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BPN Paribas Agrees to Pay Record Fine; Tipping Point for Argentina; Facebook Admits to Manipulating Your Emotions

Aired June 30, 2014 - 16:00:00   ET



RICHARD QUEST, CNN INTERNATIONAL ANCHOR: The bell is ringing, it's the end of the trading day. The start of a new week. Hit the gavel! Will

it be the gentle one?


QUEST: Slightly wimpy at the end. But it is Monday. It is June the 30th. Tonight - a heavy penalty - BNP Paribas agrees to pay a record fine.

We'll give you the details. The tipping point for Argentina - a crucial payment deadline has passed today. And think of it this way - social media

or social experiments? Facebook admits manipulating your emotions. I'm Richard Quest - I mean business.

Good evening. Before we get to our nightly business agenda, we must begin with breaking news from Israel. The bodies of three missing Israeli

teenagers have been found in the West Bank. The two 16-year-olds and one 19-year-old disappeared from the settlement of Gush Etzion more than two

weeks ago. Israeli's deputy defense minister is blaming Hamas terrorists and says there'll be a powerful response. Hamas has denied the

allegations, calling them groundless, baseless and senseless. A few moments ago Mark Regev, the Israeli government spokesman spoke to Hala



MARK REGEV, ISRAELI PRIME MINISTER'S SPOKESMAN: All Israel tonight is united in mourning the three teens who were brutally murdered by the Hamas

terrorists. Unfortunately there is no doubt about that. Hamas I think has shown us all once again what Hamas is all about. It's a brutal, terrorist

organization that has no qualms whatsoever about targeting civilians, and in this case, in kidnapping and murdering children.


QUEST: Now as a result of the finding of the bodies which are now undergoing forensic examination, Israel's defense forces seen here have

launched a major operation in the area. The teens disappeared on June the 12th from the Gush Etzion settlement. The mother of one of them said

they'd hoped they would be home soon. In this area in the last couple of days, the Israeli forces believe that they have found or at least know who

the Hamas operatives responsible were - they've named them. Hamas has denied this and said it is groundless and baseless. But as you can see

from these pictures, a large-scale operation is now underway. The Israeli cabinet - the security committee - is meeting in an emergency session, and

the Prime Minister Benjamin Netanyahu has of course said there will be repercussions and consequences. We'll have more on the story in about 30

minutes when I'll be speaking to the Israeli ambassador in London.

France's largest bank is about to take a huge hit to its profits and its future business. In the next hour, BNP Paribas is expected to plead

guilty to charges it violated U.S. sanctions. U.S. officials say the bank will pay an unprecedented $9 billion fine which could wipe out its profits

for the year. Perhaps more seriously, the bank also faces a partial ban on so-called dollar clearing. This is the transference of client money in and

out of the U.S. basically doing dollar transactions. In a letter to the staff obtained by Reuters, BNP's chief exec called the settlement 'good

news.' "It will enable us," he said, "to remove the current uncertainties weighing on our group. We will be able to put these behind us and these

occurrences which belong in the past." Investors seemed to agree. BNP stock ended the day slightly higher, however it is still down 11 percent

over the last three months. So, let's put this to two sides of the equation. In Paris with the Eiffel Tower suitably flickering grandly, it

is our correspondent Jim Bittermann. In Washington we have Evan Perez of our Justice Department. Jim, we will be with you in just a moment, so hang

fire there a moment.

Let's begin with Evan Perez. Why such a dramatically large fine -- $9 billion seems out of all proportion to whatever they may have been alleged

to have done?

EVAN PEREZ, CNN JUSTICE REPORTER: Well, Richard, the Justice Department and the financial regulators in New York say that BNP Paribas

for years, for years ignored the fact that they were investigating these and knew that these transactions - these are transactions involving Sudan

and Iran and other countries that are facing U.S. financial sanctions - knew that these were illegal sanctions -

QUEST: But -

PEREZ: -- and yet didn't stop them and decided that it would not cooperate with the investigation. Now this - these - are transactions that

are years old as you know, but the Justice Department said that they needed to come down very heavily on the bank simply because it wasn't very

cooperative until of course when they realized that they would have to pay these huge fines in the last few months and they decided to start

negotiating a settlement.

QUEST: All right. Let's just - stay with me, Evan, I'm going to go - -

PEREZ: -- Yes.

QUEST: -- backwards and forwards. Let's - you pick up the story now in Paris, Jim. Is this going - or how damaging is this going to be for the


JIM BITTERMANN, CNN's SENIOR EUROPEAN CORRESPONDENT BASED IN PARIS: Well I think you've spotted the really damaging part, Richard, is going to

be this restriction on dollar transactions that they're basically saying that the bank could no longer clear dollar transactions for a year. One of

the things the bank was able to negotiate out of it was the idea that this would start right away. They're formally going to start on the first of

January of 2015, so they will have time to get their customers some other way - some other vehicle - to execute these transactions and that will

help. But they potentially could lose a lot of clients when this takes place. The other thing of course is that fine - like you said - it could

wipe out the profits for the year.

QUEST: Evan, was the Justice Department in any way swayed by the prospect of a rupture in diplomatic niceties, relations even, between

France and the United States over this?

PEREZ: Well, Richard, as you know, the French government has been pressing very hard on this issue. They talked to President Obama, they

talked to the attorney general in the last few months to try to press this issue. The Justice Department did seem and the New York financial

regulators that are also involved in this case, did seem swayed with the idea that they needed to find a way to punish the bank but also not

necessarily put it out of business obviously. We're talking about thousands and thousands of jobs at stake. So, what they're trying to do is

figure out a way for it - to let the bank - accommodate some of its customers as Jim just pointed out so that they can serve some of their

customers. And what I'm told is they're trying - they're going to find - an accommodation by restricting some of these dollar clearing bans on

certain branches that they believe were guilty with - you know - in violating these sanctions, Richard.

QUEST: Jim, will all of this leave a very nasty, bitter taste in Paris?

BITTERMANN: It already has, Richard. I think it started at a point out there with the Hollande/Obama meeting earlier this month when President

Hollande of France thought perhaps that he could sway President Obama and that President Obama could somehow influence the decision. In fact,

President Obama did not, and now there's almost a veiled threat here in the sense that the foreign minister of France has said that this could impact

on the transatlantic trade treaty - the free trade pact that they're trying to negotiate right now, and both the foreign minister and the minister of

finance - Mr. Noltabarg (ph) -

QUEST: Right.

BITTERMANN: -- said that this is going to have a direct impact on the negotiations.

QUEST: Gentlemen, thank you. The sort of team coverage that only CNN can really bring you. Jim Bittermann in the French capital, Evan Perez in

the U.S. capital. It's just been announced in - Reuters are reporting - that BNP has agreed to pay $8.8 billion. So far the plea hasn't been

revealed, but we are expecting the plea, that is if everything goes according to the way it's been leaked, and there's absolutely no reason to

believe that it won't. The BNP Paribas affair, as you've just heard both our correspondents talk about, did put a strain on relations between

Washington and Paris at a crucial time.

U.S. and European leaders are negotiating probably the biggest trade partnership in history - TTIP it's called. It's the next round of talks on

the transatlantic trade and investment partnership. The talks are to begin in two weeks. So, I asked the French trade minister if France would accept

- not only the BNP fine, but what would be the longer-term effects of this?


FLEUR PELLERIN, FRENCH TRADE AND TOURISM MINISTER: If we want to negotiate a good treaty, we need to have negotiation positions on either

side that are balanced and that are bilateral and not unilateral. And that's all that was said. I'm talking about the general atmosphere of

negotiations. We have a public opinion, you know - in France you have a public opinion, you have a public opinion in the United States - are many

voices that are against the treaty, so we are advocating the benefits - the potential benefits of this treaty if it's a good treaty. But we need to

negotiate in a good - in good conditions.

QUEST: At what point does the cultural issue come back up again? I know it was dealt with in the beginning, I know an exception was put there,

there was a compromise area that was reached. But is it going to come back right at the end as a big, bad issue to be dealt with?

PELLERIN: It's not supposed to come back because in the mandate of a negotiation - in a mandate of the - European -

QUEST: Right.

PELLERIN: -- negotiator, it's written, black and white, that television/audiovisual services should not be discussed in the


QUEST: It will come back.

PELLERIN: We'll see - we'll see.

QUEST: You know it -- you know it will come back -

PELLERIN: We'll see.

QUEST: -- I know it will come back.

PELLERIN: It will not come back from the Commission's point because they have instructions not to discuss that particular point.

QUEST: But the U.S. is going to bring it back at you.

PELLERIN: Well, we'll see, but if the U.S. bring it back then the Commission - the commissioner - the goals (ph) will not be allowed to

discuss that because of the mandate that was signed by 28 member states as stipulated - it is not supposed to talk about that within the mandate.

QUEST: The negotiation's torturously slow, but we always knew they would be. Where does France now stand on the big issues? Where -- are you

happy with the way things are going on TTIP?

PELLERIN: Well, as you said, things are going quite slowly, but I think it's quite natural, because the ambition of this partnership, of this

negotiations is huge. Actually it's the first time we negotiate for 800 million people, it's the first time we negotiate not only on tariffs but

also on non-tariff spurious (ph), that we negotiate on the convergence of regulatory issues and on standards and norms. And it's a huge challenge I

think on both side of the Atlantic, so it's -- I mean - and with the electoral and political agenda, the renewal of the Commission on one side,

the election and mid-term election on this side. So I think it's quite obvious that it will take some time.

QUEST: When do you think an agreement will be signed? (LAUGHTER).

PELLERIN: Wow, that's a --

QUEST: Go on -

PELLERIN: -- difficult estimation (ph).

QUEST: -- give it your best guess -- best guess.

PELLERIN: Best case would be in 2015.


QUEST: That's the trade minister of France talking to me earlier. Now, Argentina shuffles closer to the financial abyss. When we come back,

the deadlines, the debts and the damage facing the South American economy. And this is how the Dow ended today, and indeed the year's first half. The

Dow down most of the session except for a little blip sometime around mid- morning. It's "Quest Means Business." (RINGS BELL).


QUEST: Argentina is missing a payment to its lenders, and if you join me here at the Super Screen, you'll see that it is edging ever closer to

the tipping point of the danger of the second default in 13 years. Now, when Argentina - join me at the Super Screen - when Argentina went bust in

2001, most but not all holders of its bonds waived their rights to get their money back. So, some did, some didn't. Majority accepted the money

- that's normal in a debt restructuring. A minority of lenders rejected the terms. Under most principals eventually they get corralled in. Now

they are the holdouts, and they want to be repaid full face value. Argentina says they didn't accept the deal, it owes them nothing.

However, they lost that argument in the U.S. courts. A U.S. judge, Judge Garcia, has said time and again, and the U.S. Supreme Court has

backed them up, that it must pay the holdouts. It must pay them all as well as the lenders who went along with the restructuring. In other words,

everybody must get paid up. Argentina says well if they go down this way and pay everybody out, then they will end up with a lot more lawsuits. So

that's a balancing act at the moment. At the moment heavily against Argentina.

But Argentina now has a 30-day grace period in which it - even though it's put the money into the bank - it says it will pay to the other

bondholders - eventually it could go horribly wrong. So, put all this together and you can see how indeed they do it. Will Argentina afford the

default? Many people think the government will find a way to settle because another default is simply unthinkable. Miguel Alberto Kiguel was

the central figure in all of this, and the depression started in 1998. He was undersecretary of finance, chief advisor to the economy. And as this

sort of balancing act comes to some sort of fruition, I asked him where he thought Argentina's future lay.


MIGUEL ALBERTO KIGUEL, FORMER ADVISOR TO ARGENTINIAN ECONOMY MINISTER: What Argentina is doing is basically - they're playing hardball - trying to

buy some time and to put pressure on the voucher funds and the holdouts. The holdouts are basically playing with the judge and trying to get his

sympathy in order to get a sentence that ends in their favor.

QUEST: Right.

KIGUEL: So, my impression is that it's not going to be default, but you know, really the end is open still.

QUEST: Right, but the judge has made it clear the holdouts have to be paid. Argentina says it doesn't have the money. Does it have the money,

sir, do you believe?

KIGUEL: The problem is if Argentina loses this case, there are going to be others coming. There's going to be a second case in which, you know,

the other bondholders there which are in a similar situation to Elliott and company. So, the total amount could really increase to around $15 billion,

maybe 20. Could depend, it's true, but, you know, it's something that's very uncertain at the moment. So the thing is, Argentina, the only way it

can pay and really fulfill its payment is by paying with bonds -

QUEST: Right.

KIGUEL: -- in a similar way to which it paid to Repsol recently.

QUEST: Where do your sympathies lie in all of this, sir?

KIGUEL: In Argentina I think that the sympathies are mainly on the exchange bondholders. I mean, it's been 92 percent of the people who

accepted the deal. So, if just people in Argentina would say 99.9 percent of the people in Argentina basically want to be with exchange bondholders

and are against the holdout. So, -- but - you know, that's what we like, but not what the law says or what, you know, the judge has decided.

Unfortunately, Argentina cannot appeal any further. I mean, we appealed to the Appeals Court, we appealed to the Supreme Court and there are no other

places Argentina can go for help.

QUEST: If Argentina decides to just say 'stuff it,' we're going to ignore the judge, we're going to ignore the U.S. - let them do what they

want. How devastating would that be for Argentina?

KIGUEL: Argentina would be out of the world financial market and doesn't have a lot of reserves, and there's going to be in addition some

problems because Argentina has enough pressure on the currency. You know - you might know - that Argentina has a black market exchange rate at the

moment, and the spread between the official rate and the black market rate -

QUEST: Right.

KIGUEL: -- is like 50 percent. And you know that Argentina's in a recession and if Argentina remains out of the world international markets,

the risk is that recession could get even worse. So, there's still incentive for Argentina really to try to reach an agreement, also for the

holdouts, but I think the consequences of not reaching an agreement are going to be problematic for both sides.

QUEST: And we will continue to watch this very closely as the question of default and the grace period of 30 days works its way through.

Now, forget the fact that it's the World's Cup. It's also halftime (WHISTLE BLOWS) for the U.S. market. This is what happened today, but it's

the last trading day in the first half of the year. An alert -- without a new record for the Dow, pending home sales were up 6 percent - the biggest

jump since 2010. Yahoo is up 2 and 1/2 percent after Piper Jaffray graded the stock an overweight. And American Apparel stood 5 percent after the

company announced a shareholder rights plan to stop the ousted chief exec from seizing control.

Now, the Dow has over - managed to overcome arctic weather, glacial economic growth, a particularly awful first quarter of growth to end the

quarter up one and 1/2 percent for the first half of the year. If you look at just how this has gone - we need to just put some perspective into this

- grab the pen -- you'll see this was that dreadful first months with the awful weather. And then it picks up steam.

And what's really interesting about the way it's picked up steam is it's continued to do so right through the year. In Europe, stocks end the

first half at around 4 percent higher, completely and utterly helped by the ECB. The exception was the FTSE which was flat, today's markets were

mostly down, U.S. own inflation stuck at half a percentage point. Still deflation is a risk, Philips up 4 percent after saying it was reorganizing

some of its lighting businesses. easyJet down after BOA cut the rating to underperform. When we come back, Facebook scientists say they've been

minimally deprioritizing. What does that mean when you minimally deprioritize? It's all about playing with your newsfeed - something that

will not happen on "Quest Means Business." (RINGS BELL).


QUEST: People using Facebook had their newsfeeds manipulated to see if it was possible to change their moods. It is the most extraordinary

story around the world at the moment. It was an experiment which seems to have been carried out without users' knowledge or permission, although,

arguably, it was allowed in the terms and conditions of service. There's been a huge unlike for what Facebook did. Basically, it was all about the

idea of how you could manipulate whether to see whether people were happy, sad, excited, tired. How did it - how did they respond judging by the

information they were seeing in their newsfeeds.

Well, nearly 700,000 users had their feeds tampered with for a week in 2012. Some were fed a greater proportion of happier boasts, others were

shown more downbeat news. It turned out the people whose feeds were more gloomy were more likely to put up negative posts themselves. It fed on, in

other words, if your friends were telling you positive things, you were positive and vice-versa. The scientists behind it has apologized, saying

quite clearly, "In hindsight, the research benefits of the paper may not have justified all this anxiety." For many though, that is not enough. My

next guest Clay Johnson who helped manage Barack Obama's campaign - online campaign - in 2008 tweeted, "In the wake of both" - the tweet was - "In the

wake of both the Snowden stuff and the Cuba Twitter stuff, the Facebook transmission of anger experiment is terrifying." He's referring to the

claims U.S. tried to undermine the Cuban government by secretly creating a clone of Twitter.

Clay joins me from Atlanta via Skype. Clay, good to see you. Sir, OK, here's the problem. It's allowed in the terms and conditions, Facebook

says it was a clearly very bad idea and they're really sorry they did it. What was wrong with it in your opinion?

CLAY JOHNSON, TECHNOLOGIST: Well, I think there's a few things wrong. One is when we're talking about Facebook, Facebook likes to downplay this

and say, 'Oh, it's statistically insignificant amount of people - it was about .004 percent of our user base that we tested this on.' Well, that's

700,000 people. That's the size of Austin, Texas. That's a lot of people. And we're really talking about mood engineering -- what Facebook decided

that it would without the consent of a - basically a small city - was say hey, can we change the mood of this city --

QUEST: Right. Right, but -

JOHNSON: -- by tinkering with your newsfeed. I find that problematic.

QUEST: Now you see, I don't have so much a problem with that side of it. I mean, experiments have to be done perhaps or maybe should more

consent - but the issue I think is that people weren't seeing the full range of things that they're expected to see. So -

JOHNSON: Well, people have never seen the full - for many years - people haven't seen the full range of things that they expected to see on

Facebook. Facebook's constantly tweaking what's going on in your newsfeed. And I think that's part of, you know, that's part of the price that we pay

for using a free advertising-based service. I think we as consumers have to understand that if it's an advertising-based medium, we're at risk for

being manipulated 100 percent of the time. That's what advertising -


JOHNSON: -- is doing to an extent. And Facebook is no less. And what's happened here though is that Facebook said explicitly, 'We're going

to see if we can make people happier or sadder, a group of 700,00 people, happier or sadder.' And that just feels a little maniacal to me. The

other problem that I have here is up until Friday when this story started to break, Cornell University who is the partner of this of this experiment

with Facebook, said that the United States Army funded the research, and then mysteriously when the story broke, it said -

QUEST: Right.

JOHNSON: -- we received no outside funding for this research. That to me is a little - I view that with some skepticism.

QUEST: Sir, thank you very much. We'll talk more about it. Appreciate you joining us tonight, putting it into perspective. We thank

you for that. This is "Quest Means Business." When we come back after the moment - in a moment - I'll have the headlines and I'll update you on the



QUEST: Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment. This is CNN and on this network, the news always comes

first. Israel's Prime Minister Benjamin Netanyahu is blaming Hamas for killing three Israeli teenagers saying the Palestinian paramilitary group

will pay a heavy price. The Israeli military is expected to officially identify three bodies discovered earlier in the West Bank.

Mr. Netanyahu says all signs point to them being the three teenagers who've been missing for several weeks. A few moments ago, the Whitehouse

said President Obama the United States condemns in the strongest possible terms this senseless act of terror. The President also urged all parties

to refrain from steps that could further destabilize the situation. In just a few moments we'll be talking to Israel's ambassador to the United


Sunni Islamist militants in Iraq say they're establishing a caliphate in the territory captured in Syria and Iraq, and they're calling on Muslims

to swear allegiance to it. The territory extends from Northern Syria to Diyala Province in Eastern Iraq. The U.S. says it's considering new

security measures at airports, due to increased concern over attempts by al-Qaeda to mount terrorist attacks. Officials say there's no imminent

threat, however there are fear explosives are being developed that could not be detected by current security measures.

The news in Reuters says BNP Paribas has agreed to pay an $8.8 billion fine in New York. The bank's been accused of falsifying business records

and conspiracy, following investigations into claims that the bank violated U.S. sanctions.

President Obama will nominate Bob McDonald to head the U.S. Department of Veterans Affairs. McDonald led Procter & Gamble during the Great

Recession and served in the U.S. army for five years. The Department of Veterans Affairs is under serious investigation for failures that may have

led to 40 deaths, and those are live pictures as we await the arrival of the president.

And now an update on our top story for you tonight. Israeli officials are blaming Hamas for the deaths of three teens and promising a powerful

response. Mustafa Barghouti, a member of the Palestinian parliament told Hala Gorani that the Israelis are to blame.


MUSTAFA BARGHOUTI, MEMBER OF PALESTINIAN PARLIAMENT: I think the person who is most responsible for the death of these three young people is

Netanyahu himself who sent them to illegal settlements by international law. Settlements are illegal, these guys should not have been there and

this occupation and this apartheid system should end. Nobody will have - will ever have - security or peace - Palestinians or Israelis unless the

core problem is resolved and this occupation is ended and unless the system of apartheid and discrimination against Palestinians is stopped.


QUEST: Now, the British Prime Minister David Cameron has described the killings of the teenagers as an inexcusable act of terror. You've

already hard what President Obama has said, condemning it in the strongest possible terms. Daniel Taub is the Israeli ambassador in London to the

United Kingdom. The ambassador joins me now from London. Good evening, Ambassador.


QUEST: The condemnation is now coming in from - I suppose one might arguably say - all the people that you would expect to hear from. But

Israel has to decide and determine how to respond. How will Israel respond?

TAUB: Well, I think at this moment, first and foremost, our minds are with the families of the three boys there with their classmates. This is a

moment where really we have to process the horror of what we've just seen. The cabinet is meeting as we talk, thinking about how we respond to that,

but there are number of elements that are absolutely clear. And one of them is that in Hamas, we have a murderous organization that simply can

perpetrate these vicious attacks, you know, for whom the murder of teenagers is acceptable. It's very, very hard to know can - how one - can

possibly think of dealing with such an organization.

QUEST: Ambassador, you are very well briefed at the highest levels of the Israeli government, so I ask you tonight, what more are you able to

tell us about what happened here?

TAUB: Well, again, in a situation like that, clearly we engage in a lot of investigation before we make issues public. What is absolutely

clear is that this is Hamas that was behind the deliberate murder. This is something that Hamas has been advocating. Just a couple of days ago we

heard Khaled Meshaal, the head of Hamas, actually talking about the people this - that perpetrated this atrocity as being - as being blessed - saying

this was a Palestinian duty, which is why that as we sit in the cabinet, one of the things that we are grappling with is the impossibility of

actually dealing with a Palestinian authority that has decided to throw in its lot with Hamas. Hamas is an organization --

QUEST: Right.

TAUB: -- that doesn't dream of peace, it dreams of murdering Israelis.

QUEST: What's that's exactly now, I mean, and I - you know, I almost hesitate to have to discuss the political or other ramifications when

you're dealing - when we're talking about the horror of three teenagers - two 16-year-olds and a 19-year-old murdered in such circumstances. But we

do have to talk about the wider issues, so I know you'll forgive me as we do so. But that's Israel's problem now, isn't it? Because Hamas and Fatah

together running the Palestinian Authority in a coalition or a form of coalition, you've got to deal with them.

TAUB: I don't think we have to deal with them in the sense of sitting down with them, but we have to deal with the situation that they create.

And there is a certain clarity about the situation at the moment is that we are dealing with an organization which as much as people try window-

dressing it, it's absolutely clear is bent on our destruction. Even now in the last 24 hours, we have seen 16 rockets and missiles fired out of the

Gaza Strips and towns and villages in the south of Israel. It is inconceivable that somebody -

QUEST: Right.

TAUB: -- could accept - expect - us to sit down and even think of talking peace while dealing with a government that includes Hamas.

QUEST: So, one doesn't want to forecast violence in any shape or form, but, you know, reasonable people will assume that there will be a

military response from Israel.

TAUB: I think Prime Minister Cameron he has said it very well, this is inexcusable. Inexcusable means something that cannot be excused. You

cannot have a situation where three kids are murdered in cold blood in this brutal manner and there is no response. And that is why our cabinet is

sitting at the moment trying to think what the most effective response to such an atrocity could be.

QUEST: So, I don't - I'm not even reading between the lines of your answer. There will be a military response from Israel. And what you're

telling me now -

TAUB: I think I -

QUEST: -- what you're telling me now, Ambassador, is it's really a question of the proportionality and the measure in which it takes.

TAUB: We have been facing from Hamas threats to our lives. This is not something that is new. You know, since the beginning of last year,

Hamas has tried to orchestrate, has tried to bring about over 49 attacks on our youth and kidnapping attempts. Fortunately in most cases we have been

able to frustrate them. In this tragic, tragic case, unfortunately they succeeded. But the only reason that more Israelis have not been killed is

because of the efforts of our defense forces in order to protect them. And it's absolutely clear like any government, that we're going to carry on

doing that.

QUEST: Mr. Ambassador, we should be speaking on much happier occasions, but I thank you on this evening -

TAUB: Thank you, Richard.

QUEST: -- for coming in and talking to us. The ambassador - the Israeli ambassador in London talking to me. We'll be back in just a

moment. This is "Quest Means Business," good evening.


QUEST: Starting today, employees in the United Kingdom have the legal right to ask their boss to let them work the hours of their own choosing.

You hear that? The hours of our own choosing! Well, you can try and hope. It should mean more flexibility for staff and the chance to lead a

healthier family life. What about the effect on the business? Well, O2, one of the U.K.'s biggest telecoms companies recently sent workers home,

got rid of their desks and ditched their computers because they found productivity picked up. CNN's Max Foster reports for this week's (RINGS

BELL) "Executive Innovator."


MAX FOSTER, CNN INTERNATIONAL ANCHOR AND CNN'S ROYAL CORRESPONDENT: Believe it or not, what you're looking at is one of the most productive

work places in the U.K. This is O2, one of the U.K.'s largest telecommunications companies. With 23 million customers, O2 is focused on

expanding its already sizeable business market, and to get the most out of its workers, it sent them home.

BEN DOWD, BUSINESS DIRECTOR, TELEFONICA O2: Innovation is really important in business because time stands still for nobody. And when you

look at the mobile industry and you look at how much it has changed over the last 20 years, it is phenomenal.

FOSTER: Under Ben Dowd's watch for the last 19 years, O2 has evolved from a simple mobile phone provider to a center for innovation in business.

DOWD: I think leaps of faith are very important. It's great fun taking risks and seeing them come through.

FOSTER: Dowd's boldest move came when he was one of the first to identify the inevitable trend towards flexible working. In the biggest

trial of its kind in Europe, he sent home all 2,500 employees and asked them to feed back their experiences.

DOWD: I think a willingness to take risk is absolutely integral to innovation. I guess flexible working is one of the highlights in terms of

innovation that I brought to the business. We program-managed this over a six to eight-week period, and in effect gave all of our employees the tools

to work from home, and the results were fantastic. Hi, Jakes (ph), how are you? So how was the strategy meeting?

FOSTER: By testing on their staff, O2 got a lot of data. On average, it costs U.K. companies $12,000 to run a single office desk a year. So O2

got rid of 500 workstations. People worked better with mobile devices. So, O2 ditched 84 percent of its office technology and saved more than $6.5

million in just one year. With his experiment, Dowd and his team were able to develop a plan for other businesses. We drank our own champagne and

then we gave it to our customers.

DOWD: So I'm a firm believer in whatever we do as an organization, when we sell solutions and deliver services to customers, we've got to be

doing it to ourselves.

FOSTER: Flexible working doesn't come without a price. Company staff can't benefit from a chance meeting in the corridor, and you have to trust

that they will put in the hours.

DOWD: My role as a leader of this business is to manage that risk. So actually when employees take risks and they fail, that's OK, it can be


FOSTER: The scheme has been hugely popular amongst the staff. A hundred percent reported their work/life balance had improved.

Male 1: I definitely think it's really an innovative idea. It really benefits me.

Female: It gives the head space and the time to think about things without disruptions that you get when you're in the office.

Male 1: I just think it's all around the future of what businesses should be doing.

Male 2: I think Ben is setting his sights on what are the things that are going to actually make a difference.

FOSTER: It's that rare ability to listen and take feedback that sets Dowd apart.

DOWD: We'd love to think as a board that we come up with all the innovation ideas, but it's employees. It's our people at the sharp end,

and it's our customers that actually give us this innovation.


QUEST: Fascinating story of executive innovation from O2 in the U.K. Now, General Motors has put a price on the lives lost because of unsafe

cars. Two families are rejecting a GM offer to pay up to a million dollars compensation. They say they would rather take the company to court. GM

announced another recall on Monday. It needs to fix 7 and a half million vehicles in the U.S., and says the faults it's detected could have led to

three deaths. Poppy Harlow spoke to the attorney Kenneth Feinberg who spelled out the GM compensation plan earlier today.


POPPY HARLOW, JOURNALIST FOR CNN: You have a job that is beyond difficult - putting a value on life. How do you decide what a life is


KENNETH FEINBERG, ADMINISTRATOR, GM COMPENSATION PROGRAM: Judges and juries and lawyers do it every day in this country, in a sense, judge and

jury. What would the victim have earned over a lifetime but for the tragedy? What about pain and suffering? Those are mathematical

calculations that will be a large part of this program - but not all. Individual claimants or family members who lost loved ones or paraplegics

or brain-injured victims - I'll be glad to see them if they want to visit or if they want me to come to them and we'll factor all of that into the

ultimate net award.

HARLOW: Are you personally deciding? I mean, each victim or victim's family and their attorney will come present their case in front of you and

you are the ultimate judge and jury in this? Because many of these cases are incredibly complex. Some have been fought out in court for years.

FEINBERG: Under the protocol, GM has agreed and has delegated to me full authority. Once I make a final determination as to eligibility and

dollar amount, GM under the protocol, has to accept it, there are no appeals, GM can't question it. They've got to pay it.

HARLOW: There is no cap on how much ultimately, when all is said and done, GM will pay out as a result of this. You suggested that to them.

How did they respond first?

FEINBERG: The minute you have caps, you're sending the signal that there's only so much money and spend it wisely, Mr. Feinberg, because

that's all there is. And it generates a lot of opposition on the part of claimants. Avoiding caps is one way to move the program forward.

HARLOW: Up until today you hadn't talked directly to the family members. What has that been like for you so far?

FEINBERG: The toughest part of this is the emotion when you meet one- on-one, and trying to explain to people that all I can do is provide money, I can't bring loved ones back, I can't restore limbs or brain injuries. I

can't do that.


QUEST: That's strong words from Mr. Feinberg. Now we know success in the World Cup can lift the mood of an entire nation. My next guest says

good and bad results can spillover the economy too. We'll see who's right in a moment.


QUEST: Whew! In the World Cup today it is now won and done/ lose and you are out. The knockout round continues. France and Nigeria have been

in action, and (inaudible) you might be aware. France won 2-nil and are on their way to the quarter finals. There, there we go. Good!

(Schuerrle/Ozil) (ph) made the winner of Germany versus Algeria match, and that match is currently underway. The Algerians are making their first-

ever appearance in the round of 16, it's nearing halftime and the score is nil-nil.

Now, time to update the "Quest Means Business" Footy 32 index. Now, you'll be aware of course this is where - here we go. Oops. Now, where

the value of each World Cup team rises by $10 million for every goal scored, and falls $10 million with every goal let in. Now, the knockout

stage is underway and the teams are quickly dropping out. Greece of course is another one. Let's see where we stand. These were all of them of

course, but you'll be well aware - here we go - 3, 2, 1 - delist. (MAKES WHIRRING NOISE). And that's what we've got.

And what's interesting now about what's left - what's interesting now about what's left - is that the - no team is left that is actually in

deficit. The lost in the dramatic penalty shootout yesterday to Costa Rica - that was Greece who are now topping the - Costa Rica is topping.

Nevertheless, we're calling the Greek team a good long-term investment. After the match the Greek players announced they've written to their prime

minister to decline any World Cup bonuses. The players asked that the cash instead be put towards building a national training center.

So now let's do the flags. The flags - now, first of all, we lose, these are the flags. That one goes, this one goes - Mexico goes. This one

goes. Oh, we've just been talking about it - this one goes. And, and, and, and - this one goes, this one goes. Now, which one else might need to

go? No, I think we're all right with that lot. We'll leave all that there.

Now, before the World Cup began, economist Alex Edmans told me losses on the pitch correlate to losses for a nation's economy. Time to see if

his theory is holding good. In the battle of the Titans, England lost to Italy, getting their World Cup off to a dismal start. The next rating day

the stock market in London lost half a percent, give or take. In one of the most unexpected losses so far, the reigning champion, Spain, thrashed

by the Netherlands. The next day, Spanish market down 1 percent. And what happened after Italy were beaten by tiny Costa Rica? The Milan market fell

1 percent, 1 and 1/2 percent on the next day. So, Professor Edmans is joining us back. Professor, --


QUEST: Now, I haven't looked at this as closely as you have, but if you're numbers are right, your theory holds good. If a country loses in

the World Cup, the stock market falls.

EDMANS: That's right, Richard. We've seen that on average, so out of the 27 countries which have lost where there's been a major stock market,

we've seen in 17 out of those 27 instances, the market has fallen the next day faster than the world market. So it has happened most of the time.

QUEST: Right, but I guess what I'm asking you now is, is one related to the other or is it a happy coinc - or unhappy - coincidence? Are you

able to say that correlation exists or it's just happenstance?

EDMANS: So in one particular occasion, you're right, it could be the other factors driving the stock market. For example, when Nigeria lost to

Argentina, the market fell by .6 percent the next day. Now, I'm not going to claim that that's because of the soccer result, because there's also

terrorism in Nigeria, and also the loss wasn't particularly painful - Nigeria had already qualified. But that's why you want to look at lots of

data. So, the original study we looked at 1,100 soccer games, and indeed so from the World Cup we've looked at 27 soccer games. And so while in any

particular instance there might be something else going on, on average we do find the theory holding up.

QUEST: Right, you find so - . As we go from the group stage into the quarter finals or the group that succeed another quarter finals, does that

accelerate? Does it get - would you expect it to continue?

EDMANS: Yes, it should get stronger. So the original study found that the market falls by .4 percent for any loss in the World Cup, but it

goes down by .5 percent by a loss which leads to elimination, so -

QUEST: Oh, well.

EDMANS: -- we should find this going stronger.

QUEST: You must be watching this very, very closely. I mean, like today's matches - you know - you must watch them very closely to see what

happens tomorrow.

EDMANS: Yes, so because we saw the losses over the weekend, so the markets haven't completely closed yet, but the Chilean market when I last

checked, that was down by .6 percent even though the world market is slightly up by .2 percent.

QUEST: Right.

EDMANS: So we'll see where it closes today, but that is still consistent.

QUEST: Professor, can you tell me why this happens? You're starting to advance a very strong argument that it does happen, but now tell me -


QUEST: -- why?

EDMANS: Well this is because of the negative effect that soccer results have on investor moods. So the traditional view is what drives the

stock market is fundamentals like dividends and profits and unemployment, but this shows that the market is driven by emotions. So, trade is the

human beings who have feelings. That, contrary to popular belief.


EDMANS: So you might wonder what possessed me to write this crazy study on the effect of soccer on the stock markets is a serious research,

and I believe it is. So that the bigger question is not whether soccer drives the stock market, but whether it's emotions versus fundamentals that

drive the stock market. And the evidence so far in the World Cup is that indeed emotions have a large part to play.

QUEST: And we will hopefully talk to you again before this World Cup is over. Professor, great to have you on the program. Thank you very much


EDMANS: Great to be back, thanks, Richard.

QUEST: It won't be lost on me though many of you have pointed out that my flag tree - all right. All right. The point is made. My team is

out. I'll have a "Profitable Moment" after the break. (RINGS BELL).


QUEST: Tonight's "Profitable Moment." So, we've just heard, and I am fascinated by Professor Edmans' study about the stock market going when a

country loses or gets knocked out of the World Cup. But this is why it's really fascinating - because these are the countries that are still in the

competition. Now, think about it - if you knew who was going to be knocked out next, you could invest and make money tomorrow. Yes, I know it's a

stupid point to make - if knew that we'd able to do - if we knew what was going to happen in the future, we'd all be able to be much richer than we

are today. But - the one thing I can tell you, according to Professor Edmans, is that in these stock markets in the next 48 hours and few days,

profits could be made. It's up to you which one. And that's "Quest Means Business for tonight. I'm Richard Quest in New York. Whatever you're up

to in the hours ahead, (RINGS BELL) I hope it's profitable. I'll see you tomorrow.