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Kraft to Buy Cadbury?; Geithner Talks Growth

Aired September 7, 2009 - 14:00:00   ET


RICHARD QUEST, CNN INTERNATIONAL ANCHOR: A tasty target, Kraft tries to gobble up Cadbury. Sticking with stimulus, U.S. treasury secretary tells me the big challenge is growth. And banking on bonus caps, France's finance minister says we're heading in the right direction. The start of a new week, a new studio. I'm Richard Quest, clearly I mean business.

Good evening. It is crunch time for Cadbury. After two years of improving its profitability, is it now ripe for a takeover? The U.S. corporation Kraft thinks so and waiting in the wings, possibly Nestle.

Will it all lead to consolidation in the confectionary industry?

It has been a big talking point in the markets today, in a market that has otherwise been searching for M&A activity, now things seem to be finally moving. The U.S. food Kraft giant (sic) is in pursuit of the British chocolate-maker Cadbury. And Cadbury has already made what it thinks is a tasty offer.

But Cadbury says it's just not sweet enough. When you look at the numbers, you start to see just how much money can be made from confectionary. For instance, look at this, Kraft's bid is worth $16.7 billion for Cadbury.

Kraft, of course, a giant in its own right, its products go back to the early 1900s, but Cadbury, of course, much earlier, nearly a century older than Kraft. Even so, $16.7 B at this particular time in the market is certainly worth talking about.

Nestle, now this could be interesting. Nestle coming in as competition, because let's face it, deals like Cadbury don't come up very often. Cadbury has said no already to the first $16.7 billion offer. The thinking is either Kraft have to come back, or something like Nestle comes in to compete.

What, if all-in-all came together, it would be Cadbury and Kraft, which would be a phenomenally powerful company. Kraft with its cheeses and a variety of other confectionaries and cookies. Cadbury with its chocolates. Fifty billion dollars will be what it is worth.

Moving it on, and you start to see what the totality would be, 60 countries, 50,000 employees, and that's just what it would be with Cadbury. All in all, you see that whether the Kraft deal succeeds or not, the important point is today, Cadbury is now in play.

And I can show you that very clearly. Look at the share price of Cadbury over the last six months. It has tooted along as various different policies have been installed. It's trying to cut costs, but whoosh! Up 38 percent one day alone, and that's because the Kraft price is offering a more than 30 percent premium on the clothes.

This -- what's interesting is what was happening around here where clearly somebody maybe got some wind that things were actually moving along. Let's talk about this. Jim Boulden joins me.

Jim, Cadbury and Kraft, the first important issue, does it make sense?

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: It certainly makes sense for Kraft, because it's trying to get more global. Of course, it's huge already, but it wants to get some more confectionary, it has really been focusing under its CEO.

And of course, we've already seen Cadbury get rid of its drinks business in the U.S. And so it's very, very confectionary heavy.

QUEST: But if Kraft wants to take confectionary and Cadbury got rid of drinks, all of which is in the consumer sort of food and beverage market, is -- what is Kraft up to? Why would it want Cadbury? It has got its niche -- it has got its big markets already?

BOULDEN: It is. But Cadbury is the world's second-largest confectionary. I mean, people think of it as this nice little U.K. company, but it's actually huge. It has got a very big play. It's not going to be as big as Mars and Nestle, but this would make it much, much bigger.

And this is obviously an area that it wants to get into. Craft needs to get more of that.

QUEST: Cadbury rejected it.

BOULDEN: Oh yes.

QUEST: Is it likely that Kraft -- well, and I read the statement from Kraft today, is it likely that Kraft will proceed as a hostile takeover, or is it -- it's obviously going to have to come back with a higher deal, or some better sort of deal.

BOULDEN: Yes. I mean, it opens up -- it opens everything, doesn't it? This makes a whole new set of merger and acquisition areas for the food and beverages and confectionary. Of course, they're going to have come back with a higher offer if they want to really do this.

We know. We know how this game is played. You have to sweeten the offer, if you'll forgive me for the cliche.


QUEST: No. But that -- that particular one absolutely.


BOULDEN: But -- you know, but we all thought Cadburys was going to be the one that was going to go out and eat others, not be the one to be eaten. We thought they would go after Hershey. We thought they would be some other deals there.

So this just the beginning.

QUEST: OK. Who else is in the market for Cadbury?

BOULDEN: Well, we think Nestle would be an obvious choice, however, one big issue: competition. Nestle is already huge in the U.K. They would have to give up a lot for that to happen.

QUEST: They took over Rowntree as well many years ago in the U.K.

BOULDEN: Yes. Of course, yes. And could it be a combination of two smaller? Could it be Cadbury and Hershey's getting together enough to make that a white knight to fend off Kraft?

QUEST: Let me ask you perhaps the trickiest question of the evening.

BOULDEN: OK. Here we go.

QUEST: Well, think about it. This time next year, will Cadburys be an independent company?

BOULDEN: I don't think so. I don't think so.


BOULDEN: No. I don't think so. I think.

QUEST: It's gone?

BOULDEN: This is an area that has to be -- this is a consolidated area. And Cadburys is one of the sweetest ones out there.

QUEST: We thank you, Jim, you promised me you'll keep an eye on watching this.


QUEST: . in the future. Many thanks to you, Jim Boulden.


QUEST: . who will be following that.

Now let us turn to the merger activity which fired up the markets, a storm across Europe. And stocks rallied sharply. The London, Paris, and Frankfurt bourses all closed up more than 1 percent. Food producers were the big winners.

The French group Danone gained about 4 percent. And that's the way the markets were in Europe. You're up to date with what has been happening in the business world.

Don't forget, no trading in the United States for the Labor Day holiday. So things have been slightly more muted than otherwise might expected to be.

Now to the news headlines, Fionnuala Sweeney at the CNN news desk.

FIONNUALA SWEENEY, CNN INTERNATIONAL ANCHOR: Richard, the U.S. military is coming under fire after a reported raid on a hospital in central Afghanistan. Aid workers say U.S. soldiers searching for Taliban militants tied up security guards and entered the female ward in violation of local customs.

A British court has convicted three men of plotting to blow up trans- Atlantic passenger airliners in 2006. After a second trial, a jury found Abdulla Ahmed Ali, Assad Sarwar, and Tanvir Hussain guilty of conspiracy to murder by detonating explosives on the jets. Prosecutors say the men planned to assemble bombs on the planes using liquid explosives disguised as soft drinks.

Justice, Sudan-style. A Sudanese journalist refused to pay a $200 fine after her trial for indecency, so Lubna al-Hussein has been sent to jail. Sudanese authorities arrested her in July for wearing pants and a blouse that were ruled too tight and sheer. She could have faced 40 lashes but was fined instead.

Palestinians are outraged as Israelis plan to expand settlements in the West Bank. Israel has authorized more than 450 new homes in the region. Palestinians say the settlements would cut Jerusalem off from the West Bank and block their quest for a future Palestinian state there. The work was approved by Prime Minister Benjamin Netanyahu's government. And he said the move is a prelude to a freeze.

Those are the headlines, Richard, back to you in the studio.

QUEST: Fionnuala, we'll be back with you in about 15 minutes from now.

In just a moment, one of Europe's most powerful men speaks out about bankers' bonuses. And can you say "reprehensible" in French? I talked to the finance minister of France about what is being done to tackle the problem.


QUEST: Welcome back. Leaders of the G-20, they are now preparing for Pittsburgh. In their hands the copy of the finance ministers' communique, which of course came from the weekend. It emerged from a gathering in which London called for curbs on bankers' bonuses. I spoke to the U.S. treasury secretary, Timothy Geithner.

Now although Mr. Geithner believes that bankers' bonuses will never be back to where they were, he is also very much concerned that the future has to be about recapitalizing the banks, and that banks have to come up with more capital.


TIMOTHY GEITHNER, TREASURY SECRETARY: I think nothing is going to be normal again. And there is no risk that we will -- can afford and will allow conditions in the financial district to go back to what they were in the peak of the boom. It just can't happen, it's not going to happen.

There is going to have to be fundamental change. The critical failure in this crisis was to allow a huge a buildup in leverage, in risk, to take place in banks across the world and in institutions that are like banks.

And what helped produce that was a set of compensation practices which, frankly, created too much reward for short-term risk-taking.

QUEST: But the speed at which they've gone back to their sort of.

GEITHNER: Haven't gone back yet. And.

QUEST: On the way?

GEITHNER: No. Haven't gone back yet. And I think it's important that it not happen again. You are going to see very significant reforms and compensation practice across the major financial centers. And one thing we did today, which is very important, is reach agreement on a common framework and commit ourselves to make sure that we're going to apply those standards on an even basis across our countries.

QUEST: When it comes to the question of caps versus a wider issue of deferred gratification, transparency. Where do you stand? Are you in favor, for or against caps on bonuses?

GEITHNER: Richard, I'm not aware of any country in the world who is actually proposing that governments go in and set individual caps on compensation. What we all want to do is to make sure that compensation practices, again, are aligned with risk-taking and long-term performance, and don't promote the kind of excess buildup in leverage that was so problematic in this crisis.

Again, we have this hugely important moral and economic obligation to make sure that this system is more stable in the future, because, of course, we have seen the damage it causes when you let a system get too much leverage.

QUEST: So you believe within the G-20, as you head towards Pittsburgh, there is a consensus on the way forward, not just that something must be done, but that which will be done.

GEITHNER: Well, I think on the broad framework, absolutely. And I think you're going to see today we emphasized that, again, you want to have -- it's not just about general principles and standards, you want to see meaningful change. And that's not something we're going to leave to the market to do on its own.

In the United States, for example, again, we have legislated and are in the process of legislating changes that will require firms to submit to their shareholders for a vote their compensation practices.

And more than that, we're going to make sure that the supervisors of banks enforce those standards. So we're not going to leave it to the market to try to solve this problem.

QUEST: The market failed. It's time now for regulation and legislation.

GEITHNER: That's right. Absolutely. The financial markets are too important to the economy to be left to the markets alone. You need a strong framework of regulations, a much stronger framework than we had.

QUEST: The bonus issue, as far you are concerned, is really only one factor in a wider regulatory reform.


GEITHNER: Exactly. A very important factor. But as you saw, say, earlier this week, we need to make sure that we have a new international accord on capital standards that constrains excess leverage in the future.

That's going to be a critical part of reforms. And there is very broad support across the G-20 for the kind of reforms we talked about.

QUEST: But they managed to avoid those the last time. I mean, the whole tenor of the crisis was, they got around Basel II.

GEITHNER: You're exactly right. What we -- we waited too long to put in place more effective constraints. And we made them too easy to evade. And we're not going to make that mistake.

QUEST: How easy is it going to be to get agreement on greater capital requirements for banks?

GEITHNER: It's going to be hard for some countries. It's going to be hard for some, just to be honest. But we're going to get agreement, because I think everybody knows that the damage caused by this crisis was unacceptable and it's not tenable for any country, I think, to resist the kind of changes we need to prevent this from happening again.

QUEST: Except there is always the risk that those banks involved will go overseas or find some other way to circumnavigate.

GEITHNER: That's why you've got to -- that's why you have to do it internationally, you're exactly right. It's not enough for the U.S. to raise standards in the United States, because then the risk will just shift.

QUEST: Will you go unilaterally if you have to?

GEITHNER: We'll do what's necessary to protect the United States. But again, our judgment is, and we think there is broad agreement around this, is that it's better for the world for us to move together.

QUEST: Will you hold out on other parts of the reform package if you don't get agreement on capital.

GEITHNER: Don't expect to need to, because, again, I thought you saw very broad support around the room for these kind of changes. And again, the -- we need to move when the memory of the crisis -- when the damage is still acute, the memory is still searing in its impact so that people understand why we're doing this.

QUEST: How quickly do people forget?

GEITHNER: They're going to forget too quickly, but again, we're going to -- we're moving very quickly in the United States and I think there's a lot of will around the world to move quickly too. The point is we need to act now.


QUEST: And the situation on the U.S. economy, Tim Geithner, U.S. treasury secretary, talked to me later about exactly what was happening in the economy and when they should start thinking about an exit strategy.

Ahead of the G-20 meeting in Pittsburgh, the leaders of the most powerful European economies, Germany, the United Kingdom, and France, signed a letter calling for limits on those bankers' bonuses.

After the G-20 fin-mins, I spoke to the French finance minister, Christine Lagarde, and asked her, because she was very much in favor of putting caps -- or at least it appeared to be caps on bonuses.


CHRISTINE LAGARDE, FRENCH FINANCE MINISTER: I think we've made some huge progress, and we're heading in the right direction. Compensation, massive bonuses that have been paid lately, were just not acceptable.

They were incomprehensible. They were reprehensible. And certainly our public opinions could not understand that after having suffered and continuing to suffer. Those amounts will be paid to traders that would continue the (AUDIO GAP).


QUEST: Christine Lagarde, the French finance minister.

Getting ready to be Mr. Spock.


ROBBIE BURNS, AUTHOR, "THE NAKED TRADER": You've got be Mr. Spock, that's the main thing. The Vulcan. Everybody knows Mr. Spock? Cool, calm, collected, not emotional. If you're Mr. Spock, you will make money in the stock market.


QUEST: Adrian Finighan has cracked the books, passed the tests. He is ready to trade. For our "Rookie Trader," the rubber finally meets the financial road, in a moment.


QUEST: We have the final installment tonight of our series "Rookie Trader." CNN's Adrian Finighan has been venturing onto the trading floor and speaking to the experts, trying to unlock the secrets of becoming a successful trader.

Did he succeed? You be the judge.


ADRIAN FINIGHAN, CNN INTERNATIONAL CORRESPONDENT (voice-over): Traders, characters molded by the sharp end of the world's financial markets. Wheeler-dealers consumed by the ebb and flow of money. Buy, sell, and turn a profit any which way you can.

DAVID BUIK, BGC PARTNERS: If money is not one of your goals, you're wasting time in this environment.

FINIGHAN: I'm on a crash course with the experts in the City of London.

UNIDENTIFIED MALE: You need to preserve your capital.

FINIGHAN: An apprenticeship so I can trade online, anytime, anywhere. This is my journey as a "Rookie Trader."

(on camera): Well, it's the morning of truth, so I'm off to work shortly. In fact, I've got to get my skates on, or I'll be late. But I've just placed my first trade using my own money. Using Robbie's criteria for research, I found a potential buy, technical analysis gave a strong buy signal, so I'm in a pound a point.

Now it's just a question of waiting to see what happens.

(voice-over): Placing my first small-scale trade is the culmination of an intensive trading program in London's financial heartland.

(on camera): I'm quite nervous, actually. I feel like the new boy at school.

UNIDENTIFIED MALE: Adrian, hi. I'm Ryan (ph), nice to meet you.

FINIGHAN: Ryan, pleased to meet you. I'm your "Rookie Trader."

(voice-over): Traveling between different companies, I've learned how to trade using an online platform.

UNIDENTIFIED MALE: Click on the "Place" button, it has gone green, and we're now live into the trade, so.

FINIGHAN: The jargon.

UNIDENTIFIED MALE: . spread betting.

UNIDENTIFIED MALE: . margins and exposure.

UNIDENTIFIED MALE: . contracts for difference.

UNIDENTIFIED MALE: . (INAUDIBLE) and stop-loss orders.

UNIDENTIFIED MALE: . potential for the upside.

FINIGHAN: The different markets.

UNIDENTIFIED MALE: The stock markets and indices like the Dow and FTSE.

There are currencies, pound against the dollar.

FINIGHAN: And the theory.

UNIDENTIFIED MALE: If you can just put in a small amount of your own capital to take out a much larger position.

FINIGHAN: When it came to deciding what I was going to trade, I sought the advice of Robbie Burns.

(on camera): Where do I start? Do I start with stocks, spread betting, CFDs, foreign exchange? Where in the market do I start?

BURNS: Well, definitely not foreign exchange. Definitely not anything where the prices move up and down like crazy all day, because you're going to -- it's going to drive you mad.

I think people are better off starting with a smaller (INAUDIBLE) which don't move around so much. And just -- even just identifying companies that -- that maybe just their profits are rising, their dividends are going up, and it looks to you like they have a good business.

FINIGHAN (voice-over): Robbie's trades and rather inspiring balance sheets are published on his Web site. He is testament to what can be achieved from the comfort of your own home.

BURNS: I try and ride part of a trend. So if the stock market is going up, I might not get in at the bottom of that rise up, or I might not get out at the top, but as long as I've got some of the journey, I'm happy with that.

FINIGHAN (on camera): You know, I've learned so much in such a short time. And I've been surprised at just how readily I've taken to it. But knowing how to trade the market is one thing, knowing what to trade and when is another matter entirely.

UNIDENTIFIED MALE: Trillions of dollars going through that FX desk every single day.

FINIGHAN (voice-over): Whatever you trade, I can't escape the thought that it's nothing more than sophisticated gambling.

UNIDENTIFIED MALE: So over in the corner there we've got the ICT, which is "Indices, Commodities, and Treasuries."

FINIGHAN: Not a game of pure chance like roulette perhaps, it's more like backing horses at the races. You might bet on a thoroughbred with form, but you can't guarantee that it won't fall at the first hurdle.

BUIK: Is it gambling? Yes. It's a bet. Let's not try and dress it up as something that it isn't. It is a straightforward bet. It's your hunch and pitting your wits against the marketplace. And there is a huge element of risk.

FINIGHAN: With this in mind, I got to grips with what really lies at the core of successful trading.

Flair and being able to smell a deal is part of it, but it's really governed by risk management.

UNIDENTIFIED MALE: The most important thing in trading is to be aware of the risks.

BUIK: Well, your risk-reward ratio is very important.

BURNS: Well, you've got be Mr. Spock, that's the main thing. The Vulcan. Everybody knows Mr. Spock? Cool, calm, collected, not emotional. If you're Mr. Spock, you will make money in the stock market.

BUIK: The best traders in the world are those people who know how to take a loss.

FINIGHAN (voice-over): It's not easy to cut a losing trade and swallow your pride.

(on camera): And more than ever, that's when the mind comes into play.

ASHRAF LAIDI, CMC MARKETS: You don't have an emotional relationship with a price, with a stock, with a currency. You have that with human beings. You know, therefore you have to be able to separate yourself from losing trades.

FINIGHAN (voice-over): I was fully prepared to accept a loss and put my first trade down as a learning experience. But somehow my tentative approach and thorough research has paid off.

(on camera): Now my first trade has gone like a dream. My research led me to a company in the defense sector. Technical analyst gave me a buying-in point. I went long, a pound a point, a couple of days later, the company released its annual results, which were fantastic.

And look what happened to the share price. Now I didn't ride all the way to the top there, I got out about 88 points up with a nice profit.

All my hard work has boiled down to this and I have to admit it feels pretty good.

(voice-over): But, one swallow does not a summer make, and time and again, I've been warned not to get trigger-happy or overconfident.

BUIK: People who trade too much inevitably get into trouble.

BURNS: The moment you feel smug, clever, where you're making money in the market, it will come and bite you.

FINIGHAN: Like most things in life, you get out what you put in. And that means profit only comes through hard work.

It has been an extraordinary journey, but being a rookie trader sure is tough.

(on camera): So that's it. I'm trading on my own and it feels good to have made money on my first trade. OK, maybe it was beginner's luck. I know that no trader can win all of the time. I'm under no illusions that I'm only just beginning to learn how to trade. But if I can do it, anyone can do it.

And I'm going to continue to trade the markets, and I'm really looking forward to the challenge.


QUEST: Adrian Finighan joins me now to review exactly what he learned over the course of his "Rookie Trader" experience.

What's the one thing you take away from it?

FINIGHAN: The one thing that I take away from it? Anything is possible if you put your mind to it. It's knowing what you are doing that is important here.

I mean, you've been very skeptical about this right from the start, haven't you? And I've been thinking about this long and hard because you've sort of pooh-poohed the idea as we were going along. And you can't understand why, A, I haven't made a fortune, or, B, much more likely, lost my shirt.

And that makes me wonder, have you had a bad experience with trading in the past? Have you ever dabbled in shares and -- because I have, I've had a bad experience in the past. And I realized that my bad experience was down to the fact that I didn't know what I was doing.

QUEST: No, well, I -- my skepticism about this was whether or not a novice -- well, is there such a thing as a "trading mentality"? So it doesn't matter whether you're trading stocks and shares in the stock market, or fruit and veg in the backstreet market?

FINIGHAN: Yes, there is. There is undoubtedly something that I think some people are born with, others.

QUEST: Right.

FINIGHAN: .me, we have to learn.

QUEST: I don't think you can. I think you can learn to trade in markets that are moving in your direction. And you may win most times -- a lot of the time, but you'll lose your shirt eventually.

FINIGHAN: Yes. But, I mean, you as a journalist, on any given day, you know enough about what is happening in the business world to be able to come in here and do an interview off the top of your head on any given subject, right?


FINIGHAN: And it's -- what I'm doing at the moment is, as far as trading in the markets is concerned, is learning about the playing field. Is trying to absorb as much information as I can so that when I spot the opportunity, I can trade.

I'm still trading at very small, low levels at the moment. My profits and my losses are not what I.

QUEST: You lost?

FINIGHAN: Yes, I had lost. And I had fallen into a lot of the traps that the guys said throughout my training that I would.

QUEST: When.

FINIGHAN: And I was determined not to fall into those traps.

QUEST: What about greed? Where is greed in all of this? Greed, greed, unashamed greed.

FINIGHAN: You have to be motivated by money. You asked me -- when we started.




FINIGHAN: You asked me when.

QUEST: Greed is good. I knew Finighan eventually would come up with "greed is good."

FINIGHAN: You have to have a motivation. I mean, that's the whole point in doing it, is to better yourself, to make money. But, you know, when we started all of this, I promised that I would come back and teach you.


FINIGHAN: And you asked me a question. You said, are traders responsible for the economic mess that we're in? OK. And I thought long and hard about that. I don't think we are. I mean, the economic mess we're in is caused by people inventing these ridiculous derivatives-based investments.

Traders, on a day-to-day basis, working at banks, are looking to make -- they're gambling with huge amounts of money to make small percentage profits.

QUEST: Gambling, gambling, gambling, gambling.

FINIGHAN: Yes, gambling. Yes, but.

QUEST: Oh, come on, all right, look.


QUEST: Traffic lights.


QUEST: So red, you lost; amber, you're even-steven; green, you've made money. Where are you overall on your portfolio?

FINIGHAN: Green. A small amount, but green. And I'm nowhere -- and I haven't made a fortune yet. And I haven't made enough to live on. But, you know, perhaps enough to.

QUEST: Thank you.

FINIGHAN: . have a nice night out.


QUEST: . Adrian Finighan.

When we come back in just a moment on this program, stick with the stimulus says the U.S. treasury secretary. It's the second part of my exclusive interview with Tim Geithner at the weekend. We'll hear what he says about the state of the United States economy, and the way forward.



QUEST: Good evening. I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN.

More now from Timothy Geithner, the U.S. treasury secretary. I asked him if he had been satisfied with the level of movement seen from the G-20 finance ministers this weekend on the question of exit strategies.


GEITHNER: The strategy we're going to embrace will evolve as growth is established. So the force of stimulus will have to be recalibrated as the conditions for recovery take hold. And you're going to see a different mix across countries, and you're going to see a different mix across fiscal, monetary, and financial.

So -- but the basic imperative, again, if you think about the lessons from (AUDIO GAP) crises, is to (AUDIO GAP) we do enough long enough so that you really have a recovery in place before we shift to restraint.

Because the big mistake many countries made in the past has been to move too quickly to restraint.

QUEST: But do you see the need to start articulating the fiscal exit strategy now? I mean, the chairman of the Federal Reserve has already started to articulate a monetary exit strategy.

GEITHNER: As have we. In the United States, in February, the president put out his first budget. He made it clear that the recovery (AUDIO GAP) and after growth is established, we need to bring those deficits down.

But you're exactly right -- for the measures we take in crisis to be effective, people have to be confident that when that crisis is over and growth is back, we will reverse those measures. We'll walk them back.

And you're already seeing that...

QUEST: I hate to push it, but when is that going to be...


QUEST: ...because the danger, as we're seeing within the G20, is some countries -- like China, like the -- South Korea and India, you've got 6, 7, 8 percent growth. You've got France and Germany starting to grow, the U.K. in recession, yourselves moving out.

So when?

GEITHNER: Well, I think when it's appropriate. Right -- right now, still, the big risk for us and the big challenge is still about growth. And I think that's a broadly shared view across the room.

Now, it's very important for people to understand, again, that the strategy will evolve as conditions improve. And the scale of force that's required in terms of policy will diminish over time. And that's a -- that's an appropriate recognition.

QUEST: The discrepancy that now exists between the financial markets and the way the stock market has lord ahead (ph) and the real market's job loses, it's starting to get people wondering what's going on.

GEITHNER: I don't think -- I don't comment about markets, Richard, as you know, and -- and I won't comment on the markets. But I don't think the disparity is as great as you -- as you think, in the following sense, which is that what's happening is real. There's a real improvement in the underlying economic conditions.

So you are now seeing growth in posi -- positive territory. And it's true that unemployment is still unacceptably high. And it's true that job losses are still at an unacceptably high rate. But the pace of the deterioration has slowed dramatically and you're seeing real improvement.

Now, that is a necessary condition. It's not a sufficient condition for recovery.

QUEST: I was about to say, necessary, but not sufficient.

GEITHNER: Right. Right.

QUEST: When -- and you may not -- you may punt this straight back at me -- but when would you expect to see a turnaround in U.S. unemployment numbers and a job creation rather than losses?

GEITHNER: It's just -- it's just hard to know. And I -- I just generally don't get into the business, Richard, of -- of providing forecasts. I won't do that.

But it depends on the strength of growth relative to the rate at which the economy normally grows. So for the United States, you know, we normally -- we would expect it to normally grow at the range -- in the rough range of 2.5 percent over time. So even you need that growth significantly above that to bring down the unemployment rate fast.

QUEST: Let's talk about the long-term (AUDIO GAP) question is what did we learn, the moral question -- what did we learn?

Did we learn that we can no longer pay ourselves unnecessarily for the foreseeable future?

Did we learn that there has to be a morality to business?

GEITHNER: Well, I would think about it this way, we learned a lot of things and we're going to keep learning a lot of things as we reflect on this over time.

But a classic lesson is that governments acted too late and they were too tentative initially, underestimated the risk of a -- of a deep recession. And you need to have earlier, more coordinated forceful action if you're going to prevent these things from being enormously damaging. We allowed, again, too much risk and leverage to build up in the financial system. That was a classic tragic regulatory failure. It requires fundamental financial reform.

And the United States of America, in particular, came into this crisis without the minimal tools you need to help contain the damage of a crisis. So we did not have the capacity as a country to do the kind of things you need to manage the orderly unwinding of a large, complex, institution like AIG or Lehman. That was a classic failure.

QUEST: So Lehman...


QUEST: ...Lehman should have been saved?

GEITHNER: No. I said that what should have happened is the U.S. should have moved earlier to give itself the tolls necessary to not save institutions -- our job is not to save individual institutions. Our job is to make sure that we can limit the damage they can cause to the economy, to make sure that they can be wound down in an orderly process -- a process so that you...

QUEST: (INAUDIBLE) add wealth?

GEITHNER: Yes. Well -- or it's just they don't add more damage to the innocence...

QUEST: How...

GEITHNER: ...more collateral damage to the economic activity.

QUEST: One year on, was letting Lehman go a mistake?

GEITHNER: We -- you know, it's very important for people to recognize, again, the U.S. did not have the authority, in the absence of a willing buyer, to go in and save Lehman. It was only when the secretary of the Treasury, my predecessor, went to Congress and was able to get comprehensive legislation to put capital into institutions the U.S. has a reasonable arsenal of tools to help contain this damage.

And that came too late. But when it came, the U.S. acted very, very quickly.

QUEST: Finally, Mr. Secretary, did you ever think that you would have to preside over anything like what you've had to see?

GEITHNER: Well, when the president asked me to do this, it was absolutely clear that there was going to be enormously challenging.

QUEST: Unlike your previous jobs. They weren't...

GEITHNER: No, I don't think anything...





QUEST: Trillions of dollars, bailing out banks, virtually a restructuring of the entire global financial system. Did you ever in your university days and beyond...

GEITHNER: I don't think anybody would have claimed or could have claimed -- anybody who lived in markets or in policy could have claimed that they anticipated how severe this would be.

But I think what will define this crisis, in the end, will be how quickly policy moved, the world came together and did what was necessary to pull us back.

And what is remarkable about this crisis was the speed and force of that international response. If you contrast that to not just the '30s, not just the '70s, but to the '90s and the '80s, the world moved much more quickly and much more effectively. And that's made all the difference.


QUEST: The U.S. Treasury secretary, Timothy Geithner, talking to me this weekend.

Now, the news headlines. It has been a busy day. And Fionnuala Sweeney at the News Desk has been watching over things.


The Iranian president, Mahmoud Ahmadinejad, says his country is willing to take part in talks with the West, but he is setting a precondition. Mr. Ahmadinejad says discussions cannot include Iran's nuclear program. Topics would be limited to exchanging views to "solve the global challenges."

About 70 peopled have died in floods in West Africa. Ghana has been the hardest hit. But Burkina Faso, Mali, Senegal also are suffering. The torrential rains have affected hundreds of thousands of people across the region, damaging homes and forcing many to flee.

The man about to become Japan's next prime minister is pledging he'll cut greenhouse gas emissions drastically within 11 years. Democratic Party leader Yukio Hatoyama says he's planning to make good on a campaign pledge to slash emissions by 25 percent from its 1990 levels.

And when left is right -- Samoa has made a big switch to driving on the left-hand side of the road. The change was to have taken effect about an hour ago. The prime minister says he made the move because it's cheaper to import left driving cars from Australia and New Zealand than right driving cars from the United States. No other country has tried something like this in the past three decades.

And those are the headlines -- Richard, back to you in the studio.

QUEST: Thank you, Fionnuala.

Fionnuala Sweeney at the CNN News Desk.

Each of the G20 finance ministers left London to return to a country that has unique problems and advantages. I caught up with Canada's finance minister, Jim Flaherty, and asked him whether he was surprised at the range of agreement that the G20 had managed to achieve in one weekend.


JIM FLAHERTY, CANADIAN FINANCE MINISTER: I was pleased. I mean I was concerned that we might have some divisions that would be evident. But, you know, crises focus the mind and we're still going to have a difficult time. Everyone feels that the economy has stabilized, but that there's no evidence of an entrenched, solid recovery. So that we're all still quite apprehensive and ensuring that we continue stimulus spending, that we don't talk about exit strategies yet.

So I think that's what brings us together.

QUEST: The mechanism of exit strategies will be as crucial as the date of implementation.

FLAHERTY: It will be very important how we do this, yes.

QUEST: What do you favor?

FLAHERTY: I actually, in -- in terms of exit strategies, I don't have a tremendous amount to do with it, other than the need that I will have in Canada to go back to -- to balancing budgets.

QUEST: But that's a fairly major obligation.

FLAHERTY: Yes. It's not as major for us as it is for some others...


FLAHERTY: ...because our deficit is about 3.3 or 3.5 percent of GDP. The Americans are something north of 13 percent of GDP and -- and so on. So it's more challenging for some other countries.

But the structure is the same. We're going to have to agree on timing, of doing this in -- in a cooperative way so that we -- we restore balance.

QUEST: When you look at the exit strategies, the risk of getting it wrong on either side is quite dire -- double dip on the left, inflation on the right.

How confident are you that you can navigate that, because it's never really been done before on this scale?

FLAHERTY: I -- I'm encouraged, let me say that. I'm encouraged by the discussions we've had here over this weekend. We only had relatively brief discussions about exit strategies because we all agree that -- that now is not the time to implement exit strategies. We can talk about them in a preliminary way, but it's certainly not the time to -- to move forward with any of them.

QUEST: So capital requirements -- the -- the U.S. is very keen that capital requirements and capital regulatory issues come as part of the package.

Isn't there a real risk that, longer-term, that gets put to one side because the crisis is over, things are getting back to normal, the stock markets are booming?

FLAHERTY: I think not, you know, for -- for this reason. I mean a lot of the banks got into a lot of trouble. And a lot of it had to do with inadequate capitalization. Our banks did not get into a lot of trouble because they were adequately capitalized. Their ratio was lower and they have been obliged to maintain that, because not only do we regulate, but we enforce our regulations. So that's important.

I mean and this whole issue of what executive compensation and the banks, if they have excess capital and some of that is taxpayers' money that's gone into the banks, surely it's a good thing to use that on the capitalization side of the banks, rather than to use it for executive compensation.

QUEST: When do you believe you will be in a position to say stable, sustained and -- for want of a better word -- domestic demand led growth?

FLAHERTY: In 2010, I would hope. I think we're -- we're still in the woods. We have to stay the course, but there are some encouraging signs. We're in September now. And I think 2010 will be better. I don't think there will be dramatic growth, but I believe we'll have solid growth in 2010.


QUEST: Canada's finance minister, talking to me at the end of the G20.

When we come back in just a moment, The Biz Clinic -- what does hot, fast food have to do with cold, hard cash?

Quite a lot, actually. John Vause gives us a lesson in burgernomics, when we return.


QUEST: If you want to understand currency exchange, look no further than the price of a burger.

In this week's Biz Clinic, CNN's John Vause finds out just how far your money will go.


JOHN VAUSE, CNN CORRESPONDENT: One of the complaints often made about China, especially by the United States, is that its currency, the RMB or the yuan -- is deliberately undervalued -- a conscious policy choice by Beijing to keep exports cheaper. There are complicated ways of working that out, but one informal way is known as the Big Mac Index. The people at "The Economist" magazine have been doing this for more than 20 years. And in their words, they're trying to make exchange rate theory more digestable -- pun intended.

So in very broad terms, this is how it works. In theory, a Big Mac in Washington should be exactly the same as a Big Mac here in Beijing, because the ingredients are the same -- it's a homogenized global product -- two all beef patties, special sauce, lettuce, cheese, pickles on a sesame seed bun.

So if a Big Mac in the U.S. costs about $3.57 and here in Beijing it costs just over 12 RMB, now, at current exchange rates, that means Big Macs in China actually cost a little less than $2 U.S. that means the Chinese currency is under valued by about 48 percent.

But burgernomics don't just end there. The bank UBS recently released a report looking at how long it takes a worker on an average wage to earn enough money to actually buy a Big Mac.

Heading the list, those in Chicago and Tokyo -- just 12 minutes of work for a Big Mac. In Shanghai, around 30 minutes. At the bottom of the list, Nairobi. It took more than two hours to earn enough to buy a Big Mac -- and that's a lot of work for just a bit of fast food.

John Vause, CNN, Beijing.


QUEST: And that, of course, is our Biz Clinic. And you can -- you can ask the questions that you wish to know about when the Biz Clinic is open for business.

So this is our new studio. Well, it is a studio with a completely different look. It's rather grand, as you can see. It's got lots of new toys for us to play with, lots of different -- we've still got the old traffic lights here, of course. We wouldn't get rid of them.

But the difference is, of course, we're going to show you how we put it together and we're going to explain about how we're going to use it. And you can find that sort of back story information -- well, you can find it in our Facebook page. You need to search QUEST MEANS BUSINESS on Facebook. And that is where you'll be able to learn about what we do, how we do it, why we do it and, well, give us your opinion on what we're doing with it anyway. You're up to date with news, business.

Guillermo is at the World Weather Center to bring you up to date on weather.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Hey, Richard, good Monday to you.

If you see that radar here, are going to think that a stormy weather system is going your way. Now, I must say that especially it's going to be bad in the north. I think that London is going to be fine and I'll tell you why.

We have this low that is coming here, along with strong winds; especially, we may see some delays in Ireland here. The severest of the storms are going to be affecting the northern sections, especially in Scotland.

And then we have an influx of warm conditions, because of the same interaction of the systems, especially here into England.

So we are not anticipating significant storms over there, but temperatures are going to be on the rise.

So look at the forecast -- cloudy skies and it's going to improve on Wednesday and then Thursday we have partly cloudy skies again. But you will notice the temperature tomorrow. It's going to be remarkably warmer than the days to come.

So it seems that the nice weather continues. We're going to see some clouds, though. The same is spreading a little bit into Scandinavia -- high pressure ruling here all over. We're going to see winds, though. And I'm talking about Italy, Inpulia (ph) and Calabria to the south. And then in here, this area, in Croatia, especially in Brieka (ph), Dospitz (ph), Gamin (ph), Striet (ph) and Dubrovnik regions, we are going to see some winds over there, as well.

In Switzerland, we have the chance of fires, especially in the western sections of the country. So look at that closely.

Well, we see a weather system over the Aegean Sea in here. It's bringing rain showers and clouds into cypress, the Middle East and in Turkey here, all the way up to the north. So expect that kind of pattern.

Now, we're going back to the 30s again. Paris is expecting 34 tomorrow; Rome, the same thing. The south, except that area where I was talking about that we have some bad weather, in Bulgaria, you see it's going to be in the low 20s and Istanbul 25; London, 26. So Istanbul it's going to be warmer than in London.

The winds affecting Ireland. Elsewhere, conditions are going to be fine -- Zurich, Copenhagen, Munich, Frankfurt looking OK; Barcelona, Rome, Milano.

In Portugal we see some problems, though, especially Imbraga (ph) in the north is going to be warm and Infada (ph) in the Algava (ph) region, you know, Gulf (ph), Lavos (ph), you know what I'm talking about, it's going to be with high seas.

Look at this. This is a system that is going to continue to move away from Japan, but it will bring high -- high waves, also some winds in the area and storm surge. So watch for that in Japan.

Apart from that, look, Hong Kong is going to be extremely warm. Taipei, with the windy conditions and then every -- everywhere else, things appear to be fine. In Malaysia, also some thunderstorms in the forecast. But Indonesia on the dry side.

We'll see you on the other side of the break.

Stay with CNN.


QUEST: The U.S. markets are closed, of course, for the Labor Day holiday. The European bourses trade in a fairly tight range. We'll obviously be looking closely tomorrow to see exactly how they open up.

And, of course, President Obama with his health care address later in the week. It's going to be a busy week.

Like financial institutions in other countries, some banks in Nigeria were rescued. It was part of the country's multi-million dollar bailout plan.

As Christian Purefoy reports, some top bank employees are also facing corruption charges. It all arose from how they allegedly ran their institutions.


CHRISTIAN PUREFOY, CNN CORRESPONDENT (voice-over): From the corner office to the courtroom, four of Nigeria's top banking executives find themselves facing charges of corruption. Another is missing and wanted by Interpol.

Their fall from grace follows an investigation by the central bank into the financial health of Nigeria's banking system -- an investigation that led to a $2.6 billion bailout last month.

The bankers have pleaded not guilty to charges of stock price manipulation, money laundering and fraud. But that's all they're saying.


PUREFOY (voice-over): The central bank says its decisive action has stabilized the system. But it's not stopping there. It wants debtors of the five failed banks, some of them among Nigeria's wealthiest businesses, to repay nearly $5 billion in what it calls non-performing loans. And it's asked the Economic and Financial Crimes Commission to recover the money.

FARIDA WAZIRI, ECONOMIC & FINANCIAL CRIMES COMMISSION: (INAUDIBLE) that was a case where the money was given for (INAUDIBLE) loans, which are paid from the electorate. It was supposed to be (INAUDIBLE) and paid back. It is (INAUDIBLE) in total and (INAUDIBLE) property. Proceed immediately.

PUREFOY: That is the equivalent of $19 million -- apparently given away while 70 percent of Nigerians live on less than $2 a day. Nigeria's central bank governor, only in office since June, hopes his reforms will reassure foreign investors.

LAMIDO SANUSI, CENTRAL BANK GOVERNOR: If there were issues in the past, if there were -- there was lax regulation in the past, if there was some tolerance in the past for some of the infractures and excesses of chief executives, that -- the game has changed.

PUREFOY: But Nigerians may take some persuading. In the past, high profile arrests have been followed by back room deals and no jail time.

On a recent visit to Nigeria, U.S. Secretary of State, Hillary Clinton, said anti-corruption efforts had "fallen off in the last year."

(on camera): When we caught up with the central bank governor last month, he had at least 10 security officers with him during the interview - - a sign that his confrontation with Nigeria's banking oligarchs is deadly serious.

The scenes now unfolding in Nigeria's courts are a dramatic test of the government's determination to tame a banking sector run riot.

Christian Purefoy, CNN, Lagos, Nigeria.


QUEST: Finally, tonight's Profitable Moment.

Kraft's $16.7 billion bid for Cadbury. It's reignited the hope that the merger and acquisition because might be about to reawaken after the great recession. It comes hot on the heels of Disney buying Marvel Comics for $4 billion and a variety of smaller deals that perhaps have slipped unnoticed.

Overall, the number of M&A deals in the United States, it's still down more than 20 percent year on year. But the thinking is that's about to change. The recession has forced cost cutting and many companies are now ready to do strategic deals where they make sense -- hence Disney buying Marvel and now Kraft trying to buy Cadbury.

You know, the obvious message clear in both cases -- this could be a once in a generation opportunity for some companies to take over competition. Even in battered times, opportunity is to be had. It now seems the time to take them. The message tonight -- watch out for more deals.

And that's QUEST MEANS BUSINESS for this Monday.

I'm Richard Quest in London.

Isha Sesay is up next at the International Desk.

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

And join me tomorrow, when we're in Berlin.