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QUEST MEANS BUSINESS

Russian Convoy Enters Ukraine Without Permission; European Stocks Fall; Fight for Control in Eastern Ukraine; UN Emergency Meeting on Ukraine; Central Bankers Warn on Jobs; US Markets Dip as Fed Sits on Fence; Central Banks on Jobs; Malky Mackay Racism Row; Discrimination in Football

Aired August 22, 2014 - 16:00   ET

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


(NEW YORK STOCK EXCHANGE CLOSING BELL)

MAGGIE LAKE, HOST: The Dow is struggling to cling onto 17,000. It's Friday, the 22nd of August.

Aid or invasion? Russia sends 100 lorries into Ukraine without permission.

Still laboring under low unemployment, the US Fed chief urges caution.

And Delaware becomes the first US state to give families access to the social media accounts of those who have passed away.

I'm Maggie Lake. This is QUEST MEANS BUSINESS.

Russia says it's an aid convoy, Ukraine says it's an invasion, and the US says it could mean more international sanctions. More than 100 Russian

vehicles are now rolling towards Lugansk in Ukraine on what Russia is calling a humanitarian mission.

The US says they made an unauthorized entry, which violated Ukraine's territorial integrity, and the Pentagon says Russia has 18,000 combat-ready

troops stationed on the border with Ukraine. Ukrainian officials had stalled the trucks for days before they finally granted access to a limited

number. Russia's foreign ministry has accused Ukraine of inventing excuses to delay the convoy.

The head of Ukraine's security service says Russia's goal is not humanitarian.

(BEGIN VIDEO CLIP)

VALENTYN NALYVAYCHENKO, HEAD OF SECURITY SERVICE OF UKRAINE (through translator): We call this a direct invasion for the first time under the

cynical cover of the Red Cross. First of all, these are military cars and military drivers.

(END VIDEO CLIP)

LAKE: European markets dropped Friday as concerns about Ukraine and Russia heated up. If you take a look at the DAX, it fell nearly one

percent, CAC down more than a half a percent. It comes after a two-week rally. Losses limited by a dovish speech by Janet Yellin.

Now a look at the Ukraine crisis effect on the DAX chart of the past three months, and now you're looking at it up close here. You can see a

very steep decline in August.

Diana Magnay is in eastern Ukraine for us. And Diana, what is the situation we're looking at? We heard what the response was from the

Ukrainians, but what are they going to do now?

DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: Well, Petro Poroshenko, the Ukrainian president, has said that he will try and make

sure that an Ukrainian reaction doesn't prompt any kind of escalation, so he will tread very carefully around this convoy, despite the fact that it

is a clear breach of Ukraine's sovereignty and territorial integrity, the fact that these trucks have crossed over without the express permission of

Kiev.

The latest figures we have from the OSCE, who were monitoring the checkpoint, there's been, in fact, 227 trucks have come through, bound for,

we believe, Lugansk. And only 34 of those have actually been monitored or assessed by the International Red Cross, the ICRC.

The deal was that the Red Cross would assess the trucks, and then, with the agreement of Ukraine, they would be allowed in. But Russia has

acted unilaterally and has, therefore, prompted very, very wide-scale international condemnation.

The US has said that unless Russia remove those trucks immediately, then it will face further costs and further isolation. The NATO secretary-

general has also used very strong language in condemning Russia, saying it is unclear from this convoy whether it is there to deliver humanitarian aid

or to resupply the rebels.

And let's not forget, the rebels have been being pushed back by Ukrainian forces in recent weeks. And if you're looking at this cynically,

this could very much be a tactic on the part of Russia to block any attempt by Ukraine for now to keep pushing into Lugansk.

And of course, because so many of those trucks haven't been inspected, we don't know what is actually being carried in the vast majority of them,

Maggie. So, it is a very, very difficult situation.

And one more thing that is very important to add: NATO also saying that they have seen this big build-up, an alarming build-up, they called

it, of troops, both in the air and along the border, 18,000 at present tally.

And that they were seeing evidence of Russian artillery support, not just from the Russian side, but also on the Ukrainian side of the border,

support for the pro-Russian rebels, an indication that Russian forces are actually operating on Ukrainian soil, as far as NATO is concerned, Maggie.

LAKE: Diana, foreign policy analysts and experts are watching this closely, tweeting out tonight, "Russia called Ukraine's bluff." Do we know

if there are Ukrainian military in the area? Would we expect them to move in, and are we expecting some sort of confrontation?

MAGNAY: Well, this area that the convoy has moved or is moving down from the border point to Lugansk, except for a very small corridor, is

controlled by pro-Russian rebels. Petro Poroshenko has made clear that he will try not to have -- to launch any kind of attack on the convoy to

trigger any kind of escalation.

Because it's clear that if that convoy does come under attack, it would give Mr. Putin every opportunity, every chance, really, to use that

as a provocation for further action. So, it is a very dangerous thing to be having this convoy coming between two warring sides in that area,

Maggie.

LAKE: It certainly is. All right, Diana Magnay for us, live. Thank you very much, Diana.

The United Nations is holding, meanwhile, an emergency meeting about this. Richard Roth joins us now. Richard Roth joins us now to discuss

this. Richard, this has got to be raising alarm throughout the international community. What, if anything, can the United Nations do

about it? What do we expect?

RICHARD ROTH, CNN SENIOR UNITED NATIONS CORRESPONDENT: Well, they've had meetings, that number, I think, near 30, now, since this crisis began,

and the deadlock remains. Russia has veto power at the United Nations.

The Russian ambassador to the UN, Vitaly Churkin, held a press conference a few hours ago. He began by saying, "I have good news." Which

at the UN, for a lot of other countries, when Russia says they have good news, that's bad news for other countries. And it may work the other way

around.

But Vitaly Churkin, the ambassador said, look, we had to go. These items were perishable. When asked were there weapons onboard, he said

there was baby food. Baby food and electrical items, things needed to give urgently-needed care to people who are under shelling, he said.

He also talked about the Ukraine border guards, how they didn't get the message from some higher-ups, who should have gotten the word from

talks with Moscow.

(BEGIN VIDEO CLIP)

VITALY CHURKIN, RUSSIAN AMBASSADOR TO THE UNITED NATIONS: At times, it seems that there is no clear chain of command in Kiev, because some

assurances are given from -- at a very high level, and then others do not give the orders, which are required, as I mentioned, by the border police,

to let the trucks in. That game could not continue indefinitely. We waited long enough, and it was time to move.

(END VIDEO CLIP)

ROTH: The Ukrainian ambassador, the deputy ambassador, followed it up with his own press conference simply saying this Russia convoy is a blatant

violation of the sovereignty of Ukraine.

Now, Lithuania led the charge to have this present security council meeting going on behind closed doors. Many other countries are joining

Lithuania in condemning what Russia is doing. The secretary-general of the UN in a statement said that he's worried that this could escalate and

exacerbate, he says, an already dangerous situation in eastern Ukraine.

LAKE: Clearly. Absolutely, but as you say, Russia has veto power, so what, if anything, tangible is going to come out of this, and could we see

Ban Ki-moon or someone actually go to the region to try to broker some sort of --

ROTH: Well, his top deputy, Jeffrey Feltman, just went to Kiev. The Russian ambassador said the people he would've wanted to meet in Moscow are

not there now. He's done some trips before to both places.

I think they're just hoping to keep the lid on and hope that sanctions bite eventually, or that other European countries might get tougher with

Moscow. But I don't see any change in this situation. It has gone on at the UN side since March, and over there, especially.

LAKE: That's right. But I guess the feeling is at least if they can keep the dialogue going, perhaps they'll get an opportunity. But clearly,

it's going to be a very tense weekend --

(CROSSTALK)

ROTH: We'll have to see --

LAKE: -- and a tense meeting.

ROTH: -- what happens with these trucks, which the Russian ambassador says that they were just delivering badly-needed supplies. He said, of

course, there might be some empty trucks. He says he doesn't know. He expected them to get out after delivery. No word yet on that.

LAKE: All right, Richard Roth for us, thanks so much, Richard.

Still to come, when central bankers speak, markets listen. Today, investors got a double feature with Janet Yellin and Mario Draghi. We'll

tell you what they said and what it means, next.

(COMMERCIAL BREAK)

LAKE: Tonight, the world's top central bankers are issuing warnings about the job market from their annual get-together in Jackson Hole,

Wyoming. ECB chief Mario Draghi signaled he's worried about high unemployment and low inflation. He called for more flexibility when it

comes to national budgets.

Now, that translates to a call for less austerity and more government spending. Also tax cuts, he spoke about, within the rules, of course.

Euro area governments must limit their overspend to within three percent of GDP, so there's not a lot of wiggle room.

Fed chair Janet Yellin, meanwhile, said the US labor market has not yet fully recovered. Investors, of course, want to know if it's recovered

enough for the Fed to start raising interest rates. Although Yellin hinted tightening could come sooner than expected, she offered few definite clues.

The Dow ended the day just below the red line, as we've shown you. Alison Kosik is here with more. And Alison, Janet Yellin seemed to offer a

little bit for every side, didn't she?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: That's a really good way to put it. She really played both sides of the fence. On the one hand, she

did say clearly that the discussion about when to raise interest rates is clearly in play at the Fed.

But she also said there was no simple recipe as to when the Fed would go ahead and raise interest rates, that it would depend on how economic

data are doing. Of course, if there's improvement in the job sector, of course you're going to see those interest rates rise a lot sooner.

Now, she also said that there are 19 labor indicators that the Fed looks at, which the Fed follows, which suggest at this point that the

falling unemployment rate that we're seeing happen here in the US is not necessarily an indication that the jobs market is fully recovering, so she

really did play both sides of the fence, covered all her bases today.

LAKE: That's right, and we know she's really concerned about slack, and we've heard that word.

KOSIK: Right.

LAKE: Was there any mention of any concern about speculative bubbles or any excesses? A lot of people are worried about all this cash sloshing

around has caused people to take on more risk, and maybe money going where it shouldn't. Did they mention that, or are they steering clear, just on

the jobs?

KOSIK: Well, the Fed has in the past really focused on the jobs situation, and in the past as well has indicated that there is some concern

of a bubble, but really nothing to be worried about. I think that the focus at this point is on the jobs picture and on inflation.

LAKE: And we know that is Janet Yellin's real issue --

KOSIK: Yes.

LAKE: -- is how to get all those under-employed people back working in the labor force.

KOSIK: Exactly.

LAKE: All right, Alison, thank you so much.

KOSIK: Sure.

LAKE: We're going to be on Fed watch, that's for sure. Well, the two central bankers are dealing with very different economic situations at

home. We put their remarks into a world cloud to see what they're most worried about. And the most frequently-occurring words are the largest.

First, let's take a look at Janet Yellin. As Alison was just telling us, labor market and slack are very prominent, that means the economy is

not taking full advantage of workers. Labor force participation is hovering near a 37-year low.

We also see wage and wages a lot. The Fed chair warned firms which were unwilling to cut wages during the recession have been unwilling to

raise them following the recession.

Next, let's take a look at Mario Draghi, who's concerned about stubbornly-high unemployment and low inflation. The EU's unemployment rate

is nearly twice that of the US, and some countries like Spain and Greece are close to 25 percent.

That's why Draghi is encouraging countries to boost investments and cut taxes. Draghi said the dangers of doing too little outweighed the

risks of doing too much.

Joining me now is Adolfo Laurenti, he is Mesirow's financial chief international economist. Thank you so much, Adolfo, for being with us. I

want to start with Mario Draghi. The risk is to do too little rather than doing too much. What does that mean the ECB is going to do in your mind,

and when are they going to do it?

ADOLFO LAURENTI, CHIEF INTERNATIONAL ECONOMIST, MESIROW FINANCIAL: Good afternoon, Maggie. It's a very interesting remark, because despite

Mario Draghi's commitment to do a lot to support the European economy, in this remark, he still falls short to even mention quantitative easing.

That has been a major point for the market and expectation.

I don't think Mario Draghi will go as far as many are expecting in terms of unconventional monetary policy. I thought it was very interesting

that he was really pointing to a fiscal response, a re-discussion of some of the assumptions about fiscal policy in Europe. But as far as monetary

policy is concerned, I really think that he stayed the course.

LAKE: You know, I know some are worried, they think the ECB is behind the curve and they're worried about the risk of deflation. But there are

others who say, especially looking at the US situation, the moral hazard of the bank stepping in means governments get off the hook and don't institute

that reform.

What are we seeing in terms of reform? It's sort of an interesting picture that's developed in Europe, hasn't it? Because Spain is looking

quite healthy while the core, the engine of Europe, seems to have fallen behind.

LAURENTI: I think that is really the key disconnect we are seeing in Europe. Some economies have done reform. You look at Spain, you look like

Germany ten years ago, and they had some pay-off. Of course, the pain was huge in Spain. But they are moving right now. We see some positive growth

over there.

The countries that were more reluctant to do structural reform, namely Italy and France, are the ones that are currently behind the curve and not

growing at all. In the case of Italy, we are having a triple-dip recession.

And today, Mario Draghi was very, very careful in pointing out some of the response and some of the benefits of structural reform, pointing to the

case of Ireland, which was a very flexible economy going into the crisis, versus Spain before the reform, that suffered a lot.

So, I think these themes of structural reform and flexibility in labor markets and flexibility in wages and salaries will come up again and again

going forward, because this is really a major focus in Europe.

LAKE: I want to ask you about the US, the drum beat for the Fed to get their hand out of the market, start to reel back some of the

extraordinary measures which they have put on, is getting louder and louder, and that includes interest rates.

The Fed itself seems to be divided about whether they should be telegraphing the beginning of higher interest rates here. How do you read

what's happening in Janet Yellin's mind, based on what she said today?

LAURENTI: This was a very interesting speech because somewhat she began to reposition the Fed away from a very dovish buy assets that we have

experience for the last several years, in fact, toward a more moderate stance, if you want.

I was very impressed not much by many things that she said, but her insistence about the possibility of a structural unemployment in the United

States, and her insistence about the possibility for pent-up wage deflation. This is a very noble concept. We have not heard of that before

from official communication.

If you take these two together, it really suggests that the Federal Reserve may be closer to neutral than we have expected, and that, in some

minds, may suggest that interest rates will be moved earlier rather than later.

I don't think that will be the case. I think that all the emphasis on slack is still there. I still think the Fed will be on hold until the

second half of 2015. But the repositioning has begun, and I think we'll hear more and more on these themes going forward.

LAKE: And Adolfo, I guess, given the fact that we are about to end an extraordinary period of accommodation, they need to start telegraphing that

change extremely early to get us ready. If we are facing higher rates here on the horizon in the US, what do you do as an investor? Are equities at

risk? What's going to happen?

LAURENTI: Well, first of all, the Fed wants to -- wants markets to be prepared. This must not be a surprise because if it were a surprise, that

would be very disruptive in the market, the financial markets. So, that's why they are telegraphing.

Now, this is a very difficult investment environment because you expect probably some weakness in bond because of the move by the Fed, but

let's face it, the stocks have already done very, very well over the past several years, and it's very difficult for many investors to buy any upside

in stocks.

So, I think these are the themes for investors. There is a lot of uncertainty, and the real challenge for the Fed is to manage that

uncertainty so that it won't be disruptive.

LAKE: Absolutely. And it is a tall job indeed. Adolfo Laurenti, thank you so much for joining us tonight. Have a great weekend.

LAURENTI: Thank you.

LAKE: Well, this week saw two high-profile allegations of racism in European football. Coming up, the man leading the charge to eliminate

racism in football tells me fans, clubs, and even governments all need to do more.

(COMMERCIAL BREAK)

LAKE: The body representing English football managers has been forced to defend itself against accusations it trivialized racism. The row

concerns text messages sent by Malky Mackay, the former Cardiff City manager.

It began when the football club uncovered sexist, racist, antisemitic, and homophobic messages written by Mackay to a colleague. At first, the

League Managers Association appeared to take a supportive line.

It said Mackay's correspondence was sent in private at a time when, quote, "Malky felt under great pressure, and when he was letting off some

steam to a friend during some friendly text message banter."

That statement issued on Thursday has now been scrubbed from their site, and they're whistling quite a different tune today. "The LMA

apologizes for some of its wording, which was in appropriate and has been perceived to trivialize matters of racist, sexist, or homophobic nature."

For more on this, Patrick Snell joins me now from CNN Center. And Patrick, it seems like they are in full damage control today.

PATRICK SNELL, CNN SPORTS CORRESPONDENT: They absolutely are, Maggie, yes. And they have to be. But big developments in this story a short

while ago. Malky Mackay, the 42-year-old Scottish manager, actually issuing a formal apology for those offensive and utterly distasteful text

messages, while at the same time insisting he's not racist, nor sexist, nor homophobe, nor antisemitic.

Now, this is what the former Cardiff City head coach told Britain's Sky Sports, obviously I'm quoting here. "Obviously, the texts are things I

absolutely have to explain by talking to you today. Out of 10,000 text messages in and out of someone's phone, I sent three that, looking at them,

are completely unacceptable and inappropriate.

"For that and for any offense that has been caused, I sincerely apologize. It's something I did and there's no excuse for that. I did it

in a period where I was under immense pressure and stress in terms of the relationships that were not going too well at my football club. Once

again, that doesn't actually excuse anything. It was unacceptable for a manager."

Now, he continued -- a lot more to this. He continued by saying "I'm extremely apologetic for those three texts, and for any offense that was

taken. It was wrong, and it's simply something not in my character.

"I'm a human being, and I made a mistake. I suppose I would humbly ask people to ask themselves that if they own a phone and that phone was

taken and every text was scrutinized, if there wouldn't be a certain amount of embarrassing texts for everyone."

Now, here are some of the text messages alleged to have been shared by Mackay and Iain Moody, his then head of recruitment at Cardiff. As

reported in Britain's "Daily Mail" newspaper on Thursday. "He's a snake, a gay snake, not to be trusted," this referring to an official at another

club.

Then, on a list of potential signings, "Not many white faces amongst that lot, but worth considering." And referring to football agent Phil

Smith, "Go on, Fat Phil, nothing like a Jew that sees money slipping through his fingers."

Bit of further background for you as well, Maggie. Both Mackay, who was reportedly on the brink of a job -- a high-profile job at Crystal

Palace, and Moody, who's since left the position he later got at Palace, both dismissed, by the way, by Cardiff. That was last year.

The English FA, not surprisingly, investigating a whole dossier of claims as well on this matter. You're bang-up-to-date, now. But

certainly, these doing damage in a big way to the image of the British game, there, of football. Back to you.

LAKE: Absolutely. We're going to talk about that. And doing damage to his reputation as well. An apology where you sort of apologize, but

then say you've all probably done the same thing is an interesting way to apologize, Patrick. He might to want to take a look at that. Thank you so

much.

Well, allegations of sexism and racism go right to the top of Europe's biggest football leagues. In May, Premier League chief executive Richard

Scudamore was made to apologize for sexist e-mails. The Football Association said it had no power to intervene, and in the end, no

disciplinary action was taken.

On Wednesday, UEFA launched an ethics investigation into Italian Football Association president Carlo Travecchio. He is alleged to have

made racist comments while talking about foreign players competing for Italian clubs.

Today, the Kick It Out campaign, which seeks to end racism and discrimination in football announced there was a 269 percent increase in

reports of discrimination made to the organization during the past season.

Piara Powar is the executive director of Football Against Racism in Europe. I asked him if it mattered that Malky Mackay's comments were made

in private.

(BEGIN VIDEOTAPE)

PIARA POWAR, EXECUTIVE DIRECTOR, FOOTBALL AGAINST RACISM IN EUROPE: We have here a former employer who has gone to the related authority, which

in this case is the English Football Association, with these texts and e- mails and is reporting this individual on the basis of comments that were made using his employment phone, his employment e-mail address.

So, there is not an issue here between public and private, not at all. There have been in other case involving abuse. Recently, the head of the

Premier League here, the commissioner of the Premier League, which is a very big deal again. But there, one could argue that they were in private.

But here, there's no such question whatsoever.

LAKE: Should the governing bodies of football, should the leagues be doing more to get out in front of this, to stop this in the culture? It

seems so prevalent. Why do we keep seeing these incidents happen over and over again?

POWAR: Well, I think one of the issues that we do have is weak regulation. We have a football association which is getting better, but

historically, it has let incidents go because either it didn't have the wherewithal, the gumption to deal with these issues, or it seemed that it

was a little bit lost in the face of all of this sort of stuff.

And it itself is in transition. It itself is modernizing, it's changing from a very old style of sports governing body into a modern

organization that is fit for purpose for the 21st century and beyond.

In the end, I think it also throws a light on the sort of culture that exists here in Europe within sporting settings. We expect more from a

football coach, we expect more from players. People are paid professionally to do this job 24/7 to make judgments on the basis of

performance, not judgments on the basis of their personal prejudices.

And in the end, I think the questions that have come up here are only going to be answered through longterm educational stuff, but also strong

enforcement from the regulatory bodies.

LAKE: Should we be doing more as fans? We pay -- we underwrite these salaries? Should we be doing more to change our behavior, to let it know -

- be known that we don't accept this?

POWAR: Yes, we should. And I think we're seeing quite a lot of people coming out today. Fans are often -- the views of fans are often

reflected in the media, and we've certainly had a very strong media reaction.

We certainly had some former players and current players who are expressing their concern of the statements that have been made, and the

response of the League Mangers Association, which nominally is the mangers -- the coaches association that is responsible for working with them.

But I think, certainly, more could be done. Unfortunately, football is one of those sports that has a history, tentacles that go deep into

communities, and people are often more inclined to be adversarial in their position, more inclined to be territorial and less inclined to see the

bigger picture and to condemn where a condemnation is needed, and to see beyond their club affiliations.

LAKE: These days, these leagues, these sports, they're global. Is this hurting the brand of football?

POWAR: No question. The number of people that we have saying to us from outside of football who, perhaps, don't pay attention on a daily

level, who say, what sort of business is this? What is going on here? How can a business which has such a mass cultural appeal that football has get

away with a disregard of ethics so often, so frequently?

And how come so often, it's based on race or other forms of discrimination? And I think there's some big issues here, and these big

issues are only slowly beginning to be dealt with. Certainly in the UK, where we have independence of governance of sport, government does not get

involved.

But in places like France and Germany, where governments are more likely to step in, we have those governments who are now waking up and

saying, well, perhaps we need to be enforcing ethics codes more strictly. Perhaps we need to be telling these governing bodies how they deal with

these types of incidences more firmly.

(END VIDEOTAPE)

LAKE: Kurdish and Iraqi forces say they made significant gains against ISIS fighters Friday. More after the break.

(COMMERCIAL BREAK)

LAKE: Welcome back, I'm Maggie Lake. This is CNN and on this network the news always comes first. Kiev is accusing Moscow of carrying out a

direct invasion of Ukraine. The convoy of trucks which Russia says is carrying humanitarian aid has entered Ukraine. Ukrainian officials say the

vehicles were not authorized to cross the border. The United Nations called an emergency meeting to deal with the escalating situation.

Hamas has executed 18 people it suspected to be informants for Israel. The news comes as a four-year-old boy in Israel was killed by a mortar

fired from Gaza. The boy is the fourth Israeli civilian casualty since cross border violence erupted with Palestinian militants.

An international manhunt is underway for the ISIS fighter who murdered American journalist James Foley. The man speaks with a British accent in

the videoclip of Foley's beheading. Linguistic experts are examining the video in a push to identify the man. The Pentagon says a Chinese fighter

jet deliberately came within six meters of clipping a U.S. navy plane earlier this week. A spokesman described the maneuvers by the plane as

aggressive and unprofessional. The incident happened in international airspace in the South China Sea.

The remains of 20 Malaysian passengers of Flight MH17 were brought home earlier on Friday. The plane was shot down over Eastern Ukraine more

than a month ago. Forty-three of the 298 people on board were from Malaysia. A nationwide minute of silence was observed as the last of the

caskets was unloaded.

Kurdish and Iraqi armed forces reported gains against ISIS in Iraq on Friday. The troops say they regained control of several villages in the

northeast of the country. The U.S. military is also conducting airstrikes to battle ISIS at Mosul Dam. The extremist group tweeted that more than 50

of its fighters were killed. It vowed revenge. Cracking down on ISIS funding is a priority for the United States and the international

community.

Loretta Napoleoni is the author of "Terror Incorporated" and "Insurgent Iraq," and she joins me via Skype from Whitefish, Montana.

Loretta, thank you so much for being with us this evening. We have heard over the last few days many officials say that this a sophisticated terror

group, one of the most sophisticated they've seen. From a financial point of view, what do they mean by that? Just where do they rank?

LORETTA NAPOLEONI, AUTHOR, "TERROR INCORPORATED." Well I think you know they are incredibly sophisticated in terms of finances and also - I

mean, they control territory that is bigger than the United Kingdom. And inside this territory they're acting as a state. So their financial

situation of course is much, much stronger than any other armed organization including al-Qaeda. And we should consider them as a state,

not any longer as a terrorist organization.

LAKE: Well, certainly that's controversial from a political standpoint, but from a financial standpoint, I can understand what you're

saying. How hard will it be to break their funding - to shut down their funding?

NAPOLEONI: Well if they act as a state, we can't shut down their funding in the same way we can shut down funding of armed organization,

because they control a territory. Inside this territory they control strategic resources. But also they control the economy inside the enclaves

of the cally (ph) state which means they can raise taxes, they can use the work and the wealth of the population in order to carry on their fight. So

this is why I think the best approach would be to take them into consideration not any longer as a terrorist organization but as a state in

order to clamp down their economic power.

LAKE: Loretta, it's difficult when we're talking about ransoms and we're talking about extortion. One of the things that's come up is their

ability to sell oil on the black market. In order to do that, you have to have a counter-party. Would it be wise for the authorities as they try to

hone in on ISIS from a military point of view to try to go after perhaps the partners that are also working with them in this black market?

NAPOLEONI: Well, the partner that they're using and see efforts (ph) for example are the local tribal communities which means, you know, we will

have to go after the civilians there. Of course, you know, they are in business with ISIS and so therefore, you know, they are guilty. But,

again, this is a diplomatic issue. It's a very, very difficult issue to solve. I think you know the only way would be, you know, to consider, you

know, ISIS as an organization which is acting as a state getting together a coalition of countries that -- we can't go there alone. We need the

support of everybody - I mean, including Russia and possibly even China -- because, you know, eventually ISIS will be a negative influence also for

them. Think about Africa (ph) for example.

LAKE: Loretta, if we take your premise that they are a state at least in the financial terms, most states use the global financial system. They

use banks, you have to transfer money. It's difficult to operate all cash, but yet is that what they're doing? Or do you think they are finding a way

somehow to use the world financial system albeit through some conduit?

NAPOLEONI: I don't think they're using the world's financial system. And possibly only for ransoms. Many countries are paying ransom. I think

what is happening is this is a closed economy. So it's a system which is completely, you know, self-contained. Inside the system, they can use

their own financial system. They can use their own backing system. So, because of that, it's a great, great challenge to go after them using - you

know, -- the traditional instruments which were being used for you know counter terrorism.

LAKE: A difficult situation indeed. Loretta Napoleoni, thank you so much for sharing your insight. We appreciate it.

NAPOLEONI: Thank you.

LAKE: Volcanos in Iceland may be threatening to erupt again. The top engineer in easyJet says he's making models to get your plane in and out on

time using data from space. That's next.

(COMMERCIAL)

LAKE: Fears of an ash cloud causing delays in the skies are spreading through Europe as the ground near Bardarbunga Volcano in Iceland rumbled

again overnight. The head of engineering at easyJet says the airport chaos we saw four years ago won't be repeated thanks to new technology fitted to

the airline's planes. CNN's Paula Newton asked Ian Davies how they could make sure we can continue to fly.

(BEGIN VIDEOCLIP)

IAN DAVIES, HEAD OF ENGINEERING, EASYJET: Well we've been doing a lot of innovative work around sensing elements on our aircraft. We've

developed a system called Avoid with our partners in Norway to be able to detect the ash in the air. We don't have that fitted to our aircraft yet,

but what we also have is - since 2010 - developed our ability to be able to see and measure ash from satellite imagery in space to be able to track it.

So this time 'round, rather than the previous two eruptions, we're much, much better prepared to be able to fly safely if we have another eruption.

PAULA NEWTON, INTERNATIONAL CORRESPONDENT FOR CNN BASED IN CANADA: Yes, and that's good news for passengers and I'm sure for your company.

You know what? The whole issue kind of makes people a little queasy. While none of us like the disruption, the fact that this stuff could

actually shut down an aircraft engine is obviously very serious. When you talk about this new Avoid system, you know, you're the head of engineering

- how confident are you that when that is fitted on your airplanes next year, that it will really solve a lot of the problems with that ash?

DAVIES: I'm extremely confident. I in fact - last October I was onboard an aircraft in the middle of the Bay of Biscay off the coast of

France where we tested this technology. And we could see from the aircraft 60 miles away exactly where this cloud was that we'd created artificially.

And we picked the ash up, we saw it and we avoided it quite happily.

NEWTON: And how does that work? I mean, has anything in terms of being fitted on the airplane - you can't actually - you won't actually be

going through the ash, so the point is it's early detection is where the safety measure is.

DAVIES: Exactly. It's early detection. We want to avoid flying in any form of ash. Our authorities now have set limits which we can fly in.

This is a two-milligram and four-milligram limit of low and medium concentrations. And we now have the ability from space to be able to

determine where that is. Using satellites and tracking it is really important, but we also need the airborne component which is the Avoid

system to give us the 3D sideways view.

NEWTON: OK, now as we said, that won't be on the planes until 2015, but right now what is the latest you have heard about this volcano? What

kind of disruption if it does erupt are you expecting?

DAVIES: Well, we've been tracking this since 3 o'clock in the morning on Saturday when the current activity began. We run every six hours

mathematical models in several types of model to be able to compare the two based on the weather patterns that we see over the next few days. And

there are northerly winds at the moment, so if there were an eruption and the eruption was big enough and high enough, it would bring ash down over

Europe. However, we know from the modeling that that ash would be low enough for us to be able to fly in over or under. Indeed we can manage

quite happily if it erupted right now.

(END VIDEOCLIP)

LAKE: While that modeling sounds great, but as we know, the weather can change very quickly. So let's get over to our Jenny Harrison who is at

the CNN International Weather Center and is monitoring this very closely indeed. Hi, Jenny.

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Hey, Maggie, and as you say, it really is the weather of course. Whatever happens - and

let me just tell you first of all that of course it is not imminent - there is not an imminent eruption but if it was to happen, the weather is going

to be so key in actually spreading any ash that comes from this volcano.

Let me show you this because of course throughout the last few hours, in fact after that last 24 hours, they have managed to actually take a few

flights across the glacier. They've now got some scientists on the ice as well, so we've more instruments and measuring what's going on. You can see

this here and you can see something just about here. Well, these are what they call cauldrons.

So if there's been an eruption, it is pretty certain this is the main one that actually the eruption would come through but also, if the magma

which is down below - we know this - we know that the magma is - it look like a fish - it's like a river of magma running underneath the surface of

the ice. If that begins to get closer to the surface, then this will begin to show some signs of melting. So that again would be a sign because in

the meantime, the earthquakes are continuing. But this is the worst-case scenario. So we have this huge eruption coming out the main chamber and of

course the ash gets sent kilometers into the sky, it gets caught up in the upper atmosphere and is blowing across into Europe.

What we know right now is we have this magma down here. So this is what sort of formed a crust within the crust. We have all of this river of

magma which is slowing at a fairly steady pace. So, if that was beginning to rising at close to the surface, then we could see something coming out

of this other area. But the main concern really is for the amount of ice that is above this magma. There's about 30 - 300 - about 300 meters of

ice. So if the magma begins to really rapidly melt, all this ice of course it has to go somewhere and it could well cause some localized flooding.

This is the main bridge covering the main - very powerful river that runs through Iceland and the concern here is that if there's a massive,

sudden flood, all this ice suddenly melting, it could actually wash away this bridge. And in fact, that is why they have evacuated so many people

from certain areas is in case they got cut off if that bridge was destroyed. So here it is still at the same level - what they're calling

escalating unrest. And of course over 30 volcanoes they constantly monitor on a day-by-day basis. And just worth mentioning at this point, that back

in 2011 Grimsvatn actually erupted and even though there's a massive plume of ash, the weather kept it out of European airspace, and, again, because

already by then some of the differences in the technology meant that many flights could continue. Only one percent of the number of flights were

cancelled the year before - actually cancelling in 2011.

So, this is the area of course where the evacuations zone is in place. No access - they'll be moving people away from the area. But the main key

thing really is of course is the winds - if there was ash coming out, they would in the next 24 hours or 48 hours be spread across into Europe. But

that hasn't happened yet, Maggie. We'll continue to watch it for now. It is just what they're calling escalating unrest. So we'll continue to

monitor it along with the scientists in Iceland.

LAKE: Thank you very much, Jenny, we appreciate it. Jenny Harrison. Well this weekend comic collectors could get their hands on an issue that

introduced Superman to the world when it was first sold in 1938, it cost just ten cents. Now bidders on eBay are willing to pay more than $2

million. The auction ends on Sunday. Leone Lakhani met the man behind the super-powered sale.

(BEGIN VIDEOCLIP)

LEONE LAKHANI, CNN INTERNATIONAL CORRESPONDENT BASED IN ABU DHABI: Could the Caped Crusader pay for your child's schooling? Perhaps the Man

of Steel could chip into a down payment for a house. Those comics are worth $800,000 and half a million dollars respectively. American super

heroes fighting bad guys across generations, now with high investment potential, according to Vincent Zurzolo, the co-founder of one of the

biggest dealerships in the world.

VINCENT ZURZOLO, COMIC BOOK AFICIONADO: These are very rare comic books. When you see these characters, everybody knows who they are. These

are what I call blue-chip characters.

LAKHANI: Zurzolo is speaking from experience. Metropolis Collectibles' sister company ComicConnect holds the Guinness World Record

for selling the most expensive comic in history.

ZURZOLO: Now this is the superhero that started it all.

LAKHANI: A 1938 Action Comic, similar to this, when Superman made his first appearance. It was sold to an auction for $2.1 million in 2011. In

the past year, American classics like Batman and Captain America were the top sellers according to the consultancy GPA analysis. Modern comics with

TV or movie franchises behind them can also sell for a few thousand dollars each, although Zurzolo says you have to choose carefully.

PETER GEORGIOU, COMIC COLLECTOR: I myself prefer to buy, you know, books like these.

LAKHANI: That's essential for comic collectors like Peter Georgiou. He's been buying books for more than 30 years. His collection today is

worth well into seven figures he says.

GEORGIOU: I have Spiderman Number 1. In fact I own Spiderman 1 to 100.

LAKHANI: His most valuable ones are locked in a vault in London, although he has a few tightly-sealed at his apartment in Dubai.

GEORGIOU: There's books there which are $10/$20,000 each quite comfortably.

LAKHANI: He's always on the lookout for fresh ideas.

GEORGIOU: I noticed very quickly how books kept going up. So then it became an obsession, for the love of the books on the left and for the

investment on the right.

LAKHANI: Most of Georgiou's investments are in vintage American comics. He says they have the best long-term prospects. So I wonder if I

can find one. Checking the condition of the book for wear and tear of course is key. It's also important to go to reputable traders to avoid

being cheated. After much deliberation, I've made my decision. So I've taken the plunge and bought my first comic. And here it is - 1966 40th

issue of a Spiderman. Cost me $350, but Vince says in a few years it could be worth double that amount. We'll have to wait and see. Leone Lakhani,

CNN Dubai.

LAKE: From family photos to social media accounts, you can't take them with you when you pass away. Now one state government is answering

the question - who gets your digital assets when we're gone (inaudible)?

(COMMERCIAL BREAK)

LAKE: A first of its kind law in the U.S. state of Delaware is answering the question - what happens to your digital assets when you die?

Well internet users, as you can imagine, are amassing online troves of photos, documents and social media accounts. Now it can be difficult to

get all those digital assets unlocked after death because many websites prohibit account sharing, even measuring the size of a user's digital life

can be difficult. Delaware, however, is hoping to change that. The new law allows you to pass your digital assets to your named heirs. Proponents

of the law hope it will be adopted beyond Delaware's borders.

I spoke with Delaware State Representative Darryl Scott and asked him what prompted him to sponsor this bill?

(BEGIN VIDEOCLIP)

DARRYL SCOTT, DELAWARE'S STATE REPRESENTATIVE: I had a constituent who was dealing with a real life issue of having a challenge getting access

to her husband's e-mail account when he suddenly passed away. And that was the original impetus. But, you know, it wasn't too many years ago that

most of our records were in a filing cabinet or in a photo album or a shoebox in the closet or in a safety deposit box, and our laws just haven't

kept pace with the world in which we live today.

LAKE: Representative Scott, what if some people want to take their secrets to the grave? Sometimes people are able to be online and have a

very rich life that they can keep to themselves. What will this law mean for those people?

SCOTT: Well, the law actually provides for that. I mean, it is our hope that companies will give their consumers the ability to choose how

they want their account to be handled upon their death, and the law provides that if the designate in their Will or a trust document or other

governing instrument that they want the account to be disabled or eliminated or closed upon their death, then that's to be honored.

LAKE: You know, we've seen in the headlines people fighting - heirs fighting over money, they're fighting over houses, they're sometimes even

fighting over the body. Won't this just introduce a whole lot more litigation over those heirs now fighting over iphotos or whatever else is

on those accounts? Could it cause more trouble than helps?

SCOTT: Well, you know, when people die it's typically a challenging time for the families and one that is stressful, and unfortunately has

those, you know, those issues where family members are at odds about how certain assets should be handled. But the law provides for the fiduciary -

the person that the decedent or the incapacitated person designates as their representative to handle those matters on their behalf. And so it's

not all heirs that get access to these assets. It's actually the fiduciary and it's their role in representing the person that has chosen them to be

in that position to make those decisions.

LAKE: Delaware is leading the charge on this. Do you expect this to be commonplace? Should all entities adopt this kind of role? Should there

be a blanket change?

SCOTT: Well, I think it's - we're pleased that we were the first in leading the way in this area. I know it's a subject or an issue that's

been a topic for a couple of years by the Uniform Law Commission, and I think it should be an issue that's addressed statewide and/or at the

national level in Congress. It's a real issue that, again, more and more of our content and assets and information are stored electronically and our

laws just haven't kept pace. So it's an issue that needs to be addressed.

(END VIDEOCLIP)

LAKE: The weekend is almost upon us. After the break, a preview of the "Best of Quest." Stay with us.

(COMMERCIAL)

LAKE: A book delving into the history of the sports network ESPN features in this weekend's "Reading for Leading" in the "Best of Quest."

It's the choice of Max Eisenbud, the man who helped build the career of tennis star Maria Sharapova. "ESPN the Uncensored History" has been around

for a few years and documents the colorful history of the cable channel. Max says he was inspired by how ESPN recruited its talent.

(BEGIN VIDEOCLIP)

MAX EISENBUD, TENNIS AGENT: It reaffirmed a lot of the things that I'm already doing - is that they went out and got great people to come,

they took from NBC and different networks to bring them to ESPN to help build the brand. And that's what I do with my players is that my job is to

get - use - the resources within IMG to get the best people to help.

(END VIDEOCLIP)

LAKE: And that is the "Best of Quest." It will be only on CNN at 7:30 p.m. London time. And that's it for "Quest Means Business." I'm

Maggie Lake. The news continues right here on CNN.

END