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Quest Means Business
Donald Trump Celebrates The US Market`s Rally And Unemployment Hit A Record Low, The Air France-Klm Boss Quits, Argentina`s Central Bank Goes For A Monster Rate Hike, CEO`s Behaving Badly, Former CEO Of Volkswagen Is Facing Criminal Charges Over Dieselgate, Official Story About A Hush Payment To A Porn Star That Has Changed, Yet Again, Allegations Of Either Abuse Or Sexual Assault At The Hands Of Uber Drivers. Aired: 4-5p ET
Aired May 04, 2018 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA NEWTON, CNN HOST: Well, it was somewhere you know, it had been on a little bit of a roll, but now it`s right where I left it around 12:30, also
a decent 1.4 percent almost there. Those stocks were loving their Friday feeling. It`s Friday, May the 4th.
Tonight, Donald Trump celebrates the US market`s rally and unemployment hit a record low. The Air France-KLM boss quits after falling out with his own
staff, and Argentina`s Central Bank goes for a monster rate hike.
I`m Paula Newton, and this is "Quest Means Business."
The US economy is breaking records and stocks are surging. The new jobs report shows unemployment fell below 4 percent in April. I hear your
applause from the sidelines. That was the best levels since 2000, but wait, you might get too excited. Job growth and wage growth were in fact
lackluster.
Now, investors, they know quite what to make of it as the trading began. The Dow opened down more than 100 points, but at the close as you just saw,
the major markets were all firmly higher and more to that, all of the sectors were up. In Washington, President Trump couldn`t resist taking a
victory lap.
(START VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I thought the jobs report was very good, but they think of me, I was bragging for it. That hasn`t
been done in a long time. You`ll tell me how long. But it hasn`t been done in a long time with full employment. We are doing great. The stock
markets is doing, I guess, it`s up 35 percent since the election and now, I think really, they`re waiting to see what`s going to happen on trade
because we`re going to have some incredible trades deal for now.
(END VIDEO CLIP)
NEWTON: Let`s get this straight, a trade deal with China hasn`t happened yet. The American negotiators who travelled to Beijing to try and put an
end to the ongoing trade dispute are on their way back to Washington, let`s be clear, without a trade deal yet.
China says, the two sides though did make some progress, but big differences remain. Andy Puzder was President Trump`s first choice for
labor secretary, but he withdrew his nomination. He previously served as CEO of CKE Restaurants, which owned Hardyees and Carl, Jr.
Now, most recently, he has written a book, "The Capitalist Comeback: The Trump Boom and the Left`s Plot to Stop it." Andy Posner joins me now,
right here in studio, can`t thank you enough.
ANDREW FRANKLIN PUZDER, FORMER CEO OF CKE RESTAURANTS: Pleasure to be here, Paula. Thank you.
NEWTON: Okay, to start off, can`t help but notice that you should be bragging about these numbers right now if you were labor secretary, you
would have.
PUZDER: It would be nice.
NEWTON: You wanted a shot at it because I`ll give you - I`ll give back as soon as you can give me because the numbers are good, but we did not have -
this big tax cut really was supposed to lead to a little bit more business investment and crucially, more on the wages. We wanted to see more on the
wages.
PUZDER: Well, you did see more investment. I mean, the GDP numbers came out. We had good investment in the first quarter. The problem was an
investment was consumer spending. So, if we can continue with elevated business investment, and business - if you find out there`s a tax cut and
you`re going to have some money, let`s say, you`re building a restaurant and that was the industry I was in, well, if you decide you want to expand,
because there`s benefits to doing it, you get to write off your investment in the first year, first, you`ve got to find a site and then you have to
negotiate a deal, then you have the build the restaurant.
And then it opens and so - this is going to come in over time, but I think these initial numbers have been encouraging.
NEWTON: Okay, and so you`re saying it`s just a bit too early to talk.
PUZDER: Yes, one thing that I particularly like, really, I haven`t seen anybody pay attention to it, so maybe you I can talk about it was the
number of people working part-time for economic reasons, in other words, they couldn`t find a fulltime job, so they had work part-time, fell to its
lowest level since October of 2007, which is pre-recession, so that`s a good number.
NEWTON: But the number on the number of hours worked in a week was not very good. We`re at 34.
PUZDER: Yes, but what you`ve got--
NEWTON: Don`t you want to see that come up a little bit.
PUZDER: Oh, yes, absolutely. But you are seeing people move from jobs they would have preferred not to have the jobs that pay them or, and that
the benefit of it -- obviously, that doesn`t show up in the unemployment numbers because they are already considered employed.
So, there are some underlying factors here that I think indicate economic strength.
NEWTON: And understood, we are getting picky, who can complain, 3.9 - I think some people--
PUZDER: Definitely, it`s got to be close to four, right?
NEWTON: Yes, but some people - some people even in the industry that used to lead will say, there was a mismatch perhaps even in skills and jobs. So
if you put that aside for one moment, I do want to get to this issue of trade. Look, no one expected they were going to come back from Beijing.
It was a trade agreement now. You argue it`s going to take a long time.
But that`s exactly the argument that people are making. The Trump administration wants to upend trade deals and really, the timelines are
unrealistic, but more than that, you`ll hear later in the show, the EU Trade Commissioner taking a very hard line, and threatening a trade war of
their own if the Trump administration goes any further.
PUZDER: Yes, I think there will be a lot of threats right now, but I think that trade relationships are much too important to the economies on both
sides. And given that we`re the world`s biggest customer, and yes, in any business you are in, the one thing you don`t want to do is offend your
biggest customer.
We are the world`s biggest customer, people will take positions as they did in China, as they did initially in NAFTA, but here we are, very close to a
deal on NAFTA. I think you`ll see the side move - this is the way business, you know, this is the way negotiations. You come in, yelling and
screaming that you want to be - wait here and you really only want to get to hear and maybe you`ll--
[16:05:16]
PUZDER: -- settle for being here, so we`re in a negotiating stance right now. I think whatever the negotiations are, the United States is going to
end up better off because that`s such a disadvantage in many of these relationships.
NETWON: And a lot of people in the administration credit for trying as long as they don`t spoil everything in the meantime, so I have you in the
record. NAFTA is happening, that`s one. Can I have you on the record, you`ll be back here talking about a China trade?
PUZDER: I have no inside information on NAFTA, but I do believe it`s going to happen and I hope people will read the book about - why we have this
booming economy and what President Trump has done really to advocate and promote a blooming economy.
NEWTON: And I do want to get to that for one moment if I can--
PUZDER: Oh, good. I thought we were almost finished.
NEWTON: No, no. Even if you were - you know, one for the questions, especially even if you look at the industry you used to run, okay, if we go
into a fast food restaurant now, it`s all automated, at least we`re trying to make it more automated.
A lot of people argue trade is not the issue that we will not be worried about this in five, even 10 years. It`s things like AI, artificial
intelligence, automation on the factory floor and that we need to be a smarter economy. Not smart in trade negotiations, just smart overall.
PUZDER: I think we do need to be a smart economy. There`s absolutely no doubt about that. I don`t think the threat from automation is as
devastating as people would make it out to be unless you try and price workers out of their jobs that automation can be expensive, and automation
can also create - we have the tractor. The tractor didn`t mean we have less farmers and less produce, we have more.
So, automation can advance the economy. It should advance the economy. I think - we did not, when I was running CK, we didn`t put the order in
kiosks and one of the reasons we didn`t do it is I felt that was the wrong thing to do. I think the relationship between your employees and the
consumer is very important.
We could have been forced to do that and franchisees might have been forced to do that, if the cost of labor was artificially driven up too high, but
we never got to that. We never got to that point.
NEWTON: And I bet most companies will get to that point very soon and we will--
PUZDER: But we`ll see, but if the economy is driving wages up, that`s different than the government driving you up.
NEWTON: Understood, the book is, "The Capitalist`s Come Back." Thanks so much for coming on, you`re welcome back here any time. Next time, perhaps,
we can talk about the staffing changes in the Trump administration.
PUZDER: Whatever you like.
NEWTON: Great. All right, as I was just saying, Europe is facing its own round of trade talks on that June 1st deadline on metals tariffs. Earlier,
I spoke with the EU`s trade commissioner who surprised me and signaled that Brussels will in fact take a hard line on the issue accepting nothing short
of this being a permanent exemption.
(START VIDEO TAPE)
CECILIA MALMSTROM, EU TRADE COMMISSIONER: We are not really negotiating. We have been making the case that we think that the European Union should
be permanently and unconditionally excluded from these tariffs. We would like to work with our American partners and friends on the main course of
the whole issue which is over capacity in steel and aluminum originated from China.
But the European, as a friend and an ally and a partner is not a threat to the US internal security.
NEWTON: They don`t see it that way, and if we take the steel and aluminum, I mean, set that apart, you say you`re not negotiating, that`s exactly as
you know what the White House does not want to hear.
What can you do to try and perhaps get some of that collective action on steel and aluminum, but also perhaps open up areas of trade where the
United States believes the EU is being patently unfair.
MALMSTROM: Well, we don`t share that assessment. We are willing to talk to our American partners to see if there are trade irritants that we can
address, mutually beneficial from both sides, but of course, we are not going to start any negotiation under threat. We want to be permanently and
unconditionally excluded and that has been our main message and we have offered also partnership in corporation on China on the reform of certain
of the rules in the WTO and so on.
And this is what we should be focusing on. We are not. We think that there are issues we can solve in the trade area, but it`s a two-phase
process.
NEWTON: From what I hear from the US trade representative and what I am hearing from you right now, that means you guys are essentially at a stale
mate, so nothing is happening and nothing is going on and that`s despite the fact that Chancellor Merkel and President Macron has been in contact
face-to-face with President Trump.
So, where do we go from here? Businesses are looking for some kind of certainty.
MALMSTROM: Well, absolutely, but we didn`t start this. It was the decision of the American administration to impose these tariffs on many
countries of the world. Yes, of course, we are talking. We are in regular - and many times a week, I am talking to Secretary Ross and others and I
think that Chancellor Merkel and President Macron had important talks, not only on trade but also on other issues, so of course, we are always
talking.
We consider that - the transatlantic relationship is very important, but we shouldn`t threaten each other with tariffs like this. This is not good for
the global economy. It creates uncertainty--
[16:10:16]
MALMSTROM: -- it`s not good for the business climate now that the global economy is recovering. So, our main message is we should not be subject to
these tariffs and let`s get over with that and start to discuss the real things.
NEWTON: Well, you can keep talking and the President keeps threatening. He has done so just in the last few days, so I have to ask you where do we
go next in the next few weeks. Do you have any predictions for how this will go?
MALMSTROM: Well, we`ll continue talking of course. We are always open to dialogue, but this has been our main message and that we think we should
focus on how we address the core issue of steel and aluminum overcapacity in Europe - in the world. We had been subject to that in Europe as well.
We have suffered, we have had job losses and we have done our homework. We have reformed our trade defense instruments, we have reformed our sector
and we want to work with US, with Japan, with other countries to address the overcapacity problem in China, and that is what we should focus on.
If we escalate this to you know, imposing tariffs, we are also prepared to impose tariffs and to take rebalancing measures if needed with the US, but
we certainly hope that will not be the case.
As I said, we are the oldest friends and allies of the United States. We should work together and not against each other.
(END VIDEO TAPE)
NEWTON: Moving on to what has been a monumental day of controversies and slipups for CEO`s of household name companies. Now, Air France-KLM`s chief
is headed for the exits after staff voted against a new pay deal designed and a long-running industrial dispute.
Now, Jean-Marc Janaillac says the move forced him to regretfully offer his resignation.
(VIDEO CLIP STARTS)
Jean-Marc Janaillac, FORMER CHIEF OF AIR FRANCE-KLM: (Through a translator). With the feeling of being sincerely and totally committed for
two years, I have a huge regret this evening that we have not been able to recreate the conditions of trust within Air France. Thank you very much.
(END VIDEO CLIP)
NEWTON: Okay, in the meantime, the Xerox CEO has decided not to resign after it looked like he would be forced out on Tuesday. Now, activists
investors had wanted to force Jeff Jacobson out over his plans for a merger with Fuji Film.
Meantime, over to Tesla, Tesla`s Elon Musk admitted on Twitter it was, "Foolish to ignore questions on Wednesday night`s conference call,"
uncharacteristic contrition from Mr. Musk. Musk`s combative remarks sent Tesla shares falling sharply. Maybe, that`s what taught a lesson, and not
to be all done, Nike`s CEO reportedly apologized to staff over the company`s corporate culture.
The company has seen several senior executives leave after complaints about the workplace environment. Clare Sebastian and Paul La Monica join me now
on all of this. You know, we kind of quoted it as CEO`s behaving badly
In the case of Nike, Paul, he was trying to really be transparent, with okay, this is everything that has gone on here and we need to talk about
it. We need to clear the air.
PAUL LA MONICA, CORRESPONDENT, CNN: Yes, I think of the three CEO`s here, really the only CEO that behaved badly is Elon Musk, to be honest. I think
that Mark Parker at Nike is trying to make amends for what some other people at Nike are reportedly saying is a bad culture.
Yes, the buck does stop with the CEO. There are no reports though that Mark Parker himself was involved in any of the toxic sort of maybe bad
locker room sort of like behavior, chauvinistic and worse, that might be taking place at the company.
That being said, obviously, we have seen some executives leave at Nike. There seems to be a corporate culture issue that Parker is trying to
address at this reported comments he made at the all-hands meeting where he said, that you know, things have to end and that we need to be able to have
a more welcoming company to all of our employees.
NEWTON: They were quite transparent comments, and I am sure it took a lot of people by surprise. It will be interesting to see whether it actually
does turn the page. Clare, speaking or somebody who wanted to turn the page, I thought this was really as I said, a capitulation on the part of
Elon Musk that I don`t think was characteristic.
I am not sure it was at all helpful. Maybe he should have just been quiet through the whole time.
CLARE SEBASTIAN, CORRESPONDENT, CNN: Yes, he bought himself a second day of news cycle--
NEWTON: Exactly.
SEBASTIAN: -- rather unfortunate earnings call. I wouldn`t say it was a capitulation, it was a little bit kind of stay in the tale, because it came
in a kind of a Twitter conversation where someone suggested to him that perhaps, he should just have blocked these investors that he shut down on
that call to start with, and then he wouldn`t have had to worry about it, and he said, true, and then he went on to say, you know, once they were on
call, I should have answered their questions live, it was foolish of me to ignore them.
So, yes, to an extent, it is uncharacteristic contrition from Elon Musk, but it doesn`t you know, change the fact that on this earnings call, he did
show a side to him, a more extreme side of the defensiveness of that pattern that we have seen from him recently, and it`s sowed the seed of
doubt in some people that means that he has more work to do to show leadership when it comes to the numbers--
[16:15:16]
SEBASTIAN: -- when it comes to the promises that he has made about ramping up the Model 3 and all of that, so you know, he did also cause snatch
defeat from the jaws of victory because the earnings weren`t actually about that.
NEWTON: And not to be outdone by Elon Musk and Tesla, now Xerox then comes out with this brouhaha with their whole board and then comes out with a
statement that has the audacity to say we know that this has caused uncertainty for shareholders. I mean, really?
LA MONICA: Yes, obviously, when you decide to bow to pressure from activist shareholders including Carl Icahn, and get rid of your CEO, but
then turn around and say, "Okay, we`ll guess what, now, he`s back." It is obviously a very strange thing to do.
All that being said, this pales in comparison to the drama that is Tesla and what is going on at Nike. This is just a boring classic `80`s style
almost you know, corporate takeover, corporate rater sort of attempt to force Xerox to do something that they may not want to do. They have this
deal with Fuji film that Icahn and other activist shareholders doesn`t really think values Xerox at the level that they should be getting for the
company.
So, I think they just want more money, they`ll go away. This isn`t about corporate culture. It`s not about being immature, which dare I say is
exactly what Elon Musk was during his conference call.
NEWTON: You don`t think it`s immature though to sit there and say, "You`re fired. No, I resign. No, I am not fired, I`ve got the keys to the
corporate office."
LA MONICA: I think it`s odd what they did because they seem to be bowing to the pressure of these prominent investors and then they changed their
mind. I`m not trying to say it`s immature, but just strange.
NEWTON: Quantify your sum, I bet he`ll say with this material as well. Both of you have a lovely weekend and thank you for all your work this week
on what has been another crazy week on Wall Street.
Now, later in the hour, another CEO making headlines. This time, the former CEO of Volkswagen is facing criminal charges over Dieselgate, and
the official story about a hush payment to a porn star that has changed, yet again, but Donald Trump saying it hasn`t changed at all. A Senate
Democrat of the White House have a credibility crisis. What do you think?
Donald Trump has thrown another wrench into the narrative over his payments to Stormy Daniels. Now, the US President says his new attorney didn`t get
his facts straight when he claimed Mr. Trump had paid back a lawyer who gave the porn star hush money.
The problem is, Rudy Giuliani, himself told CNN that he had carefully coordinated his statement with the President. Despite all of these mixed
messages, Mr. Trump insists he is not changing his story.
(START VIDEO CLIP)
TRUMP: When Rudy made the statement, Rudy is great, but Rudy had just started and he wasn`t totally familiar with every - you know, with
everything and Rudy, we love Rudy, he`s a special guy, what he really understands is that--
[16:20:16]
TRUMP: -- this is a witch hunt. We are not changing any stories. All I am telling you is that this country is right now running some smoke and to
bringing up that kind of crap and to bringing up witch hunts all the time, that`s all you want to talk about, you are going to see - excuse me, excuse
me--
(CROSSTALK)
UNIDENTIFIED FEMALE: You said on (inaudible) correspondents, you did not know--
(CROSSTALK)
TRUMP: But you have to - excuse me, you take a look at what I said, you go back and take a look. You`ll see what I said.
UNIDENTIFIED FEMALE: You said no, when I asked you did you know about payment?
(CROSSTALK)
TRUMP: Excuse me, you go take a look at what we said, but this is a witch hunt like nobody has ever seen before and what they should do is look at
the other side.
(END VIDEO CLIP)
NEWTON: So, the other side, I am joined by Senate Democrat, Richard Blumenthal. He is live from Hartford, Connecticut. Now, in light of
everything that has gone on, in the last, I guess 48 hours now, hard to keep up, Senator, I don`t know how you do it, you are saying that in fact,
all of these changes the very nature of the investigation.
You say, it changes it profoundly, how?
SEN. RICHARD BLUMENTHAL (D), CONNECTICUT: This investigation is proceeding through the Special Counsel methodically and systematically. And also, in
New York, through the prosecutor`s office there, the Southern District of New York and what is happening now is that Donald Trump has been shown to
be a liar on the topic of these payments to Stormy Daniels.
His own lawyer has said that these payments were a reimbursement back to his lawyer who in turn has paid Stormy Daniels, that term reimbursement
indicates it`s a repayment which Donald Trump has denied.
So, his own lawyer now has exposed Donald Trump to be lying and it changes the investigation because it shows a corrupt motive, a criminal intent and
it`s more evidence of obstruction of justice, but even more important, it shows that Donald Trump really must have an interview with the Special
Counsel. He must sit down face-to-face. He must be subpoenaed and if necessary, before the grand jury if he continues to refuse to cooperate and
that is an important imperative that Donald Trump must respect.
A subpoena seems more and more likely to be necessary and unavoidable in this investigation and Donald Trump must respect the law. No one is above
it, not even the President of the United States is above the law.
NEWTON: There are different lawyers though that say whether or not, you know, there is some dispute as to what the repercussions would be, do you
think though right now, he will have to be subpoenaed that there is now way - I mean, these lawyers seem to be saying that he needs to sit down, he
answer a list of questions on a limited time. Maybe two hours, two and a half hour interview, do you think that would be acceptable for Americans?
BLUMENTHAL: There is no way that restrictions in time or scope should be acceptable to the Special Prosecutor. He needs to hear answers from Donald
Trump personally in an interview and probably under oath or before the grand jury and--
NEWTON: Even just - sorry to interrupt, Senator--
BLUMENTHAL: -- very directly to answer your question.
NEWTON: -- but even if this has nothing to do with the Russia inquiry because at the end of the day, what people are saying and I think many
voters are also saying now, this doesn`t have anything to do with the Russia inquiry. It has to do with a colorful lifestyle that most Americans
knew the President had before he became President.
BLUMENTHAL: But if the President refuses to answer questions about it, or lies about it, the American people deserve to know the truth. Whether it
is connected to the Russia investigation or not, and the fact of the matter is that Michael Cohen was Donald Trump`s emissary in Moscow when he was
trying to develop a hotel there, he has been involved in some of the Trump campaign talks with the Russians, and so the question of collusion with the
Russians very definitely involves Michael Cohen whose office and home were raided, tapes and documents were taken. This investigation clearly has the
gun to involve even more directly, Donald Trump.
And what Donald Trump has done is to put himself in effect, put himself in bed with Michael Cohen and it`s a bed of legal quicksand.
NEWTON: We shall continue to follow that story and there seems to be new developments on that literally by the hour. Senator Blumenthal, we do want
to go now though to a CNN Exclusive investigation, our Drew Griffin uncovered the fact that more than a hundred people had these allegations of
either abuse or sexual assault at the hands of Uber drivers, and it`s opened up a whole issue about the way Uber signs up its customers and the
kinds of rights that they give away each and every--
[16:25:14]
NEWTON: -- time they take that Uber ride. I mean, I know you have been looking into this. What would you like Uber to do going forward now that
you have been made aware of these issues with the arbitration and what kind of responsibility Uber can take in these cases.
BLUMENTHAL: The world has been made aware and consumers have also become aware of forced arbitration clauses as part of the Uber ride. In other
words, Uber consumers are forced into silence as a result of a clause in their agreement when they ride with Uber that forces them into arbitration
deprives them of their being. What I want Uber to do is release them from those forced arbitration clauses and indeed, I proposed legislation that
would end mandatory arbitration agreements that are reached before the dispute arises.
In this case, I want Uber to do the right thing and say to these survivors of sexual assault and rape who have complained to them, we will give you
your day in court. We will release you from these mandatory arbitration clauses and gag order that is imposed by virtue of these forced agreements.
NEWTON: And it is indeed a gag order and some of the personal stories has just been so upsetting to listen to and I know you`ve seen them. Senator,
what can you do though to compel Uber to do any of this. You know, we have reached out to Uber for comment, they haven`t given us very much comment
and certainly haven`t indicated that they will change anything as of now.
BLUMENTHAL: My hope is that Uber will do the right thing as a result of growing public outrage and outcry on behalf of these survivors--
NEWTON: But are you prepared to compel them to do anything is there any you know, plan of attack here in terms of your office or elsewhere to say,
"Look, we are going to give you some time, but if not, we`re going to impose some restrictions."
BLUMENTHAL: As I mentioned, I have a measure, a proposed law, that will end these kinds of enforced arbitration agreements, but that law must be
realistic. It will take time to achieve, right now, there is nothing more than public outcry and outrage. I have no legal enforcement power; as a
member of the United States Senate, I have the power of shaming an embarrassing Uber and they ought to feel it because they should be ashamed
of this gag rule that forces silence on survivors and victims of the worst kind of assault and rape by Uber drivers.
And Uber should have vetted these drivers more carefully. That`s where the fault is theirs. That`s where accountability must be compelled.
NEWTON: And when you say - and I understand what you`re saying, it takes a long time to get anything, if anything is done, but do you think you could
have the threat of imposing this kind of law if there was bipartisan support. Have you spoken to Republicans who also say, "Yes, this is
something we want to get behind."
BLUMENTHAL: There is bipartisan support, but we need a majority and so, I am working very hard to expand the numbers of Senators who will support
this measure. It`s called the Fairness and Arbitration Act. It would end the mandatory arbitration agreements that are reached before a dispute
arises as to employment, of Civil Rights, or this kind of really tragic and gripping situation where women take rides where the driver assaults them
and rapes them or commits other kinds of crimes against them.
And these kinds of criminal acts ought to enable those survivors to take action against Uber because Uber has failed to vet the drivers
sufficiently, they have a moral and legal accountability.
NEWTON: And we will see if they step up. We will continue to follow the investigation as will you as well, Senator. Thanks so much for your time
and have a great weekend.
Now, few childhood memories stick like that visit to the toy store as US retailer, Toys R` Us shuts stores. One U.S. billionaire is making a bid to
save it. He`ll join me later in the show.
(COMMERCIAL BREAK)
[16:30:00] NEWTON: Hello, I`m Paula Newton. Coming up next top hour of QUEST MEANS BUSINESS, Volkswagen`s former CEO is in trouble with the law,
although Volkswagen customers don`t seem to care.
And I`ll speak to the billionaire who wants to rescue Toys R Us from bankruptcy. First, these are the top news headlines we`re following this
hour.
Donald Trump`s attorney Rudy Giuliani has issued a statement clarifying his views after the U.S. president suggested he didn`t have his facts straight
when he said Mr. Trump repaid hush money given to a porn star.
Giuliani now says the timing of the reimbursement had no weight to Mr. Trump`s campaign. A volcanic eruption is underway on Hawaii`s big island,
spewing molten rock and hazardous gas activity from the Kilauea volcano, set local residents fleeing from their homes and has led to the mandatory
evacuation of 1,700 people.
North Korea has changed its clock to be in the same time zone as South Korea. I for one say, thank goodness, state media says leader Kim Jong-un
ordered the change after seeing the 30-minute difference at last week`s summit in the demilitarized zone.
The North is also proposing an airline group between Pyongyang and South Korea. Searchers hunting for missing Malaysian Airliner MH370 have found
two historical shipwrecks. Now the ships, one iron and one wooden are believed to have disappeared in the late 1800s.
Meantime, the search for MH370 continues. Prince Harry and Meghan Markle have released details about their wedding, what we now know that Markle has
decided not to have a maid of honor and the couple won`t be going on their honeymoon straight after the wedding.
Good call, I say, they`ll have a public engagement instead. Big day into want to be from (INAUDIBLE). The U.S. government has indicted Volkswagen`s
former CEO in the ongoing fallout over the emissions tuning scandal.
Now, the charges against Martin Winterkorn include wire fraud, violating the Clean Air Act and conspiracy to defraud Volkswagen`s American
customers. U.S. authorities are now prosecuting nine people over VW`s past efforts to fake diesel emissions levels to full regulators.
Two former engineers have now pled guilty. Winterkorn is the highest ranking auto official to face U.S. criminal charges in a series of recent
industry`s scandals. Three executives, a Japanese airbag maker Takata were charged over the cover up of a fatal airbag defect.
No individuals have been indicted over major safety issues at both Toyota or GM. We have "Times" correspondent Jack Ewing literally wrote the book
on all of this, the Volkswagen scandal, he joins me now though from Frankfurt.
[16:35:00] It is true that you wrote the book on it, and I wonder what your reactions are now to the fact that we have someone -- a former CEO actually
having to face criminal charges. What do you think it means?
JACK EWING, NEW YORK TIMES: Well, I think it`s a big question from the very beginning, was helped lying up to install weapons. The knowledge had
taught management and we spent a lot of documents and other evidence that did indicate that probably it was known as the top level.
It was also just always hard to believe that something as big a software installed in 11 million cars over almost a decade, that that could have
taken place without top management knowing.
But now that the federal government has actually indicted a former chief executive, then we have, I guess you could say official confirmation about
what, you know, essential allegation.
NEWTON: You know, when you wrote this book, you had said that this corporate culture-turned toxic. This corporate culture at VW may also now
be criminal. In fact, it`s already proven criminal because some people have felt guilty.
Having said that, what has allowed this to happen because obviously you`re sitting here with all of these air quality regulations and emission
standards that you have, Americans and others are wondering how did this go on for so many years?
EWING: Well, that is an interesting question, but I think it goes back to the fact that nobody really expected anybody to do something like this.
There have been cases like this, going back many years, there have been cases involving diesel trucks like when Volkswagen is trying to sell diesel
in the United States, that was a novelty, there just weren`t that many -- I think the regulators just didn`t -- just wasn`t on their radar screen and
wage sort of by accident that was discovered in the first place.
Just some researchers at West Virginia University just sort of stumbled on it. And I think the answer was just no one in the United States paid that
much attention to diesel.
NEWTON: And VW put the diesel car on the map in North America with fraudulent, just right line as to whether or not there were emissions. Do
you think that they will find -- and I know you`ve investigated this already, that there actually was a conspiracy to cover this up.
That evidence was destroyed, that they now lied.
EWING: Yes, there`s a sharp question about that, there was evidence destroyed when this was a vacuum, Volkswagen knew they were about to get
caught, an in-house lawyer sort of signaled to everybody they should check their documents.
You know, a lot of people, something like 40 people took that as a signal to start destroying computer files and paper documents. So there`s no
question that this was a big conspiracy that the German prosecutors say they`re investigating more than 50 people.
But it`s taken a long time for it to sort of become a criminal case for them to file a criminal charge because it is so big.
NEWTON: But it does send a strong message to others, and I hate to be tried because it`s a Friday afternoon, so I`ll go ahead. The moral of this
story especially when we`re in an environment of deregulation now in the United States.
Let`s face it, the entire business community is applauding the deregulation.
EWING: Yes, well, it shows that regulators, you know, it wasn`t just about clean air, they also prevented a German company from competing unfairly in
the United States as people forget that.
It wasn`t just about the environment, it was also about fair competition and that was discovered by regulators in California and at the EPA.
NEWTON: And so the moral is, we can expect this that there`ll -- no, we`ll say, lesson learned, other corporations will look at VW and say I could end
up in jail if I try and continue with this.
EWING: I think the strongest message you can send to other executives that might be thinking about something like this is that you could wind up going
to jail. And that`s another unique thing about Mr. Winterkorn being indicted is that a lot of these cases you see, mid-level people arrested
and charged by very -- chief executive as you mentioned.
And so I think that`s very significant.
NEWTON: Yes, and that is a strong message for everyone. Thank you very much as we continue to follow the story, still years in the making,
appreciate it.
Now, European markets ended the day higher, thus despite the string of very disappointing bank earnings, HSBC and VMP both missed expectations, stocks
starting help though from U.S. job numbers and trade talks between the U.S. and China reviewed its cooling tensions that had recently hurt markets
worldwide.
Now, the Nobel Prize in literature is one of the world`s top honors, and guess what? It won`t be given out this year. The results of a sexual and
financial scandal engulfing the Swedish Academy.
It`s the first time in 70 years that the price -- the prize, pardon me, had been postponed. Erin McLaughlin has our report.
ERIN MCLAUGHLIN, CNN CORRESPONDENT: This is one of Sweden`s most respected and prestigious cultural body, now so mired in scandal and in-fighting that
it`s unable to perform its primary function which is to award the Nobel Prize for literature.
[16:40:00] It`s a scandal that first came to light at the end of last year, the height of the Me Too movement, some 18 women came forward with
allegations of sexual misconduct against Jean-Claude Arnault, allegations that he denies he`s a cultural heavyweight in Sweden, also the husband of a
member of the Academy Katarina Frostenson.
Now, this is just not about those allegations of sexual misconduct, there`s also a financial scandal as well, which was discovered by a law firm that
came in to conduct an independent investigation into the allegations of misconduct.
That law firm also finding that inappropriately, funds were given from the academy to a culture club that had been set up by Arnault and Frostenson.
It`s a scandal that`s been developing for months now in recent weeks culminating in the resignations of six academy members, most recently
including Frostenson as well as the director of the academy.
So many members have resigned that there`s no longer enough people there to form a quorum to be able to have a vote on who should be the next winner of
the Nobel Prize for literature.
Some though saying that quorum or no quorum, the reputation of the academy has been so badly damaged that the prize should be postponed to next year
which of course now is now the king of Sweden also stepping in to make some structural changes to the academy.
Historically, if you`re elected a member of the academy, you`re a member for life. That`s existed since 1786, he`s now changing that law so that
academy members can resign. The hope is that now once the academy members can officially resign, new members elected and the academy can be restored
to its former position of prestige so that not one, but two Nobel Prizes for literature can be awarded in 2019.
NEWTON: Drastic times, drastic measures, I don`t know, Argentina hikes its benchmark interest rates for whopping 40 percent, yes, I didn`t make a
mistake with that number, we`ll have more after the break.
(COMMERCIAL BREAK)
NEWTON: Up and up and up it goes, where Argentina`s benchmark interest rates stops, nobody knows. Buckle up, people, on Wednesday, it was 30.25
percent, on Thursday raised to 33.25 percent, today, get this, a record 40 percent.
All these news part of a desperate effort, and you can call it desperate by the Central Bank to pop up the collapsing peso and meet an inflation target
of 15 percent.
[16:45:00] The government also announced plans to rein in state spending. Now, Friday`s actions did stop that terrible slide of the peso did leave to
some strengthening. Alberto Ramos is the head of Latin America`s Goldman Sachs, I mean, again, I hate to be cheesy but we`re not crying for
Argentina here, we are screaming for Argentina here.
How did all go so wrong?
ALBERTO RAMOS, HEAD, LATIN AMERICA, GOLDMAN SACHS: It`s a tough situation, it`s a combination of external and domestic factors outside global markets
have been somewhat distressed and there`s not been a very benign and friendly environment for -- imagine market caresses.
But then there were the local shenanigans, indeed there were gradient factors related to the perception that perhaps the central bank was not
truly independent from the fiscal authority, the fact that inflation has been somewhat sticky, then the number of other factors including some
political resistance for the fiscal adjustment measures that altogether led to this blow up of the currency.
NEWTON: Where do we go from here? I mean, if you`re sitting down with Roxy`s(ph) government right now, and they clearly are going to have a very
stressful weekend to try and figure out where we go next. Where do they go next with it, these numbers are horrible.
RAMOS: They are, time will tell, I`m an economist, I`m not a psychologist, so anyway, you know why? I think the policy reaction has been the right
one. It may not be enough, time will tell, but I can -- and success is not guaranteed.
But I can guarantee you that the probability of succeeding is now higher than if they have not done and reacted the way they did. What you need to
do in a situation like this in order to restore confidence is to hike interest rates, they did so fast and aggressively to tighten the fiscal
targets.
They did so this morning, and then you have to hope for the best. I think we are in a better position today than we were three days ago.
NEWTON: OK, and that`s good news, but let`s face it. These numbers are stomach churning. I mean, absolutely, stomach churning. What happens now
in terms of we being in the exact same position before, I know you discussed Argentinean politics, it`s been treacherous there for decades,
it`s only got something new.
Why again? Why now? Why can`t they just seem to get it together?
RAMOS: Again, this is a legacy issue. The previous administration and the purpose experiment behind it left behind a large number of macro economic
imbalances, very large inflation, very large fiscal deficit.
We have two -- we have now also a significant current account deficit, so the two deficits, fiscal and current accounts are now both tracking both 10
percent of GDP. So if you scream across the landscape of imagine economies, Argentina screams out `F` as being vulnerable.
Because at external funding needs are quite high. And that there`s a -- this is a manifestation of debt, is a manifestation of a very large fiscal
deficit. So the reality, that does not change dramatically, I mean, needs to change, the need to rein in on a very large fiscal deficit.
NEWTON: Let`s be clear, we`re not talking about a default in a short term anyway. There`s -- no one is saying that, right?
RAMOS: No, I mean, this is not forever, like 40 percent interest rates are indeed staggering and impressive, but you know, they have to be there until
the job is done, until confidence is restored and you bring all that (INAUDIBLE) once that is achieved, you`ll be in a position to cut rates.
But these things is going to be tough, it`s going to be challenging --
NEWTON: Yes --
RAMOS: And inflation is still very high.
NEWTON: And a larger question about Latin America in general, let`s even leaving Venezuela aside, you know, the challenges and economies like
Argentina and Brazil and even, you know, weakness that we shouldn`t be seen in places like Chile.
You`re an optimistic guy, look at --
RAMOS: Yes --
NEWTON: How many times can we go back to Latin America and say, you show so much promise and yet it always seems to be two steps back, not even any
forward.
RAMOS: You`re right, I mean, brought this still pretty modest on average, I know if during the good years, when the external conditions are
relatively favorable, and talk about years of relatively high commodity prices and the abundant and cheap liquidity.
It`s still quite difficult for Latin America to deliver both rates that are high enough to empower and franchise large segments of the population.
That is still the main challenge, and you`re absolutely right, that is the challenge today, it`s the same challenge of 10, 20 years ago.
We have to find ways to increase the growth potential. That requires more investment in fiscal capital, infrastructure and other things, more
investment in human capital. We need to invest more, we need to save more, we need to trade more.
Latin America is still extraordinarily closed to trade --
NEWTON: Yes --
RAMOS: Asia is an example that they should emulate in that regard.
NEWTON: They said that the solutions to the problem are there, now taking them up. Argentina has a G20 at the end of the year, you`re hopeful maybe
things will look a little different by that?
RAMOS: Hopefully they`ll look better. I mean, again, you know, these authorities are credible and they are somewhat orthodox in their thinking,
you know. They are facing a complex situation.
Some of the issues that they`re trying to address today, they went off, created by policy mistakes by this administration, but it was a legacy
from, you know, from, you know, previous heterodox policy moves that`s left as in the situation we`re trying to solve tonight.
NEWTON: The good news is it`s time today, take a vacation in Argentina, wouldn`t you agree?
RAMOS: That`s right.
NEWTON: Have a lovely weekend --
RAMOS: Thank you --
NEWTON: Appreciate it, yes. By the end of the year, Toys R Us will become Toys Or Us. One billionaire toy mogul says it`s not too late, we`ll see.
[16:50:00] (COMMERCIAL BREAK)
NEWTON: They`ve been there recently, the shares are better, Toys R Us when the lights finally turned off at the end of the year, more than 700 stores
were closed and 30,000 workers would have lost their jobs.
Already, toy makers are warning about the effect on their own businesses, the billionaire toy mogul Isaac Larian says it isn`t too late. You know,
he says some of those stores can be saved in the jobs that go with them.
You`ll know him as the man behind Little Tech Toys and Bratz dolls has offered $675 million for nearly 300 Toys R Us stores has been rejected, but
he`s not given up. OK, the deal was rejected, you`re not giving up?
First off, what are your -- what are the odds attraction going to be able to get these sorts, and why do you want them?
ISAAC LARIAN, CHIEF EXECUTIVE OFFICER, MGA ENTERTAINMENT: Paula, thank you. Toys R Us has been a legacy brand that was invented in the United
States by Charles Lazarus. And I sold my first toy, my first product to Toys R Us in 1979, I love children, I love toys and I am a firm believer
that toy business without Toys R Us is going to be very different.
And the whole industry is going to suffer. I just heard about 40 percent interest rates in Argentina, that was one of the biggest markets for toys,
now that is going to go bye-bye, and the whole industry is going to suffer.
I`d like to save Toys R Us for the next generation of kids, for the toy industry and I really believe that without Toys R Us, the toy industry as a
whole which has been my passion for over 40 years is going to suffer big time.
And that`s one of the reasons I`m doing it.
NEWTON: OK --
LARIAN: And it also makes financial sense.
NEWTON: OK, and that`s what I want to get to, the financial sense. Because unless you intend to open a toy charity, you know, this has to make
money and there are reasons why Toys R Us are going bankrupt.
And you know that there are people waiting in the wings, Wal-Mart, Target, just to name two in the United States just waiting to take that, those
billions and billions of business off Toys R Us` hands.
LARIAN: Well, you`re right, Toys R Us does -- did $11 billion toy sales a year. The reason they went bankrupt is not that they were not profitable,
they had a humongous $5 billion debt on them at high interest rates, that basically stopped them from investing in their stores and changing it to --
for the consumers.
Target, Wal-Mart, Amazon, they all does sell toys, but the Wal-Marts and Targets of the world do not have as much room to fill toys as other people.
[16:55:00] And you know, frankly, a lot of newness and innovation will disappear from toy business if there`s no Toys R Us.
One of the products that is the hardest toy right now is called LOL Surprise, this is a toy, and this was from MGA and it could beef in Toys R
Us first. Other retailers, they don`t want to take the risk.
So can you imagine how many more new products are going to come out that they`re not going to get -- then nobody is going to see what they are --
NEWTON: Well, but --
LARIAN: The kids are not going to see that.
NEWTON: Right, but perhaps, you know, good products will eventually find their market whether Toys R Us is there now. But what I want to ask you is
what`s your plan to be here in terms of getting this deal to go through because it has been rejected.
And if what you say is true, Toys R Us would have just gone into bankruptcy protection and then merged. Clearly, no one saw the business as being
buyable.
LARIAN: Very good point, I think we`ve got to negotiate with -- we`re already in negotiations right now with the key lenders trying to be
creative to come up with a way that they also get a portion of the business going forward if it`s successful.
And we are a tough negotiation, but I don`t give up that easily, I`m still hopeful.
NEWTON: You don`t seem to me as a gentleman who gives up very easily. We will continue to see the next installment of this Toys R Us saga, and we`ll
have you back here again if anything changes. Appreciate your time.
LARIAN: Thank you, have a great weekend --
NEWTON: You too --
LARIAN: Thank you Paula.
NEWTON: Thank you so much. And that is QUEST MEANS BUSINESS, I am Paula Newton, everyone have a lovely weekend and we will hope for less volatility
in the markets next week, see you again soon.
(COMMERCIAL BREAK)
END
