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Quest Means Business
Spain Prepares for Catalonia "Nuclear Option"; Yellen Meets Trump at the White House; 30 Years Since Black Monday; Tech Giants' Lawyers to Testify in Russia Hearings. Aired 4-5p ET
Aired October 19, 2017 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:00] RICHARD QUEST, CNN HOST: Market little change on a historic day. Thirty years ago, today was the great crash of 1987. We'll talk
about that over the course of the program.
Today the market is little change. Hit the big gavel. Strong gavels on little changes. Trading is over on Thursday. It's October the 19th.
Tonight, Spain starts down the road to its nuclear option with Catalonia. The chair of the Fed, Janet Yellen, interviews for her own job. Donald
Trump meets Yellen right here in Washington where I am today.
And as I said, 30 years since market chaos pandemonium. The financial world remembers what was "Black Monday." I remember it as if it was
yesterday.
I am Richard Quest, tonight in Washington where of course I mean business.
Good evening. Tonight, the Spanish government says it will trigger the so- called nuclear option for Catalonia by suspending its autonomy within the region. It's article 155 of the Spain's Constitution and it's never been
invoked before. The Catalan government in a tit for tat warning says, this move will not go unanswered. Investors in Spain reacted quickly. Stocks
fell and bond yields, government bonds spiked.
The government in Madrid is insisting it is a matter of restoring legality and restoring order and slowing the economic fallout.
(BEGIN VIDEO CLIP)
INIGO MENDEZ DE VIGO, SPANISH GOVERNMENT SPOKESMAN (through translator): Nobody has a doubt that the government will use all the resources available
two it to restore as soon as possible, legality and constitutional order and again, peaceful coexistence for citizens and stopping deterioration and
political and judicial insecurity. For which the only ones who are responsible are the leaders of the PDeCAT who are causing economic and
social damage in Catalonia.
(END VIDEO CLIP)
QUEST: The government in Barcelona and Madrid are daring each other to cross self-declared redlines. In the case of Madrid's redline is a Catalan
Declaration of Independence. Catalonia's president has refused to clarify whether that has happened despite several requests from the Spanish prime
minister. Carles Puigdemont is still holding out for talks. He says he will declare independence if Madrid crosses his redline. And that's the
introduction of article 155, which I was just talking about, the suspension of autonomy. As for which way forward, the Prime Minister's cabinet will
meet on Saturday to decide its next move. Under 155 the central government assumes power and takes over the running of Catalan institutions and forces
regional elections.
The problems of Spain seemingly, the tit for tat, the threat and counter threat of the two sides have been on the minds of European leaders who are
now holding their summit in Brussels. Bianca Nobilo is there. Where the leaders say they are watching what's happening. I think the word is
concerned. But they are not going to get involved.
BIANCA NOBILO, CNN PRODUCER: That's exactly right. In fact, Angela Merkel said earlier today she was concerned, she was closely monitoring the
situation, but she stands firmly behind Madrid. A sentiment echoed by Macron, as well. So that was very much their message that they are not
getting involved in the internal affairs of other member states. And Donald Tusk, president of the European Council said something similar
today. Let's take a listen to what he had to say.
(BEGIN VIDEO CLIP)
DONALD TUSK, PRESIDENT, EUROPEAN COUNCIL: I am, of course, concerned for many reasons. I've been in permanent contact with Prime Minister Mariano
Rajoy. There is no hiding the situation in Spain is concerning. But our position -- I mean, institutions and member states are clear, there is no
room or space for any kind of mediation or international initiatives or action.
(END VIDEO CLIP)
NOBILO: Tusk told journalists that earlier and then I was in a briefing with the Juncker and Tusk where they reiterated those points again. They
were not going to get involved. I was in EU briefings earlier on the week. Big gay precisely the same message. That's unlikely to change.
[16:05:03] Rajoy when he arrived walked straight past the media. The only slight different opinion we got was from the Belgium Prime Minister,
Charles Michel and he called for an immediate de-escalation of what was happening in Barcelona when he arrived today -- Richard.
QUEST: So, this is a tricky one for the EC. Because they don 't want to get involved, but they can't have a deteriorating situation in such a large
country that's already economically fragile. So, if they're not going to get involved or mediate or whatever it might be. What are they going to
do?
NOBILO: At the moment, Richard, it looks like they're going to repeat that message as long as they possibly can. Intervention and mediation does not
seem to be an option for them. That's all they're telling us. And we're getting that repeated from every single EU official that we have been
speaking to. So, at the moment, it looks like the EU is out of options, other than standing firm behind Rajoy and behind Madrid.
QUEST: Stay where you are, Bianca. Do not move a muscle away, because we need to talk about Brexit after I've just gone through the events of the
day. The British Prime Minister, Theresa May, is trying to get an agreement for trade talks to start with Europe. And Theresa May was not
making much headway. She may be there with Angela Merkel and the French President, Macron. But Angela Merkel herself says there hasn't been enough
progress in the Brexit talks to begin the next phase. So, the British Prime Minister had to explain what she wanted.
(BEGIN VIDEO CLIP)
THERESA MAY, BRITISH PRIME MINISTER: This council is about taking stock. It's also about looking ahead to how we can tackle the challenges that we
all share across Europe. That means, of course, continued cooperation, cooperation which must be at the heart of the strong future partnership
that we want to build together. Of course, we'll also be looking at the concrete progress that's been made in our exit negotiations. And looking
at exiting out ambitious plans for the weeks ahead. Particularly for example, wants to see an urgency in reaching an agreement on citizens'
rights.
(END VIDEO CLIP)
QUEST: So, Bianca, she's not going to get to stage two of the negotiations on the future relationship now. When will that happen?
NOBILO: What we're hearing, and I've heard this on fairly good authority from some prominent MEPs and also EU officials, is that even though they're
just beginning the proprietary internal discussions at the moment to enter into phase two, we're now expecting that in December. So originally, as
you know, when article 50 was triggered, you were there, we were hoping that the U.K. would have had enough progress by now at this very meeting.
But that hasn't happened. So, it's likely to be delayed until December. But I was told by Syed Kamall, a prominent British MEP, earlier today that
some trade talks are actually happening behind the scenes. Things like tariffs and geographical points of origin for products.
QUEST: OK. Finally, do we have a number that looks like it's coalescing around the actual divorce bill itself? What are they thinking of between
the 100 billion wanted by one, the nothing offered by the other, where is it looking like it's settling?
NOBILO: We have heard nothing new on the bill. And actually, the sense of frustration is palpable, and it's mounting as far as the EU is concerned.
I was in a press briefing earlier with the president of the European Parliament, Antonio Tajani, and I asked him if he felt like sufficient
progress had been made, if there was any progress being made. And he said, no. We just need more details from the U.K. We haven't had facts and
figures. And that's really concerning the EU. They know what they've asked for, and they feel like the U.K. just hasn't stand up to the plate
and delivered what they need to get to the next phase.
QUEST: Bianca, splendid stuff. Thank you. Have a good meal in Brussels, even though it's late. You can find somewhere open. Thank you.
Amid all of this uncertainty, Spanish stocks took a hit, not surprisingly bearing in mind what was happening along with the rest of the major
European indices. Investors are gloomy about earnings and disappointing economic news, and they were all heavily down, obviously the worst was seen
in Spain.
Trading was quiet though on the anniversary. The 30th anniversary of "Black Monday", which is where we go to the U.S. market. Take a look at
the graph. They stalled. Down heavily at the start. Then you see this graph up, and you've got two little points of green, but they do manage to
finish just off 5.44 on the Dow. Paul La Monica is in New York for us. This is a sort of rather grim sort of day. But then perhaps it's
appropriate, 30 years after the selloff.
PAUL R. LA MONICA, CNNMONEY CORRESPONDENT: Well, let's put it into perspective. A, we didn't have a plunge by any stretch of the imagination,
Richard, even when the markets were at their lows, they were only down more than 100 points on the Dow. With the Dow at these levels, that's really
not that much. And we actually finished higher. We had a pretty nice end to the day rally to push the market in the green. So, who knew? It seems
like right now this market still wants to believe that tax reform is coming.
[16:10:00] We had decent earnings from Verizon, as well, which offset concerns about Apple's possible slowdown in sales with, you know, maybe
sluggish demand for the new iPhone 8.
QUEST: Do you know, Paul, I best be getting old, or at least older. A, I remember the stock market crash. B, I even saw those numbers. Bring up
the Dow again. And I misread the numbers. It's a gain of 5.44.
LA MONICA: We were up.
QUEST: Yes, I'm so sorry, Paul. I just -- that bit of green is at the end. Just shows you -- because we're on air at 4:00 when the market
closes, I didn't -- yes, it's a record, and a record on the S&P 500, as well. I'm losing you here for the moment. And Paul, what do you remember?
You're too young to remember the stock market, way too young to remember the stock market crash of 30 years ago.
LA MONICA: Sadly, no. I'm too young to remember it from a professional standpoint, because I was 14 at the time. So, I remember it, but I was in
a professional journalist at the time. Unless you count my high school newspaper.
QUEST: I unfortunately do remember it. And covet it. So, one stock I know just plummeted literally. United Airlines was off 11 percent. One of
the worst performers, even though the airline had results today which were better than expected. 11 percent off on a stock the size of UAL is quite
sizeable.
LA MONICA: It is very steep. And I think very surprising to a lot of people, because Delta's results last week gave people the hope that we
would have some strong numbers from airlines. We also had, you know, others, you know boosting their outlooks as well. I think in the case of
United, it really is, you know, just goes to show that not all airlines are created equal. Some are doing better than others. And of course, the
storms and the hurricanes, Harvey and, you know, Irma and Maria obviously are having an impact on air travel, had an impact in the third quarter.
And I think that's a problem for the fourth quarter, as well.
QUEST: And one final thought, just occur to me talking about 30 years ago, Paul. Could it happen again? I mean, there are circuit breakers there,
and trading would have been halted, because of the 22 percent fall. But the idea that the computers take control. The idea of programmable trading
which is what was largely behind 30 years ago.
LA MONICA: Exactly. Yes, Skynet becoming self-aware, if you will, for any "Terminator" fans out there. I'm not so sure that anything like that would
happen again, because of some of the curbs that have been put into place. Obviously, we had some pretty steep selling in 2008. That's probably the
most analogous to time to what happened in 1987. But that is worth noting in and of itself. 2008, we had a series of big drops day after day.
Interrupted by some rebounds. So, maybe we would never get a true "Black Monday" again. But we could get several weeks of long bouts of selling if
market conditions all of a sudden turned negative. Be it a terrible terrorist event. A slowdown in the economy. Another big bankruptcy like
we had with Lehman Brothers in 2008.
QUEST: Paul La Monica, guru La Monica, thank you very much indeed. I appreciate it.
Interviewing for your own job is always an unpleasant business. Today in Washington, Janet Yellen spoke to Donald Trump about her future at the Fed.
[16:15:00] (COMMERCIAL BREAK)
QUEST: A beautiful day in Washington. The White House there, where Donald Trump has sent his budget and his plan to cut taxes. Which actually today
faces its test on the other side of Pennsylvania Avenue over at the capitol, where the U.S. Senate as Republicans are seeking to pass a $4
trillion budget. Now, Steve Mnuchin, the U.S. Treasury Secretary, says unless Congress passes tax reform, the stock market will tumble. And those
comments perhaps largely played into the fall that we saw in the market at the start of trading today.
The president seemed cautiously optimistic on Twitter, saying I think we have the votes but who knows? Sunlen Serfaty is in Washington enjoys me
now. Sunlen, so, the significance, first of all, do they have the votes for the budget tonight?
SUNLEN SERFATY, CNN CONGRESSIONAL CORRESPONDENT: Yes, we believe that they do, Richard. And the president leaving something of a cliffhanger there,
and asking openly on Twitter, you know, I hope that they have the votes, question mark, so to speak. But the White House and Hill Republicans up
here are aware that they do have the numbers tonight when they vote on the budget to be able to move forward to tax reform.
Now putting it into the broader picture, why is the budget related to tax reform? Republicans need to pass the budget because that becomes the
vehicle that they'll take on tax reform. And if it's done together, they can do this with only Republican support. And that's a very important with
the political climate they're facing up here. And even more important, because of the pressure that you reference not only from the White House,
Steve Mnuchin talking about it.
But up here on the hills of Congress, every Republican knows, they need a legislative win. They have talked about tax reform for a long time. Many,
many years. They know they need to score a win on this, so tonight when they pass the budget, that's a procedural win. Then they go towards the
larger win of writing and potentially and getting tax reform done -- Richard.
QUEST: Getting tax reform and not just tax cuts. That is -- is it your understanding, though, that that could blow apart the agreement, the
comity, if you like, that exists, that allows them to get the budget. Because once you go to tax reform, you're in a very different arena.
SERFATY: That's absolutely right. And you can sense a little bit of the rhetoric shifting up here. Some people referring to the larger thing as
tax reform. Some saying tax cuts. The issue is that the legislation has not been written. It has not been settled on yet. They are just starting
the very long -- very laborious process of doing that now. And, of course, there is, as always there is, some disagreement within the Republican
Party. Some divisions, on how much they should do, what format takes. And over the next days and weeks and months, probably, those divisions will be
revealed an awful lot more.
QUEST: Sunlen, thank you. On Capitol Hill, joining us.
President Trump has met Janet Yellen and he's weighing up whether to reappoint her as the head of the U.S. central bank. On the campaign trail,
Donald Trump said Yellen should be ashamed of herself for creating a false stock market. Now he says, she's done a good job. There are, though, five
contenders to be the next chair of the Fed. You can see there Gary Cohn, the director of the national economic council, former president of Goldman
Sachs. Janet Yellen herself, first woman Fed chair. The Stanford economist, John Taylor. And current Fed governor, Jerome Powell.
Diane Swonk is the founder of DS Economics joins me from Chicago. Of those contestants or contenders, they're all qualified at one level or another.
DIANE SWONK, FOUNDER, DS ECONOMICS: Basically, yes. I mean, of course, I have my favorite, and that's Janet Yellen, because I like continuity at
this stage of the game. Jay Powell is certainly someone else who would represent continuity. But we're just starting this period of unwinding
crisis era policies. Finally attacking the balance sheet, along with the zero interest rate policies. Near zero-rate interest rate policies. And I
think having continuity in that was someone of Janet's caliber would be ideal.
That said, the president has every right, as every president does, to pick his own Federal Reserve chair. And although we haven 't seen that happen
so much in recent years, we have seen more -- a lot of continuity in reserve chairs, even between Ben Bernanke, who was technically appointed by
a Republican and Janet Yellen, who is technically a Democrat. There is really a continuity. They were colleagues. It was sort of a handing off
of the baton and a sense of continuity between him and chair Greenspan before the crisis.
[16:20:00] QUEST: So, this fundamental accusation that whether it was Janet Yellen or Bernanke before, that with QE, with the printing of money,
they have stoked a stock market rally, if you like, or a stock market bubble. Which, incidentally, is exactly the same stock market bubble that
the president praised in a tweet yesterday. But let's put that to one side. How valid is that accusation that asset prices are inflated, largely
on the back of the printing of money?
SWONK: Well, first of all, we'd like to see more inflation and the Fed only has a few tools, and they are limited. I think part of what we're
seeing today is because we overburden the Federal Reserve with a responsibility of dealing with the U.S. economy when fiscal policy, which
Ben Bernanke in his day and Janet Yellen both begged Congress to do something about it and they refuse. And I think that's very important to
keep into context.
That said, let s face it. How many things can low interest rates influence? They do influence the restructuring of debt. We have seen a
lot of job gains. But they can't do some of redistributive things that we'd like. And, in fact, they do affect asset prices more than anything
else. So, there's no question that many of the concerns that we have around the world today about asset price bubbles are linked to a period of
exceedingly low interest rates globally.
QUEST: Right. And just since we have a second or two more. Just remind our viewers on this anniversary day, 30 years ago, of course, the stock
market fell out of bed. The market wasn't as sophisticated in terms of circuit breakers. And it was able to happen.
SWONK: Right.
QUEST: That can 't happen today. What you remember at the time?
SWONK: You know, I was working. I was still pretty young. And it was the first major event of my career. So, boy, it dates both of us, doesn't it,
Richard? But I think one of the most important things I remember about that period of time was that was the invention of the Greenspan put.
Greenspan had only been in office for a few months. I had only been on the job for a little bit of time. And, you know, not only was the underlying
economy still solid, we saw paper losses that took us back to the beginning of 1987. We made a very bold call back then and said the world would not
fall apart. Another reason the world did not fall apart was Chair Greenspan lowered interest rates very aggressively to deal with it and to
stabilize the contagion, the fear that we saw occur in the wake of debt. And I think that's very important.
It also created a false sense of security, something that couldn't be repeated today, given how low interest rates are.
QUEST: And I think probably a stiff drink not only to remember it, but also to think that it was 30 years ago when all this took place.
SWONK: It's a while, isn't it?
QUEST: And yet it seems in some --
SWONK: -- you're on the job, but yes.
QUEST: Good to see you.
The White House chief of staff, John Kelly, defended President Trump over his phone call to the families of four soldiers killed in Niger. The
Democratic congresswoman accused Mr. Trump of lacking sensitivity, saying the president told one widow her late husband knew what he signed up for.
Kelly, whose own son was killed in action, has long declined to comment on the subject. That is until today, when unannounced, he appeared in the
White House briefing room.
(BEGIN VIDEO CLIP)
JOHN KELLY, WHITE HOUSE CHIEF OF STAFF: It stuns me that a member of congress would have listened in on that conversation. Absolutely stuns me.
And I thought at least that was sacred. -- the only thing I could do to collect my thoughts was to go and walk
among the finest men and women on this earth. And you can always find them because they're in Arlington National Cemetery. Went over there for an
hour and a half, walked among the stones, some of whom I put them because they were doing what I told them to do when they were killed.
(END VIDEO CLIP)
QUEST: CNN's Dan Merica joins me. Whatever one's politics, it was the most extraordinary, heartfelt disturbing in some ways briefing.
DAN MERICA, CNN WHITE HOUSE: This is a man who knows the details of what a family goes through when a son or daughter is killed in battle. His son
was killed in 2010 in Afghanistan when he stepped on a land mine. And General Dunford, one of his good friends, actually, informed him of the
death and walked him through and helped him through that process. He spoke today not only as the White House Chief of Staff, so obviously there is a
political aspect to what he said.
[16:25:00] This was clearly an effort to halt and to deal with a story that the White House has had trouble dealing with. But he also spoke as a
father who had to go through this and not only a father, but somebody who commanded troops in the Middle East, in Asia, and as he said, put a lot of
these men and women, you know -- charged them out and they came back in caskets. So, this is a very emotional moment, really the most emotional
moment of this year in the White House briefing room.
QUEST: On the fundamental point of what Donald Trump said, the reality is, what Kelly said today is, he basically told Donald Trump to tell these
families, look, your sons were doing what they wanted to do. They signed up for it. They knew what they were getting into. This is what they
wanted. Now, when I put it like that, it sounds extremely good. But are we looking at here the president just didn't deliver that message very
well.
MERICA: It sounds different coming from a man who is a four-star retired Marine general than it would sound coming from Donald Trump. A man who
didn't serve and who actually got medical deferments from serving in Vietnam. So, I think it comes from a different place. John Kelly views
this and views service and what these four men went through as they were with their -- you know, comrades in arms when this happened. And actually,
told the president not only would he not make the call, not call the families as president, but told him that when his son died, he was actually
told by his good friend, General Dunford, that his son died doing exactly what he wanted to do. With the men and women, he knew best, and that he
knew what he signed up for when he joined the U.S. military.
That is significant, because what General Kelly is saying is basically I advised the president to tell him what he eventually told the family that
had landed him in such hot water.
QUEST: Does this intervention by the chief of staff bring an end to this distasteful episode?
MERICA: I think not, to be honest. You know, it's important to note that Representative Fredricka Wilson is actually a friend of the family. So,
the fact that General Kelly went out and criticized her for being in the car, for listening to the conversation, it's not as if she's just a
lawmaker who was in the car and who seized on this political moment. So, I think there's going to be some, you know, second day fact-checking of his
statement and what actually was said. I do think it adds a ripple to this and the White House certainly hopes that sending General Kelly out there
stops the story that they have been struggling to deal with.
But there are so many unanswered questions about why the soldiers were there. Why the intelligence was that there would be no attack like this,
and why it took so long to get many of them out of Niger, and especially those who had been killed or wounded. There were so many questions left
unanswered. I find it hard to believe that one appearance in the White House press briefing room by someone as knowledgeable as General Kelly -- I
don 't think it's going to stop this story, no.
QUEST: Dan Merica, thank you, sir. Thank you. We continue tonight, Nissan has taken drastic action to tackle the latest worries about how safe
the cars are. It's a huge blow for this man, Carlos Ghosn's replacement as chief executive of the Nissan brand. In a moment. QUEST MEANS BUSINESS
coming to you tonight from Washington.
(COMMERCIAL BREAK)
[16:30:50] QUEST: Hello, I'm Richard Quest. There is more QUEST MEANS BUSINESS in just a moment. When a CNN investigation shows major tech
companies are hindering some U.S. criminal investigations. And around this time, 30 years ago, I was going to say most Wall Street traders were
catching their breath. We were all catching our breath. Going to be speaking to one of the few analysts who predicted
what happened on black Monday 30 years ago.
A little more up to date. This is CNN and on this network, the news always comes first.
Spain's political crisis is escalating. The prime minister, Mariano Rajoy's government is beginning the process of imposing direct rule on
Catalonia. The Spanish cabinet will meet on Saturday to decide what steps to take. The announcement came after the Catalan president threatened to
formally declare independence, unless Madrid agreed to talks.
President Trump's rating his government's response to Puerto Rico's hurricane devastation is a 10 out of 10. He met with the island's governor
Ricardo Rosello, at the White House. The president's faced a backlash for the response as Puerto Rico struggles to recover.
The British Film Institute has stripped the disgraced Hollywood producer, Harvey Weinstein of a prestigious fellowship. The first time the
association has ever revoked its highest reward. Weinstein has been publicly rebuked by numerous industry organizations in the wake of the wave
of sexual harassment and assault allegations.
After four months of intense fighting, the Syrian city of Raqqa is in ruins, and we're getting our first deep look inside this city that ISIS has
declared its capital until Syrian Democratic forces this week ousted them. CNN's Arwa Damon shows us the scope of the ruin is almost incomprehensible.
(BEGIN VIDEOTAPE)
ARWA DAMON, CNN SENIOR INTERNATIONAL CORRESPONDENT: The destruction, it's so vast. It's so widespread. It's hard to even begin to imagine just how
terrifying this must have been, especially for the civilians that ISIS was continuing to hold hostage until the very last minute. And you can 't even
see traces of the life that was amid the rubble.
That is just how devastated this city has become. And we're still under very strict orders not to veer off the main roads, not to go down any of
the alleyways, because of ongoing concerns that ISIS still may have explosives buried throughout the rubble.
Commanders that we have spoken to have described this as being a multilevel battlefield. There is the fighting that took place above ground, and then
there is the fighting that took place underground with the vast intricate tunnel system that ISIS had dug out.
(END VIDEOTAPE)
QUEST: Nissan has taken drastic steps to address safety concerns in Japan by suspending production of cars for the home market. Safety checks in at
least three plants have been conducted by unqualified technicians. The new CEO here had to make a personal apology with the obligatory bow at the
beginning. It's the latest in a string of problems emerging in Japanese industry.
Car and airplane makers are investigating after Kobe Steel falsified data about the quality of the product. Takata's potentially lethal air bags
prompted the biggest auto recall in history. And there were emissions issues at Mitsubishi and Suzuki.
Rebecca Lindland is the executive analyst of Kelley Blue Book, joins me now from Connecticut. Always good to have you, Rebecca, we need your
assistance in understanding.
[16:35:00] Look, when I read this story this morning, this is remarkable that the home product -- not the exported product, the home product of
Nissan, they're actually having to halt because of an issue on safety.
REBECCA LINDLAND, EXECUTIVE ANALYST, KELLEY BLUE BOOK: It was really a procedural issue. As I was studying this, it's really -- they basically
had people that were unqualified stamping and verifying vehicles, the finished product. And what's really astounding about this is that they
knew -- they were told this by the ministry of transportation, infrastructure and -- I knew I would forget one of them. The MLIT. And
they fixed it.
But it didn't actually infiltrate to all of the plants. So not everybody listened and not everybody changed their processes. So that's what they
discovered now is, hey, you know what, not everyone is in compliance and we've got to get this done and make this right and do this correctly.
QUEST: So, is it your view that this is a serious setback, or is it just - - I mean, to want of a better phrase, a bloody nose?
LINDLAND: It is a little bit of both, Richard, I mean, it is an embarrassment for sure, and as we all know, in Japan, that's a very serious
charge. I mean, you know, as you said in your introduction, he had to bow. You know, and especially because this is a new CEO, right?
So, this is somebody who has taken over from the legendary Mr. Ghosn. And this is now his responsibility. This is his -- now his company. And
unfortunately, you know, Mr. Kobayashi has not been able to deliver, and it has gone directly to the
top and it is quite the embarrassment.
QUEST: So, when we now look at this country, Nissan, Mitsubishi. When we look at the Ghosn -- the Carlos Ghosn empire that he has put together, are
we -- are you certain that this whole conglomerate has been a good idea?
LINDLAND: Oh, gosh, that's a -- that's a Question for a long show.
QUEST: With a short answer.
LINDLAND: I don 't Question the alliance. I think this is -- first of all, it's important to know that nobody has been injured. There has been
no crashes. This is not something where anybody -- there's no loss of life when it comes to this situation. And I certainly don't question the whole
alliance at all. I think this is just one of those harassments as you said. Japan has just been reeling a bit from an industry that they really
owned, and they're losing their competitive edge over China.
And so, this is where some of these different issues that you've outlined really cause people to say maybe we should go someplace else. And that is
the biggest question here.
QUEST: Right. And when you look at this industry, since we are looking back 30 years on black Monday, you know, I can remember years -- the Reagan
years, the whole issue with the Japanese cars. Chrysler, Lee Iacocca, and all these things Japanese.
What would it take for Japan to get itself back in that sort of full frontal mode?
LINDLAND: Well, we've always seen that it's not having a recall, it's always the reaction to the recall. And we certainly saw Toyota recovering
incredibly well. You know, from their 2010, 2011 unattended acceleration. They recovered in less than half of the time that other manufacturers have
recovered from recalls.
But we also have a situation demographically where we have a new consumer coming on board. We have new millennials that are really making their
wishes known. And so, I think that from a market standpoint, we could see consumers be more open to vehicles from China. So, I think that Japan is
having new threats that are facing them.
And so, the timing of these particularly bad.
QUEST: Excellent to have you with us thank you so much. Thank you so much.
30 years ago, black Monday, we were literally sweeping up around the market at this time three decades ago as we wondered what had hit us. Now stocks
are hitting record after record in a market that is faster and more complex than ever before. So, we're going to look back to the day when fear ruled
the floor, and consider the lessons that have been learned.
[16:40:00] (COMMERCIAL BREAK)
QUEST: In a complicated world, a simple fact, it was the Dow's worst day in history.
It was October the 19th, 1987, when the industrials fell 22 percent, more than 500 points. From today levels, it would mean a fall of around 5,000
of the Dow Jones. $6 trillion in value would be wiped out across the market. Well, in 1987, there were no
circuit breakers to stop the fall.
And there were no markets and no buyers and the market full of fear. CNN's Clare Sebastian, who is too young to remember that stock market crash,
takes us back to black Monday.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: There's only one word to describe what's happening, and that is panic.
CLARE SEBASTIAN, CNN MONEY CORRESPONDENT: When it comes to black Monday that one word says it all.
TED WEISBERG, FOUNDER, SEAPORT SECURITIES: The crash of 87 was as close to panic as I have ever seen in my 50-year career.
UNIDENTIFIED MALE: This was real money, and this was real panic.
UNIDENTIFIED FEMALE: The pace has actually picked up.
SEBASTIAN: On that autumn day stocks are up more than 15 percent on year. Michael Jackson's "Bad" was heading for number one on the Billboard charts,
and one New York real estate developer had made one thing very clear.
DONALD TRUMP, REAL ESTATE DEVELOPER 1987: I have no intention of running for president.
UNIDENTIFIED MALE: This morning, the stock market has been in a free-fall.
SEBASTIAN: In one day, the Dow fell 508 points, 22 6 percent. Global markets followed suit.
UNIDENTIFIED FEMALE: Here on the floor, you could see fear in the eyes of the traders. There was pushing, there was profanity.
Sebastian: Was there pushing and profanity?
PETER TUCHMAN, FLOOR BROKER, QUATTRO M. SECURITIES: Absolutely, there is no question about it. And there was complete frantic rage at the time.
SEBASTIAN: Back then, Peter Tuchman was a 30-year-old retail clerk.
TUCHMAN: Orders were coming out as fast as you could get them. The phones are ringing off the hook.
SEBASTIAN: Across the floor if and 47-year-old Ted Weisberg was already considered a veteran on the trading floor.
WEISBERG: The customers are screaming. Sell it, sell it. To who? Who are we going to sell it to nobody wants to buy it. The problem is, if
there's no buyers and four sellers, stocks are only going one way. It was the most emotional day, other than when we came back after 9 / 11, that I
ever spent on the trading floor.
SEBASTIAN: Many believe emotion was part of what sparked the crash.
UNIDENTIFIED MALE: Bloodbath.
UNIDENTIFIED MALE: I don't know what's going to happen tomorrow. SEBASTIAN: Others blamed electronic trading than in its infancy.
WEISBERG: If all the computers want to sell and none of the computers want to buy.
Katy bar the door.
SEBASTIAN: Did you learn any lessons that day? October 19, 1987.
WEISBERG: No matter how good you feel, no matter how bullish you might be, you never take your eye off the exit.
SEBASTIAN: Clare Sebastian, CNNMoney, New York.
(END VIDEOTAPE)
QUEST: Markets have gotten faster, busier and more complex. Computers have replaced humans. Algorithms make trades automatically. And they do
so quickly. Hi frequency trading. The dependence on computers comes at the risk of Cyber-attack.
The rise of passive investments through ETFS. Trading funds. Some market- watchers worry they could amplify a selloff.
[16:45:00] The crash did prompt exchanges to introduce circuit breakers. And they give a chance to take stock of the situation, literally and
figuratively, in times of hi volatility.
Peter Borish is one of those who saw the crash coming 30 years ago. He was head of research at Tudor Investment Corporation.
The firm warned investors the market was moving in a way that's eerily similar to the days just before black Tuesday in the great depression.
Peter joins me now.
So, you are one of those -- I'm sorry, forgive me for not being in New York to be sitting next you. to you. The one day we have this. What did you
see coming up to this that you didn't like?
PETER BORISH, CHIEF STRATEGIST, QUAD CAPITAL: First of all, thank you, I see that my hair is exactly the same color today as it was back then and
'87. Have not aged a bit.
QUEST: You're looking good.
BORISH: So, you know, when we looked at the patterns of 19 in the 20s to 1987, it's not just patterns. I think people today have to be particularly
careful of spurious correlations if they think just because the market has gone up a lot that it has to immediately go down.
You need to have a combination of fundamental underlying factors. You need to potentially have new tools that people don't fully understand. One of
those was portfolio insurance, and what I call the illusion of liquidity, combined with the technical factors.
So today where the market is very stretched, there are no real certain technical factors saying that it's in imminent likelihood of a big move to
the down side.
QUEST: Right. So that's what really everybody is asking you, isn't it? Are you seeing similarities there today from then? But you raised this
question, because I -- you know, like yourself, I was there 30 years ago. That it was portfolio insurance. It was the first era of computer trading,
and stop loss in these sorts of things.
I wonder whether we can make analogies with things like the flash crash, high-frequency trading. We are -- even the stock market -- the great
recession with all the newfangled debt instruments that led to the crisis.
BORISH: So, for every good thing, there tends to be a mirror. So, in the case of quantitative trading, where you take emotion out of it, that's the
bad thing, because on the other side in history, fear is always greater than greed.
So, if you look back to the flash crash, and if you see that and CNN, you're going to have headlines and people are going to call up. And so,
you have this momentum of negative things. So, what happens, everything goes down more quickly than it goes up. And with the advent of computers,
and I think Ted was saying in the segment, if bids are removed, because they're not required to be there, then you can have a market decline. But
you need to have that condition.
One of the things I always pound the table on for all you traders out there in the audience, is that big moves happen from oversold conditions. They
don't happen from here where we are very, very overbought. Just because something is overbought, people think, well, it has to go down. It does
not.
QUEST: So, pulling the strands together and going back to 30 years ago, first of all, briefly, how quickly was it before you said, "I told you so,"
and secondly, was there a feeling -- did you feel an element of panic 30 years ago?
BORISH: Well, we were pounding the table in the sense that initially when we built our models, we kind of thought it was going to happen in early
'88. But then we were pounding the tables saying the risk reward was not there to be in equities. And many people felt at that time that Japan was
extended, and that's where if there was a big market decline, was going to take place.
We looked at history, and kind of like today, we said, guess what, it's the old that goes first. If you look back to the 20s, there was more weakness
in Britain than the U.S. Everybody loves the young. So that's what happened. The U.S. went first in '87.
And when I look at the parallels today, I think, well, we have a better regulatory structure. I don 't want to get into what's going on in
Washington. Maybe that's a mistake. But we put in circuit breakers, we put in better disclosures. Those things have helped protect the market
recover quickly from intermediate -- what you call in flash crashes since that time.
QUEST: Peter, we look forward to talking to you when you'll still have all of your hair and your teeth on the 40th anniversary and many times in
between. Please, come back again. Well, I hope it doesn't take another 10 years for me to come back. Thank you very much.
QUEST: I'm hoping we will be looking weeks. Thank you.
[16:50:00] As we continue tonight, U.S. Tech companies are facing criticism for refusing to turn over information the police say they need to trace
criminals. Microsoft, Google and others say they are just protecting users' privacy, and the needs of law enforcement needs to be balanced.
(COMMERCIAL BREAK)
QUEST: Just in, Capitol Hill, and the tech companies, Facebook, Google and Twitter are sending their top lawyers, not chief execs to Capitol Hill on
November the 1st.
They will be testifying about Russia's use of social media to influence the 2016 United States presidential elections. So, no CEOs. Instead. general
counsels.
Major tech companies hindering U.S. criminal investigations by withholding data that is stored overseas. Since the U.S. Ruling last year, companies
are not required to hand over information that's kept on servers outside the USA. The Supreme Court is reviewing that particular ruling.
CNN's investigative reporter Jose Pagliery is in New York to explain the significance, in a sense. We
had the judgment, but now there's this accusation that the tech companies are hindering, perhaps knowingly, when they refuse to provide the
information.
JOSE PAGLIERY, CNN INVESTIGATIVE REPORTER: That's correct. So, there was a pivotal moment last year when an appellate court here in New York decided
that actually American judges cannot approve search warrants that reach outside the United States.
Now, what followed with that was that now tech companies across the country are saying no to police every time they show up, so we want to access data
overseas. Now, it doesn't even matter if these results -- this is an investigation into a crime that an American committed against another
American on American soil. If the video that proves such a thing exists in Ireland or Italy or Japan, police in America can't get access to it, even
if they have a judge-approved search warrant.
And that issue is so big that now the Supreme Court is going to take a look at that. But the point of our story was to show that this is actually
hindering maybe hundreds of criminal investigations, everything ranging from human trafficking to child rape or drug trafficking. It really goes
across the board.
QUEST: OK. So, I remember the judgment in this case, and the reason there was a certain legal sanctity about it. When the judge basically said, and
the argument goes, oh, yes, and what happens when a judge in Ireland or a judge in Britain or in Australia insists on providing information on
servers held in the United States?
That's the point here, isn't it?
PAGLIERY: Well, that is definitely a key point. That is something that should be discussed. But at the heart of this is an outdated law. The law
in the United States that regulates this sort of thing was written in 1986.
[16:55:00] And back then, Congress could not have imagined that, so much information was going to reside on computers around the world.
And so, there's actually a dual fight going on here, while the Supreme Court is going to weigh in and say whether or not American judges can do
this and give police this power, the other side of this is that even the tech industry is trying to update this law.
Because they want to help police Internationally. Here and abroad do their job.
QUEST: All right. But it's not that simple. Because what happens when a judge over in the U.S. demands that -- let's say the Supreme Court
overrules it. But a judge in Germany says, no, this is against German law. You can't have it. That puts the tech companies in absolutely squarely in
the middle.
PAGLIERY: It does. It absolutely does. This is a bad situation all around.
Everyone we spoke to for this story said this a very difficult situation. For technology companies, they are put between a rock and a hard place.
Either they are holding back investigations in the United States, while they're also simultaneously holding back investigations abroad.
And if they help the police in the U.S., they'll break some foreign law and vice versa. And so, the law needs to be updated somehow in order to make
it work for all sides. But until then, and this was the point of our story, criminals have cover. So, there are criminal investigations right
now that cannot get solved because of this mess.
QUEST: Digital Geneva Convention. We will talk about that in the future.
Tonight's Profitable Moment after the break.
(COMMERCIAL BREAK)
QUEST: So, 30 years ago, well, the market crashed and frankly, I'd never seen anything quite like it. It was the last seconds after p.m. When I
was in London working for another organization and I saw the market drop more than 100 points. Maybe that's not so horrific today, but then the Dow
used to move just a couple of points every day. We never want no see that again. Hopefully, as we've talked again. Just don't say never.
That's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in Washington. Whatever you're up to in the profitable. I'll be back in New York
tomorrow.
END
