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QUEST MEANS BUSINESS

US Air Security Crackdown; Near Collision on Runway in Barcelona; Dow Down But Holds 17,000; Let's Gowex Collapse; Merkel Signs Deal with China; German Output Falls; European Markets Rocky; Tour de France in England; Eurotunnel Chaos

Aired July 7, 2014 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(NEW YORK STOCK EXCHANGE CLOSING BELL)

RICHARD QUEST, HOST: The market is down 50 points in New York, but it's still holding the level of 17,000. Big Blue IBM gets to ring the

closing bell. Let's see if this cadet can do a good job. Good grief, they'll need a new hammer by the time he's finished. It's been a busy day.

It is Monday, it's the 7th of July.

Tonight, turn them on if you're going to take them off. Airport security wants you to check your gadgets.

Also tonight, pitchforks at the ready. A warning to the 1 percent from the 1 percent (sic) about the widening wealth gap.

And on your bike. The Tour de France sees Britain go cycle crazy.

It's the start of a new week. I'm Richard Quest. I mean business.

Good evening. Next time you board an airplane headed to the United States, you may very well have to prove that your cell phone or other

electronic device is not a bomb. It's the latest security measure from America's transport authorities who say staff at overseas airports, in

cooperation with allies, will be extra vigilant with direct flights to the US.

You may be required to switch on electronic devices, proving that they are charged, they are what they appear to be and not a cleverly-disguised

bomb. If your gadget doesn't switch on, it may not be allowed on the plane. So, you have to make sure your laptop, your iPad, in fact, any

other device is charged up.

US officials say they've seen intelligence that terrorists could be making bombs that are harder to detect. The Homeland Security secretary in

the United States, Jeh Johnson, said the measures are a logical response.

(BEGIN VIDEO CLIP)

JEH JOHNSON, US SECREARY FOR HOMELAND SECURITY: We know that there remains a terrorist threat to the United States, and aviation security is a

large part of that.

So, this past week, I directed that we step up our aviation security at last-point -- at some last point of departure airports coming into the

United States. This is not something to overreact to or over-speculate about, but it's something that we felt was necessary.

(END VIDEO CLIP)

QUEST: Our US Justice Department correspondent Evan Perez joins me now from Washington. Evan, the US -- how are they going to enforce it when

there are other countries involved? It's not up to the US to demand things, except, I suppose, they'll say if you don't do it, the plane can't

fly.

EVAN PEREZ, CNN US JUSTICE CORRESPONDENT: That's exactly right, Richard. That's exactly how they enforce it. They simply set these

requirements for the airlines to follow, and for security in the countries where these flights are coming from, for them to follow. And if they don't

do it, these flights cannot take off for the United States. That's simply the way --

QUEST: Right.

PEREZ: -- they enforce the rules. You're right, it is a very onerous type of requirement to be imposed upon, especially because you're already

dealing with your shoes, you're dealing with additional lines, and in some airports, you're dealing with one, two, three checks before you even get to

your plane, Richard.

QUEST: Is it a must that they will require switching on, or is it a may, depending on the circumstances?

PEREZ: No, it is a must. They are going to make sure you can turn it on and off. The problem lies, as you and I have done, I'm sure, left your

phone on and it's searching for a signal in air, and then you get to your destination and your phone doesn't work, it doesn't have any juice.

QUEST: Right.

PEREZ: So, then they're going to have double-check it, they're going to have to -- they're putting additional screening devices for explosives

to see if there's any trace of explosives, and they raise the possibility that you might have to leave your device behind if it cannot be turned on

and if they cannot decide that it indeed is not posing a danger, Richard.

QUEST: Evan, from your contacts in Justice, how serious is -- the threat is obviously serious if the bomb gets onboard, but how much do they

believe that the terrorists are close to this eventuality of creating a device that meets these requirements?

PEREZ: Well you know, Richard, the truth is, they don't know how close they are. They have seen a lot of intelligence which indicates that

the al Qaeda affiliate in Yemen, for instance, has been working on new designs to try to defeat the screening measures.

They know that they're working on designs that include no metal parts, plastic explosives, which could, perhaps, go through these screening

devices and not be detected. So, they know a lot of this is out there.

They also know that al Qaeda is making new inroads in Syria, for instance, and they're getting ever closer to places where there are more

flights directly to the United States and to Western Europe. The UK and France, for instance, have also tightened their requirements because of the

same concerns.

So, they really don't have a good idea right now, but they do believe that this is something that al Qaeda is working on and is very close to,

and it is something that they have to keep an eye on, Richard.

QUEST: Evan Perez, thank you for joining us in Washington with the official part of the story, if you like. Now, to show you exactly what

this means for travelers as you go, rather well. So, welcome to the Airport of QUEST MEANS BUSINESS.

Now, bear in mind that as Evan was saying, you're already putting shoes onto the conveyer belt. In many cases, you are already having to put

a bag onto the conveyer belt. As well as the bag, you've obviously got your little baggie of toiletries, which have to go onto the conveyer belt.

You've got to remember to take these off, whilst at the same time you're putting the other bag on.

And now, into this whole area of misery, you've got to start putting things like laptops and other devices on, which of course all of a sudden,

the security officials will say, stop right there. Now, let me see you switch your BlackBerry on. And of course, if your iPhone is also there,

now let me switch this on.

And of course your keyboard. Well, I've also got my iPad. I've got an external battery, I've got a battery charger, all in my hand luggage, as

well as the case, which was there to start with, and my handbag, and my shoes.

You're starting to get the idea. Simon Calder is the travel correspondent for Britain's "Independent" newspaper, joins me now. How is

this going to work in practice at the start of the summer season and still get a plane out on time?

SIMON CALDER, TRAVEL CORRESPONDENT, "THE INDEPENDENT": Well, that's exactly what we've been finding out here in London, which is by far the

biggest source of outbound flights in the UK to -- in Europe to the United States. And by the way, remind me never to get behind you in the queue for

security search.

What we are actually seeing is some reasonably calm scenes here at London Heathrow. Now, let me tell you how it's working. The central

search area, which every passenger goes through wherever they're going, whether it's to Rio or Rome or, indeed, across to the United States,

remains exactly the same.

What is different is when you get to the departure gate, to go into the holding area before you step aboard the plane --

QUEST: Right.

CALDER: -- you will go through your cabin baggage once again, and that's the point at which they're going to say, hang on, Richard, let's

have another look at all those electronics you've got and let's check that they are what they say you are.

QUEST: I want to jump in here, because actually today, I flew back from London. I came on the early flight to New York. There was no extra

security today, so this obviously hasn't taken effect, but is going to take effect.

CALDER: Yes, and they're rolling it out gradually. You were in London's Terminal 2 airport -- brand new 2.5 billion pound structure last

week, and that is where, I think, people are going to feel it first of all.

And it's interesting, the rollout of this. It started, actually, Wednesday night as the Department for Homeland Security first said we have

those threats. And what they did overnight last night was come out and say --

QUEST: Right.

CALDER: -- we now know exactly what we're looking for. And indeed, sources in the Department for Homeland Security have actually specified the

kinds of devices they're after down to the brand. The Apple iPhone and the Samsung Galaxy smartphone.

QUEST: So, finally, clearly, those who fall foul of not having it able to be charged up, like my iPhone, for example, which is nearly dead.

It's already down. People are not going to lose their iPhones and their laptops like they would a bottle of perfume. So, what arrangements could

be put in place for those who can't charge it up or where the battery is run down or they can't prove it?

CALDER: It's very, very sketchy at this stage, which is why maybe you were kind of cleared to take off today without the various bits and pieces

in trade. Because of course, this is not like central search, where you go in, the first encounter you have is with the security official --

QUEST: Right.

CALDER: -- who says you can't take that through, Richard, and you're immediately directed off, maybe to check it in, maybe to post it to

yourself.

QUEST: Right.

CALDER: Therefore circumventing the security check. You will be right at the gate for departure. You will not have time to run back and

sort it out there, and so therefore, there are big problems.

What the airlines are doing, and the airports, is saying, for goodness sake everybody, make sure things are properly charged up. Next line of

defense is other passengers may well have the bit of connection that you need. I recommend in a group of 200 passengers on your transatlantic

flight, there's a pretty good change they'll have the right sort of cord for your mobile, your smartphone.

But at the end of that, the Transportation Security Administration is absolutely clear: if you cannot power up that device, it is not going to

fly with you, and who knows what happens to it. It could be a case of you either surrendering your device or surrendering your flight.

QUEST: Simon Calder, thank you very much, indeed. Making good sense as always. Thank you for joining us in the terminal tonight.

Now, from security inside the airport to safety on the runway, let me show you some alarming video which shows two large jets, a 767 and an A340,

getting too close for comfort. There you have the go-around. It was at Barcelona this weekend.

The Boeing 767 pulls up from its approach as a plane belonging to Aerolineas Argentineas crosses its path. Barcelona officials say the

planes were not danger, there was good visibility, they could see -- one could see the other. The UTA flight landed safely a few moments later. An

investigation is underway.

Now, to the markets. The market down 44 points, 17,024. Alison's at the Exchange tonight. Alison, it was down the whole session.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Right.

QUEST: It didn't manage to -- umph from last week.

KOSIK: No. We did see the Dow drop below 17,000 during the session, but obviously, the Dow closing above 17,000. You know what drove investors

today? Profit-taking. Not a shocker after we saw the S&P 500 and the Dow hit these fresh record highs on Thursday.

What's going to drive the market now? Earning season. Second quarter earning season gets underway tomorrow. Alcoa, the aluminum maker, is

reporting first. But I think what you're going to see is Wall Street waiting for the banks to begin to report on Friday when we hear from

JPMorgan. Richard?

QUEST: Thank you very much. Alison Kosik, who I'm sure would never be caught with an uncharged phone in her luggage. Absolutely not. She may

have a vast number of electronic goods, but never caught.

(LAUGHTER)

QUEST: Coming up: it's like Batman versus the Joker.

(DRAMATIC MUSIC)

QUEST: A tech company is exposed as a sham, thanks to Gotham City.

(DRAMATIC MUSIC)

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: One of the brightest stars of Spain's tech scene has imploded after the head of the company admitted faking its financial reports. Let's

Gowex, a telecoms operator that offers wifi connections, gave up the pretense a few days ago after Gotham City Research, a New York investment

firm, declared war.

(DRAMATIC MUSIC)

QUEST: Now, the Joker is most definitely the chief exec, who quit following the revelations. What did he confess? He confessed at the

weekend he had been cooking the books for four years. Four years! The company was almost worthless.

Now, the board says it's filing for bankruptcy. The shares have gone into free fall, trading -- look at this! Ooh! That's free fall! Look

again! Free fall!

We need to talk to Al Goodman about this to make some sense of it all. Al Goodman joins me now in -- from Madrid. What happened here? What --

how did he get away with faking the books for so long, to the point where the thing was worthless?

AL GOODMAN, CNN MADRID BUREAU CHIEF: Hi, Richard. Well, what went on here was this company was founded 15 years ago by this former futures

trader and asset manager, and it's been going crazy since it went public four years ago. Its market value has more than doubled.

Everything rosy until the Gotham report just a few days go, which said it's impossible -- there's no way that this company could be making all

that revenue off putting free wifi into these Madrid, New York, Dublin, 90 other cities around the world, that something was wrong.

So, the company came out swinging after the Gotham report. They called Gotham had -- they said Gotham had mixed lies with facts. They

vowed to hire Price Waterhouse Coopers to do an accounting because Gotham said that their accountant was this tiny little unknown accountant.

But finally, the guy gave up the ghost, and on the weekend, he went to a senior judge, delivered a confession. The 170 employees have tweeted out

that they are in a state of shock, Richard.

QUEST: So, the wider fallout from this -- at one level, it's whether there's any free wifi available. But obviously within Spain, there's a

greater fallout, so the wider fallout, Al?

GOODMAN: There's a huge fallout, because as you've mentioned, this company had been the poster boy for entrepreneurial spirit here in Spain in

a very, very tough economy. Just a few months ago, it got a very senior business award from the government.

But this is sending shockwaves through the alternative stock exchange, where it was listed 23 companies on that stock exchange had a very rough

ride today. Some of them reportedly saying they're trying to get off.

And it also comes just recently after another big Spanish company that was also seen as so successful, the frozen fresh supplier Pescanova, all of

a sudden turned up with these huge debts, went into receivership.

So clearly a confidence issue here for these two companies, Pescanova, and for this Gowex company, but also for the whole way that transparency is

done on the smaller board, and now, falling out to the bigger board.

Investors really worried here about the transparency, of course, with the corruption right across the board. Corruption scandals hitting the

royal family, political party, you name it, the unions. It is a difficult situation right now in Spain.

QUEST: I think we need to have a report from you or two in the weeks ahead, Al, looking at this, what's going on in Spain. Thank you very much.

Al Goodman bringing us that important part of the Spanish story.

Angela Merkel was in China on Monday, signing a series of trade deals for Germany. Volkswagen will open two new plants in China and says it's

investing nearly $3 billion. Lufthansa and Air China agreed to expand their alliance on shared flight connections. And Airbus Helicopters bagged

a number of orders for a total of 128 helicopters to be delivered in the next five years.

Those trade agreements come after news that industrial output in Europe's largest economy had its biggest drop in two years. It is down

some 1.8 percent. Germany's deputy finance minister told CNN Europe's recovery is far from complete.

(BEGIN VIDEO CLIP)

STEFFEN KAMPETER, GERMAN DEPUTY FINANCE MINISTER: The markets are giving us a good brief support at the moment, but we have to fulfill

credible policies, not just only for the next one and two years, but in the medium-term. And the hunger for reform, the movement of reform has to be

kept up. If this is not the reality, this will be the biggest threat to growth within Europe.

(END VIDEO CLIP)

QUEST: Now, Christian Schulz is a senior economist for Berenberg Bank. He joins me now from CNN London. This is getting -- the

relationship, now, within the Union, within the countries involved, with Germany looking forward, is getting extremely complicated.

CHRISTIAN SCHULZ, SENIOR ECONOMIST, BERENBERG BANK: Well, yes, we have a bit of a rough patch, probably, ahead of us, because now that Italy,

a country with big problems, is taking over the presidency of the European Union, they have some issues with the paymaster, with Germany, who got the

eurozone through the worst of the crisis, but is now seen as being to austere, too tough on public spending. So, there might be a bit of a spat

between these two countries.

QUEST: But at the same time, we do have the ECB, they've already said they'll do what they need to do. They've done a little bit of it. Do you

believe that the ECB has to do more?

SCHULZ: Well, first of all, I think a lot of the current issues are overplayed. I think the eurozone has successfully got out of the worst.

There are some issues. Growth is not strong enough. But as you said, the ECB is already doing quite a lot. It may go further. We may still see

asset purchases.

But actually, I think what they have agreed so far, the very, very low interest rates and these huge, very cheap loans to banks, which are coming

though towards the end of the year and the next year, will help and already very slowly but gradually recovering economy. So, I think there is a

chance there will be more, but it's not absolutely necessary.

QUEST: But if there was ever a clear -- a crystal-clear situation that monetary policy has done what it can, fiscal policy in some countries,

like Germany, could still do more, and this is just going to have to work its way out.

SCHULZ: Well, yes. I think time is of the essence. Patience is of the essence. I think in terms of fiscal policy, I wouldn't like to see a

big public investment program, more roads, more ports, more airports.

But I would like to see in which the deputy finance minister said is, more reforms freeing up the economy. Labor market reforms, product market

reforms, especially service sector deregulation across the eurozone and across the EU. Those are the kinds of things that could kickstart growth.

But I think even without that, patience and working through the problems of the financial crisis will get us some good way ahead.

QUEST: Thank you very much for joining us. Good to see you, sir. Thank you.

Major European markets had a rocky session. The weak German economic data was to blame. The FTSE was just off a tad. The Xetra DAX and the CAC

40 was down more than 1 percent.

It's the Tour de France, and it's in Britain. And even the royal family have gone cycling crazy.

(COMMERCIAL BREAK)

QUEST: The Tour de France arrived in London a few hours ago after making its mark in the north of England. Racers got the royal seal of

approval from the Duke and Duchess of Cambridge, who started the UK leg of the race. Prince Harry was also there.

Saturday's opening stage was in picturesque Yorkshire, where an estimated million people lined the streets to watch. Economists say

interest in the event could generate an extra $170 million for the north of England, where I was actually born and grew up.

It could even raise house prices, which would certainly be an achievement. CNN's Jim Boulden was there to soak up the atmosphere as

today's stage came to a finish.

(BEGIN VIDEOTAPE)

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: The Tour de France third stage has just ended here on the Mall in central London, and some of

the riders are still coming in. The race was won in three hours, 38 minutes and 30 seconds by one of the favorites, Germany's Marcel Kittel.

Now, it was a dramatic race. We saw lots and lots of people here in central London, tens of thousands lining the streets well before the racers

actually got here. And it's said that more than 2 million people watched stage one and stage two over the weekend in the northern part of England.

So, the first three stages of Tour de France, held here in the UK, the deputy mayor tells me it's something like 100 million pounds or $170

million to the UK income to have this kind of race here. You get people booking hotels. Of course, you get all the racers and all the world's

media coming to London and around the UK for this kind of race.

Now, what's important to note, of course: it was two years ago that you had the racing in the Olympics here in London, very successful as well.

So, the race went through London landmarks and also went through the Olympic Park to bring some of the magic back from two years go.

Now, if there were any complaints, it was about spectators taking selfies, stepping out into the route, turning around, and taking

photographs with their backs to these cyclists, who were going very fast. So the cyclists asked on Monday for people to not take selfies, do not

interfere with the race, and do not do something so dangerous as turn your back on a speeding cyclist.

Jim Boulden, CNN, London.

(END VIDEOTAPE)

QUEST: More news on traveling -- travel problems in Europe, where Eurotunnel passengers are facing enormous delays of up to six hours after a

train got stuck eight miles from the English coast.

Nearly 400 passengers and 4 dogs were evacuated after a power failure caused chaos deep inside the tunnel. A spokesman for the company says if

you were planning to cross the Channel by train, you should postpone your journey if at all possible.

In a moment, people in Egypt are bracing themselves for higher fuel prices as the president says it's the only way to save the economy.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes

first.

Air raid sirens sounded in southern Israel after a barrage of rocket fire from Gaza. Hamas is claiming responsibility for firing dozens of

rockets on Monday. Israeli authorities say at least one person was wounded. Israel launched airstrikes on Hamas targets overnight. The

Health Ministry in Gaza says eight militants were killed.

Sixty-three women and girls in Nigeria are reported to have escaped from their Boko Haram captors. They were abducted during a raid on their

village in northern Borno state on June the 18th. A security source says the girls escaped when their kidnappers left to fight Nigerian military and

police.

For the first time, Pope Francis has met victims of clerical sex abuse. The Vatican says he asked for their forgiveness, saying the failure

of church leaders to act led to greater suffering. Some victims' groups say the pope has yet to take any real action on the matter of past abuse.

The defense is set to rest its case in the Oscar Pistorius murder trial. Defense lawyer Barry Roux says he needs to consult with the

defendant first. Separately, an Australian TV network denies it illegally obtained a video of the Olympic athlete reenacting the shooting of his

girlfriend, Reeva Steenkamp.

The football legend Alfredo Di Stefano has died. Regarded as one of the greatest players of all time, Di Stefano won the European Cup five

times with Real Madrid, was named European Footballer of the Year twice. Retired after suffering a heart attack close to Real Madrid's stadium. He

was 88 years old.

Egypt's new foreign minister says he disagrees with these - those - who say President al-Sisi is a dictator. Speaking to CNN's Becky Anderson

in his first international TV interview, Sameh Shoukry says Egyptian democracy is alive and well.

(BEGIN VIDEOCLIP)

SAMEH SHOUKRY, EGYPTIAN FOREIGN MINISTER: But when a leader is elected by 22 million voters who participated in elections that were

internationally monitored, I think that's a disingenuous categorization.

(END VIDEOCLIP)

QUEST: Over the weekend, President al-Sisi defended the decision to dramatically raise the price of fuel and ratchet up taxes on alcohol and

cigarettes. Ian Lee has our report from the Egyptian capital.

(BEGIN VIDEOCLIP)

IAN LEE, FREELANCE CORRESPONDENT: When the Egyptian Defense Minister Abdel Fattah al-Sisi announced the army overthrew President Mohamed Morsi

to the fanfare of Tahrir Square, he inherited the country's staggering problems - a faltering economy, unsustainable subsidies, high unemployment

and a growing political crisis, a recipe that took down now-President Sisi's predecessor. One year later, the anger is boiling once again. The

recent easing of gas subsidies infuriated taxi drivers near central Cairo. The cost of petroleum went up 78 percent, the cost of filling up the taxis

fueled by natural gas shot up 175 percent.

KHALED HOSNY, TAXI DRIVER, TRANSLATED BY LEE: Who'll pay for this, the customer?

LEE: -- says taxi driver Khaled Hosny.

HOSNY: Not me. I will never carry the difference.

LEE: But it's not just cab drivers feeling the pinch. Gwarda (ph) sells vegetables at this market in the Cairo neighborhood of Dotin (ph).

Every morning trucks bring everything from tomatoes and garlic to watermelons and oranges from the surrounding farms. For Gwarda (ph),

higher fuel prices means more expensive produce, something she'll have to pass on to the consumer. With most people living day-by-day and fruit

prices rising, a true test of Sisi's presidency will be whether he can survive the discontent.

GWARDA (ph): I see a lot of anger so another coup could happen -

LEE: -- says Gwarda (ph).

GWARDA (ph): I want to tell President Sisi to pay attention to the people and see what's happening.

LEE: The government tried to ease the anger by explaining.

IBRAHIM MEHLEB, EGYPTIAN PRIME MINISTER, TRANSLATED BY LEE: Debts have piled up. The question is, do we leave our children a country whose

debt and poverty increase every year?

LEE: -- says Prime Minister Ibrahim Mehleb. Mehleb pledged that $3 billion saved from the cuts would go to education and healthcare. The

subsidies have to go. "But a vitals component is missing," says economist Wael Ziada.

WAEL ZIADA, ECONOMIST: The question is, has the government done enough to create the social safety network that would tackle the issues of

or would shield the lower segments of the population?

LEE: The most vulnerable is the quarter of the population that lives below the poverty line, and the roughly 14 percent of the population

unemployed. That's according to the government. Ziada believes Sisi will need all of the political goodwill he can get.

ZIADA: At the end of the day, if you believed this would put the country on a sustainable fiscal path in five years, and think the entire

population will have to endure the costs.

LEE: Opponents believe good will won't come easy, pointing to Sisi's lack of compromise.

MOHAMED NAEEM, POLITICAL ANALYST: It is going to escalate the problem because you don't have a political consensus, so taking a serious

economical decision might lead to big problem.

LEE: For now, President Sisi's political future and that of the poor is up in the air. Ian Lee, CNN Cairo.

QUEST: When we return in just a moment, a self-confessed 1-percenter has a warning to the rest of the filthy rich. Wake it, it won't last, and

if you're not very careful, you'll feel the full force of one of these. You'll hear why after the break.

(COMMERCIAL BREAK)

QUEST: "Pitchforks are going to come for us." One of America's wealthiest businessmen is sending out a warning to his fellow fat cats.

The self-proclaimed .01-percenter says America is becoming less a capitalist society and more a feudal society, and unless things change

dramatically, he says the middle class is going to disappear, the U.S. will become 18th century France before the Revolution. The wealthy are living

in a dream world. "It's not if, it's when" they will come for us. Nick Hanauer joins me now from Seattle. I give you credit, sir, --

NICK HANAUER, FOUNDER OF SECOND AVENUE PARTNERS: Thank you, Richard.

QUEST: -- for using extremely colorful language which has caught everyone's attention.

(LAUGHTER)

QUEST: But you believe it's a real risk - America - I mean, whether it be the French Revolution, the Peasants' revolt that eventually people

will take one of these to people like you?

HANAUER: Well, I mean, to be clear it was slightly tongue-in-cheek and I do not as a practical matter keep my jet fueled at all times ready to

run away from the revolution, but the facts are that while some economic inequality is essential to a high-functioning capitalist economy, runaway

economic inequality always ends badly. There's no example in human history where it hasn't, and the great problem we have in the United States is

that, you know, economic, you know, wealth is concentrating at an increasing rate. And, you know, eventually it's going to -

QUEST: Right.

HANAUER: -- it's not going to work out for anybody. There's this old - there's this old, you know, old saying from the investment business,

Richard, which is that pigs get fat, hogs get slaughtered -

QUEST: Right.

HANAUER: -- and I'm just saying to my people we need to reel it in a little bit.

QUEST: Sure. OK, let's just - to the viewers - and I'm British, and this question pains me more than anything else to ask you, because we're

very diffident about this - how much are you worth conservatively?

HANAUER: I'm worth less than a billion dollars, but hundreds and hundreds of millions of dollars.

QUEST: So to those that are in your ilk, --

HANAUER: Yes.

QUEST: -- over - hundreds of millions, going into the billions, what -

HANAUER: Yes.

QUEST: -- does this warning want them to do? I mean, they can cry all they like about how we must help people, but what do you asking them to

do?

HANAUER: Well, there's a range of policy options available to us to make sure that we maintain a thriving middle class, which is the source of

prosperity in capitalist economies. Rich people like me need to actually pay a tax, and not tax at half the rate that working people pay, but tax at

rates which equal or exceed the rate at which working people pay. We have to have labor standards which ensure that companies pay people enough to

live on, not these crazy minimum wages that we have in this country which enable a company like Walmart, for instance, --

QUEST: Right.

HANAUER: -- to earn $27 billion in pre-tax profit a year, and impoverish their workers. So I'm a big fan for instance of a higher

minimum wage.

QUEST: OK, so how much of what you're suggesting - and I say this slightly tongue-in-cheek - is enlightened self-interest to preserve

yourself versus morality of `it's the right thing to do.' There's a difference, you'd agree?

HANAUER: Yes, there is a profound difference and I'm 100 percent comfortable admitting that this is enlightened self-interest. No one has a

stake in a thriving middle class like capitalists like me. You know - you know - all over the world you have great entrepreneurs. In the Congo, you

have entrepreneurs. Unfortunately what those folks are doing is standing barefoot by the side of a road selling fruit, and that's because their

customer base, it can only afford that. You know, Steve Jobs didn't make the United States of America, United States -

QUEST: Right.

HANAUER: -- of America and the middle class made Steve Jobs.

QUEST: OK.

HANAUER: We have a stake in that.

QUEST: You'll be familiar with Thomas Piketty's book of course "Capital" which -

HANAUER: Very, yes.

QUEST: -- and he was on this program only last week talking about this very issue -

HANAUER: Yes.

QUEST: -- and so I wonder now is income inequality the issue of our time?

HANAUER: I absolutely believe that economic - income inequality is one of the great existential threats to the world's advance - the advanced

nations of the world's economies and democracies.

QUEST: Right.

HANAUER: You can only concentrate power so long before the whole thing collapses.

QUEST: Sir, thank you for coming on the program. May I give you a standing invitation to always come on and talk about these important issues

that we consider so vital on "Quest Means Business?"

HANAUER: I would, I would be delighted to. Thank you for having me.

QUEST: And I promise you the pitchfork will remain suitably to the side.

HANAUER: OK.

QUEST: Thank you very much. Now listening to - listening to that, is the head of the International Labor Organization, a gentleman whose always

delighted to have on the program, the director general. They are all - good to see you -- .

GUY RYDER, DIRECTOR GENERAL, INTERNATIONAL LABOUR ORGANIZATION: How are you?

QUEST: -- Guy Ryder, good to see you. Now, Guy Ryder is the director general of the ILO. He joins me now. You were listening to that. What do

you make of it?

RYDER: Lots of good sense. I could echo all of the sentiments that were - that were - that were set out there. I don't actually think the

question is, are we waiting for the revolution or are we waiting for something else - is it just going to be sullen resignation at current

levels of inequality? They're bad for our societies and there was the point that was just made they're bad for our economy, --

QUEST: How would they -

RYDER: -they're bad for capitalism.

QUEST: But how have they grown up these inequalities? Is it just poor government policies? You know, when I think post-Second World War, so

much time has been spent by so many governments building safety nets and security blankets. How have we ended up in a situation where it's gotten

worse?

RYDER: Well, I think two things have happened. The first thing that's happened is the share of national income - this is around the world

- it goes to workers, it goes to wage earners, has gone down about 20 percentage points. It doesn't actually pay to go to work anymore. And

secondly, we have tax regimes which the previous speaker indicated, which are actually such as to have people who are less well-off paying more

rather than the folks who've got a lot more money and can pay more. So, it's a secular (ph) decline in returns to workers basically.

QUEST: His comments about fermenting of unrest. Now, you know, we can take the pitchfork example with a pinch of salt, but he is right, isn't

he? And you would be the first to say if we do not address this issue, then eventually - whether it's the Peasants' Revolt, the French Revolution,

the Arabic Spring - eventually those without say, `It's my turn.'

RYDER: I don't even think we're at that stage yet. I mean, I don't think this is waiting for the revolution or not. What I actually think

we're seeing is inequality - don't ask the ILO, asked the International Monetary Fund - is a drag on economic growth now. We're at levels of

inequality which is actually retarding economic growth because people aren't spending. And if people aren't spending, people aren't investing

either.

QUEST: So -

RYDER: And the machine begins to get grit in the wheels.

QUEST: Where do you start to unwind it? Because let's take here in the United States. The battle over raising the minimum wage has been

brutal - you're familiar with that. But Germany has just past -

RYDER: Germany's just -

QUEST: -- quite a large minimum wage.

RYDER: Yes, yes.

QUEST: And you might want more, but it's still, it's OK for the moment.

RYDER: It's a carefully-considered $8.50. A bit more than we Brits give ourselves.

QUEST: Right, but less in the U.S.

RYDER: But, well, actually where the U.S. go to but at the moment. But here's the interesting thing - the big powerhouses of the global

economy are all talking about minimum wages. In the United States with all the blockages that we know about, Germany they've just approved it, Japan

the government is encouraging employers to pay higher wages, and China is also pushing up wages as well. So, people are getting the message. And I

think business has to understand that, you know, higher wage is not going to drive them out of business. Actually, higher wages might keep a lot of

business in business.

QUEST: So you've got minimum wage. What else would you like to see?

RYDER: Bargaining, collective bargaining. You see, one thing is governments to step in and put a floor in the labor market. Same for

social protection. But in the end, you know, how have we decided how we're going to get paid? We actually get together, we make a call, we represent

ourselves. So, it's time to get back to some of the basics of labor market regulation, collective bargaining or -

QUEST: Do you think - I'm trying to, on this question of collective bargaining - that the pendulum which clearly some would say swung too far

to union power in the 70s and was redressed back in the 80s and arguably has gone too far against union, has come back to some form of equilibrium?

RYDER: I think it's got to get back to equilibrium. And I think these swings inequality to great inequality bring us back to a center of

gravity that'll be good for our societies, good for that middle class that your previous speaker spoke about and actually get our economies growing.

Here's the point - giving a fair share to workers does not actually screw up your economy, it helps it forward.

QUEST: We're so glad you came in today, sir. Good to see you on this side of the Atlantic. Glad to see you as always. Coming back after the

break -- off the streets, into the water when "Quest Means Business" returns. We'll see how one group is trying to give children in Brazil a

way out of poverty, and the surf's up! In a moment.

(COMMERCIAL BREAK)

QUEST: There's an extremely strong typhoon and it's expected to make landfall in Japan within a matter of hours. Tom Sater's at the World

Weather Center. How strong and how serious?

TOM SATER, METEOROLOGIST FOR CNN INTERNATIONAL: Well, good questions, Richard. The latest advisory from the Joint Typhoon Warning Center drops

the strength of this system from a super typhoon status to just typhoon status. Now it, at one point, had a strength of a category 5 hurricane,

but some dry air has been filtering into this system trying to break it down. So right now it's a strong category 3 equivalent typhoon. However,

this is four times the size of Germany. We're going to have winds in Taipei, Shanghai, Okinawa is going to get brushed, not a direct hit, but in

about eight to nine hours from now, the eye is going to pass just about 130 kilometers to its west. So it's going to be in that northeastern quadrant

where the winds and the rains are going to be really making an impact on Okinawa.

QUEST: Now, let me jump in here. Did I just hear you say - how big is this thing?

SATER: Half the size of India, four times the size of Germany, roughly.

QUEST: Good grief. This is vast --

SATER: Yes.

QUEST: This is vast.

SATER: This is but it's losing strength. Now, Richard, some of our computer models want to hint at a regenerating and getting stronger ago.

However, we believe that's not going to be the case. I want to point out this is where Nagasaki is. Tremendous thunderstorms since last Thursday

have been just buffeting the area Thursday, again on Sunday. So the weather that they've had is just tremendous flooding. Rivers are bursting

their banks already and it doesn't matter if this is a Typhoon or just a small tropical storm. It's going to drop enough rain to cause

infrastructure damage and a loss of life is with us. Now, 250 kilometers per hour down to 205, and that's that dry air trying to move into the

region. But, again, it's going to pass just to the west of Okinawa - they can sustain that. They've got very strong building codes - they can have

direct hits and they typically have a couple a year. But the path from the Joint Typhoon Warning Center now covers the entire mainland of Japan.

The good news, if I can find any here, -- two things. One it's been delayed about 12 hours, so it'll be maybe Thursday morning around 6 in the

morning for Kyushu near Kagoshima and Sendai and Nagasaki. The other good news is it should pick up in speed and rapidly push across the area. Now,

you can kind of see where our computer models have the eye. Now this is good news in a way because we want to try to get the strongest winds into

the Strait and the Sea of Japan. But now looking at this closely, because it spins in a counter-clockwise fashion, the heavy rainfall just on top of

where we've had the tremendous flooding, is going to be a big concern. Landslides, mudslides. Again, amounts of rainfall are pretty staggering,

and we can even go back and take a look at that - we will in a moment. But here's the wind profile - really loses some strength, so we don't believe

that the other computer models that keep all this purple here - 162 kilometer per hour winds in Okinawa - we don't believe it'll regenerate.

But, again, I cannot stress enough, it doesn't matter the size of the storm because of the flooding that they've already had and the concerns in

western parts of Japan. Look at this - this is 15 inches of rain, 384 millimeters. Wave heights with this are over 11 meters. That's down about

a meter, but it still continues to possibly impact with category 1 hurricane-force strength. Maybe category 2 if it sustains that.

So, again, one more quick look. This is our computer models here at the CNN World Weather Center. We'll toss on the Joint Typhoon Warning

Center's models. There was disagreement in where it would make landfall in Kyushu in western Japan. They are now in agreement -- Joint Typhoon

Warning Center coming back to our region where we originally forecasted. And so it still looks like the possibility, Richard of a direct landfall.

Even though it may not have a category 3 strength hurricane like we have right now, this is going to be a tremendous impact for millions that are in

the region. If they're not evacuating now, as I mentioned, it has been delayed about 12 hours, so they have the time. It would just be nice to

see it pick up in speed. This is just time lapse of the airport in Okinawa for the overnight period and we'll see the scene change a little bit and

get in more to where they're starting to see the effects not just -

QUEST: All right.

SATER: -- of sunlight, but the winds. So we'll keep you posted.

QUEST: Tom, you've got a busy few days ahead of us.

SATER: Yes.

QUEST: Please come back and report more as this moves on. Now, in a few days from now the eyes of the world will turn to Rio de Janeiro for the

World Cup Final. In the favelas of Rio life, life can be brutally hard. Breaking the cycle of poverty can be even harder. Isa Soares reports on

how surfing is being used as a force for good.

(BEGIN VIDEOCLIP)

ISA SOARES, REPORTER AT CNN INTERNATIONAL: At the gate to Rio's most populous favela lies an opportunity for change. Here inside the Rocinha

Surf School, children are learning to ride the waves to sea and whatever life throws at them. Set up from fellow resident and qualified surfer

Bocoa as he's known here and supported by famous U.S. musician and surfer Jack Johnson, the school offers children an opportunity to get off the

streets and into the water.

RICARDO "BOCAO" RAMOS, ROCINHA SURF INSTRUCTOR, VIA TRANSLATOR: The school started because in Rocinha, there was no one to teach kids to surf,

so I decided to collect old surf boards that were thrown into the rubbish on the beach. And so I fixed them and gathered a group of five kids, and

began to teach them how to surf.

SOARES: Despite the financial challenges of keeping the school afloat, he continues to teach. So far, more than 1,000 children from the

local favelas have sought training and advice from Bocao - two of them have become professional surfers, competing around the world. A moment of pride

for the instructor and a dream of a better life for students like ten-year old Marcos Paulo, Rocinha Surf student who tells me he wants to be a surfer

and a hard-working man when he grows up. He adds --

MARCOS PAULO, ROCINHA STUDENT: I like surfing because I want to have a good future to help my mom, to help my family, to help Bocao my teacher,

so I have to work hard to help all my family.

SOARES: Any child from the neighboring favelas can learn how to surf for free, but they have to prove to the teacher they have 100 percent

attendance at school and good grades. It's all about teaching them the value of hard work and discipline. In doing so, the school is also

offering them an alternative to the crime and drug-trafficking that tempts so many young people across Rio's favelas. No one knows it better than

this teacher who escaped it through surfing.

RAMOS: Surfing changed my life and it's changing theirs. It's a pastime. Sports can bring about major change - can be transformative.

They wake up, go to school. As for their houses, the surf school and the beaches are a second home, so we're joining work and pleasure.

SOARES: For these children it matters little how much water they swallow or how many tumbles they take. Like in life, this is about

learning to get up time and time again. Isa Soares, CNN Afucinado (ph), Brazil.

(END VIDEOCLIP)

QUEST: Report from Isa in Rio, and I'm sure that many people want to say, `Why didn't I get that assignment?' If you're planning on impressing

fell commuters by reading some high-minded business book, you're not fooling anyone. An academic study says people may buy the books, hardly

anyone gets to the end. So, let's start with "Flash Boys" by Michael Lewis - the critical look at high-frequency trading. The highest score for

people actually finishing it - 21.7 percent. Sheryl Sandberg's "Lean In" sold more than a million copies - only 12.3 percent read the whole thing.

And our old favorite, "Capital in the Twenty-First Century" by Thomas Piketty. The tome took an economic world by storm - just 2.4 percent of

readers have plowed through 700 pages. And Mr. Piketty acknowledged this fact when I spoke to him.

(BEGIN VIDEOCLIP)

THOMAS PIKETTY, AUTHOR, "CAPITAL IN THE TWENTY-FIRST CENTURY": "That's why I'm very glad that, you know, a number of people seem to enjoy

it and, you know, even multi polls (ph) seem to be talking about it, maybe some of - some of -- whom have not really your kind of book, but this is

fine, you know, that's part of the game and I'm very happy with this one.

(END VIDEOCLIP)

QUEST: I've opened it, I've read a page or two, I'm a long way from finishing it. After the break, a "Profitable Moment."

(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment." A clarion call to the future - pitchforks coming to get the top 1 percent. That was the warning you heard

about on tonight's program. It might be a bit of hyperbole, but the truth is this issue of income equality is the issue of our time. Let me make it

quite clear - here on "Quest Means Business," it's an issue that we're certainly going to take a pitchfork to every single time it gets raised.

And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BELL) hope it's

profitable. I'll see you tomorrow.

END