families that are suffering tonight. Some of these miners were earning about the equivalent of $500 US a month for doing this dangerous work in the mine behind me. Paula?
NEWTON: That's not lost on anyone in terms of how much money they were actually making and putting their life on the line every time they went into that mine. Ivan, quickly here, in terms of the answer to why, we know it's not safe there. Anything about this specific accident, why this, why now, why so many miners?
WATSON: Well, the Turkish prime minister, the Turkish government have argued that there were inspections done of this mine as recently as last March, and all the inspected guidelines were passed.
However, there's a lawmaker elected from this district who just April 29th had submitted a motion in the Turkish parliament calling for an investigation of the mines around Soma, the different coal mines here, citing a number of fatalities in 2012 and 2013, saying that the safety guidelines had to be inspected.
There were dozens of other lawmakers from different opposition parliament -- parties that signed on to that petition, but it was voted down in the Turkish parliament by the ruling political party on April 29th.
And that is already becoming a topic of debate here. There were protesters who gathered outside the headquarters of the company, Soma Holding, who owns the mine behind me. And they were dispersed by police reportedly using teargas today in the commercial capital of Istanbul.
So, that gives you a sense of how the responsibility for this disaster is going to be a major point of contention, certainly in the weeks ahead. In the meantime, the grim work continues of pulling out those victims of this mine disaster in the mountain behind me. Paula?
NEWTON: OK, CNN's Ivan Watson, who continues to be there, hour after hour, as that search continues. Appreciate it, Ivan.
Now, the incident raises serious questions about safety standards in Turkish mines. Earlier, I spoke with Martin Hahn, mining specialist for the International Labour Organization, and I asked him if Turkish mines are notoriously unsafe.
(BEGIN VIDEOTAPE)
MARTIN HAHN, MINING SPECIALIST, INTERNATIONAL LABOUR ORGANIZATION: Occupation safety and health has always been an issue in Turkey. The government has been taking steps in the last years to actually remedy this, and it seems that there are still a lot of things to do, though.
NEWTON: But what are the specifics of that? Are they just not putting the money needed? Is there not the oversight? We have government officials saying that that mine had been inspected.
HAHN: There's a lot of different elements that need to be in place for a country to be able to have a good safety and health record in mining. And it is a system that requires both, actually, action. On the national level, it requires inspection, it requires an agency that will oversee mines, that will be able to guide employers, also, in taking decisions on how to deal with OSH challenges.
And it requires, also, worker participation. These are all elements that should come together. Together with, of course, investments in technology that are necessary.
NEWTON: The prime minister has been quite dismissive. In fact, he says that explosions like these in mines happen all the time, and it's not like it doesn't happen elsewhere in the world. Is that true? Is he just highlighting that this is inherently an industry that's not very safe?
HAHN: It is a very dangerous industry in general terms. However, in the last 20 years, there has been a clear move in a number of countries to actually attain zero fatality. And these are countries that actually have a large mining industry that is of importance and that have really been trying to move towards creating a possibility for this to happen.
Australia in particular has been taking the lead role in this, and so have other countries, especially in the European Union, who really have been trying very hard in improving the situation in having this goal of zero fatalities.
Accidents, of course, can happen and accidents tend to happen in a context that is so complicated, like underground coal mining. But at the same time the question of how large these accidents then turn out to have repercussions and what these repercussions are, that has a lot to do with the management of the specific mine and the management of how you deal with OSH in a country.
NEWTON: Yes, and in fact, mining disasters even in that area of Turkey are somewhat frequent, even if they're not on this scale. Is -- do you think that the know-how is missing, or is there a government -- does the government not have the willingness to improve it, to get to that zero deaths?
HAHN: As to the willingness of the government, I could only speculate. I have to say that we have been in touch, the ILO has been talking to the Turkish government in the past on occupation safety and health issues.
The Turkish government has taken an important step in 2005 in ratifying one of the two central conventions on occupation safety and health, and they've ratified the second of these two conventions just early in January this year.
I understand that they're in the middle of implementing and trying to figure out how to adapt it to the country. So, as far as this is concerned, this might not be the main problem.
However, if you are coming from a difficult situation regarding OSH, it's very complicated to really improve, because there's a lot of different things that need to be in place. You need to have a legal framework, you need to have institutional support. You need to actually have the knowledge as well, and you need to make sure that people exchange that knowledge.
(END VIDEOTAPE)
NEWTON: Now, if you want to know how you can help in the aftermath of this disaster, you can head to our Impact Your World site. It has information about the organizations that are already working to find survivors, including the Turkish Red Crescent. Just head to cnn.com/impact.
Now, coming up, an unexpected departure at "The New York Times." We'll explain after the break.
(COMMERCIAL BREAK)
NEWTON: Now, in a major surprise move, the executive editor of "The New York Times" is being replaced effective immediately. Jill Abramson was the paper's first-ever female executive editor. Her departure was only announced a couple of hours ago.
And CNN senior media correspondent, Brian Stelter, joins me now to talk about this, as she was your boss until not long ago --
(CROSSTALK)
BRIAN STELTER, CNN SENIOR MEDIA CORRESPONDENT: Right, until about six months ago.
NEWTON: -- I'm happy to say you're here with us, now, she was your former boss. Investors aren't happy, stock is down. What is this about at its core?
STELTER: Well, the stock was down before this was announced. It slipped a little bit more after it was announced. Then it came back up. I think they closed the day down about 3 or 4 percent for the day, which says more about the "Times" as a business then about the newsroom.
Jill Abramson was the first female executive editor in the history of the "Times." She was editor for about three years, and now she'll be replaced by Baquet, who will be the first African-American editor of "The New York Times." Both historic transitions for the "Times."
NEWTON: In terms of being an historic transition, though, three years is not long at the helm of this, is it, Brian?
STELTER: That's right. That's right.
NEWTON: Everybody's saying --
STELTER: Although, on the other hand, we are going through a digital media transformation. The entire news industry is. And these jobs may be harder than ever for that reason. What the publisher of the "Times" said in a hastily-called newsroom meeting about an hour ago is that he decided to make this change because of a quote-unquote "management issue."
But he won't say what he's talking about, and I'm sure in the days to come, we're going to find out. It's clear that she was abruptly pushed out, but for what reasons, we don't exactly know. I have to say, she was doing a pretty steady job transitioning the newsroom from print as its core to digital as its core.
But I'm sure people will look at this and say she could have done more, she could have done it sooner, and people will now wonder what Dean Baquet will do to maker sure this newsroom, one of the most treasured in the world, can make this transition to the web.
NEWTON: And you hit that nail on the head. Most treasured -- one of the most treasured in the world. Obviously, completely in this storm, in this disruption to the media landscape as it sits right now. Is there anything strategic in this?
What are papers like "The New York Times" need to do with those executive editors, now, to make sure that they're front and center and people are clicking? Because let's face it, they're not reading the paper anymore.
STELTER: Most editors are still print editors. Dean Baquet, who'll be taking over, is still a print editor at heart. He was at "The Los Angeles Times" for years, and he was actually forced out of his job in 2006 because the publisher demanded he make more job cuts, and he refused to do it. He thought he couldn't cut any closer to the bone at "The LA Times."
He was replaced. Others came in, more cuts continued. For any editor who's in a top role at one of these newspapers, one of their jobs is to protect their newsrooms, preserve their newsrooms, at a time when profits have been fewer and fewer and fewer.
At "The New York Times," there's a whole plan underway right now to introduce new digital products to get more people to pay more money for the "Times." Because as advertising revenue declines, whether it's at "The New York Times" or "The Washington Post" or elsewhere, they have to have subscribers pay more of the bills.
NEWTON: And in terms of having those subscribers pay more of the bills, this has got to be unsettling. If you're sitting in a newsroom, just not in "The New York Times," but you're in that old media, which is trying to transition to new media --
STELTER: Right.
NEWTON: -- it's unsettling. You think where is the future of this industry?
STELTER: One of the reporters I saw wrote on Twitter that she was "gobsmacked" by the announcement today, because it was so surprising, because it wasn't something that had been telegraphed for six months or a year. That's how many of these newsroom transitions are.
And "The New York Times" is always looked to because it does still set the agenda, even at places like CNN, for what should be in the news in a given day. The "Times" has that value. But they're not making a dramatic change. Because they're taking Jill Abramson's number two and making him number one, it won't feel like a dramatic change.
NEWTON: Well certainly, as you say, a valuable asset to have in the journalistic world, and we'll continue to watch.
STELTER: For sure.
NEWTON: It is still, though, a business at its heart.
STELTER: Absolutely.
NEWTON: And it's got some challenges ahead.
STELTER: Absolutely.
NEWTON: Maybe we're more interested in the personal drama, but that's OK, we kept it clean, here, Brian.
(LAUGHTER)
NEWTON: Appreciate that.
STELTER: Thank you.
NEWTON: Thanks for coming in. Appreciate it. Next on QUEST MEANS BUSINESS, two airports and yes, only one new runway. We'll take a look at each of the competing plans for a new place to land in London. That's when we come back.
(COMMERCIAL BREAK)
NEWTON: Three rival plans to build a new runway in Britain have made it onto a final short list. Two airports near London are vying to get the go-ahead to build a new place to land planes. An independent group is also putting forward a plan.
Now, the UK airport's commission must now decide which of the competing proposals to choose. Heathrow Airport, London's primary hub, is west of the city. Now, managers want to build a third runway and divert a nearby stretch of motorway -- that's a highway for the rest of us -- through a 14-lane road tunnel.
Heathrow says the plan would allow up to 260,000 extra flights a year. Now, those are flights residents there don't necessarily want. Now, in addition, the Heathrow Hub group has made a second proposal for the airport to extend an existing runway and have one side one for take-offs and one for landing. And that's kind of ingenious proposal that some people say will work, others say won't.
Now, we go to Gatwick, due south of London. It has only one runway at the moment and is putting forward three options for another one. Gatwick officials say their plan would be cheaper, faster, create more jobs, and impact fewer residents compared with the expansion plans at Heathrow.
John Holland-Kaye takes over as CEO of Heathrow just this July. Earlier, I asked him why his airport should be the one to expand.
(BEGIN VIDEOTAPE)
JOHN HOLLAND-KAYE, INCOMING CEO, HEATHROW AIRPORT: People have a much better understanding of the importance of connecting all of Britain to global growth, which is particularly in the Americas and in Asia and in China, as you know.
And the only way that you can do that is through a hub airport. We've got a huge advantage in this country with Heathrow Airport, one of the world's great global hubs. We connect to 81 long-haul destinations around the world, more than any other airport in the world.
But Heathrow is full. We are completely at capacity. Unless we add new capacity, we will not be able to connect to the new markets of the world that we need to if the UK is going to remain at the center of the global economy.
And this is an opportunity for us to deliver that growth for the UK, but do it in a way which would make sure that we are not creating noise. We're having the minimal impact on our local economy, and we spread the benefits of that growth, 100 billion pounds for the British economy, locally and across the UK.
NEWTON: We know how expensive it is to fly into Heathrow, which is why people are saying, why not fly into Gatwick? And we've already had the issue about the government looking at competition between the airports. It just hasn't been there.
By expanding at Heathrow, aren't consumers just going to be led down that same runway again? It's going to cost us more, eventually, because everything is centered at that one, huge hub.
HOLLAND-KAYE: Not at all. The competition is not between Gatwick and Heathrow. Gatwick is a low-cost, point-to-point airport doing a very good job of taking tourists to markets around the world, to the Caribbean, and taking business travelers to Europe. That's what they do very well.
What they do not do is to connect UK business to world markets. That can only be delivered through a hub airport.
Our competition is not with Gatwick, it is with Paris and it is with Frankfurt. And it's a competition, really, between the UK -- Britain, France, and Germany as to who will win the race for growth to those new emerging markets around the world. And that's why expansion at Heathrow is so important to the British economy.
NEWTON: And even your critics say that that's an issue right now. They believe they might have a harder time blocking this proposal. As the CEO going forward here, isn't it terrifying when you look at the price tag?
You're talking about $17 billion, having to relocate more than 200,000 people. Having to basically rebuild a highway and tunnel it. Is it not, at this point, the kind of a project which proposes, really, a lot of risk over the next decade?
HOLLAND-KAYE: Well, we have spent $16 billion, $17 billion in the last ten years completely rebuilding Heathrow Airport. We've built Terminal 5. We've built Terminal 2, which will open in just a few weeks' time, the home to the standard lines and United Airlines.
Heathrow is a completely changed airport. It's a fantastic airport. It's a real national asset to the UK. We know how to do this. We know how to raise money. And just to remind people, this is entirely private money. Our shareholders, sovereign wealth funds, pension funds around the world are investing because they believe in the success of Heathrow in the long term.
And the opportunity here is not only to build more capacity in the UK, it's also to make sure that Heathrow becomes a transport hub for the UK, for roads, for rail, and connecting cities across the UK with cities across the world, in particular, US cities.
(END VIDEOTAPE)
NEWTON: The war of words over Pfizer's proposed takeover of AstraZeneca escalated today. UK lawmakers on the Commons Science and Technology Committee questioned Pfizer's CEO about his company's commitment to British jobs and research.
(BEGIN VIDEO CLIP)
ANDREW MILLER, CHAIRMAN, HOUSE OF COMMONS SCIENCE AND TECHNOLGOY COMMITTE: Both companies have got teams of absolutely brilliant scientists. I acknowledge that, and I'm sure you're proud of the people that work for you.
Wouldn't it make more sense to go even deeper into those areas and give a commitment to maintain the R&D at the level of the sum of the two parts at the very least, if not even grow it?
IAN READ, CEO, PFIZER: You know, we can't make any --
(CROSSTALK)
MILLER: Bringing in --
READ: -- we can't make any commitments because we haven't seen their science. So, when we get in and look at their science, I suspect --
MILLER: You know enough about the business to be able to put a very significant number of nods on the end of your proposed offer. So, you do know a significant amount about the business. Don't tell me you don't know their science.
(END VIDEO CLIP)
NEWTON: Now, that was committee chairman Andrew Miller. I spoke with him after the hearing and asked him whether he had heard anything new that would convince him to support this deal.
(BEGIN VIDEOTAPE)
MILLER: There's obviously been some movement since the original announcement was made a couple of weeks ago. But nevertheless, my committee were really concerned that there remains some massive uncertainty about the security of the science-based jobs in the UK and, indeed, the whole science portfolio of a proposed merged company. And what we heard didn't really convince us that enough has been done thus far.
NEWTON: And when you say what you've heard, it seems that every time someone comes back and hints that, look, this isn't good enough, the company comes back and says, OK, we'll do this instead.
Do -- are you further along the road at having concrete markers for Pfizer to hit, which means that any of their promises can't be taken back at a later date, that there will be legal, financial consequences if they don't come through with these promises?
MILLER: Well, for example, we asked Mr. Read from Pfizer whether his letter from him to the prime minister was an opening gambit, or was it a final offer. And he refused to answer that. So, one assumes that there must be more in his locker to offer.
But I think it's very important that we stop playing what is a very silly poker game with the important science base of our two countries, and let's focus on what is best for the science base.
NEWTON: How are we going to get to that point? In so many countries, we have seen mergers, some not as important in terms of being as strategic industry as this one. You have all this horse trading, the politicians seem to get what they want, the companies get what they want. And then in the end, when you look at the industry ten years on, the jobs are lost, the R&D money is lost.
MILLER: Well, we've seen this when Pfizer took over Wyeth, for example, another US-based company. The net result of that was a shrinking of the R&D base of the Wyeth part of Pfizer.
Now, we've heard today that that's going to be the same in a merged company with AstraZeneca. The net -- the overall balance of R&D would shrink. And the company had been absolutely clear about that. You can't accuse them of not being straight, they've been very straight about that.
Frankly, though, I don't think that's good enough. And what we should be looking at is what is in our joint national interests in terms of hugely important areas of research into drugs and future molecules that could transform the lives of our citizens.
(END VIDEOTAPE)
NEWTON: CitiGroup is trying to bounce back from a bad start to 2014. The CEO says he knows the company's image has been damaged. We'll talk about what steps he's taking to help it recover. That's next.
(COMMERCIAL BREAK)
NEWTON: Welcome back, I'm Paula Newton and these are the top news headlines we're following this hour. Two hundred and seventy-four people have died in a mine explosion and fire in Turkey. As many as 120 miners could still be trapped in the burning tunnels. Rescue workers have so far saved 88 people. The search for survivors continues. Prime Minister Recep Tayyip Erdogan has declared three days of national mourning.
Nigeria's government has confirmed the arrest of a man suspected to be behind last month's bombing in Abuja. The alleged terrorist is captured in Sudan. The blast in April killed nearly 100 people and wounded many others. Roundtable talks have started in Kiev aimed at trying to resolve the ongoing crisis in Ukraine. Politicians and civil groups are meeting and it's been overseen by international monitors. But pro-Russian separatist groups are not participating.
In South Africa, the murder of trial of Oscar Pistorius is being put on hold 'til the defendant can undergo a month-long psychiatric evaluation. Now, the judge's unusual decision came at the request of the prosecution. That was after a psychiatrist testified that Pistorius suffers from generalized anxiety disorder.
"The New York Times" has unexpectedly replaced its executive editor Jill Abramson and that's effective immediately. Abramson was the first woman to hold the prestigious post when she was appointed in 2011. Managing editor Don (ph) Baquet will replace her. He will become the first African-American to fill the position.
Citigroup has fired 11 staff members including four managing directors over the bank's loan fraud in Mexico. Late last February $565 million in fraudulent loans were discovered in Citi's Mexican subsidiary Banamex. Now, in a memo to staff, Citi CEO Michael Corbat said that the impact to the bank's credibility is hard to calculate. He vowed though that the investigation is ongoing. More bank employees are expected to be disciplined. Citi believes that what happened in Mexico was an isolated incident. And it's been a rough going for Citi lately. In March the United States Federal Reserve quashed Citi's dividend plans. CNNMoney's Paul La Monica joins us now. Paul, that was embarrassing -- the fact that they couldn't give out this dividend and that was quashed. But we are starting to get to issues like this one in Mexico that go to the very core of what Citi's doing and if they have integrity over what they're doing. How significant is it that 11 people had to be let go?
PAUL LA MONICA, ASSISTANT MANAGING EDITOR, CNNMONEY.COM: It's pretty significant. I mean, I guess you can spin it in a positive light and say that Corbat the CEO is taking the necessary steps to get rid of the people that were behind some of the, you know, the fraud. But anytime a bank has a reputation hit, that is something that is very problematic, and I think what we're going to wait and see is whether or not there are more people that get fired. Was the scandal worse than initially reported? I mean, any time you have more news coming out of the woodworks, that's very troubling.
NEWTON: Yes, and they warn that there might be more bad news ahead on that front I mean, in April we learned that the FBI was involved, there'd be a full-blown investigation to see if the internal workings of the bank allowed this to happen. That's pretty significant, isn't it in and of itself.
LA MONICA: Oh without question. And the big problem that's facing Citigroup right now is it is widely believed to be one of the more poorly- performing banks of the big U.S. financial firms out there. You mentioned how the Fed wouldn't allow Citi to pay a higher dividend and that's extremely frustrating for shareholders who are stuck with this penny-per- quarter dividend. Even D of A wound up getting approval although they had to suspend paying that dividend after a math error. But just banks have these problems right now. It's very difficult to trust a lot of what the big banks are saying.
NEWTON: Yes, and many people say after the financial crisis, it's definitely that reputation is well earned. What is going to take Citi forward from this, though? I mean, do they have a strategy to try and get out of this even if in the short-term their reputation takes a hit?
LA MONICA: Yes, the short-term they have to really be, you know, just upfront with investors about this scandal. If there are more heads that need to roll in Mexico, then as a result of this, then that's probably going to need to take place. But I think you're going to start to wonder if Corbat has done enough. I mean, Citi's gone through several management changes and the investors are waiting for the right person to really lead them back into glory. And it just hasn't happened.
NEWTON: White in -- knight in -- shining armor nowhere on the horizon, huh, Paul? (LAUGHTER).
LA MONICA: Doesn't seem that way.
NEWTON: Thanks, I appreciate you coming in.
LA MONICA: Thank you.
NEWTON: Now, Citigroup shares meantime fell on Wall Street and U.S. markets have slipped from their record high. The S&P 500 has also fallen from its record high. Retailers were the culprit this time. Macy's fell after revenue fell short of expectations and Sears was down after saying it was considering selling part or all of its Canadian operations. Now, high- speed trading means high-speed regulation. That was the verdict of a U.S. senate committee hearing Tuesday. Senators say the Commodity Futures Trading Commission which regulates parts of this industry needs "the right authority and the right tools."
Now, the CFTC along with the Department of Justice and the SEC and the New York Attorney General's Office are all investigating these murky waters and considering new regulation. Now, Michael Lewis in his book "Flash Boys" claims the markets are rigged with high-frequency traders skimming billions of dollars from ordinary investors. Now, the hearing heard vehement denials of those claims. Now, to understand life in that frequency fast lane, look no further, yes, than motorsports. One New York trader has lifted the lid on this much-misunderstood aspect to the market.
(BEGIN VIDEOCLIP)
EZRA RAPOPORT, HIGH-FREQUENCY TRADER: It's necessary to constantly be refining your cutting edge and staying at that cutting edge. Sources of edge, sources of profit can be highly ephemeral. Just to be relevant you need to be fast. Just like the Formula 1 the idea is (inaudible) design first and you have the same set of restrictions. Technology goes first in this industry. There is the greatest draw for high technology and we are the first to deploy it in terms of actually interacting with the marketplace. There's a trickle-down effect to the rest of the marketplace. You see banks and brokerages having access to some of these technologies that were pioneered only in high-frequency trading.
This is the U.S. Treasury curve. You can see the high degree of correlation between the products here. There are a number of things that keep me awake at night. Generally speaking, it's the fact that we're deploying large amounts of risk through automated processes. So there are decisions with enormous consequences being made, possibly thousands of times a second by machines essentially, and that's a very scary thought.
High-frequency trading is just best performed by small, flexible groups, highly-motivated teams with the proper backing and proper access to technology. I see myself heading up the pit. We're an F1 team, you know, we're building a new car and, you know, it's going to be something that is unlike anything the world's ever seen.
(END VIDEOCLIP)
NEWTON: Coming up, how hotel innovation begins in a room that looks more like a dollhouse than a corporate office. More after the break.
(COMMERCIAL BREAK)
NEWTON: Now, can't be "Quest Means Business" without Quest, right? So that means it's time for today's "Business Traveller" update with Richard. Now, it's all about redesigning the traditional hotel room and it involves a bit more than moving the tables and chairs around, although that's definitely a good start. Richard heads to Marriott's design center with the latest in hotel chic.
(BEGIN VIDEOCLIP)
RICHARD QUEST, CNN INTERNATIONAL ANCHOR AND REPORTER HOST OF "QUEST MEANS BUSINESS" SHOW: Today hotel guests are demanding more. No longer just a good bed, a clean room at a fair price. Now we want great design. Marriott has created these full-size rooms in the basement of their headquarters building outside Washington, D.C. Here they can construct various hotel rooms, they can play around with different ideas. Think of it as a dollhouse for hotel rooms.
ARNE SORENSON, PRESIDENT AND CEO, MARRIOTT INTERNATIONAL: We call it an innovation lab, and really it's about turning our own efforts on and elevating them around innovation and making sure our teams have a place where they can experiment, play, try things out.
QUEST: That's what this space is all about.
KARIM KHALIFA, SENIOR VICE PRESIDENT OF ARCHITECTURE & CONSTRUCTION, MARRIOTT INTERNATIONAL: So what we developed here is about 10,000 square feet, double height space. One thing we did to rapidly be able to move our furniture around and mock up different layouts is we put all of our closets and everything on wheels.
QUEST: What would you do with this?
KHALIFA: So we actually -- we do a paint -- a paint line -- of the room layout --
QUEST: Yes.
KHALIFA: -- down the -- on the ground. And then we actually have a bed, the desk, the bathroom -- all the components, the toilet, everything on wheels and we can arrange it as we wish. Is that one any good? Oh we're having a pillow fight now?
QUEST: So how often -- oh, I like this one. Well, have that one. Most of the major hotel groups have developed their own version of innovation labs. The purpose is clear. Rapid change to satisfy consumer demand.
KHALIFA: The whole world today is based on speed, right? And people are quickly innovating and expect things to get to market. I can take a supplier, have him come in here, have him test a new product with us and we get that product development for manufacture into our hotels in rapid time.
QUEST: Here in the underground, the examples of change are everywhere.
KHALIFA: People are just taking roller boards when they travel today. They don't really unpack, so we accommodate it. It's an open closet. We were able to pull this together in just six months. That's a speed to market motion.
QUEST: Would you retrofit something in -- like this -- into an existing room? Or would you only do it when you redo the whole room?
KHALIFA: You do it when you do the whole room. But don't forget we have 4,000 hotels in the marketplace and so they're constantly renovating. Every hotel renovates every three to six years, and so there's always an opportunity to inject something new into the pipeline for them, and that what's speed to market for us is all about. It's capturing the 4,000 hotels as they renovate.
QUEST: There's no better example of what we're talking about than the sockets. And not just any sockets -- sockets next to the bed.
KHALIFA: You need sockets next to the bed, you need sockets next to where you sit, you need the sockets where you first come to the closet because all of us travel with devices that are battery-powered that are constantly losing charge. So we put them everywhere. We don't want to tell you where to plug in. We think as you roam around the room and you get comfortable, you should find one.
QUEST: How did it take you so long to work out we needed more sockets?
KHALIFA: Well, actually it doesn't take us that long. We know it's a huge trend, but when you have existing hotels, you have to move all the wiring and all the infrastructure behind it. But it's very compelling, everybody needs to do it.
QUEST: Just as it's out with the old and in with the new for design, so it is with the guests. The new designs are all aimed at the next generation millennials.
KHALIFA: This is the format of our smallest Marriott room in the portfolio. We had to make it feel bigger. We removed the desk. We think that we were the first ones to really put a major desk into the rooms when people wanted to work on their laptops as they traveled. And now we're the first ones really, really removed the desk entirely. So we give a working surface that can be floating around the room.
QUEST: The lab itself is just one more innovation in an intensely- competitive industry. There's pressure to innovate, pressure to maximize the innovation cycle and pressure to stay one step ahead of the competitors.
SORENSON: You do it by turning loose the folks who are designers and basically say, 'All right, let's make it something that is memorable.' And let's figure out how much of that can be elevated, replicated across our system. Not necessarily in a cookie-cutter way, but in a way which says, 'This is fabulous, try it.'
(END VIDEOCLIP)
NEWTON: Wish that could happen a little more. Jenny Harrison is at the CNN International Weather Center. Jenny, I have to say he said he wants to make experience memorable. Every hotel room I've stayed in, bar like a handful, utterly forgettable. Forgettable, forget it.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Yes. You're right, Paula, although I have to say when it comes to me staying in hotels, I always think the lighting is appalling. They don't seem to think about women needing to see lighting in the right places. But, hey, that's all for another day. What I need to talk about now of course is the bad weather particularly in the United States. There's two main areas of weather. We've got the very severe storms and the heavy rain across areas of the east. You can see the tornado watches around it as well as the severe thunderstorms.
And then out towards the west where there is no rain, it is extremely dry, very low humidity. And what we're seeing are a number of big and very worrying fires. This is one from -- that actually began to burn on a Sunday. This is the Bernardo fire, very close to San Diego. I mean, look how close this fire line is to all of these houses here. But there's another fire now that is also burning. This has been named the Poinsettia fire and it's about 20 or so kilometers to the north of San Diego, and, again, it is right here. It is right in this area. In fact, front of all of these hills here. And you can see they're just houses all the way around this and it has really, really been caught up in the dry conditions, the strong winds very, very rapidly. In fact, over 11 and 1/2 thousand homes and business owners have been notified to make the evacuations because it is so very dangerous. They've got hundreds of firefighters working on this particular fire. Now, the fire warnings are in place all the way on the West Coast, further inland as well. We've got winds at about 60 kilometers an hour, higher than that. Almost no moisture in the air at all. And you've got this offshore flow, so the winds are very, very dry very fast and coming from the interior. So, you've got the two extremes on either side of the country. This rain work its way east as we continue through Wednesday into Thursday. Much cooler behind -- that's not necessarily a bad thing of course. Most people glad to see some cooler weather this time of year. Warnings are in place Wednesday 'til Thursday. It'll probably shift eastwards on Thursday because we have got this big area of course under the gun with the chance of some severe weather in there and some thunderstorms that're going to be strong, maybe some tornados and that is the line of rain as we continue on Thursday into Friday.
Warnings are in place for the flooding because look at the amount of rain that's potentially going to come down -- 83 millimeters in Columbus in Georgia and then crossing to Columbia, we've got 106 millimeters of rain and it continues all the way up into the northeast as well although the rain totals here not that heavy -- about 38 millimeters there in Washington. So we've got the flood warnings and watches in place, and they extend again up into the mid-Atlantic and the northeast. So that is the real difference in what is going on. The rain across the east and then we've got these very, very dangerous dry conditions out west. So the fire danger very, very high indeed and will be for the next couple of days. Temperatures still well above the average -- 35 the forecast in Los Angeles on Thursday. Meanwhile, in the wake of that system, just 18 Celsius in Atlanta.
And in Europe we've got the very warm, dry conditions in the southwest, particularly Portugal and Spain, and this area in the southeast, this has been giving rain for the last few days. More of it again in the last 24 hours -- Sarajevo 73 millimeters, again warnings in place here, Paula. This system not going anywhere particularly quickly. It's a cutoff low, so it can extend toward the east and they've got some very heavy rain and thunderstorms imbedded in that. So we could have some localized flooding.
NEWTON: I know you'll be keeping an eye on it as you are with the fires there. It's incredible how quickly they spread in the United States.
HARRISON: Oh, terrifying Paula, absolutely terrifying. You have to see the pictures.
NEWTON: Thanks, Jenny, appreciate it. Now, apps that make your messages disappear are multiplying Samuel Burke will, yes, reappear after the break and explain what's behind the craze.
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NEWTON: Yahoo has joined the craze for apps that delete messages right after you read them. Now, the company bought Blink, an app that lets senders set a time for their message to self-destruct. Now, terms of the deal were not disclosed. Apps like Blink are used to transmit everything from racy pictures to company secrets. Samuel Burke explains.
(BEGIN VIDEOCLIP)
SAMUEL BURKE, BUSINESS CORRESPONDENT: In the disappearing apps world, first there was Snapchat. Launched in 2011, it was the pioneer. The app claimed that the messages would self-destruct and disappear. Regulators say they didn't have to look far to find out that wasn't the case. Snapchat settled with the FTC, and now they've updated their privacy policy and notification to users, and Snapchat -- still the most popular application in the disappearing world. Competitors are piling in this space now. Where Snapchat reeled in the younger user, the Confide app which says it's screen wrap proof because only a few words appear at a time -- now they're going after the business user.
Wickr also moved in claiming to use military-grade encryption on your messages. The last ephemeral messaging app to get attention is Blink. Yahoo just acquired it, but like its messages, it too is disappearing. Yahoo's expected to shut it down now. The bottom line -- if you want to tell somebody a secret, the best thing to do is not to put it out there at all.
(END VIDEOCLIP)
NEWTON: If only more people would follow that advice! I've been telling people just don't put it out there. OK, but some people do and some people think that they can get away with putting it out there and then it -- poof! -- disappearing. Is it crazy to think that that's what actually happens?
BURKE: Of course it's crazy. Nothing is 100 percent on the internet, Paula, but I think a lot of people mocked young people when they started using Snapchat, and they were saying, 'Oh, these youngsters. What do they know about sending these racy pictures to each other, sometimes thinking that they could disappear, but the truth is I think young people really had it right that at least they're trying to do something that puts in some stops in place. But, now, nothing is 100 percent.
NEWTON: And, hey, if it's your parents looking at the racy pictures, we don't know what the heck we're doing to get into there anyway, so it works as far as they're concerned.
BURKE: There you go.
NEWTON: You know, but getting on to a very serious topic. We had some security breaches. We talk about Target having its credit cards breached there, we had the incident, very recently, with Heartbleed which basically left the government of Canada merciless in its government programs. This is very serious now. At what point do -- are people getting into this market and are going to be able to deliver on those promises of encryption, of security?
BURKE: Well, it's interesting because a lot of people have been turning to government, hoping that maybe they could put some type of regulation in place. But clearly, it didn't work for the Canadian government or any government for that matter because nothing is 100 percent. And what you're seeing here is the business community, private enterprise, moving in and trying to fill this space. But, Paula, every expert that I speak with, they say that there is nothing that's 100 percent and they're not surprised. Because for every wall, there's a ladder that a hacker or somebody with good intentions finds to get over it. But I think little by little, they are finding different ways to try and make it safer. For example, a lot of these new apps, they don't save the apps on their server. So it doesn't matter if the servers are hacked. So you see people little by little making these technological advances. So maybe we could get to a point one day where we are safe, but Heart Bleed, the Target breach, all of these security experts are not surprised because they know it can happen. There is always that .1 percent.
NEWTON: And I want to point out that allegedly the Heartbleed -- the person -- one of the people responsible for Heartbleed -- was a 16-year-old kid in Canada who would be one of the same people who would be looking at Snapchat or something and thinking, 'Hey, this is great, this message will self-destruct.' People are in this space and they believe they can control it. You know, it's not lost to anyone that maybe you and I are running around trying to save information all the time and everybody else is trying to make it disappear. Are we getting to a point where this market will finally mature and do what we want it to do whether it's have a message disappear or keep those pictures intact?
BURKE: Well, I think people are looking for winners right now. Obviously this market is going to hit saturation soon and we're going to -- I think the winner though this time around isn't necessarily the one who gets the most amount of users first. The winner is the one that has the safest system. So soon the marketplace will start choosing who the winners are and it will be the safest ones. Not just for these types of messaging, but also e-mail soon. You see people moving into all these different spaces to try and protect information.
NEWTON: OK. So the best way to protect information is don't put it out there in the first place.
BURKE: Of course.
NEWTON: Thanks, Samuel. Appreciate it. Now, the conflict between the U.S. and Russia reaches, yes, the final frontier -- space. That's next.
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NEWTON: Well, many people saw this coming. The war of words between Washington and Moscow is now being fought on the ground and up in space. Russia says it will bar the export of RD180 rocket engines to the United States. Now, the engines are a key component of the Atlas rockets used by the United Launch Alliance. It's a collaboration between Boeing and Lockheed Martin. Now, those rockets carry military satellites into orbit. The ULA is blaming Elon Musk's SpaceX Company for the ban. Now, SpaceX which is trying to boost its own business has argued that the process used to pick launch companies is unfair. The company sued to stop the ULA from buying Russian rocket engines, arguing that they might violate U.S. sanctions on Russian officials. Now, the ULA says the lawsuit angered Russia, leading to the export ban. And it's not just about rockets, sadly. Russia denied a U.S. request to continue using the International Space Station past 2020. Yes, with the end of shuttle launches, the U.S. depends on Russia to get its astronauts up to the International Space Station, and many I can tell you are hoping that does change in the months and year to come.
Now, that is "Quest Means Business" and I'm Paula Newton. Thanks for watching.
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