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Quest Means Business
US Government Shutdown Looms; US Stocks Lose Ground Over Shutdown Worries; Global Stocks Down; Effects of US Federal Government Shutdown; Italy on the Brink; Airbus Delivers A400M; Interview with Joel Prakken; Lessons from Government Shutdowns; What Went Wrong at BlackBerry; Curtains for Opera?
Aired September 30, 2013 - 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: A nervous day on Wall Street. We're just seconds away from the close and eight hours away from a deadline to prevent federal services closing down. It's Monday the 30th of September.
It's the shutdown showdown. Democrats and Republicans dig in their heels.
The Berlusconi breakaway. His party in turmoil after Italy's political crisis.
And BlackBerry hits out at suggestions clients should ditch its products.
I'm Maggie Lake, this is QUEST MEANS BUSINESS.
Good evening. Eight hours, that's how long US lawmakers have to pass a budget before the government closes for business. This would be the first government shutdown in 17 years, and so far, as the deadline nears, there has been no sign of congressional compromise.
Lisa Desjardins is at Capitol Hill with the latest. Lisa, at this point, is there any chance that we are not going to see a shutdown, any hope at all?
LISA DESJARDINS, CNN CAPITOL HILL CORRESPONDENT: There is only the smallest chance, I think, at this point, Maggie. Essentially, Congress has poised things so that the US government is just one small breath away from this shutdown.
We just had a lot of developments in the last hour, so let me bring folks up to speed. Essentially, the Senate has rejected the House's last offer, and we have just learned from the House leader that he will not offer a short-term deal, a kind of one-week band-aid that a lot of people thought might get us out of this. No, the House is not offering and the Senate is not accepting a temporary deal.
And also, we understand the House is going to offer another spending bill that would limit Obamacare, probably would limit special money that would go to Congressional staff for their health care, basically the employer contribution. That gets a little bit into the weeds.
But the point is that it's something that the Senate will likely not agree to, and we understand this could be the House's final offer. We don't know yet. So, expect the House to send something back to the Senate that the Senate doesn't like, then we will have that one last chance to escape the shutdown, perhaps, if the House changes its mind or the Senate. But right now, no one is talking as if they would.
LAKE: Lisa, certainly from what we're hearing in the public, they sound so far apart.
DESJARDINS: Right.
LAKE: Is there anything happening behind closed doors? Maybe some of the more senior, more moderate voices doing some last-minute deal brokering? Anything like that happening?
DESJARDINS: No, it's astounding, actually. There is virtually no contact behind closed doors. We do understand -- I was just at a press conference with Democratic leader on the House side, Nancy Pelosi, she's a face a lot of our viewers know -- she said that she did call her counterpart, Speaker Boehner, and she said hey, we will agree with you on how much spending should be done.
Democrats wanted a higher spending level, Republicans lower. Pelosi said, all right, we'll agree on your lower number, but we don't want anything else attached. We understand Speaker Boehner said thanks but no thanks, that they would still attach what they want.
That's the only behind-the-scenes phone call that I know of. Other than that, no communication between the White House and Republicans. I think in large part, Maggie, that's because the two sides are just so far apart and they're so dug in that they don't see much value in negotiating right now.
Perhaps tomorrow, when the markets open, things will change, because they will see how dramatic the effects of this could be.
LAKE: Well, Lisa, I don't -- anytime you say that they're going to start watching Wall Street, that is not a good situation --
DESJARDINS: That's true.
(LAUGHTER)
LAKE: -- any of us want to be in.
DESJARDINS: Yes.
LAKE: There's so much drama, it's leading up to this midnight deadline. What is it actually going to look like, though? Are we likely to see the immediate effects tomorrow? Is this going to be a little bit slower to come out?
DESJARDINS: No, we will see immediate effects tomorrow. I think the very first thing that will probably happen in a shutdown, the first visual thing, anyway, is I'm told that the National Park Service here will actually chain up some of the national monuments, like the Lincoln Memorial, some things that many people are familiar with around the world will be closed and, I understand, chained up right after midnight.
Then we will see offices shut down. We will see people stuck at home, 800,000 workers furloughed across the country.
Some things will continue -- we've talked about it -- like the TSA will continue at airports, the FAA will continue watching the runways, emergency services, those kinds of things. But we will see -- we will see the effect tomorrow. It just depends on what you need from government as to whether you will feel it.
And indeed, we talk about all this back-and-forth, Maggie, but the truth is, this whole debate is about the size of government. And I know for some of our viewers in Europe, it just confounds them, but this is something that has been the issue in America for the last five, probably eight years.
Republicans want much smaller government, they don't like Obamacare. Democrats say government needs to do more and government needs to do more about the cost of health care. And that's basically what this debate's about.
LAKE: And unfortunately, it's a scene we're all getting used to seeing play out. Lisa Desjardins for us on Capitol Hill --
DESJARDINS: Yes.
LAKE: -- thank you so much, Lisa. Well, the effects of a government shutdown will extend far beyond Washington. First, on the economy. Economist Mark Zandi estimates that if the shutdown lasts for three or four weeks, it could reduce growth by 1.4 percentage points for the quarter. The last government shutdown that lasted that long was back in 1995. It lasted nearly four weeks.
Second, the jobs report set to be released on Friday could be delayed, according to the Labor Department. All survey and other program operations will cease and the public website will not be updated.
Finally, talks of a shutdown are already having a negative impact on the markets. US president Obama took time from his meeting with the Israeli prime minister, Benjamin Netanyahu, to address the situation. Mr. Obama said the rest of the world was looking to the US to act responsibly and pass a budget.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: There's not a world leader, if you took a poll, who would say that it would be responsible or consistent with America's leadership in the world, for us not to pay our bills. We are the foundation of the world economy and the world financial system. And our currency is the reserve currency of the world. We don't mess with that.
(END VIDEO CLIP)
LAKE: It was a down session on Wall Street, as you might imagine. Zain Asher joins me live from the New York Stock Exchange. Zain, what are the people down on the floor saying? They've seen this before, but does it feel different this time?
ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Hi, Maggie. It certainly does, because you have so many other factors in place, namely the debt ceiling debate in two weeks -- the deadline, I should say, in two weeks -- along with a possible shutdown tonight. So there are so many other factors in place.
But right now, the Dow is down roughly around 130 points. It's not just about the shutdown, it's more about uncertainty than anything else. That's what everyone downstairs is telling me. The market is used to stalemates in Washington, as you mentioned, and if the government shuts down for one week, it will only have a limited effect on economic growth.
However, the problem is, as I mentioned, the shutdown is really only one piece of the puzzle. In terms of the debt ceiling deadline, that probably will have a much bigger impact on Wall Street if the government defaults on its debt for the very first time in history, you will see a significant tumble in the markets. There'd be dramatic cuts in spending, it would put a dent in GDP and business confidence.
In terms of the general feeling downstairs, when the markets actually opened this morning, I spoke to traders downstairs. They were surprisingly optimistic that a deal would be reached by midnight tonight.
However, just a few moments ago, one trader stopped in here and I asked him, so are you guys still optimistic given the back and forth? And he hesitated. So, I think that there is some degree of nervousness right now, so it is going to be very interesting to see what happens at midnight tonight and the impact on the market tomorrow morning. Maggie?
LAKE: Zain, it's important to put the selling into perspective, though. We're seeing the market down 1 percent. That is really nothing to the gains we're sitting at for the year, right?
ASHER: Yes, absolutely. S&P 500 is up about 15 percent, and so, even though we are down right now, we did see record highs just a few weeks ago, so there is some degree of wiggle room right now. So it is important to put that in perspective. Maggie?
LAKE: All right, Zain Asher for us down at the New York Stock Exchange. Thank you so much, Zain.
Well, we are seeing widespread worry over a possible US shutdown, with equity markets down across the globe. Asian stocks sank as investors shied away from risk across the region. Only the Shanghai composite managed to avoid losses.
European markets finished the session lower with political turmoil in Italy also weighing on stock there. We're going to have more on that a little bit later in the program.
If Congress cannot agree on a budget by midnight, the government shutdown will go into effect. Let's take a look at what that would look like. In Washington, the Smithsonian museums, 18 in total, will be closed for business. Bad news for tourists.
The iconic Washington Monument won't be accepting visitors. You'll have to wait on your trip to the National Zoo as well, that will also be closed to the public.
The Department of Housing and Urban Development will be operating on limited capacity, and if you're waiting on a loan, the process will likely take longer than usual. The Centers for Disease Control and the Food and Drug Administration will also be operating on a limited staff, mainly workers dealing with high risk and emergency activities.
Well, David Stockman was head of the Office of Management and Budget under Ronald Reagan. He joins us now live here in New York. David, great to see you.
DAVID STOCKMAN, FORMER DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET: Good afternoon.
LAKE: You are someone who is intimately involved with budget. You know the way this works in Washington. Is a government shutdown going to harm the economy? Because we're hearing from people who say yes it will, it's a risk we don't need, and other people who are saying it's being exaggerated.
STOCKMAN: Well, the Beltway chorus of Chicken Littles is clacking louder by the hour that the sky is falling, but I don't really buy that. I've been through a half dozen of these. It's really not going to amount to much if we have a shutdown for a few days or even a week.
The reason for it is that huge parts of the federal government are deemed essential services. We have 3.5 million people on the federal payroll including the armed services, 2.8 million -- 80 percent -- will go to work tomorrow morning and Wednesday morning whether we have a continuing resolution or a compromise or not. Anything in law enforcement, anything having to do with Border Control --
LAKE: So, all the stuff that really matters to us is going to be in place --
STOCKMAN: So, all the stuff that matters is going to go on. And here's the issue: to have the national parks close for a couple of days or the Washington Monument close -- which is already closed, by the way, for repairs --
(LAUGHTER)
STOCKMAN: -- is a small price to pay for trying to get this monster budget under control that's broken.
LAKE: I think the thing people are concerned about though is that it's just a sign of the fact that this is a set of lawmakers and a president who cannot compromise --
STOCKMAN: Right.
LAKE: -- or strike a deal on anything. We're coming up to the debt ceiling, which certainly investors take more seriously --
STOCKMAN: Right.
LAKE: Isn't that the worry, that they're taking risks that they don't need to be taking with an economy who may have survived a shutdown before, but still feels like it's very fragile coming out of a global financial crisis.
STOCKMAN: Well, but this paralysis is the new normal. It's going to go on --
LAKE: Should it be the new normal?
STOCKMAN: It's unavoidable because we're unwilling to face fiscal reality. We're unwilling to make big, tough choices, reform entitlements, means test social security --
LAKE: Who is unwilling? Collectively?
STOCKMAN: Both parties.
LAKE: Both parties?
STOCKMAN: Both parties. And so the point here is that the machinery is broken. The -- we have not had a budget in years. They never pass appropriations bills. The entitlement mandatory spending system is $2.5 trillion, it goes on on automatic pilot --
LAKE: Right.
STOCKMAN: -- whether they have these confrontations at the 11th hour or not. So, what I think has happened is that the few remaining people in Congress who are worried about the middle and longterm fiscal future, who see the massive red ink we have already, and then Obamacare's going to add massive more spending on top of that, I think it's going to be a disaster.
They're concerned enough that they're going to take hostage the CR or the debt ceiling or whatever is available to force Congress and force the White House to face the issues --
(CROSSTALK)
LAKE: It makes --
STOCKMAN: -- and that's the only choice they have.
LAKE: There's got to be a better way, though. There's got to be a better way. And what you see happening --
STOCKMAN: Yes.
LAKE: -- is a lot of the people who are concerned about that, who maybe aren't on the extremes of the party, are leaving Congress. Isn't that what happens, is that the people who can't agree are left and the people who actually want to get a deal done, who want to address the fiscal situation, are leaving in droves? Is that a good way for the US to conduct its fiscal policy?
STOCKMAN: No, I think our fiscal machinery is totally broken. What's happening is utterly irresponsible, but the leadership --
LAKE: How do we fix it? How do we get past this point where we don't play out this scenario over and over again?
STOCKMAN: You know how we fix it? We're going to have to have a thundering crisis. We're going to have to have debt ceiling crisis, we're going to have CR crisis, we're going to have to have multi-thousand-point market meltdowns before the dream walkers in the Beltway down there wake up and realize they have to deal with reality and not continue to kick the can.
LAKE: I certainly hope that that's not the case, for all the ordinary people out there who are still suffering, that we don't have to face a crisis like that for people to come to their senses. What would you say if you could go in there to try to broker a deal?
STOCKMAN: OK --
LAKE: What would you say we can do in the near term? Are investors prepared for this? Should they be worried that this is that crisis that you were just talking about?
STOCKMAN: Yes, I think they should be very worried, because this isn't going to go away Wednesday even if they pass a one-week patch or an extension. This is going to be the permanent condition, it'll flare up every few months or so once we get from one crisis to the next.
So, investors should be scared about where this country is going. The markets are totally artificial, they're propped up by the Fed. If the Fed weren't flooding the market with zero interest-rate money today, the markets would be far lower --
(CROSSTALK)
LAKE: I'm going to get under the table and just hide under the table --
STOCKMAN: No, but it's true --
LAKE: -- talking to you.
STOCKMAN: It's true. The Fed -- and then, Bernanke has the nerve to say, well, I didn't taper because of the fiscal situation. The reason we're in this shutdown crisis, the reason that Congress can't make any tough choices is he's giving them zero percent money, zero financing on the massive treasury debt, and therefore, they think it's free or that they can kick the can for another year or two.
LAKE: Let me ask you, David, in closing, you -- if this plays out the way you fear it does, and investors have been put on warning and we start to see the markets crumble and that's what Washington is going to pay attention to, is there anyone in Washington who can provide leadership and find us a way out of this mess?
STOCKMAN: Yes, I think all of them can when they're finally confronted by fear, when they're finally seized by fear. Then, the sanctimonious man in the White House may go up to Capitol Hill and say we've got to negotiate, we've got to make some tough choices, here's what I'm willing to put on the table.
Then the Republicans will have to put up or shut up and be willing to go for more taxes as well as spending reform, entitlement reform, and drastic cutbacks in defense. But until there's a crisis, until they are really seized by fear, the people who run the Congress and incumbent in the White House, I believe, will simply point the finger at the other side and hope they can get by for another month or two.
This is not a way to run a government. It's a sad state of affairs, but unfortunately, that's where I think we are.
LAKE: I am seized by fear.
(LAUGHTER)
LAKE: You have succeeded in doing that. But thank you for the blunt warning, and you are right, this is no way to run a government. Hopefully, we can do better. David Stockman, always great to see you.
STOCKMAN: Thank you.
LAKE: Thank you so much for coming in tonight.
STOCKMAN: Great.
LAKE: Italy's ruling coalition is looking shaky, the stock markets are wobbling, and this man may be losing his grip on some members of his own party.
(COMMERCIAL BREAK)
LAKE: Italy's prime minister Enrico Letta is battling to save his five- month-old government tonight, and he may get a little unexpected help from some lawmakers who used to be loyal to this man, Silvio Berlusconi.
The former prime minister ordered five ministers drawn from his own party to resign at the weekend and called for new elections. The move threw the fragile coalition into jeopardy, but now some from within Berlusconi's party are threatening to side with Mr. Letta in a confidence vote scheduled for Wednesday.
Italy's borrowing costs are slightly higher, though not as high as they were earlier in the day thanks to the rebellion in Berlusconi's party. If Italy were to go to the market now, it would be looking to pay rates of around 4.4 percent over ten years. It's higher than it's been recently, but still well below crisis levels.
Still, investors are pretty concerned the political uncertainty could damage the government's ability to keep on with tough austerity measures. Italy's the world's third-most indebted country, owing about $2.5 trillion.
Italy's coalition has been hanging by a thread since Silvio Berlusconi lost his final appeal against tax fraud in August. It was never an easy relationship, as Ben Wedeman reports.
(BEGIN VIDEOTAPE)
BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): It was a political marriage doomed to end in a messy break-up. Five months ago, the left-of-center Democratic Party formed a coalition with the right-of-center People of Liberty Party led by scandal-prone media magnate and former prime minister Silvio Berlusconi.
Five government ministers from Berlusconi's party have resigned, ostensibly in protest over a soon-to-be-implemented hike in the sales tax. As a result, the grand coalition is collapsing.
As is the case with Italian politics, however, it's complicated. Berlusconi's struggling for his political life. In a few days, a parliamentary committee will vote on whether to expel him after he recently exhausted the appeals process in a tax evasion case, just one of several cases involving Berlusconi.
The sentence is a ban on holding public office and a year of either house arrest or community service. Italian president Giorgio Napolitano will try to cobble together a new coalition. If that doesn't work, early elections will be called.
WEDEMAN (on camera): More political uncertainty won't help the Italian economy as it struggles through its longest and most severe recession since the second World War.
Ben Wedeman, CNN, Rome.
(END VIDEOTAPE)
LAKE: It was a rough and tumble session on Milan's equity markets. Banks led the losses. Silvio Berlusconi's Mediaset closed down 4.5 percent. Shares in Intesa, Italy's largest retail bank, fell 3.5 percent. CEO Enrico Cucchiani resigned late Sunday afternoon after clashing with investors. He's been replaced by longstanding manager Carlo Messina.
It certainly wasn't a walk in the park, according to Tom Enders. After the break, the boss of EADS on the new Airbus A400M.
(COMMERCIAL BREAK)
LAKE: Several years late and billions of dollars over budget, Airbus's huge military transport plane, the A400M, is here. The new generation aircraft was handed over to the French air force at a ceremony in Seville, Spain.
It was a milestone for Airbus parent company, EADS, which has burned through an extra $5.5 billion fixing engineering glitches over the past five years. The project originally set to cost $27 billion was jointly funded by the governments of Britain, France, Spain, Belgium, Luxemburg, Turkey, and Germany. That's quite a list.
Airbus has orders for 170 A400M planes from those seven NATO members. Only one non-NATO country has placed an order, that's Malaysia, which wants four planes. And more customers are badly needed. Nina Dos Santos asked Tom Enders, the head of Airbus's owner, EADS, why he thinks the aircraft is special.
(BEGIN VIDEOTAPE)
TOM ENDERS, CEO, EADS: Well, the plane, indeed, is a little bit over time and budget, but Nina, compared with competitors' planes, this is still almost record time of development and in flight testing.
What is special is that this is the most modern airlifter so far in the 21st century, a plane that flies faster and higher, a plane that can deliver loads in rocket terra, it can land on unprepared air strips, it can do military as well as civic missions, so this is a multipurpose plane, and that'll be the main airlifter for many European air forces for decades to come.
NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: Then again, the bulk of these orders is going to be going to European Union countries, and obviously, the European Union has had a pronounced debt crisis, especially Spain, where you are today. What do you think that's going to do for the outlook, the appetite for hardware like this? Because it's expensive.
ENDERS: Yes, this is expensive, but this is a very much-needed plane for the air forces in Europe. And by the way, we had a resale of a program some three years ago, when we were in discussions with customers about the delivery times, and we had some reductions at the time, and so we are pretty optimistic that our customers will take the aircraft that they've ordered and reconfirmed back in 2010.
DOS SANTOS: You employ an awful lot of people across the European Union. This program alone has employed thousands of people. And we've got the unemployment figures coming for the eurozone later on in the week. What's the outlook like for EADS and Airbus in terms of hiring and providing employment for people across the region?
ENDERS: Well, this plane, indeed, employs roughly 40,000 people, directly and indirectly -- indirectly means with partners and suppliers across Europe. And if we are in cruise mode, so to say, in terms of production, this will probably employ 9,000 to 10,000 people at Airbus alone. So, it's a very important program, not for employment, but of the aeronautics industry across our European homelands.
DOS SANTOS: So, you've got the A380 out of the way, now you're delivering the A400Ms. I suppose the focus is turning towards the A350 now. Are you still on track with that project?
ENDERS: Absolutely, and the flight testing is developing very, very positively. We've done a lot of flight testing already since June. The second A350 test plane will join us in a couple of weeks, and then the third, fourth, and fifth. We have a very ambitious flight test schedule for the next 12 months, but yes, we are on track.
DOS SANTOS: What's the outlook looking like for EADS and Airbus as a whole? For the year ahead?
ENDERS: Well, years ahead, I think the outlook in general is still very good. Keep in mind that we have more than two thirds of our business in commercial. Commercial is growing fine. We just published our latest general market forecast for the next 20 years. We reckon that 30,000 new large commercial aircraft are needed, for that perspective is fine.
And in terms of defense, well, it's not a bad thing to only have 20 percent of the revenues in defense at a time where, as you mentioned earlier, defense budgets are shrinking of late.
(END VIDEOTAPE)
LAKE: In the past few minutes, CNN has learned that US president Obama will be making a live statement this hour. We will be bringing that to you live. Next, we'll find out what a US government shutdown could mean for your investments.
(COMMERCIAL BREAK)
LAKE: Welcome back, I'm Maggie Lake. This is CNN. Now for an update of the news headlines. At least 37 people are dead and more than 150 wounded after 11 car bombs exploded in and around Baghdad. The attacks targeted the mostly Shiite neighborhoods. They're part of a surge of sectarian violence that's killed more than 5,000 civilians in Iraq this year.
US president Barack Obama is due to speak this hour as the United States moves closer to a government shutdown. The Senate has voted down a spending bill from the House of Representatives. Republicans and Democrats are at odds over whether President Obama's health care reform should be delayed as part of the plan.
UN weapons inspectors left Damascus after investigating reports of chemical weapons used. Another inspection team is on its way into Syria to verify its chemical stockpile. Syria's foreign minister told the UN General Assembly the country isn't in a civil war, but a fight against extremists.
The retrial of Amanda Knox and Raffaele Sollecito has begun in Florence. Italy's supreme court is hearing the case again two years after the pair were acquitted on appeal of murdering Meredith Kercher. The court has ordered a new DNA test on a knife found in Sollecito's apartment.
Two commuter trains crashed head-on during Chicago's morning rush hour, sending almost 50 passengers to the hospital. One train was out of service. It's not clear how it got onto the track. Authorities are reviewing video feeds from the platform.
Goldman Sachs CEO, Lloyd Blankfein, says the effects of the impending government shutdown are already being felt in markets across the world.
He was speaking to CNN's Fareed Zakaria at the Clinton Global Initiative in New York.
(BEGIN VIDEOTAPE)
LLOYD BLANKFEIN, GOLDMAN SACHS: The confrontation and the way that confrontation is being -- being carried out has, I think, a very -- a very bad impact on the markets. And it's totally foreseeable.
What air -- wherever you stand on the -- on the -- on the content, on the specific issues of what's trying to be accomplished, the idea of engaging away from the substantive argument after it's already been decided, and saying, you know, something -- we'll blow up the credit rating of the United States unless you accede to us is just a -- is just a poor policy and, I think, a poor demonstration, and, I think, a poor example of the American political process.
FAREED ZAKARIA, HOST, "FAREED ZAKARIA GPS": Are you actually worried that we will default?
BLANKFEIN: I think there's a lot of -- I -- I think it's very unlikely, because in this situation, sensibility normally prevails. But it's not an on-off switch. We're already making people insecure. The markets are already responding. And some of the adverse consequences are already being felt and I think will continue to reverberate even after -- even if there's a -- even if there's an acquiescence.
So it's already bad. If we -- if we actually went into a position of default, which, again would take -- would happen a long time from now, but if we actually got there, of course, that would be very, very negative.
But we're already getting some negative, uh, aspects for we are -- at -- at the moment.
(END VIDEO TAPE)
LAKE: Joel Prakken is senior managing director and co-founder of Macroeconomic Advisers.
He joins me now from St. Louis, Missouri.
Joel, thank you so much for being with us today.
Give me your take on -- on the situation, and in particular, what should investors do who are sitting back around the world watching this with a lot of worry and anxiety?
(LAUGHTER)
JOEL PRAKKEN, CO-FOUNDER, MACROECONOMIC ADVISERS: Well, I'm not exactly sure what investors should do, but I'm pretty sure I know what investors will do. They're going to pause and wait to see how the dust settles in all of this before taking positions of risk. I see no way that a government shutdown leading into a debate over an approach to the debt ceiling, I see no way that that is not going to reduce markets' appetites for risk-taking.
LAKE: It's hard to imagine how it wouldn't. I mean, you know, we've talked to, over the years, emerging market analysts who say government instability is one of the reasons that -- you know, to be careful and maybe you want to steer away from certain markets.
And here we have ourselves again facing a situation where there is uncertainty and instability in the US.
Is this going to damage the U.S. credibility as a -- as a safe investment?
PRAKKEN: Well, I think that if you go back and look at the years since, say, 19 -- or 2010, there's been a heightened level of uncertainty about the conduct of U.S. fiscal policy that has undermined the performance of financial markets and actually slowed economic growth some and put some upward pressure on the unemployment rate.
Of course, in 2011, when we flirted with the debt ceiling and suffered a debt downgrade, I think there's no question that that event slightly undermined global confidence in our financial systems and our political institutions.
And the potential stand-off that we have coming up later this month could be much more severe, because at least in 2011, both sides were talking to each other. Now, they seem to be talking past each other.
LAKE: Right. And only to microphones that are in front of them.
Joel, we hear people say we certainly -- we had a guest on before, David Saugman (ph), who suggested there's a little bit of Chicken Little, oh, the sky is going to fall and all these terrible things are going to happen and that maybe that's exaggerated.
And you certainly have members of Congress who believe that if there's a shutdown, it's not going to be as big a deal as everyone says. And even if we, you know, don't come to an agreement on the debt ceiling, that that's not going to be that serious.
Can you take the politics out of the -- out of it and tell us what would happen?
Are these negative events that we should be worried about?
PRAKKEN: Yes. Well, let's start, first, with the shutdown.
The shutdown, at least initially, is an inconvenience. And we have some historical experience here. We can go back to the Clinton-Gingrich stand-off in late 1995. That shutdown, which spanned most of a month, has been analyzed quite carefully and the consensus among economists is that it probably knocked half a percentage point off of GDP growth at the end of 2000 and -- 1995 with that growth made up subsequently.
So a shutdown, even as long as two or three weeks, is more an inconvenience than a catastrophe.
That cannot be said about flirtation with a sovereign debt crisis or sovereign debt default. Investors' models that balance risk against reward presume that Treasury debt is the risk-free rate and if that assumption is called into question, all those models will have to have their plumbing rearranged. And plumbing projects, as you know, can be very messy.
LAKE: They -- they -- I'll attest to that. They certainly can be.
Joel, very quickly, is there any way for investors to protect themselves against the volatility we're going to see?
So many people have so little appetite. They got hit so hard in the global crisis.
Is there anything we can do or are we just hostage to this situation, as well?
PRAKKEN: Well, alas, we are hostage to the situation. And there's not much investors can do to -- to flee risk, other than go to cash.
LAKE: Right. And I have a feeling send a message to Washington, which is afraid of what's going to happen in coming days if you don't see change.
Joel Prakken from Macroeconomic Advisors.
Thank you so much for joining us today.
We appreciate it.
Well, no doubt, the ghosts of shutdowns past have been haunting some of those in Congress.
Christy Romans looks back at the last time the U.S. government was forced into this position and whether any lessons have been learned.
(BEGIN VIDEOTAPE)
CHRISTINE ROMANS, CNN CORRESPONDENT (voice-over): Welcome to Washington, a city where politicians agree on one thing -- disagreeing.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I cannot remember a time when one faction of one party promises economic chaos if it can't get 100 percent of what it wants.
ROMANS: Without an agreement on spending, the federal government shuts down midnight on October 1st.
STAN COLLENDER, SENIOR PARTNER, QORVIS: It's hard to imagine how anything positive comes out of this and a shutdown is avoided.
ROMANS: So what's driving Washington to the brink of a shutdown, again?
UNIDENTIFIED MALE: Obama care is shutting down America.
ROMANS: Some Republicans pushing for a repeal of President Obama's Affordable Care Act. The president says he won't negotiate. The last federal government shutdown started in 1995, well before ObamaCare and the Tea Party.
BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: Republican leaders in Washington have put ideology ahead of common sense and shared values.
ROMANS: Leading the Republicans at the time, CNN "CROSSFIRE" co- host, Newt Gingrich, who served the speaker of the House in a Republican- controlled Congress.
NEWT GINGRICH, HOST, "CROSSFIRE": He has to try to create a phony argument about fantasy cuts that do not exist in order to frighten people about problems that aren't real.
ROMANS: The results of the stalemate -- 800,000 federal workers stayed home for five days. Federal offices and national parks closed.
UNIDENTIFIED FEMALE: That just really makes us mad, real mad.
ROMANS: After Congress failed to extend the short-term spending measure, the government shut down again in December. That shutdown lasted 21 days. The final cost -- $1.4 billion.
Senator John McCain warns Republicans today to remember who the voters held responsible.
SEN. JOHN MCCAIN (R), ARIZONA: Rightly or wrongly, Congress gets blamed. And we've seen the movie before. Just some of them weren't around at the time. I was.
ROMANS: And the most recent CNN/ORC poll shows history is likely to repeat itself. Fifty-one percent of Americans say Congressional Republicans would be most to blame for a shutdown; 33 percent would blame President Obama.
With the world's biggest business operating without a budget since 2009, there's not much optimism on either side.
Christine Romans, CNN, New York.
(END VIDEO TAPE)
LAKE: Bleak days for BlackBerry in the wake of dismal quarterly results and struggling smart phone sales. The inside story of the collapse of Canada's former tech success and the man at the center of the drama.
(COMMERCIAL BREAK)
LAKE: We want to bring you some news just in to CNN.
Venezuela's president has expelled three U.S. Embassy diplomats. Nicolas Maduro has accused them of trying to destabilize his country. He says they have been plotting economic and power grid sabotage with the Venezuelan opposition.
President Maduro has been calling on the U.S. to investigate his claims since he replaced Hugo Chavez in April.
Now, BlackBerry says reports of its impending death are exaggerated. The research firm Gartner gives it six months. It told the company's business clients to use that time to find another phone.
BlackBerry politely suggested its customers shouldn't listen to them: "We recognize and respect external parties' opinions on BlackBerry's recent news. However, many conclusions by Gartner about the potential impact of a sale or other strategic alternatives are purely speculative."
BlackBerry's problems can be traced back to a management rift, according to one in-depth report. Canada's "Globe and Mail" says the once dominant company was undone by differences between the three men running it.
Here are the three key players. From left to right, Jim Balsillie, Mike Lazaridis, and Thorsten Heins. Balsillie supported shifting focus to instant messaging software, which Lazaridis and Heins opposed. In 2012, Balsillie quit the board and cut all ties to BlackBerry.
Lazaridis and Heins have their own differences, over keyboard versus touch screen strategy. Lazaridis argued strongly in favor of emphasizing keyboard devices. Heins and his executives did not take that advice and launched the touch screen D10 with, as we know, disastrous results.
Well, I'm joined now by "Globe and Mail" journalist, Sean Silcoff, from Ottawa.
Sean, thank you so much for being with us.
I think that a lot of us look at this company and marvel out -- at how they went from really defining smart phones as we know it to absolutely giving up the throne.
You say it came down to a power struggle at the center.
What do you mean?
SEAN SILCOFF, JOURNALIST, "GLOBE AND MAIL": Well, I think that actually, it's really interesting, through the course of our research, we found that this company was often portrayed as being a bit of a deer in the headlights, arrogant about its success and blind-sided by Apple.
And the truth is, when you go back, Mike Lazaridis opened up one of the first iPhones. And he could see very carefully where the future was going.
But somehow this company was not able to get its act together over time and really come up with an iPhone killer. In fact, they were handed that assignment -- that very assignment -- by Verizon in 2007. Verizon said AT&T has the iPhone, we don't, can you come up with an iPhone killer?
They came up with the Storm, which was a bit of a disaster. And Verizon gave that business to Android, which was just on the scene then. And now Google has about 50 percent of the market.
LAKE: Sean, a lot of what we just talked about in that read-up to you had to do with what happened at the end, when they were clearly behind.
You know, I interviewed those two men together, Balsillie and Lazaridis. I was in Canada at their firm.
Is a lot of the problem related to the fact that these were engineers who cared very much about security and the market really shifted to something that was much more consumer oriented?
SILCOFF: I think so. And I think, because one of the insights Mike Lazaridis got from the beginning, when he opened up the iPhone, was he said, my god, this is -- this is a Mac computer stuffed into -- into a smart phone. How -- it has full Internet browsing capability.
I don't know if you remember the BlackBerrys back then, but it was pretty rudimentary Internet. You didn't really get a whole lot of the Internet.
And so they realized they had to give something that was more consumer oriented. But they also had big business and government clients who weren't really all that interested. They liked what they had. They liked the security. They -- they didn't -- some didn't even want cameras on their -- on their phones.
So they were sort of caught between two classes of customers. And I think they had a difficult time navigating that -- navigating that difference.
LAKE: It's also been suggested -- I mean these are reasons that sometimes the inventors of companies, the founders of companies, don't make the best stewards of companies as they mature. You're so married to the product, it's hard to be objective and kill things. That's one of the things that Apple has been so good at, is -- as people say, killing their own children, as they see the market moving on.
Is this a case where the two founders, who really started this revolution, should have stepped aside, should have had somebody else at the helm long before they brought in Thorsten Heins?
SILCOFF: I think hindsight is 20-20. I think they made a lot of the right moves. They were heading in the right direction, but they just didn't do it fast enough.
I mean, if you think about it, they realized they had to bring a browser on. It took them about two years to do that. Then they realized they needed a new operating system. It took them another year to do that. And it took three years to get the operating system in place.
The BlackBerry 10, which they have on the market now, is actually not a bad product. It -- it's perfectly competitive. Unfortunately, it's perfectly competitive in 2011 or 2010...
LAKE: Right.
SILCOFF: -- not 2013. If this product had come out on time, I think this would have been a very different story for the company.
LAKE: By the way, lessons that technology companies, phone makers, Apple and Samsung, would be smart to pay attention to, because things are changing even more rapidly, even for those market leaders, right now. If you're not ahead of the curve, very hard to catch up again.
Sean Silicoff from the "Globe and Mail."
Interesting article. Fantastic.
So many of us carried BlackBerrys, it's personal to a lot of us.
Thank you so much for sharing your insight.
We appreciate it.
Well, it could be the final curtain call for a New York landmark. City Opera has just hours to raise millions or face a possible bankruptcy. I'll speak to the general manager of the people's opera, when we come back.
(COMMERCIAL BREAK)
LAKE: New York City Opera could be facing its final curtain call. The people's opera, as it's known, says it needs to raise $7 million by the end of today or it could go bankrupt. The company was founded on the idea that every fan should have access to opera. For it to break even, all tickets would have to cost $600 apiece. Instead, the starting price for a ticket is $25.
The opera has launched a Kickstarter campaign to raise a million dollars. That ends in a few hours.
The organization raised $1.5 million outside of Kickstarter, but it's still short of its multi-million dollar goal.
George Steel is the general manager and artistic director for the New York City Opera.
He joins me now.
And, George, I just said I wish it was under better circumstances. It sounds like it's -- it was such a great idea.
What happened?
What went wrong?
GEORGE STEEL, GENERAL MANAGER & ARTISTIC DIRECTOR, NEW YORK CITY OPERA: Well, it's been a very difficult time for the arts and particularly for New York City Opera. From 2003 to 2008, they ran huge annual deficits and couldn't find a way out of it. By 2008, it had totaled $45 million. And then the crash happened. They lost a lot of their endowment. They had to borrow the rest of their endowment to pay off this accumulated debt and they were in the middle of a dark season and the fellow who was supposed to run the company turned around and said he wouldn't come.
So it was a -- a perfect storm of terrible events. And we've been trying to scale the mountain again.
And we've fixed the budget. And we've actually had two years of balanced budgets and we are producing the best work we've produced in years.
But we haven't found a big donor to help right the ship.
LAKE: And, you know, we spent this entire show talking about the uncertainty. People are risk averse now, given the government shutdown. It is a really hard time economically for the arts.
Is it even harder for opera, though? is there a -- a sort of public image issue with opera where -- where the younger generation -- because let's face it, the -- the millionaires and billionaires out there, a lot of them are young, they're Internet, they're Google, Facebook millionaires.
Are they just not interested in the opera anymore?
STEEL: Well, you've put your finger on something important, which is people hear the word opera and they think, well, that's not really my kind of thing.
But New York City Opera was founded to address that very thing and to develop the repertoire of the future, the singers of the future and, most important, the audiences of the future. We just finished a seven performance run of an opera called "Anna Nicole," about the great Anna Nicole Smith. And it was a smash -- sold out seven nights. It was a huge hit. And if you looked at the crowd, you would say this is not an opera crowd and this, perhaps, was not an old-fashioned opera.
LAKE: Are you -- your back is up against the wall. Have you been able to -- we know you had a Kickstarter campaign. I've seen a lot of crazy projects get funded on there that I wouldn't think would have got -- gotten any hope.
Are you using social media?
Are you able to sort of have that help you reach out to people who may not know that you're in need of funding, who may not know that you need the contributions?
STEEL: Well, absolutely. We've been trying to reach out to everybody we can through every medium we know of. And that includes this Kickstarter component of our fundraising campaign. And while we're at something like $250,000 right now, over 2,000 people have responded to that campaign alone.
And the primary function of the Kickstarter part of the campaign was to demonstrate a broad-based grassroots support, that thousands of people, New Yorkers and folks all over the world, support New York City Opera and believe in its centrality to New York's cultural life.
LAKE: George, we wish you the best of luck.
Every little bit helps and this is a day where a lot of negotiations are going down to the deadline.
Who knows, maybe yours will turn out in on a positive note. We certainly hope so.
George Steel thank...
STEEL: I'm -- we're counting on it.
LAKE: -- thank you for -- for being with us.
(WEATHER REPORT)
LAKE: Well, you may be wondering where our fearless leader, Richard Quest, is. He's currently in the Ivory Coast making a special program about the chocolate industry and child labor for CNN's Freedom Project.
You see him right there, looking like he's getting a bit of sun.
He Tweeted this picture a little while ago. That man just cannot keep away from the markets, I can assure you. And you can keep up with his progress on Twitter @richardquest.
Well, water coolers across the world have been home to the just one topic of discussion today, and that is the series finale of "Breaking Bad." One very familiar face from the business world has paid his own tribute. We'll show you that next.
(COMMERCIAL BREAK)
LAKE: If you didn't stay up on Sunday night to watch, don't worry, we're not going to spoil the last episode of "Breaking Bad" for you. All you need to know is it was a huge success for AMC. The final episode delivered record ratings for the channel. More than 10 million viewers were watching in the United States alone, with many more tuning in on demand across the world.
AMC was reported to be charging more than a quarter of a million dollars for 30 second commercials during the show.
But the ultimate seal of approval came before the opening credits even rolled. This was what Buffett Tweeted before the show started. A picture of him dressed as the show's anti-hero, Walter White. He says, "not even the oracle knows what will happen," hash tag waltersuccessor or waltsuccessor.
We're guessing he's not serious about running his own drug empire, but buffet is known to be a big fan of the show. Before one of his Berkshire Hathaway meetings, he filmed a sketch on the "Breaking Bad" set with Brian Cranston and Aaron Paul about setting up a business venture. Rather than drugs, it was peanut brittle. Vintage Buffett.
And that's QUEST MEANS BUSINESS.
I'm Maggie Lake in New York.
END
