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Ratings Agency Angst: S&P Calls Greek Bond Swap Just Another Name For Default

Aired July 4, 2011 - 14:00:00   ET


RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: Roll over, give over, S&P stays it is a default in all but name.

100,000 pounds, three year's experience and no experience, we meet the man risking his own money on 15 rookies traders.

Also, fasten your seat belts. I take to the Valencia Grand Prix circuit in search of a future city.

The start of a busy new week. I'm Richard Quest. I mean business.

Good evening.

You know the old saying, if it walks like a duck, quacks like a duck, looks like a duck, well, it is probably a duck. Or in the language of S&P and the financial markets-default. The ratings agency has decided, S&P says it is putting a black mark on French plans to roll over on Greek debt. Perhaps jinxing the deal even before it has begun, because if, as the S&P and other rating agency believe, all these plans count as a big D, it is game over. For Greece it means more misery at the hands of the ratings agencies.

In the library I'll show you what I mean. We have had a ratings downgrade. Junk territory, CCC, triple C. Now the latest ratings cut from S&P goes from B to triple C, and what CCC means, a real risk of default. Pressure is now well and truly on the various restructuring plans. Because Moody has already said a soft restructuring, that is where existing maturities are pushed into the future would be a default.

Now the idea that you exchange existing bonds when they mature for new ones, with a premium against insurance, the so-called roll over, well, it is known as the French plan, that is also now being said by S&P to probably be the a default. The deal to reinvest money for maturing bonds is not going to work.

So the French bank plan likely, a default. And that, of course, leaves investors with losses, because in both cases everybody says what is really behind all of this is the sale or reorganization of distressed assets.

Jan Randolph is the director of sovereign risk at IHS Global Insight.

When S&P said it was probably a default, they effectively pulled the rug out, didn't they?

You have to be very careful here. The rating agency provides a credit opinion. What they term as default, they have certain criteria. What they are saying-what they are suggesting here is this roll over is putting-is actually putting the banks in a material impairment. Should they exchange one set of contracts for a new set?

QUEST: Right?

RANDOLPH: Now, what they decided constitutes default is not necessarily legal opinion. Now, if you hold the CDS (ph), insurance against default. You would have to go to the courts to validate that.

QUEST: But you would be very strong evidence, wouldn't it, if all three rating agencies dropped to SD, selective default, then triple C, then-


QUEST: Then it is game over?

RANDOLPH: Not necessarily. The legal-they would have to-the legal opinion is much more important than the credit opinion here. What the lawyers see is a mutual and voluntary exchange of contracts, replacing one set for another. OK, it may involve material impairment. But they are not concerned about material impairment. They are concerned about breach of contract. Now, if you exchange one set for another, on a monetary basis, you need not have legal default.

QUEST: Right, I just need to just explain to the dear viewer: What this is all about is the moment you go into default territory, the CDS, these credit default swap, come into play. This is the insurance that basically is backing the market at the moment. There were several pillars to the restructuring or the dealing with Greek debt. We had first of all, the EU, well, they have to have it (ph), along with the IMF. We have the austerity package, that was the first rule that came along. But the private sector involvement, which the Germans are so keen on.


QUEST: It is looking-it a Gordian knot of difficulty.

RANDOLPH: Well, the Germans have taken a principled stand here. In the sense that, you know, every financial crisis merely erupts, it is the public sector or the taxpayer that carries the can, of risk burden; and the Germans are saying, this is not fair. You know, those who have borrowed so much should be held accountable. Those who lend too much should also be held accountable. That is the new law coming in 2013.

QUEST: Does this sit-does the financial world accept that if there is a restructuring there, I mean, the equity and the fairness of it. They have to take part in it. The mezzanine debt, and senior debt cannot be left sailing on majestically by.

RANDOLPH: This is for the future. I mean, the Germans-this is German pay back after having contributed the most, stumped up the most money, when the Greek crisis first broke last year in March. They said, we have stumped up the most money. This is our payback. We want a debt restructuring mechanism in 2013.

QUEST: All right. Let me ask you, and you can plead the Fifth, as the Americans would say, particularly on Independence Day. Happy Independence Day if you are an American and watching us.

Does-in your mind, does either the roll over or the soft reprofiling, does it look like default?

RANDOLPH: It is a polite way of saying default. But it buys necessary time, but they haven't done enough to save Greece.

QUEST: It is going anyway?

RANDOLPH: Well, there will be some restructure. But the Germans want it in an orderly fashion, with private sector involvement and give enough time for Greece to do some surgery on its economy.

QUEST: Many thanks indeed for joining us.

Now, Italy's market regulator wants answers from the agencies as to why they issued warnings on its economy. And it is not just Italy that is concerned about the crisis on the Continent. Becky Anderson talked about the state of Europe's finances with Britain's foreign secretary William Hague.


WILLIAM HAGUE, FOREIGN SECRETARY, GREAT BRITAIN: I always argue many a time that it would lead, the euro would naturally lead, either it would great a political union or it would experience many difficulties. Well, now we are seeing (UNINTELLIGIBLE), but the important thing is for countries to address their budget deficits and have their own finances under control. We are doing that here in the United Kingdom and we look to it that ever other European country to do the same.

BECKY ANDERSON, CNN INTERNATIONAL ANCHOR: Last question: Jean- Claude Juncker, chair of the Eurozone finance ministers, has himself said the bailout means the sovereignty of Greece would be massively limited. Do you see the limitation of sovereign states, certainly so far as their economic policy is concerned (UNINTELLIGIBLE).

HAGUE: Well, yes, certainly countries that become heavily indebted to others, need bailouts, or any sort of from the IMF, the Eurozone, are limiting their own sovereignty. They are limiting their own sovereignty. They are heavily in debt. Their economic actions are limited and that is determined outside those countries. So, that naturally happens when a country gets into such difficulties. And it would have happened here in Britain had we not had a change of government.


QUEST: The British Foreign Secretary. You can see the full interview with William Hague on "CONNECT THE WORLD" it is just two hour from right now.

Overall, European markets managed to dodge the default worries. At least they did for today. Of the big three, only Paris was down. Banks across the Continent struggled on all the sessions. Lloyds', RBS, Soc Gen, Agrico, all, shed more than 1 percent. The benchmark index in Athens was off slightly as well.

No trading today, it celebrates Independence Day.


A lot of investors like the look of emerging markets. What we want to know is what are the folks with trillions of dollars doing with their money right now? Where are they putting it? We will show you what their views are after the break.


QUEST: QUEST MEANS BUSINESS: The big players are putting their money-it is a big question. And we are not talking about you and me and what we might put into a sock under the mattress; the asset managers with a combined $29 trillion under management. The recent Create (ph) Report, asked them which strategies are doing the best business. We sat down with the chief of the Principle Global Investors, sponsors of the report. I asked Jim McCaughan, the chief executive, what are the goodies?

JIM MCCAUGHAN, The goodies in the view of investors and of the investment managers are the ones that have steadily provided superior returns by discovering different investment areas.

QUEST: What does that mean?

MCCAUGHAN: It means high yield bonds. It means emerging markets, both equity and debt. And remember those areas are actually relatively new and are still going through innovation at the moment. But bonds are not new. They have been issued from the Bank of England since the year dot. So how can you say emerging market bonds are an innovation?

MCCAUGHAN: They are an innovation, in a sense, that until very recently, certainly the last decade, and really the last four or five years, most private sector emerging markets bonds were issued in dollars. We are now in a situation where there is cross-border issuance in local currency. And that is actually a new market that people are getting their heads around. It is a new way of cutting up the investment universe.

QUEST: The biggest baddie, for innovation, seems to leverage.


QUEST: Which is a posh way of saying, take $1 and spend $5.

MCAUGHAN: Yes, that is true and when you do that it usually turns out badly. And there have been many examples of that, from the Lloyds' market in the `80s to stop lending, to CDOs. And every time people have excessively leveraged, they have ended up, when things get choppy, they have ended up loosing their shirt.

QUEST: So why do they still do it?

MCAUGHAN: Because they are chasing performance. And one of the things I hope will happen, and there are signs in the survey that it might happen, is that people will be chastened by having the bad experience of excessive leverage during the financial crisis. I will give you an example, we are a large U.S. commercial real estate manager. During the period 2005 to 2008, we would get clients and even our own sales people coming to me saying our product range is wrong. It is old-fashioned. It needs more leverage, it needs more speculative buildings. We said, no. This is steady investment, which long term will do quite well.

QUEST: The point of those things, though, too often innovation is proven to be wrong in hindsight.


QUEST: When everyone is making money, the train is roaring down the tracks. Everyone is very pleased.

MCAUGHAN: Everyone is very pleased but they are about to hit the wall and discipline occurs, and discipline involves not doing the thing that looks very good for a year or two, and then happens disaster.

QUEST: Jim, how do you know that at the time? I mean if we all knew that, at the time, a lot of people were paid a fortune to know that some of these things that you are talking about, structured products, portable alpha, currency funds, leverage. They were telling us these things were rock solid safe.

MCAUGHAN: They were getting paid a lot of money to do it and that made them conflicted, and they were encouraging clients to invest in it. That turned out badly. You need to look at ways to make the investment manager the fiduciary who is worried about the client's good, and not conflicted by their own short term gain. That involves things like different comp structures, different fee structures. It involves-

QUEST: Ethics.

MCAUGHAN: Ethics. It involves clients doing a bit of analysis.

QUEST: Right.

MCAUGHAN: And being afraid and skeptical of many of the things they hear.


QUEST: Jim McCaughan talking to me earlier on the question of investment strategy and the exotics.

U.S. Treasuries are the very safest of investments. That much has always been the case with their triple A rating. The debate over the U.S. debt ceiling keeps running and now it is costing Congress a much anticipated holiday break. The very question of whether that triple A could be lost, or there could be a technical default. The country's debt ceiling is currently exceeding $14.2 trillion. If President Obama gets approval to raise it further he will only be following a long-standing tradition. CNN's Christine Romans explains from New York.


CHRISTINE ROMANS, CNN FINANCIAL CORRESPONDENT: Congress is giving up its July Fourth holiday recess to get back to work tomorrow on the nation's budget deficit. If the debt ceiling isn't raised by August 2, the U.S. Treasury won't be able to pay all of its bills. We've been here before, but never quite so close to default.

Take a look at this. Since we've been accumulating a big national debt, Congress has raised the debt ceiling just 78 times, since 1960 alone. Since the nation's debt reached the $1 trillion mark in the early 1980s, government borrowing, look at this. Look at how government borrowing has skyrocketed, climbing really at an exponential rate.

Right now, the debt ceiling is $14.2 trillion. That is a lot of money. But how is that in relationship to how big the economy is? It's about 95 percent of the size of the whole economy. We're fast approaching rates not seen since way back in World War II and the Great Depression, when the size of the debt limit and the national debt was actually bigger than our GDP. This is what economists called a debt crisis.

The bottom line, America runs by borrowing money. Right now, for every dollar the American government spends 38 cents of that is borrowed money. If the debt ceiling is not raised in time, the U.S. could default on some of those payments. That's the last thing we need, recovering from a recession. Christine Romans, CNN, New York.


QUEST: Lots of the word D, "default", around tonight. Ahead, after this short break, the Spanish city that is savoring its own sporting success.

On QUEST MEANS BUSINESS, after the break. How Valencia is pushing to be more than Spain's third wheel. With events like Formula One, the city is on the mend.


QUEST: The toast of F1's world right now. This is Sebastian Vettel winning the European Grand Prix, in Valencia last week. Well, that is him drinking the champagne, that is, of course, him winning the actual race. For motor sport fans the European Grand Prix at Valencia is one of the 19 on the F1 circuit this year. And as you will know, I am always partial to pop along and watch a bit of F1 myself. Now they move in for the weekend. They move out again, and they leave a legacy long after the champagne stops flowing. For Valencia the Grand Prix is a window to the world; a perfect opportunity to show what this city can do. I traveled there before the race to look at what goes into hosting the F1 and an event of this scale. And to discuss with those there, the costs, versus the benefits.


QUEST: (voice over): Once a year Spain's third largest city sits in pole position. On Formula One weekend half a billion people set their eyes on the street circuit of Valencia, for a high-speed spectacle in the sun.

Valencia hasn't always been so fortunate; 20 years ago the world took little notice of this seaside city. The election of Mayor Rita Barbera brought change. She is widely credited with transforming the city.

QUEST (On camera): So when you became mayor, 20 years ago, what was your number one priority.

MAYOR RITA BARBERA NOLLA, VALENCIA, SPAIN (through translator): I found this city apathetic. A city that had natural beauty but needed a little push.

QUEST (voice over): The America's Cup provided the desired push. Valencia hosted the world's most prestigious yachting even in 2007. And that put the city, and its waters, on the map. Having had a racing success, the mayor and her team worked to bring further landmark events to Valencia's marina. A contract was signed with Formula One's Bernie Ecclestone. Nine months later Valencia had its own F1 circuit.

Time for a flying lap in James Bond's preferred car, the Aston Martin, before the circuit is closed off for the race.

(On camera): Beautiful car. You are going to drive it?


QUEST: Right.

(Voice over): With tops speeds above 300 kilometers an hour and Valencia's landmarks as a backdrop this race course stands out from other purposeful tracks. Turning a city into a circuit isn't easy.

(On camera): They won't have all these pesky traffic lights to worry about during the F1.

PEDRO HERNANDEZ, ASSEMBLY MANAGER (through translator): Our main objective is to inconvenience the city as little as possible during the preparations. We do that by only closing two roads in the week leading up to the race.

QUEST: This makes the physical assembly, the circuit, all the more (UNINTELLIGIBLE). In the two months leading up to the race 14 grandstands are constructed. Five ton concrete slabs are installed to mark out the track; 60 tires are brought in from used car lots around Spain, to create safety barriers. And five kilometer of track are painted in Valencian colors. Spanish media has set the annual cost of the race, including the fee to Formula One and assembly of the track, to be around 30 million euros.

FACUNDO GARCIA, VELMOR SPORTS: It is not cheap to make a circuit like this, but if you don't forget and I have to explain to you, that we are being seen in over 150 countries all over the world. If we consider that investment is all the big event that Formula One means, I can tell you it is really very cheap.

QUEST: It is difficult the gauge the value of such publicity. The race's affect on local business is quantifiable. And the critics of the race say its economic impact is underwhelming.

JOAN CALABUIG RULL, POLITICIAN: I think this race is interesting, but only for a few days. I have had meetings with leaders of (UNINTELLIGIBLE) in the city. That people who have hotels here, the restaurants, and they say we have had big investments here in the city, but only for a few days, when this Formula One will finish, the problems of the city will remain, and this is the reality.

QUEST: Seen from a wider perspective, F1 is more than just a weekend's worth of business.

JOSE SALINAS, VALENCIA TOURISM: Formula One is not only a race, it is technology, it large companies that are behind it. There are sponsors who are behind it. There is corporate business, there is incentive business. There is conventions from the companies. It is not only the race, it is a lot of side business that goes throughout the year.

QUEST: Valencia has an event other cities of its size and scale could only dream of hosting. An event that could inspire even me to get behind the wheel.

(On camera): This is the closest I'll ever get to being a Formula One driver.


(voice over): Racing in miniature. Thankfully, Valencia is more hopeful that its big ventures will continue to pay off long after the checkered flag is waived.

NOLLA (through translator): If you don't take risks, you won't win. And Valencia is winning. So these big events, a catalyst of progress, of development, of the future, you can't put a price on that.


QUEST: Valencia and a "Future City" more from Spain's third largest city, next week. After this short break, a challenge: Can 15 rookie traders turn a profit with someone else's money? We'll be talking to the man behind the experiment, after the break.


QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN and on this network the news always comes first.


QUEST: Tonight, it is all about the tools of the trade. The big question: Can anyone make money if they are given the right tools? Now this idea has long inspired investors and all kinds of dreamers, including filmmakers. In a moment my guest tells me about a multi-million dollar experiment to try and prove the theory. When I heard about what was happening it reminded me of the film, "The Million Pound Note". As this scene shows, from 1953, Gregory Peck discovers he has been given a million pounds, but he doesn't know it is part of an experiment.



GREGORY PECK, ACTOR: I don't suppose a couple of minutes would make any difference. (OPENS ENVELOPE, FINDS MILLION POUND NOTE INSIDE)


QUEST: That scenario is a reality today for 15 novice traders. The money they are getting is a little bit different. Here is the deal; 8,000 wanted the gig and 15 were selected. So, you-listen, my math is pathetic, you work out the ratio. Tweet me at RichardQuest; 15 selected out of 8,000 applicants. You can see why I neither applied, nor was accepted. They have got three years to prove themselves. Now, Mike Baghdady is the man behind this and he joins me now here in the studios.

Mike, we can see, the recruits have got three years.


QUEST: And you have given them how much money?

BAGHDADY: Each is getting 100,000 pounds.

QUEST: 100,000 pounds?


QUEST: When you handed over that-first of all, how did you choose, out of the 8,000 or 9,000, who was going to get this?

BAGHDADY: We did a series of tests. The first test was the written test, and then after we went through a psychological profiling, if you will, to make sure that they have the right temperament to become a trader. And then we did the final interview and we offered the 15, the job. It's a job.

QUEST: And did you-did you get your hands dirty in choosing them?

BAGHDADY: I always get my hands dirty.


QUEST: I suppose what I am saying is, you did this psychological profiling, you did all of this other stuff. But, you know, you are a man who has made millions, so you know in your gut if they've got it.

BAGHDADY: Well, to succeed in trading or getting involved in the market, the key is training the trader, training the trader, and training the trader. You cannot teach the trader. You must train him.


BAGHDADY: So I had to find out that these are trainable people. People I can work with every single day for the next three years.

QUEST: I disagree with you on one thing.

BAGHDADY: What? That's what makes it a market, by the way.


QUEST: Absolutely. Absolutely. I disagree with you. Traders have to learn the mechanisms of trading. But traders are born. And it doesn't matter whether they are trading fruit and veg in the market, fish in the street, or stocks and shares. It is a mentality.

BAGHDADY: And that is what the experiment is all about. Is it nature or nurture? You say nature, I say nurture. I can nurture anybody to become a successful trader. I am staking my reputation, my legacy on it. Anybody can come to us, I can train, and we can make him a trader.

QUEST: But you have chosen people who are predisposed to being good at it, by your own admission.

BAGHDADY: No, I choose people that are predisposed psychologically, but they have no idea what trading is all about.

QUEST: Ah, that is mechanisms, that is nuts and bolts.

BAGHDADY: No, no, I mean, I have a who doesn't know what long is, or short is.

QUEST: But the simple-

BAGHDADY: He hasn't seen a chart before.

QUEST: No, but he could trade anything. He could trade gold, he could trade commodities, he could trade fruit and veg.

BAGHDADY: Absolutely. That is what I am going to train him. As long as we can plot it for the chart, we can trade it. The can trade shish-ka-bob for all I care. I will train them to do that.

QUEST: Have you taken anybody completely randomly, as a control, just to see if it is going to-

BAGHDADY: Everybody is a novice in this group. Nobody is a professional. I have about three-I have two FX dealers that came in. But everybody else is completely no experience.

QUEST: Just going to pause for one second, because whatever nerves of steel, or whatever analogy you want to make about trading-look at these pictures that are coming in to us now. These are the astronauts arriving for the final flight of the Atlantis Space Shuttle. They are just arriving, at the moment, in Florida, where of course, the final preparations will take place. We'll have more on this in a moment, when we get to see them. It is the last shuttle flight, of a multi-decade program that cost hundreds of billions of dollars. And the launch, of course, is done Friday July 8. It is at 11:26 local time. Look, I'll tell you more about this in a moment.

I want to come back to Mike, because this is just as fascinating. OK, so when they do their trading, their training, can they trade anything?

BAGHDADY: Absolutely.

QUEST: Derivatives?

BAGHDADY: Absolutely.


BAGHDADY: As long as it is chartable, yes.

QUEST: Chartable?

BAGHDADY: As long as can see it on the chart, and apply the rules that we are going to give them, then they can trade it.

QUEST: What is the number one rule that you are telling them?

BAGHDADY: The number one rule, you have heard the term, buy low, sell high?

QUEST: Well, that is-I mean-yes.

BAGHDADY: And that is why 90 percent of the people in the market loose money. The idea is not buying low and selling high. The idea is to buy high and sell higher. You need to have sufficient demand. When I buy something today, it has to be strong, it has be excitable, in demand, so I can turn around and sell it to you, so I can take my profits.

QUEST: You see, I discovered a long time ago, that I couldn't sell water in the desert. Simply couldn't do it. I can tell you why Greece might or might not default, but I cannot sell. I've got no trader instinct.

BAGHDADY: And it is not instinct it is rules. If you know the rules-can you drive a car? I'm sure you do.

QUEST: Yes, I can. Not very well, but-

BAGHDADY: Exactly. By being trained, if I train you then you can be aggressive.

QUEST: Right. So, here we go. It is a three year experiment, correct?


QUEST: So, you put 1.5 million up?


QUEST: 12 months from now, what do you hope that 1.5 million will show?

BAGHDADY: I hope I can make it back.

QUEST: So, what? 3 million?

BAGHDADY: The idea of me doing this, this is a business proposition.

QUEST: Right?

BAGHDADY: I'm not doing this for philanthropy, this is a business. I know that we can train the traders. They can become successful.

QUEST: What is the most-what is the most unusual trader that you've got?

BAGHDADY: The most unusual-

QUEST: From the 15?

BAGHDADY: From the 15, ah, I have a housewife.

QUEST: Right?

BAGHDADY: I have two poker players. I have a taxi diver, cab driver. And we have a guy who is unemployed.

QUEST: Finally, Mike this is fascinating. We're going to follow this closely.

BAGHDADY: I wish you would.

QUEST: Finally, Mike, have you got a secret suspicion, or feeling, you know who is going to do the best? You don't have to tell me who it is. Just give me your own instincts.

BAGHDADY: I have to tell you, I have been doing this training for many, many, many years. I always get pleasantly surprised.

QUEST: Fine. I'll give you a nasty shock.


QUEST: If you'd like to give me 100,000 I guarantee you-

BAGHDADY: You are going to loose it?

QUEST: Well, hey.

BAGHDADY: If I train you I'll get it back.

QUEST: I'll have fun. I'll have fun, but I'm not sure you'll like the surprise at the end of it.


BAGHDADY: Thank you. Thank you.

QUEST: Many thanks, indeed.

Let's stay with those pictures for real nerve wracking stuff. These are the astronauts who will be going up on Atlantis. They are at the Kennedy Space Center. They have just arrived ahead of the final shuttle program.

You know, we've already said good bye to Endeavor and Discovery, and now Atlantis is the last one. It just often perhaps as if there has been so many, a bit like an opera singer, who refuses to go until the curtain finally comes down. But this is the last one. A 12 day mission. I'll tell you more about it after the break.


QUEST MEANS BUSINESS, good evening to you.


QUEST: The crew of Atlantis arriving at the Kennedy Space Center, ahead of the shuttle program's last mission, now talking.


CHRIS FERGUSON, COMMANDER, ATLANTIS SPACE SHUTTLE: Speak again for everyone when I say that we'll be very proud to put the right hand bookend on the space shuttle program. With that, I'd like to introduce to my left, the pilot, Doug Hurley. Doug is a colonel in the Marine Corps, and F18 pilot. As veteran of single space flight SDS 127, comes from Upstate New York, and a graduate of Tulane University-Doug.


Good afternoon, everybody. Thanks for coming out. I guess we got the typical Florida hot weather for us this week. On behalf of the crew, we'd really like to thank the folks here at Kennedy Space Center. This is where we come to fly the vehicles and ideally where we come back to. And especially we want to thank the team that processed Atlantis for her last flight. They have worked very hard. They have had a very short flow and we can't thank them enough.

We are so very proud to be here, sharing our nation's birthday with you all and the folks here at Kennedy. And we just want to honor the entire Kennedy team that has worked on these magnificent machines over the last 30 plus year.

To my left is our Mission Specialist 1, Sandy Magnus. She is the veteran of two space flights. One on SDS 112 back in 2002. And then she had four and a half months on the space station a few years back. So she is our station expert. And her biggest task is as load master on this mission. We've got of stuff to bring up to station and then bring home. She has a Ph.D. She is from Missouri. And she has been so great to work with-Sandy.

SANDY MAGNUS, MISSION SPECIALIST 1: Thank you, Doug. It is great to see everybody here again today. I feel like we are all part of one big family since we've seen a lot of you guys during the training flow. And we've talked in the past with you about how we are the tip of a very large iceberg of people involved that get missions ready. And 99 percent of the success of any mission is in the planning. And this particular mission our biggest challenge is logistics. And we have had a great team putting together not only what we should take and bring back on the MPLM, but also how we are going to handle it on orbit, all the transfer involved. All of the complicated, you know, move things from point A to point B, without losing anything. And keeping it all organized. And I just want to take a moment to thank all of those people who have already put so much sweat and tears into getting the MPLM ready, not only the planning team in Houston, the operations team in Houston, but the cargo people here in Florida. We visited them several times and with all of the strange foam requirements we have had, they have done a great job getting the vehicle packed. And also the hardware-

QUEST: That is Sandy Magnus who is the payload mission specialist, ahead of Atlantis' crew, who have arrived at the Kennedy Space Center. The shuttle, the very last in the shuttle flights, of the shuttle program, will be on Friday, July 8, at 11:26, Florida time. That must be about 11, 12, 13, 14, 15, 16, 17, 26 European Time. A 10-minute launch window. You can guarantee between now and then CNN will have extensive coverage of this last story.

Now, we'll stay in the air, but slightly slower and a lot closer to the ground. Japan's ANA, you know the first commercial airline in the world to fly the Boeing Dreamliner. The long-waited 787 will be there first aircraft that has flown into Tokyo's Haneda Airport, from Seattle on Sunday. Now the airline really laid out the welcome mat, before it was shown off to the media. ANA has good reason to celebrate. It is three years it has had to wait for this particular plane, after production problems delayed delivery.

The plane is mad of lightweight materials, both for greater fuel efficiency and it rivals-it still has more test to do before commercial flights start in September. 835 Dreamliner 787s have been bought in total.

More efficient airplanes, less leg room, packed flights. They are some of the passengers woes in the air. But they are exactly the reasons why Ryan Air has topped the list as the most efficient and greenest airline. According to a new study that we posted on Facebook, which is at Now, it says, Ryan Air uses barely a third of the amount of fuel to transport the passengers one mile, compared the Dutch airline, the least efficient airline.

Who is the most efficient? Who is the least? You can find it at Facebook/CNNQuest.

The weather forecast now. Glorious weather.


QUEST: From political chaos, to an economy in freefall. Yemen is on the brink. And we are there. We'll hear from the World Bank and what they are doing to help countries after the Arab Spring.



QUEST: Yemen, the poorest Arab state is expected to go cap in hand to the World Bank and the IMF. It needs to fill a $1.5 billion funding gap. Yemen has been shaken by months of protest against the three-decade rule of President Ali Abdul Saleh. It is a toxic mix for the country's economy, as Nic Robertson now shows us from the capital.


NIC ROBERTSON, CNN CORRESPONDENT (voice over): A few minutes in Yemen's capital is all it takes to realize the economy is tanking. Shuttered stores line the roads.

(On camera): The Toyota showroom, all but closed up. No cars left on the showroom floor. As you walk down the street here, more stores closed. This one a transport company. And the next one, as you come down the street. This is typical of what we are seeing around the capital of Sanna. Many stores closed up. This one here, a tourism facility. You get tourist trips booked through here. The only store that is open, is this corner shop here, selling fruits, nuts, that kind of thing. And this bathroom appliance store-this tells you everything you need to know about what is happening here. It says, for rent. They can't afford to run the showroom at the moment.

(voice over): Inside the corner store, Achmed tells me, everyone is buying on credit. They barely have enough money for essentials. "10 people," he tells me, "rely on his dwindling income."

Next door at the bathroom appliance showroom, the owner's son shows up.

AMR HAKAMI, BUSINESSMAN: Due to the situation now, as you can see, now, since last February, 2011, everything stopped. No people are buying. No people are buying like, we cannot get raw materials for this, our factory.

ROBERTSON (On camera): Are you out of business, now, effectively?

HAKAMI: Yes, obviously.

ROBERTSON (voice over): Everyone is being hit in the pocket. Essentials like rice, wheat, sugar have all gone up, some more than doubling in price. Yemen was never rich. The poorest Arab nation; average annual income less than $1,000. No margin for tackling rising costs. Tensions are rising. None more so than in the lines for fuel. Snaking out of empty gas stations, snarling the city.

(On camera): This one stretches all the way up the road as far as you can see. The situation here already getting a little bit volatile. Some people have closed the road up here, this bridge to the road. They have closed the road. We just had at least one gunshot fired. That is a line for a gas station on that side of the road. And if you look across the other side of the highway here, another line of cars. The only way to see it properly is by car in a drive down the line this way now.

It is just car, after car, after car. Some of them have been lining up for days. And here is the checkpoint here. This is people tell us there is an impromptu checkpoint. They are protesting. They say that there is no fuel and they are closing the road. But it is situations like this that have lead to recent gun battles breaking out. The front of the gas line is about a couple of 100 yards just down the road there.

So how long are people been waiting here to buy gas?

UNIDENTIFIED MALE: We have been waiting for 10 days.

ROBERTSON: 10 days to get gas.

UNIDENTIFIED MALE: 10 days, or more than 10 days.

ROBERTSON: And how are people beginning to feel about that? Is this making them angry?

UNIDENTIFIED MALE: Oh, all people are very angry for these things.

ROBERTSON (voice over): And if they do get to the front line, they are in for another shock, he tells me. The cost of fuel is rocketing.


ROBERTSON (On camera): 400 percent. It has gone up four times the normal amount.

(voice over): Yemen's decaying economy, not its stagnating politics, could be the spark that ignites its already combustible streets. Nic Robertson, CNN, Sanna, Yemen.


QUEST: Tunisia and Egypt, two leading countries of the Arab Spring, are working to encourage investment to help their new democracies take root. Lars Thunell is the head of the World Bank's private sector arm, the International Finance Corporation. He says success hinges on one thing, getting jobs.

LARS THUNELL, EXEC. V.P., CEO, INTERNATIONAL FINANCE CORP.: Yes, we are complementing the other institutions in the sense that we are supporting the private sector with loans, which equity capital, and advice on how to run their businesses. So that is where we come in. And that is what is needed. The jobs is what is needed in this region.

QUEST: Why do we need you doing it, and not commercial banks? Is it because commercial banks just aren't ready to go in there yet?

THUNELL: Exactly. And we actually work with the commercial banks. For example-

QUEST: You are guaranteeing the loans?

THUNELL: We are guaranteeing the loans to small and medium-sized enterprises, which is where you are going to have a lot of the jobs created. So that how we try to go in and work with the private sector, in partnership. We find sponsors that we can work with.

QUEST: Isn't the big problem, though, in countries where you are now going into, with the Arab Spring, isn't the real problem that although there are private enterprises, the culture of private enterprise and a private sector, is not fully entrenched?

THUNELL: One of the things that we have seen, and it was one of the issues, has been the cronies, capital cronyism, and the presidents' family or extended family being involved in a lot of businesses. So, yes there is a credibility issue. Also some of the privatization that was done, was not done in the right way. So there is a reputational issue now, where people are saying is the private sector really good for us? But I think that is some, given the financial situation, the budget situation, with the governments, they have to rely on the private sector.

QUEST: So how are you going to convince them that that era of crony capitalism is not going to merely be repeated, just because the IFC has come in? Because, after all, if you think to Russia and the privatizations that took place there, and the oligarchs made off like bandits in many cases.

THUNELL: I think what we can do is not change the whole society. But we can show good examples. We have programs where we work with people on good governance, in the companies, themselves. We can work with the banks; how they set standards. We can work with the small and medium sized enterprises. And we can bring in foreign investors who just did a transaction in Egypt the other day, where we brought in an Indian investor who wants to build up a plastics factory in Egypt.

QUEST: And yet the economies that you are moving into, command control, structured economies, with an element of corrupt capitalism alongside. But now have to move into liberal economics.

THUNELL: And that will take a little time. But these have been living side by side earlier, now it is a question of how do we expand that free sector?


QUEST: And after the break, "Profitable Moment".


QUEST: Tonight's "Profitable Moment": Greece and the European Union have tried all manner to bluff their way out of the inevitable. The only thing they have in common is the one thing holding them back. All routes seem to lead to-


--default. Whether it is hard restructuring, soft restructuring, private sector rollovers, whatever, however, you package it, they cannot get a deal past the rating agencies. After the criticism they took post Lehman Brothers. The agencies are not easily fooled. They won't make the same mistakes twice.

This rollover of the French was never going to be pushed through easily. Just look at S&P's criteria for default. Is it a so-called distress transaction? Certainly. Will investors loose out? Definitely. Greece may not be happy if the ratings agencies call it a default, but frankly, what did everyone expect?

And that is QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you are up to in the hours ahead, I do hope it is profitable. Morgan is after the headlines.