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QUEST MEANS BUSINESS

Stock Markets Up in 2010; Hungary Hit by Credit Rating Downgrade

Aired December 23, 2010 - 14:00:00   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: It's a downgrade and a debt problem. Hungary's credit rating is cut.

It's a big hang up, a technical glitch, knocks Skype off the hook.

And we've got gifts galore because `tis the season to be giving.

I'm Richard Quest. We have an hour together. I mean business.

Good evening.

Tonight more signs that Europe's debt crisis is far from over. In Ireland another bank is set to fall into government arms. And debt tensions are rising again as Hungary has received a debt downgrade. There is a lot that needs to be discussed and put into context after this.

Come over here to the library and you will see what I mean. Ah, there you are. First of all let's begin with Hungary and the debt downgrade. Fitch has cut the rating just to a notch above junk. It says it is vulnerable to negative shocks. Now the public debt of Hungary is estimated at 79 percent of GDP. This year private pensions will go to state control. There will be special taxes and despite all of this there are also criticisms about new media laws in Hungary, which has also raised the question of what happens next.

Hungary's debt has been downgraded. In Ireland the Allied Irish Bank has been nationalized. The government stake will rise to 92 percent, after the high court approved, a $4.8-billion cash injection. Now this was, taking over Allied Irish, was something that the government had hoped not to do. But of course, once the bailout came along and money was put aside for the banking the recapitalizing of Irish bank, tier one-(UNINTELLIGIBLE) tier one, then it became inevitable. Even so, so now a vast majority of Ireland's banks under government control.

The European stock markets and the London FTSE, well, we were down on the DAX, the CAC, and the Budapest market, the London FTSE did eke out a small gain. It will be very interesting to see 6,000 can be eked out in London before the end of the year; 7,000, it is clearly over that at 757,000.

The Budapest market, considering what had happened earlier in Hungary, it is surprising that the Budapest BUX didn't move much more than that. But perhaps, perhaps, because the market had been expecting that for some time.

So, in the U.S. consumers are spending more and they are saving less. It is a sign of continuing economic recovery. The Commerce Department says consumer spending rose, 0.4 percent in November, slightly less than expected. The New York market, as you would expect, this time of the year, trading quietly. Just up 7.2 percent. That is the markets in New York at the moment.

To put this into perspective let's go to New York. Alan Valdes is there and joins me on the floor of the New York Stock Exchange.

Alan, you know, we can ignore the trading numbers for the moment, in terms of the, you know, it is up 7 percent, volume is Christmas volume. But the economy? Are you happy with today's numbers?

ALAN VALDES, TRADER, DME SECURITIES: Well, you know they are going in the right direction. All of them are a little less than expected, whether it is the consumer confidence, whether it is the new home sales, or the spending. They are a little less, but you know, they're going in the right direction. And that has been the trend all year. If you step back and look at the Dow, the Dow, very steadily jumped 10 this year, a little over 10 percent. Nasdaq up over a little 17 percent. And the S&P, which we all watch, pretty broadly, is up 12 percent. So we've had a pretty good year here. Double digits, you can't really beat that.

QUEST: Double digits from a low base, Alan, I'll take-I'll accept what you say. I will accept what you say. The question is whether or not it justified on economics; 3.4 percent, perhaps 4 percent growth next year, but that is so much predicated on government spending and the tax reforms that have been put in place. Does that worry you?

VALDES: It does worry us. Because I tell you, the whole Achilles' heel, and this whole recovery that we're seeing is really unemployment. Unemployment, foreclosures go hand in hand. Remember the high, the high for unemployment was 10.1 last year. We are at 9.8, so we're still really right up there. And that is the key. That is why this tax bill, this extension of the Bush tax cuts is key. We think this is the best stimulus to hit the average guy on the street. This goes right to his pockets. Cut in payroll taxes, that is a big plus for us. So, we're hoping this works. And we'll know the first six months really, if this works.

QUEST: When we look at consumer confidence, and let's just talk a little bit. It is the festive season, it is on top of us. If truth be told, no matter how encouraging the numbers are, this Christmas can't be regarded as a particular barn burner as you would say.

(LAUGHTER)

VALDES: No, you are 100 percent right. I mean, the only thing you can really say positive is that it is going in the right direction. It is a little better than last year. Consumers are more confident. They are out there (AUDIO GAP) a little more. We are seeing that in retail sales. But you are right, it is the sustainability we worry about. So these tax cuts, we're hoping, creates 1 million, maybe 1.5 million jobs the first year. So that is what we are going to be keen to watch, going forward. But if that doesn't work, then it is back to the ol' ballgame, and it can become a problem real fast.

QUEST: OK now, just a short while ago, of course, there was a bit of singing, wasn't there, on the-that you always engage in? Or there will be some singing to which you engage in at Christmastime, on the floor of the New York Stock Exchange. We are going to hear a little bit of it to start with, bear with me a second.

(NEW YORK STOCK EXCHANGE TRADERS SINGING)

QUEST: Down lovers' lane we'll wonder, sweetheart, you and I.

(LAUGHTER)

Join in the last bit with me.

Wait `til the sun shines, Nellie, by and by.

VALDES: By and by.

QUEST: Where does it come from?

VALDES: Well, you know, they've been singing that down here. It started, basically, in the `30s, during the Depression. It is just a hope song. It is just a song of hope. The classical by and by, so we've been singing that down here since the `30s. And it is just the tradition. We sing it, basically, Christmas Eve. This is Christmas Eve for us, because we're closed tomorrow, and New Year's Eve. So we sing that and it has been going on since the Great Depression, and we'll keep singing it down here as long as these lights are on.

QUEST: As we just finish, then. One final chorus, then, of "Wait 'Til the Sun Shines, Nellie". Alan, the last bit?

VALDES: By and by.

(LAUGHTER)

QUEST: By and by, many thanks. Have a good-

VALDES: Thank you, Happy Holidays.

QUEST: Happy Holidays to you, too. A festive season on the floor of the New York Stock Exchange.

(DESK BELL CHIMES)

We were talking there, about the U.S. economy, just in a little bit of briefness, but we will continue our dissection of the economy. Maggie Lake talks to three wise men, and there was room at the in, or at the in, on the fixing the problems of debt, and unemployment and slow growth.

(COMMERCIAL BREAK)

QUEST: The number of people filing new claims for jobless benefits in the U.S. fell slightly this week; 420,000 people put in fresh claims, 3,000 fewer than the week before. Overall, the job market is grim, one in 10 workers are unemployed. So what about the future? Maggie Lake spoke to three economic experts about what is broken and how best to fix it.

(BEGIN VIDEOTAPE)

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT (voice over): Weak jobs growth, a ballooning deficit and bitterly divided Congress, as the year comes to a close crucial issues face the U.S. economy. For solutions we turn to three key figures from traditionally different parts of the political spectrum. Mort Zuckerman is a billionaire press and property tycoon based in New York. Jeffrey Sachs is a professor at Columbia and special advisor to the U.N. secretary-general, and David Stockman is the architect of the landmark Reagan era tax cuts, who now calls for tax hikes, across the board, to combat the deficit.

(On camera): David, let's start with you. We have had deficit problems before in the U.S., what is different this time?

DAVID STOCKMAN, FORMER U.S. BUDGET DIRECTOR: Basically, 30 years of breakdown in fiscal governance. Since the early `80s we have had a referendum, really, about what we want in government and how we're going to pay for it. And the Republican Party has basically decided there is not much they really want to cut. And the Democrats have prepared to defend everything that was there. So we have basically two parties, two free lunch parties, competing in a fiscal arena that is non-functional. And it has lead to a structural deficit that has now ballooned to really very dangerous proportions.

LAKE: Right.

Mort, so you have to operate in the real world. I mean, forget about politics, you have to run businesses, you have to face budgets all the time. If I am your CEO, and I hand you this-this happens to be from the Peterson Foundation-and I say this is what our company looks like. This is our projection. What do you do, as a CEO?

MORT ZUCKERMAN, CHAIRMAN, BOSTON PROPERTIES: Well, the one thing that I think you know, you can do in a business is to cut costs. You are not always sure you can increase revenues. So you start focusing on cutting costs. And you see what you can do to increase revenues. But you cannot live-this is not a sustainable, kind of loss to be looking at. It is not sustainable, in my judgment for the federal government.

And I'll say this, you know the politics of it, if we just looked at the recent congressional election, there were a lot of people who were concerned about the debt and the deficit. And in my judgment the reason for that is we now have, I don't know, 12 million homes where the mortgage exceeds the value of the homes. And huge numbers of people who have credit card lines that they can't pay off. All of sudden they realize, debt has consequences. And I think the country understands that debt has consequences for the country. And that these debts are essentially are a dagger pointed at the heart of the economy. And sooner or later that dagger is going to strike.

LAKE: So, do you-are we facing a situation where we're going to have to see a crisis or we're going to have to see real dislocation, interest rates higher, some sort of fall out before people can actually make a substantive decision to tackle this? Do you think it has to get to that point?

JEFFREY SACHS, PROFESSOR, COLUMBIA UNIVERSITY: Well, often this kind of situation goes on until there is a crisis, but, of course, that not the desirable way out of this. We would expect political leadership, we would expect the president to be taking a much more clear policy. The disappointing part about the administration is they actually believe in deficits as a good thing right now. They think that it boosts the economy, so it is worth running bigger deficits. They didn't view this last agreement with the Republicans as a tough thing that they had to swallow for political reasons. They viewed this as a great success. So the answer is, yes, we could go on for a while and build massive debts up to China, and to others. We could have quite a long slide. You never know when this kind of circumstance erupts into a sudden market panic, as it has in some of the European countries.

LAKE: Right.

It appears that the American people have some clue of that, as well. Because there was a Bloomberg poll recently, 48 percent, it was half of Americans, say the budget shortfall is dangerously out of control. But 82 percent say don't touch Medicare; 72 percent, don't touch Medicaid, 75 percent, they don't even want a gasoline tax.

Mort, I think, that when you talk to them, I mean, there is a quote, "We give billions of dollars to corporations, in my eyes, they just pretty much put it in their pocket." They think business should pay for it and the rich should pay for it.

ZUCKERMAN: If the wealthy aren't seen to picking up their fair share, of what we're going to have to do in order to eliminate these deficits, we'll never get anywhere. And frankly the wealthy can afford it and they have done very well, thank you very much. And they should do this. So, I really do believe that that is absolutely essential to going forward and having any kind of sane fiscal policy.

LAKE: What about the private-what about-OK, go ahead.

SACHS: I think what Mort is saying is extremely important, and it is important to take a long view of what has happened. In our society for the last 25 years basically there is only one part of the society that has done well. And that has been at the very top of the income distribution. And the more close to the top you get the more extraordinary, so that there have been huge, huge gains at the very top of the income distribution, at the bottom, the bottom has fallen out. And the middle class has basically struggled.

If the rich were standing up and saying, we do our part, the mood in this society would change, enormously. We would start getting serious again, like grownups, and thinking about the real situation in the United States. What do we need to compete internationally? How do we close the budget deficit?

ZUCKERMAN: You are not going to get a bunch of wealthy people to say, let's pay more taxes. You have got to get the government, and a leader in the government, who has credibility in the country, who is going to make this case and fight for it.

LAKE: But people would say that the politicians are owned by corporate lobbyists, who pay all that money to keep the status quo there. I know there is no-we take for granted-

(CROSS TALK)

LAKE: There is no leadership in Washington. What is the leadership from the private sector? Should there be higher corporate tax rates? The minute you hear that they say, we'll take our business offshore, it will kill the U.S. economy.

STOCKMAN: I'm not sure it is a big part of the solution one way or another, OK? Because it is just a political food fight, it full employment act for the lobbyists, once you get into corporate tax, it generates a couple hundred billion dollars a year. It is really not the issue.

I think the issue is, we over consume as a society. And we have done that for 30 years by borrowing money, in the household, and the government sector, beyond what is sustainable. So, if we are going to raise revenue, I think we need to raise it on things we need to discourage. We have two things to discourage. One is over consumption and that means some kind of consumption tax.

LAKE: Sales tax, VAT?

STOCKMAN: Something like that.

And second, the casino that Wall Street has turned into. These aren't capital markets, it is nothing but a casino in which robots trade with each other in a millisecond. So, I say, tax that.

LAKE: Allan Blinder has said that there are 28 to 42 million jobs that would be susceptible to being shipped offshore, a Princeton professor, vice chair, Board of Governments.

Corporations are sitting on-

UNIDENTIFIED MALE: Board of Governors.

LAKE: Board of Governors.

Corporations are sitting on $2 trillion in cash. Why aren't they investing it in human capital? I mean, why aren't they doing more in terms of retraining, re-spending, especially as government tries to cut down on spending? Can the private sector pick up the ball there?

ZUCKERMAN: No, to a very limited degree. That is not their job. The reason they are not spending is because they don't think the economy is-

LAKE: To train their people?

SACHS: I think another point on the business sector, business would invest if it thought it could make money right now. So the fact that it is sitting on the cash means that it is not really liquidity or a lending problem we have. We have a profitability problem. And where investment is taking place is overseas, where jobs are being created overseas. Why? Because to create jobs here that are internationally competitive you need better skills. And that is where we want to invest in our youth, make sure that we don't come out 31st in math, worldwide. That is the ticket to ruin.

LAKE: And when you are in the budget pickle we are in, can you do both those things at the same time? Can you spend wisely, while still aggressively cutting the budget deficit?

STOCKMAN: I think we have to just realize that most of the federal budget is transfer payments. OK, the education dollars in this $4 trillion of spending, is a rounding error. The real issue is we have got to get a chairman of the Federal Reserve who will simply say one thing: I have printed my last dollar. Because once they stop printing money and interest rates start to rise, then we will get fiscal action, and we will get focus. But as long as they think they can just keep selling the debt and that the Fed will buy it, as the buyer of last resort, which is what QE2 is all about, nothing is going to change.

LAKE: Is the person, or the group, that shows that leadership, do they have to expect to be a one-term president, you know, a one-term congress, because the news they are going to deliver is so painful? Because I'll tell you right now, there isn't a senior citizen in the world who is going to vote for you to cut their benefits, or start means testing Social Security. And they are a huge voting block.

SACHS: I think that one thing that I have seen in working with governments all over the world is that when a government is honest, and clear, the public is so amazed. It stands up and it can re-elect them, even in the face of very tough measures. These politicians actually don't have their finger on the pulse of America in my opinion. Americans wanted change, they didn't get it. They thought it was a very clear lead that they were given, and they haven't gotten it.

ZUCKERMAN: They did get change, but change for the worse, not for the better.

SACHS: Well, they-I don't know if they really got change. There is so much continuity. Basically we have continued the same wars, we have continued the same tax cuts.

STOCKMAN: We got the Bush war, the Bush tax cuts. What change did we get?

SACHS: Yeah, so in this sense I don't think it is right to say that what the public will or won't accept, or what is true is if you put something that is real, coherent, sensible, explained like grown ups, you can get very far. I've seen it. I've been involved in reform efforts around the world. And I'm shocked at our country and our inability to have a decent discussion.

LAKE: Discourse about it.

SACHS: As so many parts of the world have had.

(CROSS TALK)

LAKE: And Mort I'm going to give you the last word on this.

ZUCKERMAN: The way to make this program work is to make sure there is a shared sacrifice. You can't just have it put on the back of one particular group. You have to have a shared sacrifice. And amongst the people who have to share it are those who can afford it the best.

(END VIDEOTAPE)

QUEST: That is Mort Zuckerman, also there, David Stockman, and Jeffrey Sachs, with Maggie Lake.

We can predict, we can prepare. In just a moment, Ali Velshi and I take a look at what 2011 might hold. And we'll answer some questions, "Q&A" after the break.

(COMMERCIAL BREAK)

ALI VELSHI, CNN ANCHOR, CNN NEWSROOM: QUEST MEANS BUSINESS and so do I. We are here together in the CNN NEWSROOM, around the world.

Hello, Richard.

QUEST: Hello, Ali. Each Thursday, Ali and I coming to you around the world; we are talking business, travel, innovation. And it wouldn't be "Q&A" if anything was on-limit. So everything is off limits today.

VELSHI: More so today than most days. Today we are tackling the future. We are playing prognosticator. Everybody else does it, why not us? We are going to talk about our big predictions for business and innovation in 2011. We have given ourselves a pretty wide berth, and when you give Richard one, he takes it. So we will let the amazing Richard go first today.

You have 60 seconds, sir.

QUEST: 60 seconds starts now. I am a hopeless investor, a dreadful person. I couldn't sell water in the desert. Even if I use one of these predicting balls, I guarantee you it will say, "I'm just going to have to wait." So instead, I asked my team what they thought would be this year's predictions for next year.

And here we have it. This is Annie. Look at Annie with the hat. Annie's prediction is that gold goes to $2,200 an ounce. And she is wearing that hat. We only had one hat. Adam had to wear it next. He believes at least two more European bailouts in 2011. A different hat, obviously, the crown for the queen, that is Gayle (ph). She is in charge, my producer. Gayle believes global leaders will pledge to once again make the Doha round back on track by next year. And of course, they'll fail.

So those are the predictions from-

(BUZZER SOUNDS)

QUEST: -from this side.

VELSHI: Wow, what a way to pass that off onto other people. Blame it on your staff, so that when I come back a year later and say none of that came true. You have not-me, I'm taking my responsibility. 60 seconds starting now.

What are we concerned about? The world wants economic prosperity back. So let's look at the thing that makes most people feel prosperous, or lack prosperity. Look, the stock market, the place where we invest our money, or those who give us our money for retirement. We are doing well. We have had two years now, the stock is up again, around the world. So, I think we are going to have a strong year in stocks. Whether you like it or not, sound bored, but the fact is it matters.

Let's look at the economies around the world. You will see more trouble around the world, but we are going to see a year where things start bifurcating. Richard, the part of the world that you spend more time in, is going to be come more prominent in our economies than the part of the world I spend more time in. We're going to see some very, very strong economies and very strong opportunities for people to invest and do well in. I actually think people are going to learn to speak the languages of countries like China and India and Brazil, to do better in the next year.

But most importantly, Richard, as this becomes a more global and shrunken world, I predict you and I will be spending a lot more time on TV together. And that is a good thing.

(BUZZER SOUNDS)

QUEST: Now that is a prediction we can both agree with, Ali.

Actually, I'll tell you what. I will give $20, Ali, to your favorite charity, if you could spell bifurcate for the first time after this program, straight off.

Before we get-go on?

VELSHI: B-I-F-U-R-C-A-T-E.

(BELL CHIMES)

(LAUGHTER)

QUEST: Checks in the mail.

VELSHI: Let's bring The Voice in and see-let's bring the voice in and see which one of us gets to end the year in the top position.

Hello, Voice.

THE VOICE: All right. Now that the spelling bee is over we can start with the Q&A.

Question number one for you gentlemen. According to IBIS World Research, which of these industries was the world's most profitable by margin in 2010? Is it A., Gold mining; B., Mining Support; C., Marriage Counseling; D., Oil Drilling?

(BELL RINGS)

(DESK BELL CHIMES)

THE VOICE: I believe, Ali.

VELSHI: Mining support.

(BELL CLANGS)

THE VOICE: Mining support.

And behold, the field advantage, clearly goes to Ali Velshi. You are correct. Mining support was No. 1, for 2010. And believe it or not, marriage counseling, along with psychology and social work, was actually number two.

Richard, feel free to participate.

Question number two, now: Which of these noted prognosticators predicted the widespread use of digital books? Was it A., Nostradamus; B., George Orwell; C., Stanislaw Lem; D., Gene Roddenberry?

(DESK BELL CHIMES)

THE VOICE: Richard.

QUEST: I'm going for Roddenberry.

(BUZZER SOUNDS)

THE VOICE: How embarrassing for you. Ali Velshi, give it a shot.

VELSHI: George Orwell.

(BUZZER SOUNDS)

THE VOICE: Embarrassing for you as well.

Gentlemen, the correct answer is-

QUEST: It is going to be number, it has got to be C.

(BELL CLANGS)

VELSHI: yes, it has got to be C.

THE VOICE: Congratulations, guys. That was really impressive.

(LAUGHTER)

THE VOICE: Yes, Stanislaw Lem in his 1961 book, "Return from the Stars". This is the Polish author. He wrote about crystals and recorded content that are read and navigated by touch screen technology.

Question No. 3, Richard, this is your chance to even it up, and end the year on a high note. Ali, this is your turn to run away with it. And I am pulling for you, buddy.

Which of these companies known for innovation was incorporated in 1911? Was it, A., IBM; B., Kodak; C., Sony; D., Walt Disney?

(BELL RINGS)

THE VOICE: Ali V.

VELSHI: Kodak.

(BUZZER SOUNDS)

THE VOICE: How sad is that? Richard?

QUEST: All right. Let's go with Big Blue.

VELSHI: You have to give them the letter.

THE VOICE: Can we give him the ding?

(BELL CHIMES)

QUEST: IBM.

THE VOICE: Yes, there it is, IBM. Richard, you are correct. The company was called Computing, Tabulating, Recording Company, CTR, a few years after it was incorporated in 1911. The name did therefore change to IBM.

You guys kind of ended on a tie. I apologize we don't have a bonus round for you, but there you go.

VELSHI: It is tie, Richard, because you made me spell bifurcated. I got it right.

QUEST: All right. I'll give you a tie, because I got the second right. You got bifurcate right. I think we can both agree it has been an enormous amount of fun, doing "Q&A". Because that will do it for this week and for this year, on the "Q&A" part of our programs.

We will be here next year, on Thursdays, on QUEST MEANS BUSINESS 1800.

VELSHI: We'll ignore the fact that Richard refused to spell IBM.

And in the CNN NEWSROOM, 2:00 p.m. Eastern. Keep the topics coming in on our blogs, CNN.com/qmb, CNN.com/ali. Tell us each week what you want us to talk about.

QUEST: Ali...

See you next week, Richard.

QUEST: See you, Ali.

I suppose in the great scheme of the world, that is all fair in love, war and Q&A.

Are your gifts ready to be given?

Are they wrapped?

If they aren't, you're not alone. We will see you those people who are doing last minute shopping and we'll tell you about the etiquette of gift giving.

QUEST MEANS BUSINESS.

Good evening.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN. And here, the news always comes first.

And at the moment, news making around the world, Italy's interior minister says powerful bombs that exploded on Thursday at the Swiss and Chilean embassies in Rome came from Greece. The Italian police now are checking every embassy and consulate in the city. One person was injured at each embassy. Both are in hospital. No one has claimed responsibility for the bombs.

South Korea held one of its largest military drills ever to date near the volatile border, leading to dueling threats with North Korea. The North warned what it called a sacred wall and said it's prepared to use nuclear weapons if attacked. The South says if it's fired upon, it will launch a merciless counter-attack.

The U.N. Human Rights Council has condemned the post-election violence in Ivory Coast. A U.N. official says 173 people have been killed in the past week. Ninety others have been tortured. Twenty-four have disappeared. The strongman, Lauren Gbagbo, says he won the November presidential vote and is refusing to step down.

President Obama is in Hawaii to celebrate Christmas with his family. Before he left Washington, the president won several legislative victories, including a new nuclear arms reduction treaty with Russia.

Skype users are getting back online -- you may well know this if you are a Skype user yourself -- after a global outage left millions of people cut off on Wednesday. The Skype blog says service has been stabilized with around 16-and-a-half million users online. That's around 80 percent of the normal number.

Now, here's an interesting thing. Forget AT&T, BT, Deutsche Telekom or anywhere else, Skype is actually the world's largest phone company, if you add up the number of international voice minutes that they connect. Twenty-three million users online, apparently, at peak time.

From Hong Kong, Anna Coren explains the interesting aspect about Skype and the way in which these 23 million users are actually all part of the telephone exchange.

(BEGIN VIDEOTAPE)

ANNA COREN, CNN CORRESPONDENT: To explain why Skype was unavailable for millions of users, let's first show you how it varies from regular phone calls.

Well, as you can see, normal phone service is pretty straightforward. Your phone is connected to a network headquarter and the call is relayed directly to the recipient.

Well, compare that to Skype, it's a peer-to-peer network. And that means it doesn't rely on any central base. Instead, your call is routed through other computers all running on Skype.

But there are up to 23 million users online at peak times. So to help Skype organize its network, it designates some computers as super nodes, like this one right here.

Well, the super node basically acts as a phone directory, helping to find the best route to the person that you're calling. Skype relies on the super nodes to operate properly and when many of them were knocked offline by a software problem on Wednesday, it restricted access to Skype for millions.

Well, the company has responded by creating what it calls mega super nodes. It's apologized to users and things should return to normal soon.

Anna Coren, CNN, Hong Kong.

(END VIDEO TAPE)

QUEST: So, that's introduced a new word to the vocabulary, the super node.

Is your computer, if you use Skype, are you -- are you a super node?

We needed to know what super nodes was all about and, indeed, whether we were all super nodes and does it make any difference, anyway, if you actually manage to get your phone call through?

Dan York is the director of conversations at voice-over I.P. Company, Voxeo.

He's an expert in Internet telephony.

When I read his assessment, I knew he had to explain to me, if any computer running Skype has the potential to be a super node.

(BEGIN VIDEOTAPE)

DAN YORK, DIRECTOR OF CONVERSATIONS, VOXEO CORPORATION: Great questions, Richard.

So, first of all, yes. If a computer was outside of a firewall, connected directly to the public Internet and it was running Skype, it could become a super node. Now, the reality, though, is that in your home PC, your little PC at your home, you're behind some kind of firewall. It might be the -- the box that your cable provider gave you or your DSL provider or whatever, but you -- you've typically got some kind of firewall running.

If you didn't, if you were directly on the public Internet, you could -- if you think of large universities or many other entities that might have real live public addresses, without firewalls, they're the kind of organizations that could have computers become super nodes.

Now, Skype has some algorithm. It's not -- it's a proprietary algorithm that's -- that suggests, you know, that it selects computers to become super nodes. So just because you have a public address doesn't necessarily mean you would become that...

QUEST: All right...

YORK: -- a Skype super node.

QUEST: Now, once -- once the Skype algorithm is decided, ah, your computer is super node status, what does that mean in reality?

Is it -- I mean is Skype sending information to my computer and then it's sending it out again?

What -- what does it mean?

YORK: Sure. Yes. So it is, in fact. And so what happens is the super nodes exist out on the public Internet to connect people who are behind firewalls. And so if you want to call you and we're both behind firewalls, we need to use a super node to broker the connection between us.

So my Skype client would talk to a super node, which would then talk to maybe another super node in another one to eventually figure out where you are and then get to your PC. So you're talking to a super node, I'm talking to a super node, maybe the same one, maybe not. But that's what's going on.

So there's call -- you know, information about, A, Dan wants to talk to Richard, Richard wants -- says, OK, let's talk. That kind of call control information flows back and forth between -- within the super node.

It also may relay the actual voice stream or video stream, although there's another kind of super nodes called relay nodes that do that...

QUEST: Right.

YORK: -- that actually relay the -- the media stream itself.

QUEST: All right, now we're getting -- we're getting into deep water here, Dan.

YORK: I know.

QUEST: Deep, deep water.

So while all this is going on, the thing that I find fascinating is that Skype is now the world's largest international telephone company, in terms of number of minutes connected.

YORK: Yes.

QUEST: How is it doing this logistically on such a vast scale around the world?

YORK: Well, that's really the secret to what makes Skype different. There's not servers. There are no central servers, central things. So like if you used Google Talk or AOL Instant Messenger or Amisen Messenger (ph) for upper I.M. (ph), you'd be connecting into a central server. With Skype, there isn't any. It's all this peer-to-peer network of computers that are connected to other computers.

And so in this big cloud, as we say these days, you know, calls are able to be routed across that to other people. And that's what really gives it this global capacity.

Now, and on the back end, they've got a lot of back end infrastructure to connect to regular old phone lines and phones that we have.

QUEST: Finally, as we -- as we look at this, Skype has only had two or three outages in all the years, really serious outages.

Do you think that, you know, give the guys a break?

YORK: To a certain degree. I mean, the last out -- big outage we had was about three years ago, in 2007, when it was down for about a day or two days or so when there was an outage there. So on a certain level, it's worked great for most people for the rest of that time.

On the other hand, we need to understand what happened this time, what was it -- what were the -- the technical answers that have not yet been forthcoming from Skype. So we'll hope to get more info and find out what's going on.

(END VIDEO TAPE)

QUEST: Dan York joining me from the United States on the question of super nodes. And I'm reliably informed that apparently super nodes have been around for ages and, frankly, I haven't seen them (INAUDIBLE) onto my computer.

OK, it's gifts galore -- the gift that just keeps giving. It has to be QUEST MEANS BUSINESS.

The British High Street is about to make a holiday history. And Jim Boulden is out with the spirit of giving, in a moment.

(COMMERCIAL BREAK)

QUEST: Ah, as you can see, we're really now getting ready for the festive season. Well, forget hectic. If you're hitting the holiday High Streets in Britain, you're part of history. Visa Europe crunches the numbers and predicts that today will go down as Britain's biggest shopping day of all time. Visa expects last minute shoppers to shell out $21,000 a second.

(RINGS BELL)

QUEST: That's another $21,000.

(RINGS BELL)

QUEST: And another $21,000. You've got about two hours to go before the big stores turn out the lights for the night.

CNN's Jim Boulden has been on Oxford Street at Selfridges all day, one of London's top stores.

He is now outside in the cold -- good evening, Jim.

How -- are there many people who seriously have left it to the last minute, besides me?

JIM BOULDEN, CNN CORRESPONDENT: And me, as well, Richard. I've already done a number of shots today, because I figured I was here, so I've been using my credit card, for sure. I just did two more transactions here inside Selfridges.

You know, yes, there are many people here. There's -- the streets are now cleaning out, because we only have a few hours left. But it was very crowded during the day. But Oxford Street is always crowded.

I think, of course, remember, on Saturday, so many stores had to close, so many malls had to close because of that massive snowstorm. So some people had to delay their shopping. So that's why -- I think one reason why Visa may think that this Thursday is going to be a record breaking day. We'll have to wait and see, obviously, if it gets the full numbers.

But earlier, I was lucky enough to be inside Selfridges with one of the executives to talk about this incredible shopping day.

(BEGIN VIDEOTAPE)

BOULDEN: And I'm joined by Sally Scott from Selfridges, as well.

How would you describe December so far, indeed, how do you describe today?

SALLY SCOTT, MARKETING DIRECTOR, SELFRIDGES: Well, let's begin with today. It's very busy. I think it finally hit everybody that Christmas is upon us and the days are numbered for shopping. So we're very busy here today at Selfridges.

But, honestly, December has been mixed, because we've had, as you know, quite a lot of snow in the U.K...

BOULDEN: Yes.

SCOTT: -- which is not what we're used to. And so it has had a bit of an impact on business. But our people have made it to work and people want to come shopping. So we're here to serve them.

BOULDEN: So they want to come shopping.

Is this sort of a good representation of what they want?

Do they really want a $1,400 bag for the...

SCOTT: Oh, absolutely. I mean that's a -- that's a classic. That's the Mulberry Alexa (ph). It's actually one of our best-sellers.

BOULDEN: OK.

SCOTT: It's in oak, which is a hot color this season. And $1,400 is not a lot for taking out day -- day to night.

BOULDEN: Ah.

SCOTT: Day to night.

BOULDEN: So oak -- oak is a new black is it?

SCOTT: Oak is the new black.

BOULDEN: OK.

SCOTT: That's right.

BOULDEN: So I'm not too far behind. Here we go.

SCOTT: No. No.

BOULDEN: So American chocolate, as well.

SCOTT: Yes. Ameri...

BOULDEN: Jerdain (ph)?

SCOTT: -- American sort of confectionary is very important to us. As you know, we were founded by an American.

BOULDEN: Oh, yes.

SCOTT: So we always take pride in what we offer our customers, from Fluff and Lucky Charms, to Hershey Kisses and Hershey chocolate bars.

BOULDEN: Do you agree with Visa that this is probably the number one shopping day of December, and, indeed, could it be the biggest of -- ever, of all time, in the U.K.?

SCOTT: Well, I mean time will tell. Time will tell. It is a busy day today, but I -- I bet tomorrow will be busier.

BOULDEN: Ah.

(END VIDEO TAPE)

BOULDEN: So tomorrow busier. I'm glad I won't be standing out here or trying to get into the store.

But, Richard, you know, we always like to learn new things. So I know on QUEST MEANS BUSINESS, now we know that oak is the latest color of anything you should be purchasing.

QUEST: OK. A final question.

In a -- in a word, any idea, Jim, how much you will spend this Christmas on you and your family?

BOULDEN: Oooh, oooh, let's see, I did about 500 quid worth today, so maybe that can put it into perspective.

QUEST: All right, many thanks.

Jim Boulden, who will be looking for loans from banks at cheap rates before the end of the -- outside in Selfridges.

Now, we heard from Jim about the shopping surge in the U.K.

Now, we're turning to last minute rushes across the Atlantic. Until now, of course, I've always invited you to join me in the library. Well, perhaps, you'd like to join me instead in the -- in the restroom, in this re--- this restored area where we have more enjoyable -- all right, here we go.

First of all, holiday shoppers in the United States -- if I get this wrong, it will go -- last minute shopping. The U.S. sets a feverish pace and has been racing to the shops more than last year's. Accounting to ShopperTrak (ph), says retail revenue is up 5.5 percent during the final weekend before Christmas. That's a big change from the 6.2 percent drop in 2009, when an East Coast snowstorm kept many shoppers at home. So on the East Coast, they are still doing all the shopping.

Now, here in the U.K., bargain hunting is the name of the game. On the High Street, the shoppers may find fewer discounts this year. The festive season in 2008, when the flood -- when the financial crisis, of course, caused a massive problem.

PWC says 55 percent of the High Street retailers it tracked -- 55 percent are offering sales or promotions. In 2008, it was 80 percent. Fewer discounts, less bargain hunting.

And finally, shopping pitfalls. The online auctioneer eBay predicts more than a billion dollars will be spent on unwanted gifts. That's just in the U.K. Almost a quarter of 16 to 34 year olds say they will re-home or regift that unwanted present.

Which raises the question, if you have received this unwanted gift and you've opened it, what on earth do you do?

No one wants to be the giver of the unloved gift. We want to get it right, like, of course, the three wise men.

But how?

We asked the man who literally wrote the book on manners about giving during this holiday season.

We asked Charles Mosley, author of "Debrett's Guide to Entertaining."

And I started by asking him, what are the best presents for a colleague or someone you don't know very well. Perhaps chocolates under the tree.

(BEGIN VIDEOTAPE)

CHARLES MOSLEY, AUTHOR, "DEBRETT'S GUIDE TO ENTERTAINING": Chocolate is a bit tricky, because not everybody likes chocolate and some people are allergic to them. And those who do like them, often like them too much, so that they may sort of pig out on them.

I, myself, am not really very keen on chocolate and I tend not to give them, possibly for that reason. I must admit, there's a slightly sort of selfish attitude involved. One tends to think to one's self, what would I like if I were in X's position and then go for X. If you can make that leap of the imagination and think inside what it is like to be X, then you are so superb at sorting out other people's psychology, you will hardly need to give them a present in the first place. QUEST: A good card instead, maybe.

MOSLEY: A good card, something with a bit of yourself in it, and I don't just mean that you prick your finger and write it in blood, though even that, of course, has a certain sort of special element to it.

Try not to come up with a -- try not to use the witticism that you get from the card manufacturers. Try and think of something yourself or, if you can't think of something yourself, look in a dictionary of quotations and find a suitable expression of goodwill or a suitable sentiment from one of the great authors, jot it down, with reference, of course, to the person you're giving it to.

QUEST: The old adage, I've got lots of presents at home that I'm hoping to give that I've received that I'm hoping to give to other people, maybe people I just don't -- I know casually but the dreadful phrase, regifting.

MOSLEY: Yes.

QUEST: Are you in favor of it?

MOSLEY: I think I am broadly. It's such a waste if you don't regift. You've got to be jolly careful, as we all know, not to give the person who gave the gift to you as part of your regifting, if you can work that out. On the other hand, if their memory is bad, even that may not matter a year or so later.

I think that, in its way, there is just as much thought involved in regifting. In other words, you have been given, shall we say, a pink pair of knickers. You obviously don't give it to your aged granddad, unless, of course, your aged granddad is, you know, he's come out. Perhaps you do these days.

QUEST: It's always suitable to give a gift for the -- yes, and there we are.

MOSLEY: I've got more gifts from broadcasting organizations in the last five days than I have had from members of my family...

QUEST: (INAUDIBLE).

MOSLEY: -- for a score of Christmases.

QUEST: Well -- well, we need to you to open it...

MOSLEY: Oh, I see. OK.

QUEST: -- and when you've opened it -- you need to open it...

MOSLEY: All right.

QUEST: And show us the correct way to receive...

MOSLEY: All right.

QUEST: -- a gift.

MOSLEY: Well, first of all, you look at it and you sort of hold it up to the light and you raffle it and then you weigh it. It's quite funny there. So I think it could be -- I think we -- we could have a bit of precious metal here. I'm just guessing, of course.

Now, if I'm going to be very economical, I'll try and not rip the paper so I can use it again next Christmas. But in practice, I think you've done it up so well that that's not going to be possible.

No, it's coming apart very nicely. Let's see if we can...

QUEST: Now, at this point, you've no idea what it is...

MOSLEY: Absolutely none. No, I don't.

QUEST: No idea.

MOSLEY: But it's quite heavy. There's a faint raffle, but that's, I think, the object within the box. So clearly we're looking at gift wrap (INAUDIBLE)...

QUEST: And I'm getting huge enjoyment from you opening the gift.

MOSLEY: Well, the point, you see, I'm -- I'm -- I'm as if -- milking it for every dramatic possibility in the way that sort of a really good actor of many seasons -- I say, look at that. Now, here's a bit more cello tape. So let me see if I can just get that in. Yes, here we are. Aha. Installation. Now, that means I have a very valuable, very fragile, or, of course, both.

Let's see, what is it?

I say, look at that. Zowie. Tar Bridge (ph), heavens. St. Paul's Cathedral, a double decker bus, guardsmen outside Buckingham Palace.

Do I shake him to get a snowfall?

QUEST: Yes. Yes.

MOSLEY: Yes, we do. Yes, it's very appropriate for this time of year or this particular year. Well, I think that's rather nice.

QUEST: Charles, before you leave, because we couldn't let you go without a real gift.

MOSLEY: So I get two?

QUEST: You do.

MOSLEY: Gosh. Oh, look at that. Zowie.

QUEST: There we are.

MOSLEY: Oh, that's CNN. I thought it was a football club. Yes, OK. I'll wear that with pride.

(LAUGHTER)

MOSLEY: I'll wear that with great -- with great pride. And it will even keep me warm.

QUEST: To sum it all together or to put it all together, the general rule, then, when giving and receiving gifts would be what, accept it in the best style?

What's the general rule?

MOSLEY: Be like Christmas, be merry. I'm sorry, I said that very solemnly, but, you know, put some oomph into it. Put a bit of fervor into it. Put a bit of Christmas spirit into it. If you can't do that, you shouldn't be celebrating Christmas.

(COMMERCIAL BREAK)

(MUSIC)

QUEST: Those are 12 days of Christmas.

(MUSIC)

QUEST: If you were to buy everything in the song, how much would it cost you?

A time-honored tradition on this program. PNC Wealth Management produces the true cost of Christmas. Bring in the numbers and I'll show you how it all works out.

This year, a partridge in a pear tree costs 1.3 percent more than last year. Those French hens, they were up 233 percent. Five gold rings, that was up 30 percent. Ladies dancing, they were up 15 percent.

(MUSIC)

QUEST: OK, if you bought the lot, it would cost you $24,000. And if you bought it again and again, for the true 12 days of Christmas, that's $94,000.

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment.

This is our last show -- our last live show before the Christmas break.

Now, we will be back next week to consider the year behind and to look ahead.

But before then, we've spent a bit of time on the program tonight talking about gifts, presents and generosity -- suitable stuff at this holiday time of the year. Because the fact is, unless you're a kid set on a Nintendo Xbox or PlayStation, it's the thought more than the gift itself. So in the next few days, we'll unwrap and zip and box scarves, socks CDs, computers.

As the large part of the world grinds to a halt, whether you celebrate Christmas, Hanukah, Kwanzaa, Diwali or Eid, we could all take a moment to say thank you.

And that's QUEST MEANS BUSINESS for tonight.

I do say thank you to you.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I hope it's profitable.

"WORLD ONE" next.

END