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QUEST MEANS BUSINESS
Pivotal Week for Greece's Investors; Citigroup's Earnings Jump 74 Percent; Interview with Robert Reich
Aired October 17, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, CNN ANCHOR: Don't expect a miracle. Germany's warning to the markets as the Eurozone enters a pivotal week.
Citigroup earnings jumped 74 percent. We break down the results in our Q25.
And they came, they occupied, but will anything change? Former U.S. Labor Secretary Robert Reich on the power of the grassroots.
I'm Max Foster. This is QUEST MEANS BUSINESS.
Europe's road to recovery is looking longer and longer. The world asked Europe, are we there yet, over the weekend. Now Germany admits the optimists were in dreamland.
Let's go straight to the market numbers for you. After a week of gains the Dow is heading back down again. Down one and two thirds of 1 percent. Some shaky earnings figures aren't helping. A bit more on that a little later, but all eyes focused really, primarily, on Europe right now. Markets there started out positively. After the weekend's G20 finance ministers met some investors seem to think we were on a track to solve things once and for all.
At this weekend's EU meeting that all changed with a German reality check though. A German spokesman said there was no chance of everything being sorted out by this time next week. He said those claims were more like dreams. That quickly wiped out all the day's gains. The DAX was off almost 2 percent.
Shares were off 3 percent in Athens. Everything there is building up to another week of walk outs in the Greek capital. A two-day general strike is planned for Wednesday and Thursday. Garbage men have already gone on strike and trash is piling up, as you can see, on the streets.
Finance ministry workers have also walked out. You know a country is in economic trouble, don't you? When even the tax collectors go on strike. Those walkouts coincide with a day of reckoning for Greece. In fact, the whole week could be the most important in the Eurozone's history. The EU, IMF, and the ECB troika releases its report on Greece, either on Wednesday or Thursday. At the same time, Greece's parliament will vote on whether to approve the next round of austerity measures. Those are part of its bailout conditions.
And that will all take place against the backdrop of a general strike in Athens we have been talking about. Thursday is also Jean-Claude Trichet's last-ever meeting as the president of the European Central Bank, although there won't be any interest rate decisions.
Then it is the big one, and that is Sunday, October 23, that is the day of the European Council's meeting. Jose Manuel Barroso will lay his cards on the table. If a deal for Greece isn't approved it could well run out of money entirely and default.
Joining me now is Holder Schmieding. He is the chief economist at Berenberg Bank.
Thank you so much for joining us.
So, in terms of big weeks for the Eurozone, is this the biggest we have had so far, as I was suggesting?
HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG BANK: This is probably one of the biggest. But we have had a few big weeks before and I'm afraid we may have one or two big weeks, thereafter. As this will probably be a step towards a solution but won't be the final solution yet.
FOSTER: We have been banging on about the troika.
FOSTER: Finally we get the report. But you think, actually, it is not as important as us journalists have suggested.
SCHMIEDING: Well, A, we have heard about the troika before they have been in Athens and they have suggested that Greece should get the next tranche of its money.
FOSTER: And that is the crucial thing? We already know it.
SCHMIEDING: That is the one thing we already know. And then it is the key issue, what will politicians make of some of the troika's details. Such as will politicians conclude, as the probably will, that Greece needs more debt relief; which is not a troika decision, which is a political decision based on the troika. And as to that we have already heard from the German finance minister, Greece should get more debt relief than planned so far.
FOSTER: But the decision will be based on the report, so the report, in itself, is important, because that is the basis of what we are going to get at the end of the week.
SCHMIEDING: It is one basis for discussion, but the key things, where we are hoping for clarity by the end of the week is actually not the fate of Greece. Greece is a small economy. The sums involved there are not all that big. The real issue for Europe is how to shield Italy, and how to shield the European banks from whatever may happen to Greece, and on this firewall, and the bank recapitalization. We will hopefully hear more on Sunday.
FOSTER: So the three elements we are going to talk through. First of all, on Greece defaulting, that is going to be allowed to happen, right?
SCHMIEDING: Well, it probably won't be called a default. It will just be a larger private-sector, probably voluntary write down on private sector holdings of Greek debt.
FOSTER: And that will happen this week?
SCHMIEDING: We will likely hear some outlines of that this Sunday. We may not get all the details by this Sunday. This Sunday probably is not for all the decisions with all the details. It is for the general outlines for the plan.
FOSTER: And in terms of the European banks, who are exposed to Greek debt? What decisions will you get there? Is it effectively, how much can we allow them to loose without them failing?
SCHMIEDING: We will probably hear what exactly the requirements are, in a kind of stress test. That is to establish benchmarks which banks will need to be recapitalized, for whatever happens to Greece. And for risks with other sovereign holdings, so we are probably not hear on Sunday, which bank will actually need what. But we will hear the criteria, by which they will be merit and that is on that on count.
FOSTER: And people like you will be able to work it out from there? You'll get some good information on Sunday?
SCHMIEDING: We'll get some good information and hopefully we will hear more about the increased firepower for this EFSF rescue fund, which I think is the most crucial bit.
FOSTER: Because the main economies will effected by that?
SCHMIEDING: Yes, because that is to shield Italy from whatever happens to Greece and that really is the key issue for Europe.
FOSTER: OK, Holger, thank you very much indeed.
Greek Prime Minister George Papandreou says this crisis needs to be fixed, not just for Greece, but for the whole of Europe. If his country does default next week it will cap the most disastrous period in its modern history. And to think, not even 10 years ago, the future looked so bright. John Defterios looks at where it all went wrong.
JOHN DEFTERIOS, CNN BUSINESS CORRESPONDENT (voice over): A half out outside of central Athens lies a modern-day ghost town. The nearly empty 2004 Olympic Center is a permanent reminder of the go-go days after Greece's entry into the euro. Securing the bid was an effort to project a modern country, which is proud of its past.
(On camera): The Games were a big boost to Greece's image, but the country continues to pay huge price today. In fact, spending was about double original expectations. That, combined with low interest rates after joining the euro, created a consumer spending spree and pushed off government reforms. It was almost like a perfect storm, which continues to haunt the country today.
(Voice over): Greece's economy grew nearly 6 percent a year before the Olympics, and over 4 percent in 2004. But it was consumer-led growth, with record borrowing that ran out of fuel just a few years later.
EVANGELOS MYTILINEOS, CHAIRMAN, MYTILINEOS HOLDINGS: Instead of using this money to build infrastructure, to build a production base that could last us through the decades, we did consumer the money. We bought all the Mercedes, we bought all the luxury goods, we bought this, we bought that. OK, and that is where we are now.
DEFTERIOS: At the same time, basking in the Olympic glow, the conservative government of Costas Karamanlis, came to power and choose to ramp up state spending.
Petros Doukas, deputy economy minister in that government, says he was ringing alarm bells, but nobody was listening.
PETROS DOUKAS, FORMER GREEK DEPUTY FINANCE MINISTER: One month after I became deputy finance minister I said that I can see that our cash deficit is rising faster than our reported fiscal deficit.
DEFTERIOS: Privatization of state-run companies, such as water and power, were put off to protect jobs.
DOUKAS: The feeling at the time was, OK, it is manageable. We'll manage it next year or the year after. But markets deteriorated very rapidly and we were virtually all caught with our pants down.
DEFTERIOS: Fast-forward to the autumn of 2009. After the elections Socialist leader George Papandreou inherited a budget deficit which at 12.7 percent, was almost double what was officially reported to the European Union.
DEFTERIOS: Even after a near collapse of the economy there remains intense resistance to change. Government workers at ministries charged with implementing reforms, barricade offices.
DIMITRI PAPALEXOPOULOS, MANAGING DIRECTOR, TITAN CEMENT: The most important thing that needs to be done is to change, radically change, the bloated, ineffective and inefficient and over-leveraged public sector.
DEFTERIOS: The government is facing huge protests of constantly rising taxes. Salaries and pensions have been cut by at least 20 percent, but not the size of the state. The Greek people are entering a new phase of the crisis, which is big on mistrust of its own government and Brussels.
DOUKAS: This is like the 150th measure you are taking, and we are not closer to salvation than we were two years ago. So people are loosing their trust.
DEFTERIOS (On camera): At this juncture the country's current finance minister says the only thing they can offer is more pain and sacrifice. It is not clear after three years of recession whether the Greek people want to continue on this long marathon of austerity. John Defterios, CNN, Athens.
FOSTER: We will be following all the week's news for you, on Greece and the Eurozone, and what it means eventually to Spain and Italy. We will be back in a moment, though, with more news from today.
FOSTER: Earnings season is in full swing on Wall Street this week. And that can only mean one thing, the return of the Q25. It is our exclusive quarterly index to help you make sense of the earnings season. As always we pick 25 companies over a wide range of industries that are reporting quarterly results.
As we put their earnings through a tough, rigorous test, here is the criteria we look at each time around: Profit growth of 12 percent or more; revenue growth of 8 percent or more; quarter over quarter profit growth; and did the company meet analysts expectations by 3 cents a share or more; and is the company offering positive guidance going forward, is a crucial one.
Any company that outperforms gets an automatic green chip. A weak earnings report gets an automatic red. Anything in between we throw out for debate. And we are certainly debating this time.
Earning season is always a crucial time for markets and with so much attention focused on the threat of a double-dip recession in the States, earnings are under increased scrutiny, really, this time around.
Here to hand out 25 chips this week is Felicia Taylor, in London,
FELICIA TAYLOR, CNN BUSINESS CORRESPONDENT: Surprise.
FOSTER: As evidenced, here. Very welcome to have you here, Felicia. Maggie Lake is in her usual position, in New York.
We begin, though, with a high-profile bank earnings. Because Felicia, just broadly speaking.
FOSTER: Everyone is focused on them, right?
TAYLOR: Absolutely. I mean the financial sector is certainly one that has been under scrutiny and the most difficult sector that we've had so far, in terms of a recovery. And banks are certainly out of the woods yet.
So we have JP Morgan Chase, first. That only had one out of five, so it gets an automatic red. Its profit growth fell 4 percent. Its revenue growth was off and just slightly higher than that. Quarter over quarter profit growth was also not good. So, JP Morgan Chase gets an automatic red.
(CHIP CRASHES THROUGH THE GRID)
FOSTER: It's working so well.
You haven't seen that before, have you?
MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: No, certainly not!
TAYLOR: It went through.
LAKE: I hope that is not an indication of the earnings season, Max.
FOSTER: How do we recover? What does that mean for the earnings season?
TAYLOR: It's not going to be good.
FOSTER: Maggie, Citigroup, take it way. We are going to try to get back on track.
Citigroup, a bit more debate there, right?
LAKE: There was. It was up for debate. And actually, this one is going to get a grudging green. And what a change of fortunes, right? Jamie Diamond, Wall Street darling. He is the one who sets the bar. Citigroup has been the dog of the banks. This time around it is a bit reversed. Investment banking still a problem for both, no doubt, and Citi's numbers were there were ugly.
Part of what's going on is just the fact that the bar is lower for Citi. Let's face it. The stock down some 40 percent. But they did have strength in lending. And this is really what-if they are going to really make it to the top tier again, it is going to be Citi's sweet spot is their international exposure. They had good business lending, especially, in Asia and Latin America. That helped. Investors certainly liked it.
The stock is down a bit today, but on an overall bad day it is only down about 1 percent. So, when you add it all up, we had to give them a grudging green.
FOSTER: Do you agree, Felicia?
TAYLOR: I do agree with a grudging green. I mean, they didn't go great. I mean, they had a massive one-time reevaluation of their debt. So that is what gave them the profit rise. That is the thing that, going forward, we are not sure where the business is going to be.
FOSTER: Let's give it a go.
TAYLOR: Yes, green.
FOSTER: Wish me luck.
FOSTER: It stayed.
FOSTER: Maggie, Wells Fargo, this is interesting isn't it, Maggie, because this is a different type of bank, so a different type of debate we've been having around that one?
LAKE: That's right. And this is where you would have thought there would be safety. They are a retail bank. They don't have that exposure to investment banking; the market volatility, which has been so problematic for the likes of JP Morgan and Citi. The problem is Wells Fargo has exposure to the other big problem for banks, and that is housing. A lot of mortgage exposure. That can continued to be a problem.
Wells was a debate, but in the end only two out of five, we felt we had to give them a red. Again, a little bit of a silver lining would be the fact that some of the loan action wasn't too bad, but community banking really weak. The economic uncertainty is just out there weighing. Wells Fargo, a disappointment, too, because had been looking for that as a safety. So that stock really getting hit today. Investors agreeing with us, it's down just about 7 percent.
FOSTER: Yes, OK. So the banking sector, I think we are agreed, it is not completely clear cut?
TAYLOR: No, it's not. I mean, and we're definitely not out of the woods. But let's take a look at some of the earnings that we got last week. Because last week was the sort of all-important ALCOA; that one gets two out of five, it is still, in my opinion, a red. The stock is now down about 5 percent today. It missed expectations. The CEO says that a drop in aluminum prices are going to continue. And, obviously, the demand in Europe and some of the emerging markets isn't what it used to be. So this one for me is a red.
FOSTER: OK. And, Maggie, Google, completely different story. Very clear cut, right?
LAKE: Yes, I mean, this is-these stocks can usually be the safe haven. Absolutely blew past estimates, firing on all cylinders, search from advertising from search doing well, and interestingly in a tough environment, a tough economy, it is a low cost way for businesses to try to reach customers. So that is going to continue to be good for them. They are heading into a sweet spot for the holidays.
But I want to talk about some thing else now. Google Plus, that is their launch into social, to take on Facebook. It went from 10 million users in July to 40 million users. And not only that, Larry Paige, a little concern about him at the helm. He is closing businesses that are inefficient, taking on that issue with spending, that investors were worried about. So this is a fantastic report from them. Green all the way.
FOSTER: Yes, so a definite green.
FELICIA: Can Google do anything wrong? Not really.
Maggie, before you go, I just want ask you about Pepsi. Because again, another debating area. But you have been through all the details, so what did you like, or not like, about that?
LAKE: Yes, this was a tough one. This is the one I think we were the most split on, because it really could have gone either way. Listen, it's tough out there for sure. But when you break it all down they did manage to grow sales in what is really a difficult environment.
One of the things that stood out for me is the CEO saying that the pricing levels they are dealing with put them in uncharted territory. So it is really tough, but they were able to push through price increases to cover their cost of production going up. And there is something to be said from that. That is brand power. So it is tough. The numbers weren't fabulous. But I think in the end we agreed maybe they get a grudging green.
FOSTER: Agreed, Felicia?
TAYLOR: Yes, a grudging green.
TAYLOR: They are able to stand on their own two feet. They are not going to be separating their snack and beverage division, which people had talked about earlier on. So that is actually a good thing. And you know, the demand is still there for Pepsi, and Frito-Lay, and Quaker Oatmeal. So, you gotta have breakfast.
FOSTER: Thank you very much, joining us, Maggie. We are going to finish off with Felicia, because you have been taking a look at Philips?
FOSTER: And we are going to speak to the chief exec. So, what have you worked out there?
TAYLOR: Well, this one is a red. I mean it's profit was not what it should have been. It slumped due to weak demand throughout the European Continent. And they are cutting 4,500 jobs. That's the part that worries me, because obviously they don't have the where with all, or the demand in business, to keep those employees on hand. And even the CEO, earlier today, wasn't so positive about their future.
(BEGIN VIDEO CLIP)
FRANS VAN HOUTEN, CHAIRMAN, PRESIDENT, & CEO, PHILIPS: On the profitability, actually, although we did exceed analysts expectations, I'm not satisfied with our profitability. And we are taking a slate of measures to get Philips on a path of profitable growth.
(END VIDEO CLIP)
TAYLOR: The other problem with this company is that the strong euro has hit it very strong-you know, hit it largely in the last few months. And that is probably going to continue into the next quarter, as well.
FOSTER: And he had a red tie.
TAYLOR: And he had a red tie! It was so easy. Don't wear red.
FOSTER: Thank you for bringing the curse of the Q25 to London.
TAYLOR: My pleasure.
FOSTER: You are with us for a couple of weeks, aren't you?
TAYLOR: Indeed. Indeed.
FOSTER: Look forward to having you.
Now Monday means "Future Cities" and tonight we have been granted special access.
(BEGIN VIDEO CLIP)
RICHARD QUEST, CNN ANCHOR: Coming up, after the break, Moscow is falling in love with its past. And we get a privileged look inside the Kremlin.
FOSTER: When you think of Russia, what immediately comes to mind? Caviar, Tolstoy, the collapse of the Soviet Empire? Well, the choices fill centuries, and span the generations, as well, of tumult, leaving Muscovites with a bit of an identity crisis, it has to be said.
So Russia's capital is pulling out all the stops right now to restore its rich heritage, especially three major landmarks; the Kremlin, the center of course, of Russian politics, Christ the Savior Cathedral, Russia's religious heart, you could say; and the Bolshoi Theater, a cultural powerhouse that is only weeks away from a grand reopening.
Right now, Richard, shows us why the past is not only present in Moscow, it is making the Russian capital, a future city.
QUEST (voice over): The year is 1812, and Russia is fighting off a French invasion. Willing way the long evenings with music and dance, except this is 2011, and it is Saturday night in Moscow.
(On camera): This costume ball is just one example of how today in Moscow they are quite comfortable celebrating the past. In fact, they relish what went before.
(voice over): Moscow is in the grip of a Czarist revival that goes way beyond entertainment. After Communism's collapse President Boris Yeltsin began ordering the restoration of key parts of Moscow's heritage.
The ceremonial halls of the great Kremlin Palace, where the czars were crowned and modern-day presidents inaugurated. Tatiana Kavanyeva (ph) is the chief architect of this restoration project.
UNIDENTIFIED FEMALE (onscreen translation): It was where the Supreme Council of the Soviets met.
QUEST (On camera): So all this-I mean, were the chandeliers here.
UNIDENTIFIED FEMALE: (onscreen translation): None of it was here, none of it. It was only on photographs, sketches, and in the archives.
QUEST (voice over): Over four years, Tatiana and her team painstakingly rebuilt the pillars, remolded the gold carvings, and restored the two-headed eagle, Russia's imperial emblem.
(On camera): This wall is one of the biggest changes in the restoration. It was taken down by the Soviets, to make one long room. It was restored after the collapse.
(Voice over): In total, 19 kilograms of gold leaf went into this room.
UNIDENTIFIED FEMALE (onscreen translation): As a restoration architect I have always been convinced that you need to preserve authenticity. All our history, even from the time of the grand princes, is linked to this place.
QUEST: By the turn of the century, the Kremlin halls have been returned to their former czarist glory.
(On camera): After the Kremlin, the most famous building in Moscow, some would say, is this, the Bolshoi Ballet, which is just reopening after six year renovation.
(voice over): Tatiana showed me the important part of the external restoration. The grand facade is restored to perfection, she says. But the back, a similar column structure has been removed. And she is not happy.
UNIDENTIFIED FEMALE (onscreen translation): I think it is vandalism. They should have kept this, even if it was inside, even if it wasn't visible.
QUEST: The Bolshoi Theater says the columns were not destroyed and have been preserved in the Bolshoi Museum. Yet, controversy surrounding Moscow's major restoration projects is nothing new.
The Cathedral of Christ the Savior, the seat of the Orthodox church, and a defining feature under Moscow's skyline. This is the original. It was built in the 1830s.
The Soviets tore it down a century later, replacing it with a public swimming pool. By the 1980s the site already had architects dreaming. It had to be returned.
The idea of rebuilding the cathedral, first came up in the Soviet times. Ten years later, in 1994, it became a government project.
QUEST: Alexei Denisov worked on the new cathedral for five years, before being replaced by another architect. He believes the building symbolizes Russia's spiritual revival. As an architectural revival, he has his doubts.
UNIDENTIFIED MALE: Take the cathedral's decoration, they were originally marble, and of course we wanted to recreate them in the same material. But commercially, it was more profitable to make them out of bronze, so that's what they did.
QUEST: The devil's not only in the detail. The Moscow Architecture Preservation Society warns that complete reconstruction projects like this can actually harm Moscow's heritage.
CLEMENTINE CECIL, CO-FOUNDER, MOSCOW ARCHITECTURE: When we set up maps, we quickly realize that one of the main threat's to Moscow's heritage wasn't to bulldozer through it, it was this quite insidious practice of sort constructing replicas, sham replicas, impressions of the originals.
QUEST: While accurately restoring Moscow's heritage can be a problem.
Back at the ball, it is clear that it is much more than just accuracy at stake.
ALEXANDER GORELIK, DIRECTOR, UNICEF MOSCOW: There is more to it than meets the eye. Because basically it is about filling some gaps in the way Russians see themselves.
QUEST: After a century of revolution, and regime change, this city and its people are dealing with an identity crisis. They need to look back, and be at peace, before they can move forward.
FOSTER: That was Richard with his "Future Cities". We'll be back in just a moment with the headlines for you.
FOSTER: Welcome back.
I'm Max Foster.
These are the news headlines.
A day of waiting for both Israelis and Palestinians ahead of tomorrow's prisoner swap. Israel is to release the first of more than 1,000 Palestinians in exchange for one Israeli soldier, Gilad Shalit. It would be the first time a captured soldier has been returned to Israel alive in 26 years.
Thousands of Yemeni women are demanding the U.N. intervene in their country's months long conflict. The rally comes a day after a female demonstrator became the first woman killed in Yemen's anti-government protests. Meanwhile, deadly clashes elsewhere in Sanaa killed eight more people.
A new round of strikes and protests in Greece. Tax collectors and customs officials walked off the job on Monday, two days before a planned nationwide job action. Unions are outraged over recent austerity measures. The government says it needs to secure more bailout funds.
A lot of soul-searching in the world of auto racing after the death of champion Dan Wheldon. He was killed in a multi-car crash on Sunday at a Las Vegas Indy 300. One former driver called the wreck "a perfect storm" and many have noted that the track isn't usually used for Indy car racing.
The Occupy Wall Street protests are one-month-old today and have already spread across the world. These are the scenes at the New York protests right now. Things have been a bit quieter there today, because it's very cold, partly. But they seem to be settling in for the long haul anyway. Three hundred thousand dollars has been raised through a Web site set up to support the New York demonstrators and donations of supplies are apparently pouring in.
This weekend, the movement also spread across the world. In London, several hundred activists have established a camp outside St. Paul's Cathedral in the city of London. Other protests took place in Madrid and in Frankfurt.
Demonstrations in Rome turned violent. One hundred and thirty-five people were injured and an estimated $2.2 million worth of damage was caused.
Protests in Asia were on a smaller scale, but several hundred people joined a march in Tokyo.
So can the Occupy protests have an effect on political debate in America and around the world?
Many people are pointing out that Tea Party movement began at the grassroots level and has come to dominate the right-wing of American political debate.
Could this movement do the same for the left?
I'm joined now by Robert Reich.
He was secretary of Labor during the Clinton administration and also the author of a book entitled "Aftershock: The Next Economic and America's Future."
Thank you so much for joining us, Robert.
ROBERT REICH, FORMER U.S. SECRETARY OF LABOR: Hi, Max.
FOSTER: Why do you think, first of all, about the American debate and whether or not the Occupy movement can be the Tea Party movement of the left?
REICH: It's very, very difficult to tell at this stage exactly what's going to happen with regard to the Occupy Wall Street movement, as it's called. It might very well morph into a Tea Party of the left, kind of a left-wing populist reaction against Wall Street and big business, given that we have so much unemployment, given that people are still upset about declining wages and also the value of their homes declining, there is a great deal of resentment and anger stress in the United States. And much of it has been directed at Wall Street and at what big corporations -- big corporations continue to slim down.
FOSTER: It's certainly reflecting a mood, as you say.
But does it have political legs if it doesn't have a firm leadership, because the Tea Party may not have been firmly led, either, but it was led in a stronger way than this movement seems to be?
REICH: Again, at the early stages of the Tea Party, Max, you had a very, very similar, kind of an amorphous group developing all over the country.
We see the same thing with regard to the occupiers. The latest word I have is that the Occupy Wall Street group in New York is in touch with other groups around the country and they are even planning to have a kind of general assembly next July 4th.
But again, that's the word I get. A lot of people are getting a lot of different words at this point. The point is, it's still very early in the game. We don't know.
FOSTER: And I guess someone could step in and take control of it, as it were. But what's different about this movement from the Tea Party movement is it's gone global. And there are these copycat demonstrations around the world carrying the same sort of names.
So what are they protesting against?
Is there a movement that they're reflecting around the world?
REICH: Well, around the world, Max, not only in the United States, but also in Europe and elsewhere, we see the same general pattern, that is, an increasing concentration of income and wealth and power at the very top. We also see massive unemployment and also economies that are slowing down, in part because with so much income and wealth at the very top, the rest of the population doesn't have the purchasing power to keep the economy going.
There is a failure and a shortage of aggregate demand. And at the same time, governments are pursuing austerity economics and austerity politics -- cutting public budgets, which, again, creates a great deal of public concern because services that people depend on are being -- are disappearing.
FOSTER: So what would be the new economic model under an Occupy- controlled political system, do you think?
REICH: I have -- well, I can only guess. At the very minimum, I would think that instead of austerity politics and economics, there would be an appreciation of the importance of stimulating economies, even economies that are in great debt right now. Remember, the goal is to get down the ratio of debt to the total economy, debt/GDP. And the only way to do that in the short-term is to grow the economy. Austerity politics actually shrinks economies, even in Greece. What you don't want right now, first of all, is for the Greek economy to shrink and the taxpayer base to even shrink further. That gets Greece in a deeper and deeper hole.
What you want is, at first, you want an economic boost, followed by deficit reduction. You want to increase that denominator of that ratio of debt to GDP.
FOSTER: And in terms of how this movement has developed, do you think they've tapped into something here, something that the world can at least take note of, that this is a -- a genuine feeling that we didn't know was there pre-crisis, economic crisis?
REICH: Well, we've known for many years that there's been a kind of populist upsurge against globalization, against financial firms that seem to be trampling on the -- the -- the kind of economic status of -- of many ordinary people. Unemployment among young people is growing by vast, vast leaps and bounds, not only in Europe and the United States, but around the world.
This is fodder for any kind of a populist movement that wants to basically change the direction that governments are going in and public policies are going in.
To go beyond that, to say that there's a very particular goal here, be it economic stimulus, the rejection of austerity economics or something more dramatic, I think, is premature.
FOSTER: OK, Robert Reich, thank you very much, indeed, for your thoughts on the Occupy protests that have gone around the world this weekend.
Now, let's head to Wall Street proper now.
And Karina Huber is at the New York Stock Exchange, where it's a rough start to the week, really, for U.S. stocks -- hi, Karina.
Is this about Europe, I guess?
KARINA HUBER, CNN CORRESPONDENT: Yes, Max. I mean, despite the fact that we're in the thick of earnings season right now, the focus remains on Europe. We've got fresh concerns following the G-20 meeting over the weekend. Investors here are essentially worried that leaders there won't come up with a big enough plan to really tackle the crisis on October 23rd, when they're scheduled to present their plan.
Now, this worry comes after Germany's finance minister said that they wouldn't be able to come up with a definitive solution to the crisis.
So not knowing how long it's going to take, of course, is choking the market with uncertainty right now.
Now to other matters, though, Max. We've got some mixed earnings from a couple of big U.S. banks today. Citi -- Citigroup managed to beat estimates, but they failed to impress and the stock is trading lower, down by more than 1 percent now. And Wells Fargo also missed on the top line and that's got its shares selling off quite dramatically, down by a whopping 8 percent.
But in terms of that broad-based sell-off, all 30 Dow stocks in the red. A really ugly start to the week -- Max.
FOSTER: Yes. And some individuals stocks have been making headlines, haven't they?
There's a couple of big names in some legal entanglements, let's say.
What can you tell us first about Apple?
HUBER: OK. Well, let's see. Apple, it's basically -- it's in a legal mess -- in a legal mess with its competitors in the smartphone market. That's looking like it's going to drag on for a while.
Apple had one win today, though. Taiwan's HTC lost an early decision over patent rights, for now. That could continue, though.
Now, Apple and Samsung are suing each other for various patent violations. And Samsung is continuing to try to sales of the iPhones and the iPad.
Today, we've learned that these suits are now pushing to halt sales of the new iPhone 4S in Japan and Australia. But the thing about Apple, I mean it's been a big hit where it is being sold, its new device. It's sold over four million more -- four million other new devices just in this past weekend.
So investors taking loss figures in stride and Apple's shares are down right now about 1 percent but still trading near all-time highs.
Also making news on the legal front today is BP. The oil giant has accepted a $4 billion settlement from Anadarko. Anadarko, you may remember, owned 25 percent of the Macondo well, which exploded on May -- in May, 2010.
Now with the settlement, Anadarko is agreeing not to pursue charges of gross negligence against BP and the money that BP will get from this $4 billion will be put into their $20 billion trust fund set up to pay claims from businesses, government and individuals.
And the market likes to see this lawsuit go away. So BP's shares are trading higher, up by about .75 percent. And Anadarko is up quite nicely, up 4.5 percent.
FOSTER: Karina, thank you so much for that.
Now, when we come back, what The Body Shop has been doing to help stop human slavery. We'll hear from the executive chairman.
FOSTER: Well, here at CNN, we're running the Freedom Project, which aims to highlight modern-day slavery and help put a stop to the practice.
At QUEST MEANS BUSINESS, we've been looking at companies that have been doing their bit to make a difference.
One of those is The Body Shop, whose late founder, Anita Roddick, started the Stop Sex Trafficking of Children. The petition was handed to the U.N. last month.
Reuters reports that four years after the founder's death, the petition has seven million signatures and claims to have helped persuade 14 governments to change their laws.
Last week, I sat down with The Body Shop's executive chairwoman, Sophie Gasperment, to talk about the success of this petition.
And I asked her where the campaign went from here.
SOPHIE GASPERMENT, EXECUTIVE CHAIRWOMAN, THE BODY SHOP: Well, today, we've done the campaign in 50 markets around the world, 50 countries. We've taken the petition to 34. And 15 governments have already committed to take action or already taken action.
FOSTER: But you...
GASPERMENT: So we're going to continue to do that.
FOSTER: Give us an example of the type of actions that you've seen take place as a result of the campaign.
GASPERMENT: It can be the creation of a dedicated help line for victims of trafficking, which is free and advertised throughout the country. It can be some dedicated police units specifically trained to welcome victims of trafficking and help them on the path of recovery and building their future. It can be signing the U.N. protocol, which is a very important measure, to ensure sustainable change in markets.
FOSTER: So one of our campaigns is specific to a particular country and the needs in that country?
GASPERMENT: Right. That's what makes this campaign particularly successful.
FOSTER: And you're proudest achievement?
GASPERMENT: Probably the first country which committed to take a significant action which was Malta.
FOSTER: Yes, and then...
FOSTER: -- the rest follows.
GASPERMENT: Yes. And then the rest followed. So we still have quite a few to achieve. But the whole business and the whole team are very committed. And we've had unprecedented support from our customers, more than seven millions petitions to date.
FOSTER: Exactly. And it's the biggest petition, I think, that's ever gone to the United Nations, is that right?
GASPERMENT: It's one of the biggest. And it's the biggest in the history of The Body Shop. You know, The Body Shop has a long history and the (INAUDIBLE) campaigning. And this is the biggest one ever, which shows, you know, how important that issue is.
FOSTER: And just explain that, because you're -- you're a campaigning body as much as a -- a company, aren't you?
You're not -- you're not just selling products.
So how do you see your company?
GASPERMENT: We're -- we're a business and a brand which was founded on the idea that business can be and should be a force for good. So we sell fantastic beauty products, very high quality beauty products.
FOSTER: Button part of the business.
GASPERMENT: That's part of the brand. At the same time, we believe in our business as a force for good, whether it is about environmental change or social change. And this campaign is exactly that. It's...
FOSTER: But is that to help sell the products or is it just a different part of your strategy?
GASPERMENT: It's an integrated part of the brand. The more successful we are with the campaign, the more we can rally the energies around the world, the more the brand stands out. The more it is what we're about and the more we're successful as a business. And the more we're successful as a business, the more we can support all these projects, which, for us, are the way to the business.
FOSTER: But do you think we're getting somewhere with fighting slavery?
GASPERMENT: Absolutely. I -- I believe in it. We're absolutely making progress. Our whole idea in picking that theme for the campaign was that it was a very challenging topic, a very uncomfortable issue, a global issue, the third biggest criminal industry in the world and rising fast.
But we believed that we could do something about it. And not only about raising awareness or raising funds to alleviate the suffering on the ground, which we've done, of course, but also about changing things in a sustainable way by changing the structural way this problem is addressed in the market (INAUDIBLE)...
FOSTER: It really is something that we can change, though, isn't it?
Because it seems that everyone has agreed that it's a bad thing, generally speaking. It's just it exists because of all these different problems everywhere.
FOSTER: And no one really taking responsibility for it.
GASPERMENT: Absolutely. It's a very challenging issue. But this is why, precisely. This is why we chose not to do a campaign that would only be against a topic, but very concretely focused on what action, what are the one, two or three key actions that governments can take in each market to change the situation?
(END VIDEO TAPE)
FOSTER: Some good news, at least, in the fight against slavery.
Let's see if there's any good news in the weather world for Europe -- Jenny, it's bright and sunny, but it's not that warm.
JENNY HARRISON, CNN METEOROLOGIST: No. Well, I'll tell you what, Max, it's pretty windy and pretty wet, especially to the north of London. I can tell you that much. A bit of a change as we're going through this week. The temperatures are about to drop. But it's not just across in Europe. I'll show you somewhere else, too. The temperatures are about to plummet.
You can see central areas relatively clear in the last few hours. Not so in the northwest. And still, very unsettled in the southeast of Europe. It's already been cold here for the last few days. But a lot of that clouds are bringing rain, but also some snow to those higher elevations.
And look at this rain coming in across the northwest in the last few hours. Some very heavy amounts of rain working their way through in Northern Ireland and across to Scotland and Northern England. There have been warnings in place all day long for that very heavy amount of rain, because, of course, it could well lead to some flash floods.
But at the same time, some pretty strong winds. Look at this in Plymouth, 45 kilometers per hour. Those are the sustained winds. But that means we could well be seeing some gusts at around 60 or 65 kilometers per hour. And, of course, higher ground, we'll see some very strong winds. But the wind will stay strong. And I see a cold wind across much of Northern Europe for the next couple of days. This area of low pressure in the front is going to swing its way through. And that, as I say, is what's bringing in the wet weather, but also the colder weather, as well.
So I'm afraid all the warm weather that was across Central Europe, that is beginning to push a little bit further southwards.
It will also nudge its way eastward, but it's still pretty chilly across the eastern areas, too, as we go through the week.
And look at this cold air. This is what I mean about how far south it plunges, and, also, across much mainland Europe. So that warmer air, that really does retreat. Really, it's just going to be sort of Central and Southern Spain and Portugal where the really warm air is in place.
Rain coming in. And, of course, we will see snow up to the mountains across in Norway. We've seen snow across the -- the mountains in the southeast. That system pushing now into the northeastern areas of Europe. So clearing out behind.
But these winds are going to lead to some lengthy delays at the airports on Tuesday. They're already in place this Monday. You can see there on Tuesday, it's those long days, in particular, in Copenhagen, again, if you go through the day.
And as for the temperatures, well, Tuesday, not too bad -- 13 in London, 14 in Paris. But it will get colder as we go into Wednesday and Thursday. And the overnight lows very cold, too, as well -- Max.
FOSTER: OK, Jenny, thank you very much, indeed.
Now from model to mogul -- already a multi-million and a household name, as well. Tyra Banks tells CNN why she's just another Harvard Business School student.
FOSTER: Tyra Banks is a supermodel, a CEO and a game-changer. And she's also something else -- she's a Harvard Business School student. Tyra Banks is seen here on the campus, being interviewed by a U.S. network, CBS. She wants young women to know that beauty has many looks, success has many faces and struggle is real for millions of people.
Banks told CNNMoney's Poppy Harlow why she thinks education is where it's at.
(BEGIN VIDEO TAPE)
POPPY HARLOW, CNNMONEY.COM: Tyra, thank you for being here.
TYRA BANKS, CHAIRWOMAN AND CEO, BANKABLE ENTERPRISES: Thank you.
HARLOW: We -- we appreciate it.
So modeling, television, Harvard Business School.
You're an author.
What do you call yourself these days?
BANKS: What do I call myself?
I don't know, I like to call myself the -- the chairwoman and CEO of my company. But businesswoman and producer probably. Yes. But then I did write a book, too.
HARLOW: What is it like being Tyra Banks at Harvard Business School?
You made this decision.
HARLOW: Was it about sort of gaining that gravitas that maybe people wouldn't give a supermodel?
BANKS: No, it wasn't. I feel -- felt like in order to take my business to the next level, I needed to have not just my gut and my instinct, which is what's got me and my company to this place, but I needed to have the education and the tools to get there. I'm building a company that I hope will be sustainable, that I hope -- I looked at Walt Disney and what he has done, you know, with entertainment for families and children and adding that sprinkle of fantasy. Children don't even know that that was a human being. I didn't know that was a human being when I was at Disneyland.
HARLOW: But now you look up to him.
BANKS: I look up to him now. And I look up to him as a businessman that happened to be very creative. And I feel like in order for me to reach young girls and to have an impact, which is expanding the definition of beauty through entertainment, fun, fantasy and self-esteem, I needed to have the education to do that.
I have to hire, you know, people, you know, marketing and strategy people and, you know, finance people and accountants and -- and -- and so many different things for my business. I can't do that without an education. You know, I can delegate. But at the same time, me being the chairwoman and the CEO, I need to know what the heck I'm doing.
HARLOW: You want to be able to run the numbers?
BANKS: I want to be able to run the numbers, yes. I take accounting and finance at Harvard. Finance is a little difficult. It's not my strong suit. And -- and for accounting, I actually tutor at Columbia before I go to Harvard just so that I'm a little bit better prepared.
HARLOW: What is it like for you at Harvard Business School?
Are you one of the -- one of the students?
HARLOW: Do you stand out?
BANKS: I'm one of the students. I don't -- I'd like to think that I don't stand out. In the beginning, sure, you know. My classmates are like what the heck, you look just like her. And I'm like, yes, I know. I kind of know her well.
But, you know, second term, I was just me, you know. And it's funny, when I speak, I can speak to a crowd of thousands or look in the television to millions and I have no problem doing that -- or an arena or a stadium, 60,000 people. I can speak. I can be strong and confident.
We had a -- an exercise at Harvard, at school, where we had to pitch a new concept or a new idea for our own personal business. My group chose a -- a concept that I came up with and I had to pitch it to my classmates and I was shaking like a leaf.
BANKS: Now I know how to cover it. But the last time I shook like that was when I interviewed President Obama.
So that's how nervous I was to pitch this to my classmates, because it was peers. You know, these are people that are billionaires and have these businesses and like, you know, that I feel humbled by.
Sift like, oh my god, they're judging me and I was like uh-huhhhh.
Now, they didn't know I was shaking, but I was (INAUDIBLE).
HARLOW: So talk to me about your view on the middle class.
BANKS: I was a middle -- I'm from the middle class. I -- probably lower middle class, I think. My -- you know, my parents divorced when I was six years old. And then my mother was on her own. And child support back in those days wasn't as fair as it is now.
So my dad did what the law said...
BANKS: -- you know, he still put me through private school and all that, but he did what the law said, which wasn't a lot for my mother. So I got to see that struggle. So I understand what that middle class struggle is. And it's real. It's very, very real.
(END VIDEO TAPE)
FOSTER: Tyra Banks speaking to Poppy earlier.
We'll have a look at those sinking Wall Street markets after the break for you.
FOSTER: Let's have a look at those U.S. markets, then.
The Dow has been in sell mode today after last week's gains, mainly due to worries about the Eurozone, it has to be said, down nearly 2 percent at this point. It was a bit better earlier in the day.
There was good news on industrial production, with a report showing it edged up 0.2 percent in September. But that was overshadowed by those European concerns, which also dominated here in Europe.
The FTSE not looking quite as unhealthy as the others, though, partly due to a good performance by BP. It was up by more than 2 percent after it resolved a dispute with one of its partners in the Deepwater Horizon rig at the center of last year's oil spill in the Gulf of Mexico.
That is QUEST MEANS BUSINESS. thank you so much for watching.
I'm Max Foster in London.
The news is next.