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Bond Bonanza; Tunisia Struggles to Control Political Turmoil; Queensland Flooded

Aired January 13, 2011 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: It is a bond bonanza. Spain and Italy have hit their targets.

There is rioting, curfews and political turmoil, Tunisia struggles to regain control.

And Bernie made off with billions, now his victims have scored a victory.

I'm Richard Quest, in good voice. And, I mean business.

Good evening.

A good dose of relief and easy breathing, plenty of space and lots of cash. It is just what the cash strapped Euro Zone needed today. Spain and Italy join Portugal in conducting successful fundraising exercises. The interest rates definitely hurt, but they didn't deliver the fatal blow. For now, it seems, no nation needs a bailout. It gives euro leaders vital thinking time to work out how to defend themselves against the next crisis of confidence.

If you'll join me in the library, you'll see exactly how the auctions went. Let's begin with Spain, which of course was the one we were really looking at very closely. There was a five-year bond auction and they were looking to raise nearly $4 billion. The yield was at 4.54 percent. Now that is nearly 1 percentage point higher than last time around. But the good point is, of course, is that the market had been even fearing that the number would over 5 percent. If you look at the bid to cover that, the number of times it was oversubscribed. At two to one there was plenty of activity. Lots of demand for what Spain had to offer.

Now, Italy is bid to cover was slightly less, although they did get the bond auction away; $4 billion of five-year bonds. In Italy's case the average yield was 3.67 percent, just up a tad on what they had to pay back in November. The $4 billion of 15-year bonds averaged 5 percent. In both cases the bid to cover ratio is 1.4 percent. And that is really very important. It means there was appetite for risk and at these sorts of levels that risk was manageable for both government and investors alike. So look at how the market reacted. Well, you don't need to be an investor genius to see Spain absolutely loved the IBEX rising, 2.6 percent. In Italy, slightly more muted. Portugal, of course, which go theirs away yesterday, that was just up a third of 1 percent.

The euro did enjoy some in gains. It put on more than 1.75 percent against the dollar, at $1.33. So $1.30 has been and gone, and now comfortably into that higher range. There were other matters of course, as a result of what took place. The German finance minister, Wolfgang Shauble, says the states are working on a comprehensive package to solve the debt crisis. And that could be in place by March. Shauble doesn't think any increase in the Europe's emergency bailout fund, the Stability Fund, as you and I know it, is needed. But, of course, that would mean more German money.

Steve Major is the global head of fixed income research at HSBC. He was a bit chesty himself, with a bad cold. But nonetheless, we had rates to talk about. And I asked him, if we are now out of the woods?

STEVEN MAJOR, DIRECTOR, FIXED INCOME RESEARCH, HSBC: Well, there is some good news here. You are quite right to point it out. And the background to this should be clearly understood. The market was short of these bonds, going into the auctions. So professional investors were very negative before the auctions and they have to cover back.

There has been some genuinely good news as well, because in fact the EFSF seems to be building out its scope a bit. It is being buttressed. There is a good consensus now behind the EFSF, even Germany is supporting this facility now. Also, there has been clear evidence of fresh buying interest, mainly from Asian investors. It has been well publicized, actually, that China and Japan have been looking at it.

QUEST: These yields that both Portugal and Spain had to pay, are these yields, certainly in Portugal's case, well under 7 percent.


QUEST: It is-do you believe it is sustainable to have long-term financing at those levels?

MAJOR: Well, it is simply not sustainable. Because if you are paying nearly 7 percent for your money and there is no economic growth to bring in tax revenue, then your structural debt position is going to get worse. It means that you are actually borrowing money just to pay off interest on that debt. So it is not sustainable.

QUEST: So, even at today's refinancing rates, Portugal is still in trouble in your view?

MAJOR: Well, look, the average rate that Portugal will pay is a function of the very short bills and the bonds, as well as the 10-year. But the average rate is still going to be between 5 and 6 to be fair. That is not sustainable, because Portugal is not growing enough to generate the tax revenue to pay the interest on that debt.

QUEST: So if you pull the strands together, from what we've seen today, for these periphery countries, are we in a better position tonight, do you think?

MAJOR: I think it is modestly better, because there is a consensus of opinion now, one that includes Germany, that favors supporting these periphery countries, there is a muddling through going on. Last year it was very unclear. Ireland was left on its own, Greece also, both countries had to go for external help. It seems to me that there now is this consensus in favor of buttressing the EFSF, and giving a facility which will be there to help these countries.

QUEST: Right.


QUEST: But, of course, that facility is there to help those countries, but as we are seeing with Portugal, it is only as good if the countries ask for the help.

MAJOR: Yeah. Well, Portugal does not need the help right now. It depends where the financing rate is going to be in a few months time. Because if spreads were to fall another 100, 150 basis points, then Portugal is going to be much nearer to a sustainable level. At the moment, they are way above it.

QUEST: And finally, would you expect to see the ECB move to-or the European, the fund, even.

MAJOR: Yeah.

QUEST: Anyone in Europe, move to bolster and buttress Spain, just to prevent any speculative attack?

MAJOR: Well, at the moment Spain is a long way from needing any help. In fact, the biggest Spanish bond redemption of 15 billion euros is not until May. Spain also has a very low outstanding debt compared to any other country. So, in fact, they have much more time than Portugal, or even Italy. Spain can sweat it out for much longer. So at the moment there is no need for Spain to ask for help. I think the key point here is that the European institutions, the European governments are getting together. That they are building out the EFSF, so that the ECB doesn't have to deal with the work.


QUEST: A lot of initials there. The EFSF is, of course, the stability fund that is responsible for bailing out, if you like, the government. The ECB, the European Central Bank. Now, the rates that governments are paying to borrow may be going up. But the rates that the central banks are charging are staying put for the time being.

The ECB, the European Central Bank, kept its key interest rate on hold at 1 percent for the 21st month. And remember the ECB has used its own form of allocation. It basically goes for full allotment of money. Anybody, any bank in Europe that wants to borrow at the window, gets the full allotment. And that is the liquidity mechanism being used by the ECB that we're looking at, at the moment. When it came to the press conference, the ECB president, Jean-Claude Trichet said that of course, inflation was now starting to become a worry.


JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK: Looking ahead to the next few months, inflation rates could temporarily increase further. They are likely to stay slightly above 2 percent, largely owing to commodity price developments before moderating again towards the end of the year.

Overall, we see evidence of short-term upward pressure on overall inflation, stemming largely from commodity-global commodity prices. While this has not so far affected our assessment that price developments will remain in line with price stability over the policy relevant (UNINTELLIGIBLE), very close monitoring of price developments is warranted.


QUEST: And one word to remember, of course, President Trichet of the ECB, his term of office comes to end this year. And everyone is talking about who will take over from President Trichet, possibly Mario Draggi (ph), of the Bank of Italy.

Now, the-Europe kept these rates on hold as indeed did the Bank of England. Similar story, the key interest rate unchanged at half of 1 percent. Widely predicted by economists, it means U.K. rates are at the lowest levels for the 22 month in a row. But there is one thing to note with U.K. rates, more people are now starting to believe that there may be a symbolic, preemptive rise in rates sometime during 2011, possibly by the summer.

Putting it all together and you see how the markets reacted. Obviously, the comments from Trichet on rising inflationary pressures raised expectations that the ECB will be raising rates towards the end of the year. The mix of markets that you see at the moment, well, that of course has been factored now in. Nobody expected rates would rise in the U.K. and the markets took a bit of a tumble, nonetheless.

On Wall Street, where trading is well and truly underway, Alison Kosik is watching. We've got rates on hold in Europe. We have had a good bond auction. I know Wall Street has been worried in the past, what have they made of it today?

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Well, today, Richard, Wall Street is pretty happy about how those auctions went in Spain and Italy. It may not look like it from the numbers but they really are, you know, worrying about debt issues. You know they crop up every few weeks. Wall Street is getting used to it. And then we see money thrown at the problem, and then the problems fade. But the reality is, and Wall Street knows this, the problems in Europe, they aren't completely solved by any means, so they remain at the back of everyone's minds, especially since there are worries now for other countries as well.

But overall, Wall Street seems to be pretty OK, pretty happy, with how those auctions went. If you are wondering why the reason why we are seeing stocks lower is because attention is more on domestic issues, with jobs. We have a jobs report showing that initial claims jumped by 35,000, Richard.

QUEST: And we've got the earnings season coming up. We'll talk about that tomorrow. Alison Kosik many thanks indeed for joining us in New York.

The flood waters around Brisbane have started to recede, now Australia must get to grips with the damage and destruction and faces the reconstruction of post-war proportions. More from Brisbane after the break.


QUEST: It seems in Australia mother nature has wreaked her havoc. The flood waters that carved a trail of destruction through Queensland in Australia, have now started to recede. The authorities have started to reassess the damage caused by what is perhaps the states worst flooding in modern times. The trail is 15 people dead and more than 70 missing. Some 20,000 homes lie submerged beneath the water.

Speaking early today the states premier warned that the clean up operation would take many, many months.


ANNA BLIGH, QUEENSLAND PREMIER: As we look across Queensland and see three quarters of our state having experienced the devastation of raging floodwaters, we now face a reconstruction task of post-war proportions. That is how we are seeing it. And that is the sort of steely determination that it will require to overcome what we have seen in the last three weeks.


QUEST: Now for those people and some of them who came to Brisbane looking for a new life, well, now they saw almost everything swept away in the floods, as Phil Black now reports.


PHIL BLACK, CNN INTERNATIONAL CORRESPONDENT (voice over): When the Brisbane River peaked at a level much lower than was feared, thousands of homes across the city were spared. But tens of thousands were already under water. The people who lived in them are now relying on friends, family, and support centers like this one.

Clothes, food, counseling, childcare, shelter, it is all desperately needed by the flood's victims, especially those who haven't lived here for long. Many of those, seeking help in this shelter, are refugees, foreign students, and others who have traveled great distances to call Australia their new home.

UNIDENTIFIED FEMALE: It was scary. It was a scary-

BLACK: The Simha (ph) family, from India, has only lived in Brisbane for a year. They were forced to flee in the middle of the night as the waters rose around their home. It was among the city's first areas to go under. They have lost a lot, but they don't care.

UNIDENTIFIED FEMALE: I'm more happy about what we have saved. We are all safe together. We have saved our lives.

BLACK (on camera): So where is your house, exactly?

UNIDENTIFIED MALE: This 19, on the right-hand side, 19 Dudley Street.

BLACK (voice over): Returning to their street they find it harder to be optimistic. The water is slowly receding and revealing the mess that is going to be left behind. But it is still too deep, almost head high, so we can't reach their home.

(On camera): If you look at this silt and slime here, this is probably all through your house right now.


UNIDENTIFIED FEMALE: Oh, I can see all this mud on my carpet, on my mattress.

BLACK: The idea of having lost so much, what does that feel like, right now.

UNIDENTIFIED MALE: Nothing is-can't comprehend right now.

UNIDENTIFIED FEMALE: Right now it is un-we can't imagine.

UNIDENTIFIED MALE: It's a big loss.


BLACK (voice over): Back at the evacuation center there are new Australians and the oldest Australians. We met Aboriginal elder Val Kulwell (ph)

UNIDENTIFIED FEMALE: Up to eight feet, in my house, and it was supposed to go higher. But we're thankful the water doesn't go any higher.

BLACK: She says she's not worried about losing possessions either. But she is grieving for those taken by the flood water.

UNIDENTIFIED FEMALE: I'm sad in heart that all of these things have happened to us. Even though it might not be my relatives it is another Australian.

BLACK: Centers like this, across a wide part of Queensland, are sheltering many people who are brought together by disaster, and who now share a difficult future. Phil Black, CNN, Brisbane, Australia.


QUEST: There are a variety of views about how much it will be-the floods will knock off economic growth for Australia's GDP this year. Some believe it could be half a percent, upper limits suggest that 1 percent of GDP could be knocked off.

Well, during the course of the day we heard from the Australian Foreign Minister Kevin Rudd, who spoke to us on the phone from Brisbane. And he said the rebuild would be a challenge, but was doable.


KEVIN RUDD, FOREIGN MINISTER, AUSTRALIA: Well, Queensland, to put it in context is about 20 percent of the nation's economy. And internationally Australia I think is the 12th largest economy in the world, so-and we are of course the world's largest coal exporter, as well as significant source of pastoral agricultural products as well. So what happens here in the rebuild is of significance not just for the nation but also many other countries who depend on what they import from this state.

The good news is that a lot of the mines in central Queensland are becoming operational, or are operational and will continue to be operational. There are about three out of 45 mines that on advice (ph) this morning who have significant problems. But elsewhere, I've got to say we've got a real challenge with the rebuild of public infrastructure, but for us, this is doable. This is Australia, which as the poets say is a land of drought and flooding rains. We are used to natural disasters. This one has been a bit on the big side. But we have it within us to rebuild and rebuild comprehensively.


QUEST: Australia's foreign minister and former prime minister, Kevin Rudd. Now, I'd be remise if I didn't remind you, it is not only Australia that has been hit by huge floods. Brazil is also suffering days of heavy rain have unleashed floods and torrents of mud in the hills in the southern part of the country. Nearly 400 people have died. There have been some amazing rescues.

What you are seeing here is a scene from the town northeast of Rio. Now if you watch with me, you'll see that the woman survives, but the dog, apparently, does not.

In a moment, an unusual edition of "Q&A"; we turn to the serious and tragic mass shooting in Arizona, which will be our focus. It will be a different form of "Q&A". These are pictures of a makeshift memorial outside Tucson hospital, where survivors are being treated.


ALI VELSHI, CNN ANCHOR, CNN NEWSROOM: QUEST MEANS BUSINESS and CNN NEWSROOM, coming together around the world. It is time for "Q&A" hello, Richard.

QUEST: Hello. This is our first time that we've been together in the new year. But each Thursday we do come together to talk business, travel, innovation, on "Q&A". Well, today we are branching out in a very different direction due to the events that have taken place in Tucson this past weekend.

VELSHI: And our topic is gun laws around the world. Richard, let's start with you. You've got 60 seconds.

QUEST: And the gun laws and the point I want to make in this part of the program is really this: Usually major events like Tucson do lead to reform of the gun laws in different countries. Let's start in Australia, for example, where in Port Arthur, in 1996, 35 people were killed in a gun massacre. Now in that case it lead to the federal ban in Australia for self-loading weapons and pump action shotguns.

In the United Kingdom, in 1987, it was Hungerford, and in Dunn Blane (ph) in 1996. In both cases, multiple deaths lead the authorities to ban certain type of shotguns or certain types of self-loading rifles. It doesn't always work that way. Take, for example, Germany which has some of the strictest rules in the world. But still in the last decade, Ali, they have had two scenes of mass murder. It makes you think, what is the relationship between laws and the events?

VELSHI: And in fact, Richard, the rest of the world may be correct in thinking that the U.S. doesn't have those sort of reactions to gun freedom. In fact, gun freedom defenders in the United States go to great lengths in the aftermath of events like these killings in Arizona, or at Virginia Tech in 2007, or in 1999, at the Columbine High School, to point out that these are the acts of mentally deficient, or of loners, or of those with a specific societal or political grudge.

Now, Richard, in fairness to the United States, there have been instances in which tragedy gave a boost to more restrictive laws in this country. The assault weapons ban of 1994, banned the manufacture and sale of certain semi-automatic weapons and high capacity magazines including the 33 bullet magazine used by the alleged Arizona killer. But that ban expired in 2004. A few U.S. states have kept some of its provisions in place.

Now, contrary to what some people in the world may think, Richard, Americans do have restrictions on firearms they can buy, including on fully automatic guns, short-barreled shotguns, some rifles and silencers. But generally, Richard, if you are of good conduct and sound mind, in the United States, you can own a legal handgun after a short background check. And despite how it may look to the rest of the world, this is a right that is under constant debate in the United States, Richard.

QUEST: And it is that right, that Second Amendment right that, perhaps, Ali, distinguishes everything in the United States from the way it is viewed in the rest of the world. And that is why you and I are talking about it today. Now, normally at this point The Voice would kick off our quiz challenge. Of course, today we're not going to do anything like that. Today, because of the shootings in the U.S., which has sparked so much discussion around the world, we're going to look at it in a big more detail, still.

VELSHI: Now, as you said, often there is a lot of confusion and misinformation about divisive issues like gun control. So what we want to do is trade questions between ourselves and answers about gun laws around the world, to educate ourselves a little bit.

Richard, it is a good thing we are not quizzing today, because I probably would have lost. I learned all sorts of things that I didn't know about gun laws around the world. You start first.

QUEST: All right. We are going to start in Japan, Ali.

Japan: Did you know that they are widely considered to have some of the world's tightest firearms restrictions, ultra-strict restrictions. And perhaps that is why the country has sees just a handful of gun deaths annually. A big U.S. study, a while back, put Japan's rate, at 1 per every 2 million people.

VELSHI: As you know about the United Kingdom, come from Canada, so I'll tell you what happens there. The rules are much, much tighter than they are just across the border in the United States. And they can be a little confusing.

In Canada there are three classes of guns and licenses, non- restricted, restricted, and prohibited. Obviously, nobody gets the prohibited ones. Most rifles, shotguns, hunting things are in the non- restricted category. Handguns are either restricted or prohibited, depending on their power. For instance a pistol with a barrel that is shorter than four inches, something that you can conceal, prohibited in Canada. As is any automatic, or converted automatic firearm. Meanwhile, all guns in Canada are subject to a federal weapons registry.

QUEST: One country that is always picked up by the gun lobby, outside of the United States, is Switzerland. Now the Swiss are anything but neutral about their guns. Who would have guessed? Some of their laws are the most liberal in the world. Men between 20 and 34 are required to have guns in their homes, in case they are called up by the army. Other citizens can get guns for hunting and obviously, for fishing and shooting and the like, but they need a license.

VELSHI: That idea of being called up for the army is reminiscent of the Second Amendment, in the U.S. Constitution. Some people interpret the right to bear arms, here it the U.S., as being able to do so to be part of a militia.

Let's go 180 degrees from Switzerland, to Mexico, where we all know gun violence is rampant, especially near the U.S. border. But how about Mexico's gun laws? Some of the strictest, Richard, in the Western Hemisphere. Small caliber guns for self defense or hunting are permitted, but they have to be purchased directly from the Defense Ministry. Prospective buyers are subjected to this background check, and government approval. And it is so restrictive that so many of the guns used in crimes in Mexico, Richard, are trafficked from America.

QUEST: Now, I'm going to go back, right down Australia, in the South Pacific. I referred a moment ago, to Port Arthur.


QUEST: But Australia, as a result of that, cracked down on firearms. You can get the gun license, but only if you can provide what is called a genuine reason that you need one. Self-defense doesn't count, no Second Amendment, for that. No right to bear arms. All Aussie gun owners must also have secure storage for their weapons.

VELSHI: All right. Let's stay in the Southern Hemisphere, then, I'll take you to Brazil. And I have to tell you, I had never really read much about Brazilian gun laws, did today. It turns out the minimum age to own one is 25. Guns have to be registered and kept indoors. Now, technically outdoor carry permits do exist, but they are very, very hard to get. Didn't know that about Brazil, Richard.

QUEST: I'm going off script for a second, Ali. I want to leave you with one fact.


QUEST: -- which I found fascinating. Violent deaths, armed deaths per hundred thousand of the population, in the United States, the number is five. If you take Australia, Germany, France, the U.K., any other advanced economy, the number is about 1 to 1.2 per 100,000.

VELSHI: Interesting discussion...

QUEST: That was it.

VELSHI: -- but it's one that never ends for us, Richard.

QUEST: Remember, you and I are here every Thursday. QUEST MEANS BUSINESS on my channel.

VELSHI: And in the CNN NEWSROOM right here at 2:00 p.m. Eastern. Keep the topics coming for our blogs, and Tell us each week what you want to talk about and we'll see you then.

See you next week, Richard.

QUEST: Have a good week.


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

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

To Brazil, where frantic rescue efforts are underway as heavy flood, rain, mudslides and the like have killed nearly 400 people. Thousands of people have been evacuated from the hardest hit states of Rio de Janeiro and Sao Paolo. Officials fear many more are dead and are buried in the mud. The region has been hammered by heavy rains since the start of the year.

More violence in Ivory Coast, where supporters of the self-declared president, Lauren Gbagbo, set fire to a number of United Nations vehicles in Abidjan today. No casualties were reported. The current head of ECOWAS says the West African bloc is sending a delegation to members of the U.N. Security Council in an effort to end the impasse between Gbagbo and his rival.

The leader of another country in political turmoil, Prime Minister Saad Hariri of Lebanon, has met the French president, Nicolas Sarkozy, just hours ago. Hariri was in the U.S. when his unity collapsed on Wednesday. His parliament members resigned from the cabinet, prompted by a U.N. investigation into the 2005 assassination of the prime minister's father, the former prime minister, Rafik Hariri.

In the next hour, mourners in Arizona will attend a funeral mass for 9-year-old Christina Green. She was one of six people who were killed when a gunman opened fire at Saturday's political event in Tucson, Arizona. President Obama invoked her name at Wednesday's memorial service and encouraged Americans to make their democracy as good as she imagined it.

Tunisia's president said he will not accept any more bloodshed and he addresses the nation on a day of more deadly violence in the capital. President Ben Ali said security forces should no longer use bullets against protesters as local reports said six people were killed on the streets of Tunis just today. The president said he was responding to the demands of people. Protesters demonstrating against high unemployment in the country have paralyzed the capital over the past few days. The president has been in power for 23 years. He says that power should not be for life.

John Defterios from "MARKETPLACE MIDDLE EAST" is with us.

Let's have some frank exchange here John.


QUEST: Proud -- power should not be for life.

Is he saying he's going to step down, do you think?

DEFTERIOS: Well, not -- not exactly. Let's look between the lines here. This is a critical window between now and 2014. If he wanted to run again for a sixth term, he would have to go to parliament or parliament would have to go to him -- here's the subtlety -- to change the constitution for him to run. He doesn't want to talk about it up front right now, in the midst of the protests.

I think -- and you've seen this, also, in Africa, with Lauren Gbagbo, this is a president who's trying to get the upper hand again and he's doing whatever he can to do so.

So, number one, yesterday he promised 300,000 jobs. Number two, he comes out and said what happened in the streets is a crime and not a protest. He set up a committee to combat what the violence was all about, also a committee to address corruption. This has been one of the big criticisms of him lately. After 23 years in power, many say he's concentrated that power for his inner circle and he's -- he needs to be willing to break that up.

QUEST: I have to confess, as I've looked at this story, I still do not understand why now.

What was the spark?

What was the moment that suddenly -- because, obviously, this doesn't happen on a -- a random Tuesday in January.

DEFTERIOS: No, in fact, it's a phenomenal question because -- and this -- the answer is twofold. Number one, a big change here in the youth. About a fifth of the population is now on Facebook. So they have access to information on the outside and means to communicate to the outside at the same time.

Number two, I call it the -- the youth bulge in the Middle East. It's a topic we've covered on our program. They have the fastest birth rates in the world right now in North Africa. They need to create 100 million jobs in the Middle East by between now and 2020.

So despite the fact this president was a reformer, has been reforming the economy for 15 years, it hasn't trickled down.

And it was just that spark that carried over the holiday period and the burning of the student that carried over. And I think it surprised this president. And now, he wants to react. He's removed two cabinet members, as you know.

QUEST: He's obviously trying desperately to -- to -- to put the genie back in the bottle.

DEFTERIOS: Yes, no doubt about it. It's interesting, as well, Richard. We shouldn't limit it to Tunisia only. Algeria had food protests this week. We saw the -- the Christian killing in Egypt, which is creating a lot of tension on the ground. Morocco also has a similar challenge out here -- to get the youth employed.

There was a report from the World Economic Forum this week on global risk and they signaled this particular challenge, youth unemployment and populist unrest.

Let's listen in.


NICK DAVIS, COEDITOR, WORLD ECONOMIC FORUM: The challenge is that if we don't have global governance systems that can -- can come to the party, in terms of being able to deal with that level of interconnectedness, we could see small trigger events of local crises turn into regional or global crises. And -- and that's the real fear that this report expresses.


DEFTERIOS: A couple of other things that the report addresses, Richard, also is access to food at a reasonable price. The president talked about it in his address to the nation tonight. That's what sparked the protests in Algeria. That's what sparked the protests in Egypt last year.

The second issue is that North Africa minus Algeria doesn't have easy access to oil...

QUEST: Right.

DEFTERIOS: -- like the -- like the Gulf states.

QUEST: Gloves off, John, does...

DEFTERIOS: I thought the gloves were already off.

QUEST: No, no, no. I just meant that...


QUEST: No, no. The -- the possibility and the risk that this spreads and there's a contagion into other countries, realistic or not?

DEFTERIOS: No. Realistic in North Africa. They -- they do have a problem at the bottom of the -- the pyramid for...

QUEST: Which ones...

DEFTERIOS: -- for youth.

QUEST: -- which countries?

DEFTERIOS: To -- to put myself on the record on this, Tunisia has the problem. Algeria has the problem. Egypt has a presidential election at the end of -- of this year. It's a big challenge there. Morocco, again, another reforming nation, as well as Egypt. They need to create the jobs and fast.

QUEST: John...


QUEST: -- many thanks, indeed.

DEFTERIOS: Thank you.

QUEST: John Defterios, "MARKETPLACE MIDDLE EAST," with the expertise on that.

Victory for victims of Bernie Madoff's Ponzi scheme. A judge has approved a settlement -- billions of dollars now stand to be paid out.

Who's going to get it?


QUEST: It's a significant day for thousands of victims of Bernard Madoff's Ponzi scheme. A bankruptcy court judge in the U.S. has approved a major settlement worth billions of dollars. Essentially, the trust in bankruptcy got the money in, and now he can start paying it out.

Maggie Lake is in New York.

How much money is in this pot that the card can now start paying out?

MAGGIE LAKE, CNN CORRESPONDENT: Almost half of the estimated losses, about $10 billion total, Richard. And you'll remember when this happened, many people thought it would be impossible to get anything back or -- or it would take so long to untangle this very complicated web.

Irving Picard himself, the trustee, saying that this is a great day for victims.

This latest bit, the $7.2 billion settlement with the estate of Jeffry Picower, who you'll remember was one of Madoff's biggest investors, it was first announced in December, but it was approved today by a bankruptcy judge. Picower had withdrawn almost $8 billion from Madoff's firm over the years, following investments of only about $600 million.

Now, this settlement, as I just mentioned, brings the amount to about $10 billion that Picower estimates -- his estimate, the trustee, rather, Picower had been lost.

Now, this has been called one of the largest recoveries of assets of its kind in U.S. history. So this is landmark. In fact, there are more than 2,300 people, a little bit more, who lost money during the Madoff Ponzi scheme, who have been waiting for this news. And they will be receiving money back because of this settlement.

But it's important to point out, Richard, not everybody happy about this. A group of some investors whose claims have not been validated...

QUEST: All right...

LAKE: -- by the trustee, Irving Picard, objected. They tried to block this, but the judge went ahead and approved it anyway.

QUEST: Let's talk about that. I looked at -- it's something like 10,000 claims have been dismissed or rejected by Picower.

Why should that be the case?

LAKE: Yes. This is -- this is such an emotional issue for so many of these people. Basically, Picower looking at this said, right -- in many cases, these people withdrew more than they put in, which means in a lot of cases, they were kind of the last into the pyramid. Withdrew more than they put in or their money was invested through feeder funds. He didn't consider those valid in this case. He had to be really tough about the standards.

They are saying, hey, listen, we had a statement saying we have this much money. We based our life on that. We made decisions based on that. That's how this should be considered. And Picower saying, no, it's not. It's about the principal that you put in.

But to listen to these people, they really consider themselves victims who are getting the short shift. Picower doesn't see it that way.

QUEST: It's fascinating because what -- essentially, if you actually made money out of the -- out of the -- the whole Madoff scheme, you took out more than you put in, you're -- you're barred from it. But the whole thing, Maggie, was designed to make money. People gave him money to make money.

LAKE: But the whole thing was a pyramid. And these people don't -- don't seem to be able to grasp that. And I think it shows, even when you're talking about people who -- who are supposedly sophisticated, they really believed this was a real investment.

The other thing you and I, Richard, know, paper gains are not real until you sort of liquidate them. Just because you get a statement doesn't mean it's -- it's sort of -- so that there's so much confusion.

But these people are angry and I'm sure they're going to continue their legal fight. But for the victims, those 2,300 some odd victims who are validated, they're going to start getting their money.

So this is -- this is going to continue to be fought out in the courts, for sure.

QUEST: Absolutely. The lawyers will win.

All right -- in some shape or form.

Maggie, thank you very much.

Maggie Lake is in New York.

I'm told it's steam that's behind her that's blowing up -- steam from our arguments and our discussions everyday. I think that's why the building is on fire behind her. No, I assure you, it isn't. It isn't.

OK, now, when we come back in just a moment, we will have a Profitable Moment, of course.

But we still need to turn to Pedram for the world weather to find out what's happening there.

PEDRAM JAVAHERI, CNN METEOROLOGIST: Yes. We're going to be talking about what's happening across South America, Richard. Earlier, you discussed here the current events out across portions of, say, Brazil, Rio de Janeiro and also Sao Paolo, getting some very heavy rainfall. But it's not just the heavy rainfall, it's the amount of time they saw this rainfall in. And, again, the satellite-based estimates here, up to 100 millimeters of rainfall the last couple of days in Sao Paolo.

But we think a lot of this came in over, a, say, five or six hour period of that rainfall coming down and just since January 1st. They've seen rainfall here for over 13 straight days. And since January 1st, they've picked up over 300 millimeters. The average monthly rainfall is about 240 millimeters of rainfall.

But the good news as far as the flooding concerns, the heavy rainfall still in the forecast for only a few more hours. And then it begins to push offshore. And I think the early portion of the weekend here, we're going to get isolated thunderstorms. It is the summer season. So some of those summer variety storms in place here over the next couple of days.

But overall, the heaviest rain, again, you can see the concentration as it begins to push offshore a little bit. And we can see about five to six or so centimeters possible here the next 24 to 48 hours. And, of course, the devastation left in places, some of those communities around Teresopolis in Brazil, showing you some of the areas that have been inundated here, as the water has taken over some of the communities.

And even the mayor of this community saying that it feels like an earthquake has gone through because of what's happened across this area. And the folks -- workers down there are getting some rescue, perhaps, underway. And you can see, a very dangerous place to be, as some of the rainfall is still forecasted to fall over the next few hours.

And over in Australia, some better news for what's happening in Queensland. Right in the southeast corner there, were some of the problems have been in place near Brisbane, the weather is beginning to quiet down there. But a storm system does begin to shift its attention to the south. So Melbourne and Victoria, some heavy rainfall possible over the next couple of days.

But, again, we think some thunderstorms could pop up in the afternoon, giving you some light to moderate rain showers. But the concentration of the heaviest rainfall is going to shift its way across to New South Wales. And that's the more improving news for Queensland right now.

But how about across Europe?

Take a look at this. That's the jet stream. Very cold air directly above it. We're talking about mild temperatures coming in across Western Europe, about five, six degrees above average for a few spots. And a mild air mass going to remain in place, of course, about a month ago right now, we were talking about heavy snowfall across Western and Northwestern Europe. Right now, it's just some rainfall in your forecast here, with the coldest temperatures working their way toward portions of Russia over the next couple of days.

But look at these readings. We're talking London with some rain showers. Temperatures at 11. The average is about eight degrees for this time of year and the warm temperature is going to continue. But the problem with this, Richard, is that, of course, being so warm and having some ice and snow on the ground, the rivers now are beginning to overflow. The water here is beginning to come down across much of the areas within Western Europe -- Richard.

QUEST: All right, many thanks, Pedro, at the World Weather Center.

Now, Russian investigators say a Polish plane crew was to blame for the crash which killed their president. The crew ignored repeated warnings about bad weather before attempting to land at an air drome near Smolensk last April. Investigators said that they should have diverted to another airport. Nearly 100 people died in the crash, including the Polish president, (INAUDIBLE) Kaczynski and his wife. The party had been on their way to -- for a service to commemorate a World War II massacre in the village of Katyn.

So, the report, which is more than 170 pages long, goes into what goes -- what went wrong. The plane was trying to land in thick fog. It went too low and hit a tree, which took off part of the wing and then the plane turned over and landed on its top.

The report identified a number of shortcomings, including insufficient training for landing in bad weather. Specifically, it says the crew were under psychological pressure. The presence of a Polish Air Force commander in the cockpit. Tests showed he had a drink and was over the legal limit to drive.

They all feared that President Kaczynski would react badly if the plane was diverted. It created what the report calls a clash of motives for the pilot in command.

Finally, Mr. Kaczynski -- Lech Kaczynski's twin brother -- has called the Russian inquiry biased. He said there's no proof and no answers to the most important questions.

Coming up after the break, no taxation without emigration -- workers have chased the American dream for centuries.

So now, why are more people giving up their U.S. passports?


QUEST: So, the phrase is give me your huddled masses yearning to be free. You might as well also say yearning to pay taxes, as well. Millions of people around the world would go a long way to get a U.S. passport. But for U.S. citizens living abroad, giving up the American passport, while rare, is getting that little bit more common.

Why on earth would you do that, I hear you ask?

The answer -- expats, U.S. taxes on expats over $91,000. U.S. expats are taxed on worldwide income. They pay taxes in their new countries and they pay taxes, of course, on their U.S. -- within the United States to the IRS.

The United States is the only industrial country that has worldwide taxation. Five hundred and two U.S. citizens gave up their passports in the last quarter of '09, more than double the number in the previous year. And the waiting list at embassies to renounce citizenship is growing even bigger.

Giving up citizenship means needing a visa to return like any other foreigner.

So, once you've flown out and you've got rid of your passport, you go to the back of the line when it comes to giving up or to getting back into the United States.

Is it worth it for all these reasons, just to get rid of worldwide taxation?

Richard Goldstein is a lawyer who specializes in this devilishly complex area of visas in the United States.

And I asked him if the rising numbers really showed a trend of people giving up the American dream.


RICHARD GOLDSTEIN, SENIOR PARTNER, GOLDSTEIN & LEE: If one looks, for example, at 2008, we had about 235 Americans who expatriated or renounced their citizenship. If you look toward 2009, the numbers went up to 743. 2010, we don't have final figures, but it appears to be about 1,200 to 1,300.

So there is a substantial increase. Maybe that's the result of increased concern about income tax payments or estate tax planning. Maybe it's the result of the notoriety that it's being given by the press.

QUEST: When you have a client who says to you, ah, yes, well, I'm thinking of doing this for income tax reasons or -- or I'm thinking of just doing it because I don't live in the U.S. anymore, what caveat do you tell them before they go ahead and do it?

GOLDSTEIN: Well, the -- the first thing I do is tell them not to make an immediate decision. I'm American born, although I live in the U.K. and I'm a dual national with U.K. nationality, as well.

But my primary allegiance, my primary core of life is American. And as a lawyer, I do not like to see an American give up their American citizenship.

We warn them, in effect, if they do do this, there may be tax consequences by virtue of U.S. tax law, which may deem it appropriate to ask them to pay what we call an exit tax if their assets exceed $2 million...

QUEST: Right.

GOLDSTEIN: -- or, alternatively, we may point out to them that it's going to limit their ability to live and work in the United States in the future once they give up their citizenship. Too many Americans tend to believe that if they give up their citizenship, they will be reduced down to permanent resident status, when, in effect, when you give up your citizenship, you are the same -- in the same U.S. immigration status as anyone anywhere in the world who may need a visa or need -- need to travel to the United States, pursuant to what we call the Visa Waiver Program.

QUEST: Now, finally, as you looked at this and when you realized the numbers were starting to, albeit increase from a -- a low level, were you surprised, Richard?

Did you think, hang on, this is interesting, there's something going on here?

GOLDSTEIN: You have to remember, as well, Richard, that lots of people in this world have acquired American citizenship by accident. They were born in the United States. Birth right citizenship, as you know, is a very controversial issue right now.

But not everyone who was born in the United States wishes to remain an American citizen. And very often, we see people who -- who were born in the United States, left at a very early age with their -- with their parents, went to live overseas, in Europe or in Asia, deemed themselves to not be American, despite the fact they're American-born. Their lives and their center of gravity is European or it's Asian and they view themselves as European or Asian and not American. And they're carrying the American passport simply by virtue of birth and are deemed to be U.S. tax resident for worldwide purposes as a result of that.

There is, therefore, the inconvenience, sometimes, to people of being a dual national and needing to travel with multiple passports.



QUEST: Finally tonight, it's worth reminding you how you can get in touch with this program and continue the dialogue both ways. The e-mail address is And, yes, I do read all the e-mails that come to

Or the debate can go on through Twitter, @richardquest is where you can get hold of me on there, @richardquest, and we can carry on talking to each other.

Over the next few weeks, we will continue talking and having a discussion.

That's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

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

Good night.