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Quest Means Business
Director Defends CIA After Torture Report; US Stocks Rebound; US Oil Falls Below $60; Defending Torture; Russia Hikes Rates, Abandons Growth; European Stocks Mixed; Google to End News Service in Spain; Tomorrow Transformed: Creating Next Generation Wind Turbines; Talking Japanese Economy
Aired December 11, 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)
MAGGIE LAKE, HOST: It's a small rise for the markets as the closing bell rings on Wall Street. It's Thursday, December the 11th.
Flashback to 2009 for US oil as it drops below $60 a barrel.
Russia reacts. The central bank wades in to fight inflation.
And there's no stopping the Sony leaks. The secrets of some of the world's biggest movie stars keep on coming.
I'm Maggie Lake, and this is QUEST MEANS BUSINESS.
Good evening. We'll get to the day's business news in just a moment. First we need to update you on the stop story this hour. The director
of the CIA has defended the enhanced interrogation tactics used during the era of President George W. Bush. Those tactics have been equated to
torture by critics. They were outlined in a scathing report by the US Senate this week.
A short while ago, John Brennan held a rare press conference. He was unable to confirm the effectiveness of the tactics in question.
(BEGIN VIDEO CLIP)
JOHN BRENNAN, DIRECTOR, CIA: Our reviews indicate that the detention and interrogation produced useful intelligence that helped the United
States thwart attack plans, capture terrorists, and save lives.
But let me be clear. We have not concluded that it was the use of EITs within that program that allowed us to obtain useful information from
detainees subjected to them.
(END VIDEO CLIP)
LAKE: CNN's White House correspondent Michelle Kosinski joins us now from Washington. And Michelle, the reaction to the report and the press
conference?
(SILENCE)
LAKE: Looks like we're having a little bit of trouble. Michelle, can you hear me? It's Maggie.
(SILENCE)
LAKE: All right, we seem to be having --
MICHELLE KOSINSKI, CNN WHITE HOUSE CORRESPONDENT: Yes, hello.
LAKE: Hi, Michelle, so --
(CROSSTALK)
KOSINSKI: I should be hearing Maggie Lake, right?
LAKE: OK, we're having a little bit of trouble, obviously, with Michelle's shot. We'll try to get that rectified and bring that report
to you. Meantime, let's take a look at US markets. Stocks rebounded sharply at one point during the day following yesterdays rout.
However, if you take a look at the close, we saw really only modest gains. Although even though -- even in the last minutes we saw a little
bit of jockeying. In the US, oil prices fell 2 percent. The cost of Light Sweet Crude dipped below $60 a barrel for the first time since
2009.
Joining me now, Chad Brownstein, the CEO of Rocky Mountain Resources. Chad, thank you so much for being -- actually, we have Alison.
(LAUGHTER)
LAKE: We're -- that's OK. Alison, we're just as happy to see you. Listen, it is all about stocks, it is all about oil. We're watching
both markets really quick -- really closely, rather. Let's start with stocks, though. We saw that big sell-off yesterday, largely because of
weakness in energy. Today, it looked like we were coming roaring back
However, it looked like some of those gains were fading in the final moments. Talk us through what happened.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes. What's interesting is that you saw the Dow make those triple-digit gains today, over 200
points on the Dow. And then you saw those gains really start to fizzle out as you saw oil drop below $60.
So you really saw investors react to oil falling below that sort of milestone and keep going lower as you saw. But that bounce back still
holding strong at the closing bell. You see the Dow up 63 points, very different from yesterday. You saw stocks gain that momentum thanks to a
better-than-expected retail sales report from November.
So, what those numbers really show, the retail sales numbers may show, Maggie, that consumers may have shopped more than expected because of
those lower gas prices, which is kind of ironic that it's oil that's fueling this sell-off here on Wall Street, but fueling the shopping in
the stores for the holidays. Maggie?
LAKE: It is a tale that both sides of the oil story.
KOSIK: Yes.
LAKE: Very good for consumers, problematic for countries and for producers, and investors really trying to figure out which to pay
attention to today, it seems like. Alison, thank you for that.
KOSIK: You got it.
LAKE: Alison Kosik at the New York Stock Exchange. Now, let's turn to that market that is having so much influence, and that is oil. I'll
just remind you what I said a moment ago. In the US, oil prices fell 2 percent. The cost of Light Sweet Crude dipped below $60 a barrel for
the first time since 2009.
Joining me now is Chad Brownstein. He is the CEO of Rocky Mountain Resources. And Chad, we have you now, thank you so much for being with
us. Talk to me about what is driving this sell-off in oil. It is so rapid. Is it based on fundamentals, and how low is it going to go?
CHAD BROWNSTEIN, CEO, ROCKY MOUNTAIN RESOURCES: Well, it's certainly Black Friday for large cap oil stocks. You want to be grabbing as many
as you can at this moment. We had a gap down to $75, which was driven by fundamentals, which OPEC drove that.
But the gap down from $75 now to $60, soon to be maybe mid-$40s is a function of CLOs having to liquidate. You're seeing large cap debt
infrastructure trading down in the 70s and 80s, and that's forcing a global sell-off on the debt side.
So, investors can't price risk right now. There's 18 times leverage in the market for every barrel of oil. To put that in the context, 1997,
there was 3 times. In 2007, there was 13 times before the value of oil went down to the mid-$40s. So, we have a long way to go.
It's not a function of supply and demand, it's a function of technical sales, because the $550 billion worth of debt that's been sold in the
market is all being bought by these structured vehicles, which are now having to sell because the senior debt's trading below 90.
LAKE: OK, so when you say -- just so we understand -- all understand this, because it sounded a little bit technical for those who don't
follow the market.
When you're talking about CLOs, are we talking about hedge funds, basically hedge funds that bought up this sort of high-yield maybe junk
debt that was issued by all of these producers who were levering up, borrowing heavily so they could invest in production and in facilities,
is that what you're telling us?
BROWNSTEIN: Rather than hedge funds, let's say structured funds, which can be managed by private equity firms, by hedge funds, by independent
asset managers. And they have structures where they have layers of debt. And when a piece of debt that they own gets below a certain
price, they're forced to sell by the mandate.
So, what you're seeing right now is a global re-pricing based on $75 stock, which is further accelerating the sale of oil down to the mid-
$50s. So, we're not talking about a supply and demand issue, 93 million barrels are going to get bought next year. The US is going to have
production, OPEC's going to have their production.
We're talking about a global sell-off the fixed income side, which is going to benefit the value for the OPEC buyers, because they're going to
be able to hurt mostly the offshore drillers in the United States, because that's $50 a -- finding barrel. You can't produce when you're
at those prices.
LAKE: Chad, that's exactly what I wanted to ask you. We were -- everyone's talk about where that pain threshold is where you're going to
start to see US producers if not go out of business, at least close down production, take some production off the market. Do you see a lot of
businesses failing as a result of this? What is going to happen to US production?
BROWNSTEIN: I see US production staying at the 9 million barrel number next year. Now, let's talk about that relative. It's up 50 percent in
the last three years. Extraordinary growth. It's got to slow down at some point.
And when you're talking about the offshore drillers, the large cap players have $50 finding costs verses the domestic onshore -- even the
shale players have $15 to $20 finding. You're going to see the shale players in the good areas survive.
You're going to see deep offshore get shut in, because at $50 a finding barrel for the foreseeable future, when you have a forward curve in the
$50s, you can't produce. So, that's who's going to get hurt, the larger players. And then, the tertiary remarks with regard to, ultimately, the
shale players will also get hurt equally to that.
LAKE: It's fascinating what's going on, Chad. Thank you so much for walking us through it. It is quite technical. It's important that we
understand it. And again, we're going to continue to debate. Difficult for producers, difficult for countries, but no doubt a good thing for US
consumers who are filling up their tanks right now. Chad Brownstein from Rocky Mountain Resources, thanks, Chad.
Now, as we told you at the top of the hour, the director of the CIA has defended the enhanced interrogation tactics used during the era of
President George W. Bush. We want to go back to CNN's White House correspondent Michelle Kosinski, who joins us now from Washington. We
worked out our problems. Michelle, thanks for being with us. The reaction in Washington?
KOSINSKI: Hi, Maggie. Well, to hear from the CIA director was remarkable. This was an unprecedented press conference. And there were
some points that really stood out there.
First, he still fundamentally disagrees with the Senate Intelligence Committee's report on these methods. He says that they did produce
usable intelligence. They led to the saving of lives and the killing of Osama bin Laden.
He also says that he disagrees with the report's claims that the CIA repeatedly and systematically lied to the public, the press, and to the
government. He said, yes, there were inaccuracies at times, but he doesn't think that was a systematic abuse or a systematic misleading by
the CIA.
There's a big caveat today, though, from the CIA director. Because when the report first came out on Tuesday, the CIA quickly issued a paper
statement, a rebuttal, in essence, of the report on these methods that the president has called torture, stating what we just said, that he
feels that they did produce usable intel.
Well, today, what the CIA director is saying is much, much more aligned with what the White House has been saying over the past couple of days.
In fact, the White House won't even weigh in on whether it agrees with the CIA director on that intel.
So now, what the CIA director and the White House are both saying is that it is unknowable, ultimately, whether that intelligence was the
direct result of using these specific methods or whether that intelligence could have been gotten through other, legal means, Maggie.
LAKE: Yes, certainly a historic day, you're right about that. Michelle Kosinski, thank you so much. Live for us from the White House. And we
are going to have much more on that story a little bit later in the program.
Now, as oil prices fall, desperate measures in Moscow. The Russian Central Bank's latest salvo against the struggling economy, next.
(COMMERCIAL BREAK)
LAKE: Russia's central bank is trying desperately to control inflation and has signaled that it's giving up on economic growth for the next two
years. The central bank has hiked interest rates to 10.5 percent.
The central bank is hoping that by making borrowing more expensive, consumers will slow spending, bringing prices back into line. Inflation
has skyrocketed over the past 11 months, despite four previous rate hikes. It's forecast to top 10 percent early next year.
The central bank's move failed to stop the bleeding, however, in the ruble. It feel 3.7 percent against the dollar. It is now down 40
percent since the beginning of the year. Russian prime minister Dmitry Medvedev says there is no need for hysteria.
(BEGIN VIDEO CLIP)
DMITRY MEDVEDEV, PRIME MINISTER OF RUSSIA (through translator): In the long-term perspective, I would like to say it's obviously that the
substantial weakening of the ruble is not advantageous for our economy. Moreover, most economists and analysts share the view that right now,
the ruble is too much undervalued.
(END VIDEO CLIP)
LAKE: Medvedev there. Well, Tim Ash is Standard Bank's chief emerging markets economist. He joins us now from London. Tim, thanks very much
for being with us. Do you think the central bank is pursuing the right strategy? Do they have a long-term strategy to deal with this financial
situation?
TIM ASH, CHIEF EMERGING MARKETS ECONOMIST, STANDARD BANK: Well, frankly, they've been very weak and indecisive. I mean, 100 basis
points sounds a lot, but the currency's lost almost 40 percent of its value, and really, the 100 basis points only really accounts for some of
the inflation that we're seeing to. Real rate are only about 50 basis points, so not very much at all.
And I think the problem for the central bank, and the governor said it all today, she said we don't really want to raise interest rates at all
because the economy's in recession or pushing into recession.
And the other thing that's quite interesting that we found out over the last few weeks is, the central bank may have a lot of reserves on paper,
420 billion or so, but it doesn't really want to use them.
And it doesn't want to use them, I think, because the Russian authorities are very concerned about the geopolitical battle with the
West. They think it's going to be very long, drawn-out. Sanctions limit the access to dollar liquidity, and they've put a big premium on
that reserve.
So basically, for a central bank facing a weakening currency, you don't want to raise rates and you don't want to lose reserves, then the
currency's going to weaken, and I think with oil prices going sub-$60, the currency is going to continue to go weaker.
LAKE: That's very interesting. They're holding their fire, so to speak, for the moment anyway. Tim stand by. We want to take a look. A
lot of people are asking, is this squeezing the oligarchs? The business community, the power base there. Stand by for a second, we want to walk
through this.
Now, as the Russia economy stumbles, so does the fortunes of some of the country's oligarchs. Now, take a look at this. Alisher Usmanov is
Russia's richest man. He is the majority shareholder of Metalloinvest, an iron and steel producer. That the company saw revenues fall 9
percent in the third quarter. Now Usmanov's investments in Russia tech companies are sagging as well.
Then there is Gennady Timchenko. He is a close ally of president Putin. He and many of his companies were added to the US sanctions list earlier
this year. He's a majority shareholder in the gas-producing company Novatek. That company has seen its market cap shrink by one third over
this year.
But then there's Oleg Deripaska. He owns around half of the world's biggest aluminum producer. That company posted its best results in
three years, largely thanks to the rising value of aluminum. Now, with much of the company's revenue coming from exports, ruble (sic) has also
benefited from the fall of the ruble.
So, a little bit of a mixed picture. Tim, I'm wondering, do you see the oligarchs ultimately -- I mean, obviously, some of them are doing
better, some of them are getting squeezed. What is your assessment about what kind of pain they're feeling, and what will that do to the
domestic political situation in Russia?
ASH: Well, it's hard to feel so concerned by them. I'm sure they've got the odd billion or two still in their back pocket. And I think --
what's interesting, if the exchange rate move -- per capita to GDP on an exchange rate basis has gone from about 14,000 per capita to probably
the low 10,000.
Inflation, you mentioned that at the start of the report. Inflation hurts ordinary Russians. They certainly -- their ruble buys a lot less
now internationally. When they travel overseas, the holidays that they've grown accustomed to going on, and the cars, the foreign imported
cars they rather liked. Suddenly, they're a lot more expensive.
So, it's squeezing. Clearly, oil was at over $100 a barrel. We're down to sub-$60. The economic rent that was distributed throughout the
administration is a lot less now. So, I think if oil stays at these levels for an extended period of time, I think it will squeeze oligarchs
and the population at large.
It will be -- Russia is in for an extended period of weaker growth, recession, a long slog. But I think in any event, Russia was already
going to be in that situation, because prior to oil prices dropping, when oil was $100 a barrel, the Russian economy wasn't growing. It was
only growing around 1 percent.
There was deep structural problems in the Russian economy anyway. A lack of competitiveness. You mentioned the comments by Dmitry Medvedev,
the prime minister suggesting the currency was undervalue.
I actually don't think it's undervalued at the moment, actually. In real effect, it's only back to where it was in 2006 when oil was $60 a
barrel, and that's a point in time the economy was growing around 8 percent. So, at these oil prices, probably the currency is fair. If
not, it should be weaker.
LAKE: Yes.
ASH: Just because of the weak growth environment, the weak geopolitics, the backdrop of sanctions as well, which is hurting the economy. And a
central bank that really is not doing very much.
LAKE: Yes.
ASH: It's kind of -- it's a bit like a rabbit caught in the headlights, not quite wondering what to do. Doesn't want to raise rates, doesn't
want to use reserves, not signaling to the market very well in terms of its strategy. And in the interim or in the meantime, I think the ruble
continues to go lower.
LAKE: Yes, Tim, interesting. And it's going to be really important to watch the oligarchs and the business community. They've been largely
silent. We'll see if that changes as the economic pain continues. Tim Ash for us there. Thanks so much.
Let's take a look at European markets. Shares ended the day mixed. Greek stocks fell more than 7 percent. Investors are reacting to the
decision to hold presidential elections sooner than expected.
Greek stocks are now down more than 16 percent for the week. Demand for cheap loans from the ECB fell short of expectations. That raises the
chance ECB may look to other measures to spur growth.
Now, Google says a new law in Spain will force the company to close down its news site there. Spanish print media will soon be required to
charge services like Google news every time a part of the publication is displayed in searches.
Google says the model is unsustainable and it won't pay. Samuel Burke has been following the story. So, I know we had the headline all day,
Samuel, adios to Spain. What's happening?
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: So, you know when you Google something, let's say you Google the CIA. Today it would probably show
up with a news headline, just the headline there and maybe a one- sentence summary.
Well, what this Spanish law says is for that one-sentence summary, Google is taking some publisher's work, and so Google has to pay them
for that. Well, Google says we don't even make any money from Google News, which is true. They don't have ads on that part of the site. So,
they say they're just helping people get traffic.
In fact, I want to read you what the head of Google News wrote on their blog about this whole situation in Spain. He said, quote, "Publishers
can choose whether or not they want their articles to appear in Google News, and the vast majority choose to be included for a very good
reason."
Which is true, Maggie. A German publisher was experimenting. They thought maybe they wanted to get rid of Google News, maybe try and have
them charge, so they ran the experiment. And traffic crashed to their site. Nobody was going because Google wasn't directing that traffic.
And so they decided against it.
So, I just want to read you a couple of comments from the Spanish people who've been on social media reacting. A comment here from Felipe. He
says, "If the Spanish government and old-style media want to go back to the Middle Ages, this is what they will get. I really hope that they
come to their senses and suspend that nonsense law."
And just one more from Victoriano. The Spanish media lobby deserves the future consequences of this decision, and hopefully they will learn
something about how the internet works after all."
I think that's a lot of people's perception here is maybe some people aren't quite familiar with how the changing media models work.
LAKE: Yes.
BURKE: And this backfired for that German company that did the experiment. It could backfire for the Spaniards.
LAKE: So maybe story to be continued, perhaps, for the relationship with Spain. But it's interesting, Samuel, this comes against the
backdrop of Google encountering a lot of regulatory resistance in Europe.
BURKE: All across Europe, I can go through many cases now. First of all, the right to be forgotten, that came out of Europe. If you don't
like a story about you that's been published on some other news website but appears on Google, now Google has to go through and look through all
these links, take them down.
You also have pressure from the European parliament of course. They voted to dismantle Google. It was a symbolic vote, but it sent an
important message.
And then you're seeing them under tax pressure, possibly, in places like the UK and now this Google News story out of Spain. That's all across
Europe. That's a lot of pressure.
LAKE: Yes. And even if in the end, things are overturned or they win or they go away, it's still a lot of time that Google is having to spend
defending itself and not coming up with new products, so --
BURKE: Time, money, and lawyers, lawyers, lawyers.
(CROSSTALK)
LAKE: And lawyers and lawyers, right. And you don't make business when you have you -- live your life in court, as we have heard many times.
Samuel, thanks so much. Samuel Burke for us.
Well, imagine this: taking a huge wind turbine and making it float 2,000 feet in the air so it can catch super winds. Thanks to new
technology, you don't have to imagine it anymore. It's real.
(COMMERCIAL BREAK)
LAKE: Climate change is a hot topic right now, and technology is playing a critical role in making renewable energy a reality. In this
week's Tomorrow Transformed, Richard Quest looks high in the sky for clean energy solutions.
(BEGIN VIDEOTAPE)
RICHARD QUEST, CNN INTERNATIONAL (voice-over): For centuries, the humble windmill has been used for pumping water and grinding grain.
It's role grew when the wind turbine was created, designed specifically to generate power.
So today, around 2.5 percent of the world's electricity is produced by wind. And the industry hopes its output will quadruple in five years.
It's technology driving growth.
TOM KIERNAN, CEO, AMERICAN WIND ENERGY ASSOCIATION: The technological advances have been what has driven the wind industry. When you compare
turbine to turbine over the last couple decades, we are 30 times more efficient than we were several decades ago because of the use of
information and computer technologies.
QUEST: Squeezing more energy out of thin air involved equipping the turbines with lasers that allows them to communicate with each other as
operators keep a watchful eye in high-tech control centers, like this one in San Diego.
KIERNAN: We can then communicate with the utilities, with the grid operators, to say here's how much wind we're going to have available in
the next hour, in the next two hours, so that they can effectively manage wind onto the grid.
ALICE HERBERT, OPERATIONS CONTROL CENTER, EDF: Before, it was like calling the turbine. Ring ring ring ring! And then now you have those
big winds that are trying everything in real time, like this.
QUEST: Worldwide, there are now more than 200,000 turbines on land and offshore. The future is to take wind energy to new heights.
QUEST (on camera): Imagine if we could untether the turbine and send it up into the air, where it could then adjust its location and catch the
strongest winds.
QUEST (voice-over): Altaeros Energy in Boston is preparing one such structure to do exactly that. It's called the BAT.
BEN GLASS, CEO, ALTAEROS ENERGIES: The wind turbine sits in the middle, and the idea is that this inflatable structure is filled with helium,
which essentially it's like a balloon. So, when there's -- even when there's no wind, it'll float up to the high altitudes. As the wind
starts to pick up, it sort of behaves like a kite and kind of keeps itself up there.
But going up to 2,000 feet, you have typically around eight times as much power available in those winds as you would have for a turbine
closer to the ground.
QUEST: Altaeros hopes to launch the first BAT in Alaska in 2015, targeting remote areas where energy is elusive and expensive.
GLASS: Think of communities in India or Brazil, where there really hasn't been an option for cheap energy. I think the BAT has the
potential to really transform those communities.
QUEST: From windmills to high-flying turbines. A way of producing energy that's more than hot air.
(END VIDEOTAPE)
LAKE: It's where finance meets technology, where Wall Street meets Silicon Valley. Lending clubs debut on the New York Stock Exchange.
We'll hear the CEO's plans for the future after the break.
(COMMERCIAL BREAK)
LAKE: Welcome back, I'm Maggie Lake. This is CNN. Here are our top news stories. The director of the CIA has defended the enhanced
interrogation tactics used in the wake of the September 11th attacks and detailed in a Senate report this week. Critics have called these
tactics torture. Describing the atmosphere after the attacks, Director John Brennan said looking back, the CIA was unprepared for the task.
(BEGIN VIDEO CLIP)
BRENNAN: In many respects, the program was uncharted territory for the CIA, and we were not prepared. We had little experience housing
detainees and precious few of our officers were trained interrogators.
(END VIDEO CLIP)
LAKE: Evan Perez is CNN's justice correspondent. He was at that press conference, and he joins me now from Washington. Evan, really quite an
extraordinary day, first of all to hear from him at all, and then to have this admission that they were unprepared.
EVAN PEREZ, CNN JUSTICE REPORTER: Well, yes, Maggie. And you know one of the things that he still is not using is the word `torture' which is
a word that obviously is very weighted for the CIA. Everybody's using it - the President is using it, the Justice Department, the Attorney
General Eric Holder whose department wrote the memos that authorized this stuff. They all say it's torture. John Brennan is still not ready
to go there. And as you said, it's a very unusual situation.
We don't have CIA directors, first of all, doing press conferences very often and certainly not one live on television from Langley Headquarters
of the CIA. And today was remarkable also because what he was doing was trying to clarify this impression that was left in the last couple of
days from the CIA's public response to this Senate report in which he - today he's basically trying to say, look, I'm not saying that the
torture or the enhanced interrogations produced intelligence. What he's just simply saying is that these detainees did provide intelligence as a
result - or, I'm sorry, -- after being interrogated in this fashion.
And so it's a very fine distinction, but it's one that I think they wanted to make sure was clear because in the last couple of days, CIA
seemed to be more aligned with Dick Cheney and the former Bush administration than with the current administration of Barack Obama.
LAKE: Yes spoke to Cheney today although he said that there are no easy answers, and whatever anyone's view on these techniques, our nation -
the agency did a lot of things right during this time to keep the country strong and secure. So, defending the agency -
PEREZ: Right.
LAKE: -- while at the same time trying to provide more information. All right, fascinating. A lot of repercussions are going to come from
this. Evan, thanks so much. Evan Perez in Washington.
PEREZ: Thank you.
LAKE: Now our other main news stories. A suicide bomber has detonated explosives inside a French-funded school in Kabul, Afghanistan. Local
police say a German national was killed and 51 other people were injured. It follows an earlier attack on a bus carrying Afghan
soldiers. Five people were killed in that explosion. The Taliban claimed responsibility for both attacks. At least 12 people have been
killed in a double bombing at a market in Central Nigeria. A security guard tells CNN the bomber detonated one device, then blew himself up
with the second. The same market was the site of a double car bombing in May which killed 18 people.
The funeral of the Palestinian official who died during a confrontation with Israeli troops has attracted thousands of mourners. An autopsy
report released by Israel suggests the minister (AUDIO GAP) from a blocked artery. But a Palestinian report shows he died from a harsh
blow to his diaphragm and lungs.
It looks like Wall Street wants in to the Lending Club. The company upending the consumer lending market made its debut on the New York
Stock Exchange. Shares opened at $15 and then skyrocketed, ending the first day of trading up a lot more than that. At one point up at least
50 percent. Lending Club's offered an online service called peer-to- peer lending. Essentially it matches borrowers seeking a loan with willing investors. It's issued over $6 billion worth of loans, taking a
cut along the way before paying back investors. Profits are taking off. Lending Club reported over $140 million in operating revenue for the
first nine months of 2014. That is up from just over $1 million five years ago.
Lending Club finances loans up to $35,000 to individuals. I spoke to the CEO Renaud Laplanche and asked him if this will be the core of his
business going forward.
(BEGIN VIDEOCLIP)
RENAUD LAPLANCHE, CEO, LENDING CLUB: We think it's consumer credit --
LAKE: Hi yiya (ph).
LAPLANCHE: -- is going to remain the core of our focus right now. I mean there's tremendous amount of growth opportunity in sort of
continuing to deliver more affordable credit - more affordable credit -- to the consumers. We did launch a small business mandate platform from
earlier this year. We also made an acquisition of a company that offers education financing as well as elective medical procedure financing. So
we are diversifying, but the - I think consumer credit will remain the really our core business.
LAKE: There are some who worry that it's been a very - peer-to-peer lending - has been very successful in an easy money environment. But as
those interest rates start to rise, so will defaults. Are you concerned about that?
LAPLANCHE: No, so we don't think we are rate sensitive at all. When the Fed will start the rising rates, our rate moving in parallel, so the
prime rate would go up. Most credit cards are priced at prime plus. So, we would be able to adjust our own rates up and provide the same
savings to borrowers. And within a higher return to investors which we need to do in a higher rate environment. The spread remains about the
same and our ability to compress that spread for a cost reduction for a lower cost authority (ph) model would remain about the same.
LAKE: A lot of the consumers or the individuals who go and look for loans there, they - a - lot of the documents they provide, they self-
report. Do you feel like that the credit, the background check, the underwriting standards are stringent enough?
LAPLANCHE: Yes, so, I mean we have a pretty stringent credit policy that has been tested and refined over the last eight years. So even in
a '07/'08 environment, and a really bad credit crisis, we were still able to deliver positive returns to our investors, and since our models
have become even better, so and we - a lot of the income and employment is very-- sorry - is verified. So we verify about 70 percent of income
and employment, so typically top credit brackets with perfect credit history that we could waive income on prime (ph) application.
LAKE: It's interesting. A lot of people consider you a sort of technology disrupter. When we've seen that in other areas, there's been
such pushback from the traditional industries that dominate. Whether we're talking about Uber, whether we're talking about Airbnb. That
doesn't seem to happen with the traditional big banks. Do you think that that spirit of cooperation can continue - that peaceful coexistence
can continue?
LAPLANCHE: I think so. I think we've been having a very different approach to disruption than other technology disrupters. We want to
transform the banking industry which we really want to also share the bank's vet (ph) information. So we're partnering with bank, you know,
in a way that we take the best of both worlds and it's solidly designed to lower the cost of credit for consumers and businesses and I think we
do a great job with banks by relying on each other's strength to deliver the best possible outcome to consumers.
(END VIDEOCLIP)
LAKE: Now, when it was all said and done, Lending Club stock closed up 56 percent. A make or break weekend for Japan. Prime Minister Shinzo
Abe is out drumming up votes for Sunday's election which is being seen as a referendum on `Abenomics.' We'll have more yet.
(COMMERCIAL BREAK)
LAKE: Japan goes to the polls Sunday. Prime Minister Shinzo Abe has called the vote two years early. It is a political calculation meant to
buy more time so that his economic policies can succeed. While Abe is expected to win by a large margin, the jury's still out on whether his
policies will really work. Will Ripley is here with us right now. Will, great to have you in the studio. So, Abenomics is -
WILL RIPLEY, TOKYO-BASED CNN CORRESPONDENT: Well, it is what it is.
LAKE: It was very popular --
RIPLEY: Right.
LAKE: -- but people are having a little bit of concern about it right now. What about - how do the Japanese people feel about this? Are they
- what is their lives like? Have they seen improvement? Is he going to be able to ride the momentum and improving economy. Investors are not
so sure right now. But how do Japanese people feel about it?
RIPLEY: Well certainly when you talk about their day-to-day lives, there's some real effects to Abenomics that the Japanese consumers are
seeing. For example, if they used to pay this much for energy, they're not paying about a third more. And this is 30 thousand yen which used
to get you $30 U.S. dollars. Now $25 - a drop like that in less than eight months. So you can see the value of their dollar going down.
Prices for some of their staple items are going up. The Japanese beef and rice bowl - for the first time in 24 years, one of Japan's biggest
companies had to raise the price of this, because the price of beef is up more than 20 percent. The price of salmon, another Japanese staple,
is up more than 14 percent and then when you account higher taxes, there was a tax increase earlier in this year. Voters have a lot on their
mind - a lot of financial troubles -- as they go to the polls.
(BEGIN VIDEOCLIP)
RIPLEY: In Japan where coffee sales surpass green tea, Hayato Komiyama (ph) keeps profits percolating. Eight years of growth - even during the
financial crisis six years ago. But this year, "it's a really tough time," he says. The Japanese yen is at a seven-year low. Prices are
rising in this island nation that relies heavily on imports. Like Komiyama's (ph) coffee beans.
HAYATO KOMIYAMA (ph), TRANSLATED BY RIPLEY: I'm paying 30 to 50 percent more he says. It's really cutting into my profits.
RIPLEY: On top of higher prices, higher taxes are scaring away customers. A national sales tax hike in April pushed Japan into a
surprise recession. Fearing more economic damage, Prime Minister Shinzo Abe delayed a second tax hike, only to have credit rating agency Moody's
downgrade Japan, citing its huge debt. With problems piling up, Abe's taking a political gamble - calling a snap election two years early.
KEITH HENRY, ASIA STRATEGY: This election is extremely significant.
RIPLEY: Long-time Asia strategist Keith Henry calls it a highly- calculated move. The prime minister can call an election at any time. And right now his opposition is in disarray. Henry and many other
analysts say even if his party loses seats, Abe is all but guaranteed to stay in power.
HENRY: He needs more time.
RIPLEY: A win gives Abe four more years to execute Abenomics - flooding the market with cash, increasing government spending, pushing private
investment. The goal? Reverse nearly two decades of deflation and stagnation.
HENRY: In a sense, what you have to do is stimulate the Japanese people and bring hope to them.
RIPLEY: There are bright spots. Japan has low unemployment, stocks hit a seven-year high, home mortgage rates are less than 1 percent. You're
27 years old, --
Male: Yes.
RIPLEY: -- already a homeowner. Things are going well.
Male: Yes, right (LAUGHTER).
RIPLEY: Kenichi Ebihata (ph) says he's benefitting from Abenomics, but even he worries about Japan's shrinking aging population.
KENICHI EBIHATA (ph), TRANSLATED BY RIPLEY: "The stock market is up," he says, "but in the long-term, I don't think the Japanese economy is
getting better. We have a lot of social problems and I'm not sure Abenomics is the solution."
RIPLEY: Right now it's the only solution lawmakers are offering to address Japan's problems - giving voters little real choice as they
weigh in on their nation's financial future.
(END VIDEOCLIP)
LAKE: You know, Will, I want to pick up on that - little real choice. It's hard to determine what's going on because there's no real
competition. There is no alternative to Abe right now, is there?
RIPLEY: And that's exactly why many analysts say that Abe is choosing this time to hold this snap election because he feels that with his
opposition in complete disarray, they don't have a clear leader, and most importantly there's no clear alternative - a financial plan to help
bring Japan out of these nearly two decades of stagnation. He feel --
LAKE: What -
RIPLEY: - yes, he feels -
LAKE: Yes, he feels now sometimes and he may be right about that.
RIPLEY: -- he needs another four years.
LAKE: One thing that's also important is confidence is fragile, and so since there is this sort of dip in investor confidence, if you act now,
consolidate your power again, you can at least temporarily revive that confidence, and that may be just what he needs in the short term. Will
Ripley, so nice to have you in New York in the studio. We're going to be watching closely.
RIPLEY: Thank you.
LAKE: Thank you so much, Will. Well we do have this news just coming in to CNN - SeaWorld's CEO James Atchison is - will step down early next
year. That is according to a filing with the U.S. Securities and Exchange Commission. The company has named an interim CEO who will take
over in January. The company has come under heavy criticism for the way it treats its animals. SeaWorld's shares are down 44 percent year to
date. Now the leak of highly-embarrassing and damaging details continues from
Sony Pictures. The hack took no prisoners with Angelina Jolie reportedly the recipient of some seriously unflattering remarks. We'll
have that up next.
(COMMERCIAL BREAK)
LAKE: The Sony hack attack continues to reveal the internal workings and e-mails of one of the world's biggest entertainment companies. So
far we're heard one mega producer's rant about Angelina Jolie. We've heard Tom Hanks' secret code name for when he's traveling incognito.
We've gotten the skinny on who nearly beat Michael Vassbender to play Steve Jobs in a bio pick. Just some of the juicy tidbits that continue
to leak out. Brian Stelter reports.
(BEGIN VIDEOCLIP)
BRIAN STELTER, SENIOR MEDIA CORRESPONDENT: It's the hack heard and seen around the world. Over 100 terabytes of data stolen from Sony Pictures.
Leaking movie like "Furious" starring Brad Pitt and "Annie" with Jamie Foxx along with private employee records and internal memos placed on
the Web for all to see. Now, reporters are digging through the documents, finding scandalous and in some cases embarrassing details.
CNNMoney has discovered that the hackers exposed the social security numbers of Conan O'Brien, Sylvester Stallone and over 47,000 other Sony
employees and contractors.
CNN also found that the next Bond film "Spectre" which is set to debut late next year is massively over budget. One executive secretly called
it quote, " One of the most expensive films ever made." Another surprise - Tome Crews was asked to play the role of Steve Jobs, but the deal fell
apart and Michael Fassbender got the job. And if you're curious to know what stars call themselves when they're trying to stay incognito, well
now we know. Tom Hanks go by `Johnny Madrid,' Sara Michelle Geller sneaks around as `Neely O'Hara,' Jessica Alba is `Cash Money.' That's
all according to the website Fusion.
So how did this happen? Sony Pictures is huge. Its parent company has a market cap of over $20 billion. There are questions about whether the
company was properly secure in its data. Sony is still not saying much, but in a memo to Sony staff, CEO Michael Linton says, quote, "The
privacy and security of our employees are of real concern to us." And the cause of all this? It could be "The Interview," an upcoming movie
with a plotline the North Koreans are incensed about. But the film is still coming out on Christmas day. If it is the cause for all this
mess, well it could be one of the costliest Sony films ever made.
Male: I sat on it.
(END VIDEOCLIP)
LAKE: And that is an excellent point. Brian Stelter joins us now. Brian, this is - I mean, it's juicy, it's fantastic headlines, but this
has got to be terribly painful for Sony. What are they saying about this?
STELTER: It sure is and they haven't said much in public. One of the top executives there said to me this morning, "What if this was your
company? What if this was your media company this was happening to?" He did make the point that the staff has really come together to try to
get through this. And that business is going on through these conditions. But there was an apology from Sony today. Because one of
the most e-mails we've seen leak is exchanged between a top producer named Scott Rudin and the head of the studio Amy Pascal. They're
talking to each other about what President Obama might like - what movies he might like. And all the movies had African-American themes.
It seems at best racially insensitive - it got a lot of attention online overnight. So Amy Pascal came out and apologized. She said, "The
content of my e-mails were inappropriate and insensitive" and she accepts full responsibility. But there's a lot of other e-mails, lot of
other embarrassing stuff also. This is an apology about one specific e- mail, but there's a lot out there.
LAKE: Full on damage control certainly, and I think a lot of people are sitting back and saying, `Thank God it wasn't our company' because
gossip, ranting about, people complaining about people. Let's face it -
STELTER: Oh, it's not just Sony.
LAKE: Exactly. You know, before any of us make a comment about that, is this going to have lasting damage to Sony? I mean, is this something
that they can recover from or is this going to have repercussions?
STELTER: Financially it's definitely done millions of dollars in damage. We don't know how many millions. After all, some of their
forthcoming films have been leaked onto the internet. It's notable that the internet - "The Interview" - has not leaked. That's the movie -
LAKE: And by the way getting more publicity. None of us would be talking about it -
STELTER: That's right.
LAKE: -- so much probably if this hadn't happened.
STELTER: That's true. But some of their other films like "Fury" and "Annie" have been leaked, so that probably does financial damage. What
we can't measure is the relationships - the personal damage that's done. When Angelina Jolie, you know, is described as being, you know, hard to
work with -
LAKE: Yes.
STELTER: -- and I don't want to get into all the different phrases they used -
LAKE: Yes, yes.
STELTER: -- about these actors, these stars, but when you get into that kind of relationship damage, you wonder down the road if these actors or
these producers will be willing to do the other Sony --
(CROSS TALK)
LAKE: I thinking there are going to be some phone calls that aren't answered. I think what we're going to continue talking about too is
although we're focused on the juicy gossip, that their personal information leaked - passport numbers, social security and that's going
to continue to be a problem.
STELTER: And that's not just for the million dollar stars. It's also the young staffers who might have their lives -
LAKE: That's right. And that's where I think our concern is going to lie.
STELTER: Yes, you're right.
LAKE: All right, Brian, a story that's not going to end I have a feeling. Thank you so much, Brian Stelter for us. Well perhaps not
surprisingly after those revelations at Sony, Tim Berners-Lee, the man who invented the World Wide Web says the internet's changing and not for
the better. Berners-Lee's World Wide Web Foundation has warned that online users are increasingly becoming targets of government
surveillance. He spoke to our Jim Boulden.
(BEGIN VIDEOCLIP)
TIM BERNERS-LEE, FOUNDER, WORLD WIDE WEB FOUNDATION: It's in fact easy for us to take it for granted because we use the Web just so
automatically. We just Google something, we just check calendar. We just do things in our daily life.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Yes, but I'm thinking there's censorship now. We are - I think one of the things of 2014 will
be that actually it's rolling back in many places and people are actually finding it harder to get access on internet even if it's there
originally for them to use.
BERNERS-LEE: That's one of the orange flags there, yes, as we're seeing the sort of the number of people who per access come up towards the
halfway point in what we imagine will be the test curve which is very exciting, it because perhaps (ph) it's become such a big thing. It
gives so much control - power or so much control - to people who - to governments or industry that try and control it. We've seen things like
censorship, we've seen the (inaudible) open so that our web under serious threat over the last year, and the difference between the
indexes this year and last year. Different questions like that - like what do you see for example that is actually illegal? What - and -
think like sort of anonymity. Should she have the right to be anonymous as a whistleblower? And if that's the case, what happens about the
persons bullying your kid on internet? Should they have a right to remain anonymous?
BOULDEN: Do you have the answers to this?
BERNERS-LEE: The anonymity one, no I don't. Actually I have the questions.
(LAUGHTER)
BERNERS-LEE: I've got quite a lot of answers I think in the way - what the Web index does if, you know - it gives answers to what do we think
is important. So in a way one of the things - the things that we put into this Web index, you know, you can go, you can pull data out on the
Web and you'll see the things which we put in there are things that - they're a value statement. We're thinking these things and the ability
to express yourself for example, the ability to have choice.
BOULDEN: These are not easy questions and they're not easy answers, so how do you think the next couple of years are going to go? I mean, we
may be at a junction now where there's more censorship and a lot of people still don't have access to the internet. And even those who do,
are facing more and more censorship and more larger companies who are controlling what we're allowed to do - what we're able to do - easily.
BERNERS-LEE: On one hand, we'll see people getting - a lot more people - getting online because the mobile Web will continue to grow very
rapidly as prices come down of devices and access. So I'll see if it's crossing the 50 percent mark, and I think it's an interesting point
where the last 20 percent if not 10 percent may be but a pickle (ph). Meanwhile, I'll see really that the battle is joined between those who
are fighting to keep the Web open and those who are trying to -get a strangle hold on it, both in industry and in government and in many
countries in industry and government where it's hard to tell the difference between the two.
BOULDEN: And you're worried that that grip is tightening - those who want to get a stranglehold on it.
BERNERS-LEE: The numbers show - the people we've asked show that in general net, when you look at the world this year, that stranglehold has
tightened.
(END VIDEOCLIP)
LAKE: Such an interesting discussion. So fantastic to hear from him, and they're right - it's very complicated, these issues of surveillance,
of access but so important that we have that ethical debate as technology advances so quickly. And just a reminder, you can always
tweet the show. You can find that @questcnn or you can tween Richard while he's on his travels. We know he'd love to hear from you. He's
@richardquest. We'll have a final check of another roller-coaster day on the market.
That's up next.
(COMMERCIAL BREAK)
LAKE: For sale - two-story home, 5 bedrooms, sun lounge, a garden. And let's not forget about the roller-coaster. A Dutch bank is going to
extreme lengths to sell homes. ABN AMRO built this roller-coaster so potential buyers are spared the hardship of walking around. Yes, it's a
stunt. It's part of a month-long marketing campaign. Other sellers will get giant billboards and radio spots to help sell their homes.
Looks like fun.
A final recap of the real-life economic roller-coaster we've all been on. U.S. stocks rose sharply following Wednesday route. The gains
didn't hold though, the Dow closed just 63 points higher - well off the highs of the day. U.S. oil prices meanwhile continue to plummet. The
cost of light sweet crude dips below $60 a barrel for the first time since 2009.
And if we take a look at European shares, they ended the day mixed. Want to focus on one market in particular - Greek stocks fell more than
7 percent. Investors are reacting to the decision to hold presidential elections sooner than expected. Greek stocks are now down more than 16
percent just this week. And we've got one more trading day to go. That is "Quest Means Business." I'm Maggie Lake. From all of us here,
thanks very much for watching.
END
