>> we are inside the magazine's headquarters in new york. >> will oculus swallow up facebook? that is all ahead on "bloomberg businessweek." ♪ david: let's talk about a story in the global economy section first of all. germany has opened its doors under angela merkel, allowing a lot of refugees into the country. you look at the economic implications of that. >> the question is -- what will all these people do once they have settled in?

there has been an effort among german-based companies to try to train a lot of these people. they have apprenticeship programs and internship programs and to some degree, they have tried to convert them into training refugees, give them real job skills. david: a big part of the german economy for a long time has been looking at that is a model of vocational training, giving students internships that will let them have jobs in these sectors for a long time. >> right, and the problem is in this case, although people are being trained, there are not necessarily enough jobs for them. daimler had a program and trained a bunch of people and hired relatively few of them. yes, it works to some degree, but only a few people got jobs. david: there's a piece on banking in silicon valley. we hear so often how hot the real estate market there is. you now have banks bending over

backward to help these very young millionaires -- i guess in some cases billionaires. >> there are very expensive houses in the bay area. david: more than $1 million. >> over $1 million. there are a lot of people who have only acquired wealth recently or are on the verge of acquiring wealth, so banks on -- want these customers and are creating this white glove service to lure them in. sometimes it's very quick turnaround, 48 hours or shorter, on if you get your mortgage. they'll do an analysis of assets. these people have shares. it's not all liquid, and they will help you analyze your portfolio so you know how much house to buy, but in any case, they are making it a lot easier to get a mortgage than it would be for you, david. david: [laughter] that is certainly true. is there any risk in giving loans to certain people that at

least on paper are very rich, any chance you are going to far? >> in some cases, they are not asking for a down payment or much of a down payment, so that brings to mind what happened during the housing bubble where there were very lax standards for making loans. lenders in this case say they are not giving loans to everybody, they are being very careful, but whenever you find standards being loosened and when there is an over eagerness to lend, you have to wonder if this will lead to some kind of a bubble. david: the cover story is on facebook and its big investment in virtual reality in oculus. sarah frier goes to meet mark zuckerberg, who is incredibly engaged with this as a topic. ellen: our writers had a very fun time at facebook. they went and visited with zuckerberg, and he is all in on oculus. they bought the company.

they have added executives to it. the founder is not running it, but he is still working there. zuckerberg sees huge potential, not just in film, but they are open to finding other uses for it, and they are going to sell the hardware, which is new for them. i think the hope is that every facebook user will eventually want an oculus. sarah: if virtual reality is in fact the next big thing, the next platform for communication, for humanity, then zuckerberg wants to own it and in a way that he can influence how everything works down to the hardware so that it can be something truly social. if you use a controller in avr world, you should be able to

point to things and give people thumbs up. it should do things like i tracking and mouth tracking to allow you to have real conversations and get to know people's personalities and developed avatars in the virtual world, whereas other companies like htc, playstation -- they are making virtual-reality devices that are so far pretty successful. it is hard to know the market -- it's early, but they are focusing on the gaming aspect of this. while zuckerberg sees gaming as sort of a gateway drug for virtual-reality, he thinks that the ultimate experience that facebook can own is this kind of shared presence where you and i even though we are on opposite sides of the country right now, we can feel like we are in the same room. david: i was struck as you talked about your interview how quickly he became philosophical. this is something he thought a lot about, really become a visionary of what virtual-reality could or might be.

sarah: this is something he deeply cares about and want to invest in. he told us that even as this hype cycle does its course, even as all different people in venture capital are investing in it, a lot of it because of facebook's $2 billion acquisition of oculus, even after all that dies down, which he thinks it will, facebook will soldier on and continue to champion this for the long term and make it a very integrated part of what facebook does, which is connecting people all over the world, and that is going to be difficult. it's going to be hard to see from the business side a return on investment because it will require a lot of research and a lot of manpower, and it will require facebook to build a hardware product, which it has never had to do before. i mean, they have had to build hardware for their data centers, of course, but never had to build a consumer product that

people buy in the stores, take home, and use. david: where are we in this process? they have the oculus rift. there were imperfections associated with that. to get to this new reality that mark talks about, are we 5, 10, 50 years out? sarah: zuckerberg explains this like we are in the palmpilot era of mobile phones. we are, like, the brick phone. we are just getting started in virtual-reality, and the future of this, zuckerberg takes us in our interview all the way into things like telepathy. maybe that is the next step. he's not kidding. he actually thinks this is something that can change the way we communicate and feel a sense of presence and shared experiences. what he is seeing out here -- if somebody told you in the year

1999 that your device would have, you know, your radio in it and your phone and your wallet and everything, and it would all just be there in one cell phone, you might have been like, "ok, yeah, maybe, in, like, years," but it happened very quickly. he does not think this will happen quickly on a year-to-year, quarter to quarter scale. he thinks it will happen broadly over the course of a decade. carol: how do you make virtual-reality come to life in a cover? david: we talked to creative director marcus vargas. >> not all negotiation processes work out as we would like, so we decided to take a fun approach, so we took the image and combined it to look like mark is actually putting the oculus on

someone, and it reflects a line of the story about the fact that they actually wanted gift everyone who is on facebook and oculus. -- to give to everyone who is on facebook and oculus. david: important for you to showcase what the device actually looks like. >> the beauty of the cover, in its dumbness and simplicity, you get the crucial elements. carol: zuckerberg might take exception to them being called nerd goggles. >> i think their current status in society is that they are not embraced by everyone. they sort of, to me, have a similar feel to google glass where only a certain group of people -- you could call them early adopters or nerds, which does not necessarily have a terrible connotation these days, but it is not a mass product. david: by having mark zuckerberg do this to someone captures the thread throughout the article is

real devotion to getting to the -- getting vr to bigger things. robert: it comes through in the article that this is sort of a personal investment. carol: thank you. next, berlin and the silicon valley lifestyle. david: plus, the high-tech gear olympians are wearing in rio this summer. david: all that ahead on "bloomberg businessweek." ♪

carol: in the technology section, we talk about erlang -- berlin. >> perhaps a decade ago, there were maybe a few dozen startups in berlin. it seems like outgrowth of the starving artist culture in berlin, the proliferation of cheap rent, and uninhibited party culture. the fact that you can play foosball at work in a lot of these warehouses has helped attract a crowd that is not as bound to a career at siemens or one of the big companies as they might have been in the past.

david: you look what happened in the united kingdom just a few weeks ago, the referendum on eu membership. does berlin see that as an opportunity to attract some of the startup talent? jeff: some of the politicians undeniably do. as of a few days after the brexit note, the local political -- vote, the local political party from berlin paid to set up a truck rolling through london with the words on it, keep, and -- keep calm and move to berlin. but the regional government just approved another 10 billion euros in funding for startup subsidies. david: how important is that the existence of this scene today? jeff: it seems like it is still fairly important because the startup community in the investment community is still pretty young. there isn't that much of a generational authority on

reinvestment or that many examples we can turn to. david: does this community look to silicon valley for a model of what it could become? jeff: undeniably from the t-shirts that the startup founders are wearing and the attention that they pay to executives when they come in to give a speech. david: you pose a question at the end of the piece -- that is, is this sustainable to continue on and on? what is going to make that possible, for berlin to continue to be a huge help for startups. jeff: they will need some breakout hits, companies that can compete on a global scale was startups coming out of america, china and others in the world that have the reach and the talent to really compete globally in a way that europe has struggled to. carol: next, why the democratic national committee did not fix the e-mail leak that they were told they had. david: that's next on "bloomberg businessweek." ♪

david: welcome back to "bloomberg businessweek." carol: in the politics and policy section, an investigation into the hacking of the democratic committee. david: why the dnc did not react when security officials found a security breach. we talked to editor allison hoffman. allison: the democratic national committee invited in richard clarke who had been a counterterrorism and cyber security expert under bill clinton and president bush. he was a longtime washington establishment figure. he has a firm that does security consulting. they invited his people in and said do a review and let us know what our risks are. the team was there for two months. this cost $60,000, which is not a ton, and not just a little. carol: they did a deep dive? allison: to some extent, and what they found was nothing good. they found that the dnc had old

firewalls and old systems which is not totally surprising and they did not have the most up-to-the-minute security on individual securities and they -- computers and they were at risk for being hacked or phished or any of the things that can happen to any company or any person. carol: and they did nothing. allison: fast forward to this week. the convention starts off with a bang. we know the people that leaked the e-mails -- ultimately, they were published on wikileaks, but the hackers were already in the system. we knew in march the hack could happen. when the security review was done, they were already in there. the good harbor team was not looking for hackers.

they were generally looking at where the exposure was. it turns out that the hackers were already in at the time poking around. we don't know exactly when the e-mails were taken, but if the dnc had listened to the report from last fall, they might have found these hackers earlier. carol: shame on them. the history changed because of these e-mails being made so public. allison: absolutely. the e-mails were embarrassing as any internal office units would be. carol: the timing was impeccable. allison: the timing was calculated. we know that julian assange on purpose said that he wanted to damage hillary clinton. he said in interviews. he really timed the release of these e-mails right before the convention. carol: why did he want to do that? allison: it is not clear. he seems to have a personal grudge against clinton specifically. she was secretary of state when wikileaks was putting out internal documents from the u.s. government and he is still hold

up in the ecuadorian embassy in london. so i think it really is personal for him and whatever his political beliefs are maybe feed into that. carol: when these conventions , when these political campaigns go on there is so much physical security at these events but what about cyber security? is this not high on the list? allison: nobody can imagine that it shouldn't be. we know the donald trump does not like to use e-mail and his campaign is very small. it's possible that it is only by luck that they have not been exposed to this. david: in the feature section, a photo essay takes us behind the scenes of the democratic national convention in philadelphia. >> the thing that comes across to me is this debate that we saw on monday about the future of bernie sanders and hillary clinton here in the party. how do you choose to capture that? >> the interesting thing about this convention, in direct comparison to cleveland, is that the sites were quite close.

a lot of the protest activities and official defense work more -- events were in the same vicinity. in philadelphia, things are more sprawling. if you cover a protest by city hall, it is quite a haul to get back to the convention center. so he definitely wanted to capture a lot of the protests that were taking place in the lead up, given the leaks from the dnc. david: focus in prime time are among these big party leaders, bill clinton among them, but this is not a photo squarely focused on clinton himself. carol: you do not get that it is clinton right away. clinton: right, no, you have to look. what we were trying to do -- his magazine will appear in a couple of days. subscribers get it the day after the convention is closed. we want you to see something that would not have come through in the wire photos. a picture that makes you look and lets you discover. carol: how did you choose? there were so many prominent speakers. you had michelle obama,

president obama. you had elizabeth warren and really, some high profile individuals speaking. >> we kept bill clinton partly because the secret service agent in the foreground really gives you a sense of the scale of the place and it makes a nice frame but for the most part we were not so interested in showing people but more in showing the gladhanding and the moving. there is still an element of wheeling and dealing and we were really try to get at that. you can see nancy pelosi getting miked up for an interview or jesse jackson or robbie fielding questions. that i think is so much of what happens in the surface that we wanted to reflect. david: text is important. you're showcasing the signs people are carrying.

>> definitely. as propaganda, this change maker sign that was distributed to the whole room. in one way, is very powerful, but that is also clearly a message they are pushing. it is well orchestrated, particularly at this time. you saw the same thing with the michelle sides. -- signs. then seeing this slapdash dem exit by bernie supporters is an interesting counterpoint that there is still an insurgent element. david: up next just how dangerous it is to clean up rio de janeiro's beaches. carol: that is next on bloomberg businessweek. ♪

>> i'm david gura. >> and i'm carol massar. >> the dangerous and deadly

business of cleaning up rio's beaches. and why the u.s. and japan may lose access to economic zones. carol: that is all ahead on "bloberg businessweek." ♪ david: many must-reads in the issue. in the company section, a piece that looks at black executives at the biggest companies in america. there has been a decline since president obama came into office. >> the troublesome part of it, if you look at the pipeline for executives, people at levels who could soon be chief executives, there isn't, there aren't significant numbers of black executives in the pipeline. david: the opening remarks section deals with colombia. when you look at how many internally displaced persons in colombia, it is the second

biggest nation for that in the world. that surprised me. >> it also surprised me. the interesting thing about colombia is the are trying to do something about it, and they have a program where they are trying to look at families that lost their homes and see if they are due to the political displacement and result of the civil war, and get them homes again. it is complicated. they need to look at records and find land. and only something like 3.4% of the families have been resettled, but it is an organized effort. >> what brought this about? a few weeks ago, there was news of a deal with the farc. has that what brought this about? >> that is what i think brought this about. of course, this kind of situation has happened in so many countries now. if you think about what syria will be look like when the civil war is over, there will be so many people who would have been displaced.

there are countries in africa with the same thing has happened. the question is, how will they get resettled? maybe in the end, colombia can show the path. david: the summer olympic games in rio are a few days away. one of the stories told us how polluted the body of water in rio is. you have a feature in this week's issue about a woman who is having a hard time getting it cleaned. she was murdered in her car in broad daylight. what do we know about why that happened? >> priscilla was an executive in a government office, or an agency that was a quasi-public agency charged with using money from the international development bank to try to clean up the bay. brazil had promised to get rid of something like 80% of the feces. the question was, could they do

it? of course they cannot do it in time. she was charged with looking to make sure things ran efficiently, and that there was not corruption. and she was hard to deal with, she was a tough person, and would really clamp down on people and check things out. and she made some enemies. and she ended up dead. she was shot in her car 13 times by someone who clearly knew her routine. she was about to get out of her car and take a subway to work. we look at how and why that happened. david: i talked to a reporter. >> she came from a very humble background. she was raised on the edge of one of the most rough and tumble favelas. she pulled herself up by the bootstraps in a way that does not happen in brazil. david: and found dead, shot 13 times. that case still open? >> it is still open.

it was a clear hit. it is not something that happens often here. she was getting ready to go to work. it was clear -- robbery was not a motive. it wasn't a traffic argument. she was parked. the cops have ruled out -- they had one suspect in her personal life and they ruled them out. the mainline of the investigation is related to her work. david: you mentioned she was working on cleaning up that bay in rio. how polluted is it and how monumental is getting it cleaned up? >> how polluted it is depends on who you ask. it is a little tough to say. the state water and utility say half of the sewage that goes into the bay is treated. others say it is like 20%. federal police have opened up an investigation in that utility for charging millions of

residents to treat their sewage and did not actually doing it. david: a lot of foreign money pouring into brazil to make this happen, especially before the start of the rio games. why has it been so hard to get this bay cleaned? >> when priscilla came with the new executive coordinator, they found things incomplete -- in complete disarray. he says as much. where their accounts begin to differ is her former colleagues, friends, family, say she was put in charge of going through these contracts, finding irregularities. really halting the advance to make sure these contracts were done in the right way and people were not stealing money. whereas, the coordinator, and a -- and now former coordinator says that was not her job. he disputes that.

as of now, we are less than six months away until this loan actually expires. $450 million. they have spent 13% of it. in part, because of this intense scrutiny that she gave, and working with her boss, working in his service, they were both implementing a lot of checks and balances, and that slowed things down tremendously. carroll: focus on rio and the olympics. athletes will be wearing high-tech gear by sponsors. >> there is a special kind of fellowship you develop. you mentioned the nba, these are people who play against each other, and now they are playing together. it was also mentioned, there is no purse at the end of the olympic games. it is not a tournament to help you pay the bills.

at least immediately. it could lead to sponsorships down the line, which in turn lets you keep training in the long-term. david: you look at the triathletes. they have a customized bike. how much say does she have in what she rides or wears? how much is determined by the u.s. olympic committee? >> whether it is their agent, making a deal with an individual brand, but it really depends on the individual athlete. the women's rugby team, their outfits are sponsored but their shoes are not. they get more choice there. one of the athletes, i will not say which, we shot her wearing the wrong watch. a watch from a company she was not sponsored by. we had to make sure not to show that. david: is there something in common then motivates all of these athletes? you point to one who is from flint, michigan. >> a lot of them seem to really like their sport.

like the idea of performing well and performing on behalf of their teammates, too. it was a fun section this week. i feel like i made friends. >> up next, the dispute over the south china sea could see the u.s. and japan losing territory. >> citibank shrinks it global footprint. we will talk about their new strategy. ♪

carol: welcome back to "business week." i'm carol massar. david: and i'm david gura. you can listen to us on the radio. sirius xm 119, 99.1 fm in washington, d.c., and am 960 in the bay area.

carol: in the global economic section, a look at what is at risk in the south china sea. >> there is an application for the united states and every other coastal nation because we have a 200 mile exclusive zone projecting from our shores where we have exclusive use of fisheries, an exclusive right to drill for oil, subsea mining, and those claims extend only if it is a habitable piece of land. david: meaning what exactly? >> meaning you can live on it, or that people have lived on it, and that it could sustain human life without outside intervention. you could grow crops and have freshwater. the decision of the south china sea implies, that is a high bar to meet. and some of the islands around which the u.s. has an enormous exclusive economic zone might no

longer be entitled to it if judges and arbitrators decide to follow the guidance of this tribunal. david: looking at the mass, an -- map, an incredible amount of ocean could be called into question. >> the exclusive economic zone of the united states is bigger than the land area -- it is huge. it is a big deal that has not gotten a lot of attention, but will over time, especially if some enterprising lawyer goes ahead and uses this. it is not officially a precedent but before a tribunal it could be used in a persuasive way. for example in japan, they have

an island the size of this studio and yet they have 200 miles in every direction around. keep the chinese out. keep the taiwanese out. keep the koreans out. those kinds of things. others are crying foul. they will be saying that this is not a habitable place. david: what are the economic outcomes of this? >> what could happen is possibly negative. the united states is a pretty good steward of its fisheries. they make sure they don't get over-fished. that is harder to do if the exclusive economic zone goes away and this becomes open seas, a free-for-all, and hard to control. some foreign trawler scarfing up enormous amounts of fish and killing the fishery forever. david: in the finance section, how citigroup has shrunk its global footprint. carol: here is a reporter. >> the banks that had global empire was citigroup and hsbc. these were mergers of banks that

were present in previous colonies of the british empire and other places. and in some cases, providing typical banking services to everybody. small, large, whatever. but now, everybody is pulling back and saying we really want to focus on the most profitable client and the most profitable -- in the most profitable sense. they are not necessarily leaving all of those countries. citibank is still boasting that they have 80 plus trading floors around the world. but they don't want to be everybody's banker to everybody. david: there are wonderful graphics to this piece. they used to be in russia and are no longer in russia. it has reduced that footprint somewhat. >> in turkey, citigroup had 50

branches. several thousand employees. they were in all the major cities and small places. now they have a handful of branches, which only do corporate banking. david: we had this financial crisis in 2008. how much is this a philosophical transition? that these banks decide this is not the line of business they want to be in versus them realizing there is a new regulatory regime and it is more difficult to be in that kind of business? >> the cost of doing business is more tangible. the shareholders need to have a bigger stake in what is going on and have to take a bigger risk in what is going on. before the crisis, average shareholder's equity was 2% of total assets. that was nothing. in that case, you don't have to worry about, how much capital do i have to put in my turkish business?

and others. you do not have to worry about that. if we open branches there, we make some money, doesn't really return our investment back? return on investment was not an important deal now when you have to have capital in your global business as well as in every country because of all the regulations apply to all the banks around the world. -- basel regulations apply to all the banks around the world. each of those countries need to have a lot more capital. than the economics does not look as attractive. david: next -- local tv news fills up the dial. carol: and what trump executives may have been doing in cuba years before the end of the embargo. ♪

carol: welcome back to "bloomberg businessweek." i'm carol massar. david: and i'm david gura. carol: in the policy section, local tv news viewership is falling. david: i talked to reporter tim higgins. >> we have seen 1/3 of the ad dollars for local newscasts go to campaigns across the country. david: is this led by supply or demand? are campaign committees buying -- demanding more at time? are they saying you could more tv news on, there will be more tv for people to buy and they will buy it? >> that is a good question. campaigns want to be on local tv, local news, "wheel of fortune," "jeopardy." you cannot add extra time to wheel of fortune and jeopardy, but you can perhaps add more hours of local news. that is what we are seeing. the question is, does the extra hour bring in more viewers? that is debatable but it allows the companies to allow for more advertising campaigns such as

car dealers who want to reach those higher educated, maybe higher income people that tend to watch local news. david: square something, tim, if you would. it seems like the trend in political amortizing is to target as small as possible. this seems to be running counter to that. >> you are right on. the big story out of 2012 was how the obama campaign targeted specific, potential voters through various, shrewd, buys on local cable. what is different here is that it is the rule of thumb in political campaign management and so many a political operations. they naturally gravitate toward local news because that is what the candidate is accustomed to watching. if he or she is turning on their local tv they want to make sure they see their ads because they see their competitor's adds there. it feeds into that. at the end of the day, tradition drives a lot of this.

that said, you are seeing some campaigns becoming more sophisticated in trying to target these other stations. as you get closer to election day, people are spending lots of money and saying get rid of all the money we have, a zero-sum game, it is what it on what we know. >> in the features section, an investigation on what trump executives were doing in cuba during the embargo. >> people who are responsible for finding and developing golf sites around the world began traveling to cuba for this purpose. they looked at various sites in cuba. one of trump's environmental consultants, he said he had been there a dozen times in the last

five years. david: could a company like the trump organization go down? >> the way it would have to work -- it is sort of the complicated answer. basically, the result of the obama administration loosening things up in january of 2015 is viewed to permit companies to go down to cuba without any prior permission, and suss things out. it is on the honor system. they do not have to apply for a specific license to potential -- to explore potential business opportunities. depending on how far down the road they get, they would then, certainly before finalizing any kind of deal, would have to come to the u.s. treasury department, and get approval with a license to consummate a business deal in march. both starwood and marriott announced they received approval to do deals like that. if the trump organization wanted to pursue something like this seriously and legally, they they would, at a certain point, have to get a license from treasury

to finalize a deal on the island. david: the trump organization has properties, golf courses, around the world. what has donald trump and members of his organization said about their designs on cuba if anything? >> donald trump has spoken briefly. he said that he agrees with the liberalization of relations with cuba. he was asked point blank, would you open a hotel in cuba? he said "i would." he basically said, i would not do it under the current law which requires u.s. investors to be minority partners in whatever adventures they do on the island. in response to our reporting, eric trump, his son who oversees the company golf developments said they are monitoring the state of the market in cuba. that is the extent of what they had said publicly. david: how might all of this change if donald trump is elected president? what would that mean for the company and the company's

interest in getting into the cuban market? >> who knows? we would have an unprecedented situation where you have a billionaire businessman with interests all over the world who is then the most powerful policymaker in the world in a position to really influence policies that are affecting his businesses. the short answer is, who knows? but it is not difficult to see how there is tremendous potential for conflicts of interest. carol: bloomberg businessweek is available on newsstands now. david: and online. carol, what was your favorite story this week? carol: facebook. i love how he is pumping in money and time, like nasa in terms of expanding virtual reality. david: he was philosophical as well. carol: how about you? david: berlin in the wake of the eu referendum in the u.k.

high aspirations to be something like silicon valley. carol: it is a great story. we'll see you next week. ♪

erik: coming up on "bloomberg best," the business stories that shaped the week in business around the world. yahoo! sale finally goes forward while european banks reverse a downward trend. >> the sentiment is really bad, valuation is really bad. and the results are really bad. >> we have been very consistent in saying we do not need to risk capital. erik: the fed continues running in place, while japan takes more steps down the stimulus path. >> the steps they took were pretty minimal. they had to do something. they did the bare minimum. erik: from tech to pharma to autos to oil, earning reports come fast and furious. >> we have definitely seen a very strong tailwind effect from currency.