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Quest Means Business
Lipsky on IMF's Future; LinkedIn's IPO Off Like a Rocket
Aired May 19, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Tonight, John Lipsky on the future of the IMF. In just a few moments I'll be joined by the IMF's managing director, acting.
Another chance at bail. Dominique Strauss-Kahn will appeal. During this hour we'll be live in New York.
And lift off for LinkedIn. The share price more than doubled. It is day one of trading.
I'm Richard Quest. We've an hour together. Because we mean business.
Good evening.
John Lipsky is the man who has been leading the IMF since Dominique Strauss-Kahn's arrest on sexual assault charges in New York. We'll be in New York in just a moment or three to find out the latest situation on Strauss-Kahn's bail application.
But we start our program tonight concerning ourselves with the work of the fund and the possible replacement for Mr. Strauss-Kahn. John Lipsky joins me now live from IMF headquarters in Washington.
Good evening to you, John.
JOHN LIPSKY, ACTING MANAGING DIRECTOR, IMF: Good evening, Richard. It is still afternoon here.
QUEST: It is afternoon and you are running, along with your colleagues, of course, the IMF at the moment. How are things? What is the mood at the fund today?
LIPSKY: Obviously, some shock and sadness over the events of the past few days. But a very clear recognition of the important responsibilities that have been given to the fund, the need for the staff to pull together and focus on the job at hand, and that is exactly what we've been doing. And I must say, effectively, as well.
QUEST: We'll come on to the work of the fund in just a moment, and the various issues, that you have on your agenda, John. But in terms of the replacement for Dominique Strauss-Kahn, talk me through what happens now.
LIPSKY: Yes, Richard, let me make clear the responsibility of the choice of the managing director is that exclusively of our membership. Typically acting through the board of executive directors, 24 directors who are representative of the 187 member countries; that is another way of saying management and staff are not directly engaged in that process.
The board of directors will meet shortly, in the next day or so, on to agree on the process, let's call it the technical process of-and details of how the search will be made and how the selection will be made. Once the process is agreed and transmitted then it will be put in place and the selection process will begin.
QUEST: Well, that is the formal, if you like, nuts and bolts of it. But you know as well as I do, that the jockeying for position around a consensus candidate gets underway pretty much while you and I are talking now.
LIPSKY: It is important to note that the-that the members recognize the role of the fund and the importance of having talented and effective leadership and leadership that can create consensus around decisions and action. So, this process is likely to be underway soon. The formal process will be underway soon and hopefully a consensus will emerge in a very expeditious and effective way.
QUEST: I need to ask you bluntly. Do you want the job?
LIPSKY: Richard, my term ends on August 31. And it is-I had already announced prior to these events that my intention to retire from-at that time. But the important thing is now personalities. The important thing is that the work of the fund needs to carry on. It is important work. And let me just note, Richard, that I am the third first deputy managing director, all three of us have spent periods as acting managing director in hiatus between periods of managing director. So this is perfectly normal.
QUEST: OK, let's talk about the work of the fund. Never has there been a more important time for the work of the fund. And, indeed, let's start with Europe. Greece and a whole question of restructuring/reprofiling; it doesn't matter what we call it, John, do you believe that Greece is going to have to do something to reprofile its debt?
LIPSKY: Richard, let me take one step back and note that we have three programs in euro area countries, Greece, Ireland, Portugal. On Monday our executive board approved the latest review of the Irish program and new funds disbursements. Tomorrow the board meets to approve the Portuguese program involving a total of 78 billion euros. And we have a staff team in Athens working with the Greek authorities on their policy program. We have a program with Greece that does not contemplate debt restructuring, reprofiling, light dusting, or whatever term you want to apply.
QUEST: And yet, John, how then do you square this circle. Everybody, the "FT", the economists, private economists, every time I open my e-mail box there is a barrage of economists saying Greece is going to have to do something. And yet, yourselves, and the ECB, and the EC, blithely continue on. What's happening?
LIPSKY: First of all, let's roll back the clock six months. Six months ago markets were absolutely convinced that if there was an IMF/EU program in Portugal there would be contagion in other countries. Tomorrow we approve the Portuguese program, or I hope, and they expect our board will approve the Portuguese program, and contagion is absent. So markets can change their minds as facts change.
Do the Greek authorities have to do something? Of course. They have been doing things. Do they have to do more to achieve the progress and the stability in their economy that they desire? Of course. So there will be action and given the nature of these circumstances there will be mid-course corrections. But right now, the program does not-our program that we are pursuing does not include any restructuring.
QUEST: I'm going to take a punt on this one, John. The Europeans say that they should have the managing directorship of the fund. There is a 1,001 reasons, from traditional, to the value given to Europe because of the bailouts. Where do you stand on that?
LIPSKY: Where I stand, Richard, is that the choice of managing director for the IMF belongs to its membership.
QUEST: Oh, so I-so if I throw some names, whether it is Gordon Brown, Christine Lagarde, Kemal Dervis (ph), you will probably say you will refer me to the answer you just given?
LIPSKY: Well, and I'll add a note. There is agreement among the membership that the process needs to be open, transparent, and merit-based. And that means what is most important is that it is open to any qualified candidate but, second, that in the end, that the best candidate will be chosen. And I know our executive board has in mind the needs of strong and effective leadership for the fund. And they will find such a leader.
QUEST: Right. But just to-don't want to belabor the point, but for example, your very position as first assistant managing-first assistant- deputy managing director, is because of the very agreement that the leadership goes to the Europeans. And the number two goes to America and the presidency of the World Bank goes to America, too.
LIPSKY: Uh-oh, Richard, were you saying I wasn't the best man for the job?
QUEST: Touche, John. I shall skate to thicker ice on that point.
LIPSKY: Thank you.
QUEST: Finally we do need to just consider, for one second, John, what is the legacy, if you like, the considerable achievements that Dominique Strauss-Kahn did bring to the International Monetary Fund. In not only the bailouts and the European issues, but also the increased role within the G20. Talk to me about that.
LIPSKY: For sure. Absolutely, under Dominique Strauss-Kahn's tenure as managing director, the fund stepped up in a moment of global crisis in innovative and novel ways to address the needs of the global economy to help put in place innovative and collaborative measures that helped to stem the downturn. That helped to restore recovery, albeit it still no satisfactory, and to institute structural reforms that will lessen the risk of crisis in the future or reduce the costs if they occur.
In that process there is no doubt that the importance of the fund's role was recognized, the ability and the effectiveness of the fund was important in producing advances and there is no doubt that Mr. Strauss- Kahn's leadership was an important part of that. But I'm sure he, himself, would want to also emphasize that the fund posses an excellent management team and I'm speaking of my management colleagues, excellent leadership, senior leadership through our department heads with very talented individuals, and a cadre of dedicated, skilled staff that were important and completely integral in this process. They are all in place. They are focused on the job. And as I described earlier, decisions are being made, actions are being take-are underway. Decisions are being implemented in just as an effective a way as previously.
QUEST: And a final question to you, John. What will be now, the first thing-because you are right, in terms of the succession is up to others, but for you, John, what is the first thing now on your agenda to deal with within Europe?
LIPSKY: Well, as I said, tomorrow the executive board considers the proposed program for Portugal and I hope approves it. On Monday my management colleagues will attend G20 employment ministers' conference in Paris. At the end of next week I, myself, will attend the G8 ministerial meeting on the Mena (ph) region and on Africa challenges.
QUEST: Right.
LIPSKY: We have missions in the field. We have a lot of work to do and that is my focus.
QUEST: John Lipsky, I think I can safely say that in this moment of crisis the IMF can be in no finer hands at the moment, than your good selves. John, many thanks, indeed, for joining us tonight.
LIPSKY: Richard, you are very kind.
QUEST: John Lipsky, the acting managing director of the IMF talking to us tonight, and dealing frankly and fully with the issues of the what the fund faces, and of course, the issues of succession. Which, as he rightly points out, is up to the executive board, where the battles will begin. And we will talk about the battles for the fund. We'll also talk about the very personal battle of Dominique Strauss-Kahn, as he waits to hear what the immediate future holds for him. The leadership, and the man, in just a moment. This is CNN.
(COMMERCIAL BREAK)
QUEST: In just a few moments Dominique Strauss-Kahn's defense lawyers will be back in a New York court and they will be seeking bail for Mr. Strauss-Kahn. They are hoping to agreeing to new conditions of home detention and an electronic tag will swing things their way. The IMF director was refused bail on Monday after the judge deemed him a flight risk. And in a moment or two, we'll be finding out exactly what is likely to happen in that courtroom. And indeed why the defense believes they stand more of a chance of getting bail than they did on the application on Monday. But now the resignation is official. The race is on to find someone who can fill his shoes.
U.S. Treasury Secretary Tim Geithner says the Treasury wants to see an open process that leads to a prompt succession. The European Commission said that member states should agree on a strong European candidate. Already there is a front-runner. Christine Lagarde is well respected amongst the contemporaries and today she praised the IMF role in Europe. And was, needless to say, tight lipped on her possible presidency.
(BEGIN VIDEO CLIP)
CHRISTINE LAGARDE, FINANCE MINISTER, FRANCE (through translator): Firstly, I would obviously like to pay homage to the work which as been carried out by the International Monetary Fund, and which continues to be carried out under the authority of the International Monetary Fund, which has played and has continued to play an important role. In particular, concerning the question of every European country's finances. Secondly, I'm very attached to Europe. I'm convinced of the virtue of sticking together and any application, whatsoever, must be done from the Europeans. We'll be together, all together.
(END VIDEO CLIP)
QUEST: Firm view there, as you might expect, from Christine Lagarde. A European solution for the European countries must stay together.
But come with me over to the library. You will see that the-that it is not as simple as that. And for one simple reason, the IMF today has 187 members. Now leadership vote isn't a simple one per country. It is all to do with the shares that they actually have individually, within the company. So the highest quota gets the most shares. Not surprisingly, the United States pays the most, it gets 16.4, of the voting percent. Japan has 6.1, Germany at 5.3, France at 4 percent, China, similarly 6 percent, and the U.K.
Now that is the overarching position, which is why you get an idea that the United States has a seriously important say over who gets the World Bank and the IMF. It pays the most money. So, how can the Europeans justify still demanding the traditional number one role? Think about it this way. They say don't think about Germany, France, U.K. individually, think of them collectively. Now, when you put them collectively you suddenly see that the EU countries are by far and away the biggest. They have 29 percent of European or IMF support and quota and votes. Take that away and suddenly you are left with the United States at 16, Asia in total has 16, and Africa, beg your pardon, Africa has 5 percent. It is the Europeans that have the biggest say, if you take the European Union and for overall.
So, what you end up now with is the Europeans saying this. Take Europe with its 30-odd percent, 34 percent. Add in the United States to try and get some linkage, because the U.S. wants to keep the World Bank. Perhaps throw in a bit of a few other countries and you will end up with a situation where you can have the EU plus the U.S., equals the IMF. That is the way the numbers work if you put it in that particular way.
Of course, the whole thing started way back many years ago with the Bretton Woods. That is where it all began.
CNN's John Defterios is in Brussels where finance ministers were meeting earlier this week, and joins me now.
Let's face it, John, the Europeans believe if they can get that argument off the ground, that not only do they pay the most in total, not only have they got the biggest issues, not only have they got the Lagarde candidacy, they are home and dry.
JOHN DEFTERIOS, CNN SR. FINANCIAL CORRESPONDENT: That is the tone that they are taking, Richard. After being politically correct for the better part of the week, the tone has certainly changed in the last 24 hours, here. There is concern that foot-dragging by Europeans could hurt the chances of actually holding onto the slot. So, usually reserved political leaders are stepping up to the forefront. Here is the president of the European Council, at the Business Summit in Brussels.
(BEGIN VIDEO CLIP)
JURGEN THUMANN, PRESIDENT, BUSINESS EUROPE: Time, time, time. We cannot wait too long and sit here and have discussions, not only in this place, I mean in general, and not moving forward.
(END VIDEO CLIP)
DEFTERIOS: And that is the head of the largest lobby in group, Business Europe, Mr. Thumann. He was speaking in support of Chancellor Merkel, who earlier this week said that basically, tradition can change, but not just yet. Meaning that the Europeans should still lead. It is a tall order. We also had on that same panel, the president of the European Council, one who is extremely reserved normally, Richard, Herman Von Rompuy. Let's hear from him.
(BEGIN VIDEO CLIP)
HERMAN VON ROMPUY, EUROPEAN COUNCIL: The current state of play I think it will be good, also, for the stability of the IMF, Europe is still playing still a very important role in the IMF. If Mr. Strauss-Kahn didn't finish his mandate, so I think there are a lot of arguments that in this case a European could do the job. But once-I said it once more, it is a tradition, but a tradition can be changed, but not now.
(END VIDEO CLIP)
DEFTERIOS: So we know that Christine Lagarde was trying to take the high road, today, Richard. Suggesting that we should have a collective EU candidate for the job. Now that is the high road, as I suggested here. But it is also a very tall order. The stakes are extremely high and we have heard a number of names beyond Christine Lagarde for the job.
QUEST: John, the fact is, they are now-I mean, I just-I'm glad you had Herman Von Rumpuy, because he is now thrown another argument in. This idea that Strauss-Kahn didn't finish his term, therefore the remaining time should go to, perhaps, a European. So, you have that argument. You have Merkel saying that a European needs to have it because it is the European bailout. You have the argument that says-that you brought us yesterday- that they are the biggest-if you were a betting man, is it going to be a European?
DEFTERIOS: Well, I would suggest probably very much so. And this is the logic behind it. And I spoke to a number of people here today. This is playing out where you could have a G8 type person in the job. And traditionally, perhaps, a European with the stature of Christine Lagarde. And very conveniently, now that John Lipsky is leaving his job at the end of August as he suggested, and had already announced, you could give the number two position to an emerging market candidate. And that would solve the problem.
The other thing that is worth talking about here, Richard, the political framework is almost perfect for a solution. They are going to spend a lot of time together. Barack Obama is going to be in London, with David Cameron, right after that there is the 50th anniversary of the OECD, a number of leaders will be together.
QUEST: Right.
DEFTERIOS: And that rolls right in to the G8 summit in Deauville. So, you could have this move much faster than in the past.
QUEST: Quick question, yes or no. I said that I didn't think Gordon Brown stood a snowball in hell's chance of getting it.
DEFTERIOS: I would agree with you on that. And the other side of it is, watch out, the frontrunners usually don't survive.
QUEST: Oh!
DEFTERIOS: And that is going to be a very difficult job for Christine Lagarde to hold the position.
QUEST: John Defterios is in Brussels watching what is happening.
We need to turn to the aspect of what is happening with Dominique Strauss-Kahn, himself. CNN's Richard Roth is outside the court. He is on the line with me now.
What is happening in New York, Richard?
RICHARD ROTH, CNN SR. CORRESPONDENT: Well, Dominique Strauss-Kahn's wife, Anne Sinclair, the journalist, and his daughter are now in the courtroom awaiting this bail hearing where the family hopes that he indeed will be bailed out, with new terms proposed by his attorney. At this appearance Strauss-Kahn is ready to post $1 million in cash bail, once again. But he has agreed to be confined to home detention at an address in Manhattan 24 hours a day with electronic monitoring.
But he has already surrendered, they are going to claim, his official French passport to the District Attorney's office and give up his U.N. travel documents. And in court papers they say that Dominique Strauss-Kahn is a family man, no prior criminal record, international diplomat, world recognized and also not guilty of any of these charges.
The attorney for the woman who says she was sexually assaulted in the hotel room has told the media that she would feel less safe if he was allowed out, Richard.
QUEST: Do we know what the district attorney's position on this is going to be? Because to some extent if they-if they don't oppose him getting bail under these conditions, or at least agree to them, that strengthens the case.
ROTH: Yes, well, they are more guarded and tight-lipped before the court appearance. And it is expected that they would, I think, as that he still be held in custody. It is unknown whether his resignation from the International Monetary Fund would perhaps cause this different judge to have a little bit more sympathy, unknown. It is Judge Michael Opus, it is a state supreme court here. And I'm here now, outside the courtroom, where there is a sea of international media, but heavy French contingent, no surprise. Richard, just broadcasting non stop.
QUEST: Richard, when you know what has happened in court, we require and request that you come back and inform us immediately.
Now, we must go to Wall Street in a moment, when there is only one share on everyone's lips at the moment.
(BEGIN VIDEO CLIP)
(CLOSING BELL CLANGS)
(APPLAUSE, CHEERS)
QUEST: It was the start of a very good day for LinkedIn on the New York Stock Exchange. When you hear how good, you may not believe your ears and you may start to seriously wonder-
(DESK BELL CHIMES)
Is a bubble forming? QUEST MEANS BUSINESS after the break.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN. And on this network the news always comes first.
The acting head of the IMF, John Lipsky, has said on this program, the show must go on. He has been in the top job since Dominique Strauss-Kahn's arrest on Sunday. And earlier, he told me about the general mood at the Fund since taking the helm.
(BEGIN VIDEO CLIP)
LIPSKY: Obviously, some shock and sadness over the events of the past few days, but a very clear recognition of the important responsibilities that have been given to the Fund, the need for the staff to pull together and can focus on the job at hand, and that's exactly what we've been doing. And I must say, effectively, as well.
(END VIDEO CLIP)
QUEST: Dominique Strauss-Kahn is back at the courthouse, hoping to be released from jail. The former chief was denied on Monday. A judge said he was a flight risk.
Now, you remember, of course, that Strauss-Kahn is accused of sexually assaulting a hotel maid. He's denying the charges. He's resigned from the IMF, he said, to devote all his time to clearing his name.
President Obama has promised to help democracy take hold in the Arab hold as he announced a four-step economic plan that includes debt relief and increasing change. On the Middle East peace process, he said the Palestinian state should be based on pre-1967 borders.
Amnesty International says at least 840 people were killed during Egypt's revolution, and 6,000 people were injured. The group says the current government should be doing more to compensate victims. It also notes Egyptian authorities have a long way to go to rebuild the public's trust.
Linkedin took off when the shares began trading on Wall Street. The social network site had its first day on the New York Stock Exchange. It was priced at $45 a share, ahead of the top end of the IPO reference range.
Well, what clearly happened, not only did market makers virtually double -- more than double -- the price at the open, they continued to rise with a spike just around lunch time, which gave another woosh up to the price of $115.12. But now, trading around $105 a share.
Maggie Lake spoke to the chief executive of Linkedin, Jeffrey Weiner, a little while ago. Maggie joins me, now. I mean, Maggie, Maggie, Maggie.
MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: Indeed, Richard. Listen, I actually just came back from the offices at Linkedin, and a lot of applause, a lot of happy employees. And you can certainly understand why when you look at the performance today.
But when you get a valuation like that, right away, you have people raising concerns. And so, I addressed them directly with Jeff Weiner, the CEO of Linkedin.
First thing I asked him is, I hear from people, "Linkedin's great when I'm looking for a job, but other than that, I don't really check in with it." The users aren't engaged. Here's what he had to say to that.
(BEGIN VIDEO CLIP)
JEFF WEINER, CEO, LINKEDIN: The job seeker activity among numbers is very small relative to overall engagement.
So, as I mentioned a moment ago, we have over 100 million members, but according to comScore third-party methodology, we averaged 75 million unique users throughout the first quarter. And those folks were generating an annualized run rate of over 30 billion page views. So, the engagement's there.
Now, would we like there to be greater engagement? Absolutely. Because to your point, historically, I think people have thought of Linkedin as a great place to find work, find a job, or a digital rolodex. And it's so much more than that.
(END VIDEO CLIP)
LAKE: Richard, they're going to grow the business, get that profit growth from advertising and revenue. He points out that users are that much sought-after demographic, employed, upwardly mobile, exactly who companies want to advertise with.
So, of course, I asked him, well, if the business model's so great, what's stopping Facebook and Google from doing exactly the same thing? Here's what he said to that.
(BEGIN VIDEO CLIP)
WEINER: We think context matters, so with regard to social platforms, what we hear from our membership time and time again throughout the world, we do member meet-ups, we've done them in Mumbai and India and Amsterdam, of course, in Europe, and throughout the United States.
And our membership is pretty consistent in saying they want to keep their personal lives and their professional lives separate. Which makes perfect sense, if you think about it.
And we're the only social platform in the world to have achieved critical mass with a solely -- an exclusive focus on professionals, creating values for professionals.
(END VIDEO CLIP)
LAKE: Obviously, Richard, extremely confident. And you heard him mention global growth. Some of the fastest growth regions, you can guess, they come from Brazil, China, India.
QUEST: Maggie Lake in New York with the Linkedin part of the story. Maggie, many thanks for that.
We need to consider the issue of the market. What was actually happening when that price went up. Alison Kosik is at the New York Stock Exchange. Alison, was this a classic stagging (ph) operation where you just get a very sharp rise at the open but, frankly, not much dealing at these prices?
ALISON KOSIK, CNN CORRESPONDENT: I think you're right about that. And to address your point about the fanfare real fast, Richard. Yes, I mean Linkedin rang the opening bell today. You could hear the cheer, the roar, throughout the floor here at the New York Stock Exchange.
(BEGIN VIDEO CLIP)
(OPENING BELL RINGS)
(CROWD CHEERS)
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KOSIK: You can hear it right there, exactly. I mean, it was a sight to behold.
You know, you don't see this every day, a big IPO like this, taking off the way it did. But with it comes the uncertainty about where this stock will go. We know question is, will it fizzle out like other IPOs recently, like Renren and who can forget pets.com?
But when you think about in the broader scheme of things, this it he first US social media company to go public, and it's really done very, very well, to say the least. And it really could be a good sign for other social media who are looking to -- who are looking to go public --
QUEST: Right.
KOSIK: -- like Facebook and Twitter. Especially with the showing that Linkedin is putting on today. Richard?
QUEST: All right. Alison Kosik at the New York Stock Exchange. We thank you for that, and we'll obviously check in more with those prices.
Now, doubling your share prices all well and good. The real question is whether we're looking at another dot-com bubble. Now, you've heard the phrase a lot. Well, actually, this is the definition that I favor for a bubble. It comes from Charles Kindleberger, an economics professor at MIT.
And I think this is important, because he talks about it's a bubble is a sharp rise in the price of an asset, and this is the reason why, he says. With the initial rise generating expectation of further rises. In other words, people are investing purely on the back of the initial rise.
And then, you've got to have something else. There has to be attracting new buyers. And ultimately, you've got to have speculators interested in profits trading from their assets rather than its use. If this isn't a new dot-com bubble, it sure looks a lot like one.
Linkedin has more than a hundred million users. It is half the size of Twitter, five times smaller than Facebook, but at its face value, it's something at $90 a share, it's around $8.5 billion. If it's over $100, then you're heading towards $9 billion, $9.5 billion. That's 566 times greater than its 2010 profits.
Now, it made $15 million last year, otherwise, ha! It's made a loss. Linkedin is among the five big tech IPOs investors are waiting for. That's the biggie. Facebook, worth $50 billion. You've also got Twitter, Groupon, and Zynga.
But Facebook is the one that everybody is concentrating on. Because at the moment, the only shares in Facebook that are trading are between a closed group, and that has to give you an indication of what it would be once it gets into the final market.
So, to the NASDAQ market, which is over the last 50 years, six months of the last -- look at --
There you have it. Excuse me. So, there you have your dot-com boom and your dot-com burst. Up at 4,500 and then, another -- not, if you like the Nordis as we get a great sort of rise, slow, but a fundamental rise, perhaps, I think is what we get nowhere near -- nowhere near -- back to 4572, and now we're just clawing our way back now. We're still more than 70 percent off where it was at its high point.
Let's talk about this. One person who knows a lot about the value of successful internet companies is our contributor, Caterina Fake. She co- founded the photo site Flickr before it was bought out by Yahoo. Caterina joins us now live from San Francisco.
You know the old saying, Caterina. If it looks like a duck, walks like a duck, quacks like a duck. So, I'm wondering today, do you think the Linkedin and the tech and the social media thing, does it look like a bubble to you?
CATERINA FAKE, CO-FOUNDER, FLICKR: I think that Linkedin is a very solid company. This is not a fly-by-night kind of company. They've been building this company for eight or nine years, now. It's not one of these companies that's been around for two, three years, some IPOs like we saw in the very early days of the first bubble.
And I also think that it's got a lot of staying power because it is a professional network, which is very different from a social network. Social networks tend to come and go, people socialize, they move onto new social groups.
But you have a need to build a professional reputation, and I think that Linkedin is pretty much the place to do that online.
QUEST: We -- you'll remember as well as I do that in the old days of the dot-com days, we always talked, the matrix for pricing and valuations was always path to profitability. Was it on a proper path to profitability?
Now, we're looking at sales in terms of banner sales and other ways. Do you think that's a correct way to truly value these companies?
FAKE: There is a lot of, I believe, pent-up potential in Linkedin. As Maggie Lake had spoken with Jeff Weiner earlier today about his idea of the prospect of Linkedin and their engagement and bringing users back.
I really think that they've done a lot, especially in the past year, in building their product to give the kind of engagement that you see on websites such as Facebook, Twitter, Zynga, Groupon, those kinds of things.
They released a new product called Linkedin Today, which to me has become indispensable for professional knowledge, professional knowledge- sharing, and keeping up on all of my industry news and technology. And they've really done, I think, a great job in --
QUEST: Right.
FAKE: -- capturing that desire, that need.
QUEST: But would you -- would you agree with me that we do have to be cautious between those like Linkedin that may have solid, sustainable longevity, and perhaps others? We have to have our wits about us at this point.
FAKE: Absolutely. There's never -- there's never not a need for caution in tech IPOs, as we have seen in the past.
QUEST: And we'll talk more about that, hopefully, in the future. How very kind of you to join us tonight from San Francisco, Caterina Fake, joining me on the line there via Skype.
And when we come back after the break, there'll be more QUEST MEANS BUSINESS on a very busy day.
(COMMERCIAL BREAK)
QUEST: Now, Dominique Strauss-Kahn has arrived in court. We'll talk more about this. Richard Roth is on the line, now. What happened, Richard?
RICHARD ROTH, CNN SENIOR UN CORRESPONDENT (via telephone): Well, here is the breaking development. The prosecutor in the case in the courtroom tells the judge that they oppose the release of Dominique Strauss-Kahn on bail because they have an indictment which, as you mentioned earlier in the show, is the legal process needed, the start of it, to go to trial should that indeed occur.
Dominique Strauss-Kahn walked into the courtroom, smiled at his wife, who was in the room with his daughter, also, and then sat down surrounded by three court officers.
The defense again argued against the presence of a video camera. The judge said due to the high interest in the case, he granted the right for one still camera and one video camera. And then the prosecution said that they oppose the release of Strauss-Kahn on bail because they have an indictment, has been filed.
A grand jury -- thus confirming that a grand jury in the New York legal --
(SIREN -- INAUDIBLE)
ROTH: -- did meet earlier today. It's believed that the alleged sexual victim did testify there. Richard?
QUEST: All right. So, Richard, we'll come back to you in just a moment when there's more on the result.
Now, I need to update you with -- we were talking all program about the way in which the Europeans are moving very fast to try and coalesce around a consensus candidate pretty much before anybody else gets out of the gate.
Well, if you wanted to have evidence of this tonight, it comes from Silvio Berlusconi's office. And this is the sort of thing I was talking about. Berlusconi says, "I consider it fundamentally to reach as soon as possible a shared European position that expresses one candidacy for the director of the International Monetary Fund in replacing DSK."
And this is the rub. "In order to reach this goal, I think the current French finance minister, Christine Lagarde, can represent an excellent choice."
The fascinating part about this is, whether or not -- we don't know, I can't tell you, but we'll certainly be asking this in the days ahead -- whether or not Christine Lagarde is tacitly accepting of all of this. It seems extraordinary that she wouldn't have been doing it and allowing so many people to put her name into the public arena if she actually had no interest in going forward.
All right, when we come back in a moment, will they or won't they? There are 14 trillion arguments for raising the US debt ceiling. After the break, Ali Velshi and I are going to thrash them out. Q&A, next.
(COMMERCIAL BREAK)
ALI VELSHI, CNN CORRESPONDENT: QUEST MEANS BUSINESS, and so do I. We're here together in the CNN newsroom around the world. Hello, Richard.
QUEST: Hello, Ali. Each Thursday, Ali and I, coming to you from around the world, for ritual humiliation as one or other us gets to be beaten up on business, travel, and innovation.
VELSHI: Nothing is off limits, including one of the biggest topics this week. We're talking about debt. The United States hit its debt ceiling this week, and some people are calling it a crisis. But are they crying wolf? Richard, you've got 60 seconds from the minute I hit this bell to tell us.
(BELL RINGS)
QUEST: Ali, if it wasn't so serious, it would be almost comical. But the numbers are truly huge. The US debt, now over $13 trillion and rising at an astonishing rate.
It's the size at which the debt is growing that is truly amazing. From the year 2000 to now, it has gone up by more than 300 percent, and even allowing for the recession, the situation gets worse.
The real problem is, everyone says the ceiling will be raised, but nobody realizes what could happen if it doesn't. Think Greece. Think Ireland. Think Portugal. Think of all that and multiply many times over.
While they are arguing, something could go wrong. And if that goes wrong and a default, even for a split second, takes place, then there would be financial calamity.
By the way, Ali, while I've been talking, the debt interest has cost - -
(BUZZER SOUNDS)
QUEST: -- $464,231.
(BELL RINGS)
VELSHI: While you are quite a talker, I'm disappointed, Richard, that you and I probably agree on this point. Let me get -- take a go at it.
(BELL RINGS)
VELSHI: The United States reached its debt ceiling on Monday, and we're still here. We're still alive and kicking. Now true --
QUEST: Oh!
VELSHI: -- the Treasury has some wiggle room between now and August to divert some funds here and there before Congress has to decide to raise that debt ceiling again and by how much they're going to do it. Just like they've done, by the way, 74 times since 1962.
So, this is commonplace. Why, Richard? Because arguing over the debt ceiling is really arguing over whether or not the United States pays bill that it has already incurred. A perception, as you hinted --
QUEST: Oh!
VELSHI: -- of US default on its obligations would be far too great a price to pay, and politicians on both sides of the aisle know it.
Where they're playing with fire is insisting that America can get going forward simply by slashing spending. It's not enough, Richard, and at some point in the near future, American politicians are going to have to tell their constituents that they're going to have to pay higher taxes if they want to rein in the debt and balance the budget.
(BUZZER SOUNDS)
VELSHI: And that's going to spell political doom for some people in Congress. But Richard, Americans start to have to -- are going to have to hear that discussion now.
QUEST: Do you know, the best part of a million dollars has just been paid by US taxpayers in interest while you and I have been waffling with hot air. And now, talking of real hot air --
(BELL RINGS)
QUEST: -- the Voice.
THE VOICE: Cheerio, gentlemen. I prefer "lukewarm air," myself, but let's jump right into it. The United States have the largest amount of public debt in the world, and treasury bonds are how governments like the United States borrow money.
China and Japan own by far the most US Treasury holdings. At the end of 2010, who was the third-largest owner of US bonds? Was it A) Brazil, B) Canada, C) Taiwan, or D) the UK?
(BELL RINGS)
THE VOICE: Richard?
QUEST: I'd say the UK.
THE VOICE: That is correct.
(BELL RINGS)
THE VOICE: The US (sic) was the third-largest holder of US treasury bonds at the end of last year.
On to question two. The G-20 is made up of the finance ministers and central bank governors of 19 countries. At the G-20 summit in Toronto, much was made over the fact that most of the member countries agreed to work on lowering their debt-to-GDP ratio in some way.
According to the IMF, which of these 19 G-20 nations had the least amount of debt-to-GDP ratio last year?
QUEST: Oh!
THE VOICE: Was it A) Australia, B) Russia, C) Saudi Arabia, or D) South Africa?
(BELL RINGS)
THE VOICE: Ali?
VELSHI: Saudi Arabia --
QUEST: He's guessing!
THE VOICE: Oh!
(BUZZER SOUNDS)
THE VOICE: Nice try. Richard?
QUEST: I would say lowest debt-to-GDP ratio, Australia.
(BUZZER SOUNDS)
THE VOICE: Nice try. Ali, you want to give it another go?
(BELL RINGS)
VELSHI: Russia.
(BELL RINGS)
THE VOICE: That's correct. Russia is the runaway winner, with just over eight percent of their GDP as debt. Saudi Arabia is a close second with just under 13 percent.
Now let's go to the other end of the scale. We've already established that the United States has the largest amount of public debt in the world. But there are other countries with even more dire debt situations. In fact, there is a G-20 country with a debt-to-GDP ratio of over 227 percent.
(BELL RINGS)
THE VOICE: According to the IMF, what country is that, Richard?
(POUNDING ON BELL)
VELSHI: Oh, come on! He can't press his bell before you've even asked the question!
QUEST: Well, he's going to finish the question.
VELSHI: How do you live with yourself?
THE VOICE: Well, since you jumped the gun --
QUEST: Very easily!
THE VOICE: -- go ahead and try and answer the question, Richard.
QUEST: So, which G-20 has the highest level of GDP? Ali, you know the answer to this. It is Japan.
(BELL RINGS)
THE VOICE: That's correct, Richard. Well done, even though you spoke out of turn.
VELSHI: I just -- I'm polite. I was waiting for the question to be asked first.
THE VOICE: Nice guys finish last, Ali. I'm out of here.
VELSHI: See you, Voice. Thanks very much.
QUEST: All right. That will --
VELSHI: We're going to need some new rules in this game, Richard.
QUEST: -- do it for us for -- oh! This will -- that'll do it for this week. We are -- did you know the answer, by the way?
VELSHI: I knew the answer, yes. I knew the answer to the first one, too. But you're a little quick with your little bell.
QUEST: Well, because I've got to be quicker than you. We are here each week, Thursdays on QUEST MEANS BUSINESS at 18:00.
VELSHI: And in the CNN NEWSROOM, 2:00 PM Eastern. Keep the topics coming on our blogs at cnn.com/qmb and cnn.com/ali. Tell us each week what you want us to talk about. See you next week, Richard.
QUEST: See you next week, Ali.
OK, now, over the last few hours, or last few minutes, certainly, have been a variety of developments taking place that I need to update you concerning the case of Dominique Strauss-Kahn. The first is that the embattled former head -- former head of the International Monetary Fund has now been indicted.
Until now, it had been a complaint that had been put forward by the police, but the grand jury sitting in New York, having heard the evidence from the alleged victim, has now returned an indictment against Strauss- Kahn, so the whole proceedings go up one notch. And of course, Strauss- Kahn will now go to trial on those various sexual offenses.
In addition, a bail hearing for Mr. Strauss-Kahn is underway at the moment. His wife, the television journalist who flew from Paris just a couple of days ago, has arrived at court, as you can see, and not surprisingly, was mobbed by the press as she tried to enter the court.
She is in court, she is part of the bail process in terms of the money that is being put forward by Mr. Strauss-Kahn. $1 million is being offered as surety.
Richard Roth is in New York, and Richard joins me, now. So, an indictment from the grand jury. No surprise in that respect, but now the proceedings really take an air of formality.
ROTH: Well, there is drama here. Will Strauss-Kahn be let out on bail? The prosecution arguing that he should not be freed, that they have heard the defense argument, but -- and their bail offerings, and they're still going to say -- they so far, as far as we've been told from the court -- that Dominique Strauss-Kahn is a flight risk.
Now, the defense says there's a security company they have who will monitor him 24 hours a day that he can stay with his wife at a Manhattan apartment, and that he is, indeed, a -- not a risk and that he will be here and that he called the hotel on that Saturday twice to say "bring my cell phone out to me at the airport" and he told them "I'm at JFK." He wasn't trying to hide then, he's not a potential Roman Polanski, as the prosecution declared on Monday.
And so, we're just waiting to hear how the judge will rule. But an indictment is still serious. Dozens of New Yorkers sat and listened to probably the alleged sex crimes victim and other hotel employees and they've decided so far the case is -- the evidence is serious enough to warrant an indictment.
QUEST: It's fair to say, isn't it, that there'd been many, many crooks, and I think of Bernie Madoff as one, that got bail? And there is actually, isn't there, in -- even in US law, there's a presumption that you get bail rather than not? So, to deny him bail has to have quite a strict test, doesn't it, Richard?
ROTH: That's true, but now, Madoff lived in Manhattan and Strauss- Kahn, being French, perhaps there was a thought that -- and since he was arrested, the prosecution said, at an airport, they think that led to the idea that he was ready to go.
The defense says, hey, that plane ticket was bought days if not weeks earlier and that was already a pre-planned trip to meet Angela Merkel. So, they're -- it could go anyway in New York courts.
I mean, one criminal defense attorney said New York authorities take these sex crimes issues, whatever the evidence, very seriously. They're going to try to send a message and not treat him in any special terms than other defendants.
QUEST: Richard Roth, who is in --
ROTH: He made off with a white collar crime.
QUEST: Well, that's certainly true, and that is a huge difference. Richard Roth in New York, we thank you. Come back the second there's more to report.
I'm going to finish tonight with the acting head of the International Monetary Fund, John Lipsky, speaking to this program tonight, said the show must go on. Mr. Lipsky's been acting as the Fund's top dog since Strauss- Kahn's arrest on Sunday. He told us of the mood at the fund in the last few days.
(BEGIN VIDEO CLIP)
LIPSKY: Obviously, some shock and sadness over the events of the past few days, but a very clear recognition of the important responsibilities that have been given to the Fund, the need for the staff to pull together and can focus on the job at hand, and that's exactly what we've been doing. And I must say, effectively, as well.
(END VIDEO CLIP)
QUEST: Life goes on. And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead --
(BELL RINGS)
QUEST: Hope it's profitable. Anna Coren has the headlines.
END
