carol: welcome to "bloomberg businessweek." i am carol massar. julia: we are inside the magazine headquarters in new york. carol: wells fargo's ceo is done apologizing. julia: in the u.k., the serious fraud office is getting a little too serious for some. carol: how defective guns became the one product that cannot be recalled in the united states. julia: all of that to come on "bloomberg businessweek." ♪ julia: i am here with joel webber, "bloomberg businessweek" editor in chief. great to have you with us.

the u.s. cover story this week is wells fargo, one of the biggest banks in the united states, the biggest home lender. had a pretty challenging year. a scandal that dates back a decade, concerns over incentive structures, fake accounts being created. they have had a tough time. joel: this all came to a head about 16 months ago with a sham account story. they were cross-selling and basically driving up the number of products that people had, and in many cases, people did not know that they had these accounts. two years ago, if you would have asked anyone in banking who was number one, they probably would've said jpmorgan, and oh, wells fargo is a send in. that story has really changed the last two years. it almost felt like every rung wells fargo could've hit on the way down, they managed to hit. julia: everyone was outraged, regulators and politicians were outraged. joel: that epic moment in congress, holding the bandaged

hand up. julia: into the breach. joel: now the question -- and we had an exclusive interview with the ceo and said, what is the plan? it is a fascinating question because just a couple weeks ago, as outgoing fed chair janet yellen's final act, somewhat unexpectedly put handcuffs on the bank and said, you cannot grow your assets anymore. so that is a major strategic challenge for an institution like wells fargo. and mr. sloan's reality that he is going to have to wrestle with his how do you make this business make sense? julia: there are a lot of people looking at this now and saying, this will be a huge challenge. they are going to lose market share. joel: the competitors are like sharks in the water. saying, oh boy, this will be great for us. julia: the legacy issues.

and one of the interesting things that came out is this idea that they want to change the narrative. they are kind of done apologizing now. how do you balance those two things? joel: one thing that was interesting was the idea that actually this is an insanely profitable company. six companies, since 2010, six publicly traded companies, have made more than $10 billion in profit a year. wells fargo happens to be one of them. so for all its flaws, they also has some deep strengths they are going to play from. as you start looking forward, they are known as a consumer brand, and they do have opportunity in places like banking to somewhat underserved markets, like hispanic and black communities, and that is viewed as a major advantage. the other thing you will see is them moving into the credit card space, and going to consumers and customers they have never gone to before. we talked to a lot of analysts and investors about this. you get both sides of the coin. everyone is waiting to see how

this plays out. but the idea of where does this bank over here is what we wanted to explore in this story. julia: this could be a $400 million chop to profits this year, was tim sloan daunted or do you think he is up for the challenge? joel: they basically apologized. all he has done since coming is said i am sorry, i am sorry. and i do not know if he can say that enough. to get over some of the cultural things they have had to wrestle with. he has to kind of keep doing it. but, to some extent, they are over apologizing now, and they have to move on. he has to find his way. julia: from the u.s. cover to the european cover. a body that tackles challenges just like this is the sfo, the serious fraud office in the u.k. joel: this is a fascinating organization. and the theme that viewers and readers should know about this is it is a serious times moment at the serious fraud office. the serious fraud office is responsible for basically looking at u.k. businesses and

making sure that things are not corrupt. and in the moment of brexit, where the u.k. is actually trying to retain as much business as they can, stunningly enough, this organization is somewhat in the crosshairs because they are doing their jobs almost too well. can you imagine, like, they are going after white-collar criminals, and now the government is looking at them, and there is a lot of speculation that maybe this organization, as it exists right now, will not exist going forward, because they have done too good of a job at cracking down on business crimes. julia: yes, certainly if this prime minister remains in her seat. let's get to our reporter suzi ring, who has that story. suzi: this serious fraud office is an agency in the u.k. that has been around for about 30 years and is our main criminal prosecutor, particularly focused on fraud and bribery. so it will be the prosecutor behind most of our white-collar criminal cases, roughly

equivalent to the u.s. department of justice's fraud section. in 2012, when david greene came in, the agency was really at an all-time low. it had just managed to avoid being wrapped into another agency called the national crime agency. the government, theresa may being home secretary at the time, was keen for it to be joined with other prosecutors and regulators into one agency, that was focused on a wide variety of things. it just avoided that. but morrell was at an all-time low. a lot of staff had left. it had just botched a prosecution into the tchenguiz brothers, well known real estate brothers in london, and being derided in court as having acted extremely recklessly. so david greene joined an agency that was at an all-time low and needed to develop it from there. he had, in with a background as a barrister, trial lawyer in london, having prosecuted cases like this for 30 years, and also had government experience, so he knew what the path of a civil servant was like. extremely helpful. he was starting from a low base but decided he wanted to put the

agency back on track doing what it was supposed to do, and that was prosecuting top-tier cases of white-collar crime. julia: his term ends in april of this year. his successor was appointed by may's attorney general. as you said before, she has already charts to full this agency into a separate one. where does the future lie for for the cfo? the sfo? suzi: this is a really key moment. what we have seen is, with brexit a year away from now, going to be leaving the european union, there is a lot at stake. in the conservative manifesto last year, post the brexit vote, when everything should be focused on brexit, theresa may once again put in the manifesto to close the serious fraud office and wrap it into the nca, which brought a lot of questions as to why that was such a focus for her. that was absolutely nothing to do with brexit and where her focus should be, and it raised questions around, that was the

third time seeing threats to the serious fraud office, even after having such a successful run under david greene. what does that mean for a post-brexit future when the u.k. is looking for investment from other countries outside the e.u.? are we trying to send the message we will not be tough on corruption? what is may and her colleagues trying to achieve, this constant ambition to wrap the sfo into another agency? carol: ultimately, it will be a big message sent to the u.k. and the world, depending on what happens after his term ends. suzi: exactly. we are waiting to see who his successor will be. we should find out around the end of march. what happens from that point, david greene has obviously had a good and successful run over the last six years. he has left the agency in a very good state for someone to take it forward in that vein. it will be interesting to see who may's attorney general will appoint to take over that role, and what kind of briefing they are given as to how the agency should be going forward.

julia: the u.k. is desperate to make sure that, post-brexit, they still get increased investment, so you can kind of understand the concern here, and the thinking, but it is the message here that the u.k.'s ability to fight corporate crime will be seriously diminished if the sfo is not a stand-alone agency as it is today? suzi: that is the view by most people in the industry, because the sfo has achieved so much in the last six years in terms of becoming a credible agency, a credible deterrent. if the sfo is wrapped into another agency, any merger or change, which would inevitably come with teething problems and put off focus for a while. what message would that send to people who want to invest in the u.k. not through transparent means, not through the correct processes? is that going to get rid of all the work that greene has done to send a message that london does not tolerate corruption? and actually open ourselves up to investors we do not want investing in our country? carol: up next, the deadly consequences of having zero

government oversight of defective firearms. julia: and why sonoma, california should not rebuild after those devastating fires. carol: this is "bloomberg businessweek." ♪

carol: welcome back to "bloomberg businessweek." i am carol massar. julia: i am julia chatterley. you can find us online at

carol: welcome back to "bloomberg businessweek." i am carol massar. julia: i am julia chatterley. you can find us online at businessweek.com. carol: and on our mobile app. in the features section, taurus handguns are being blamed for accidentally killing people. julia: but the question is will the government or the national rifle association do anything? carol: we talked to mike smith. julia: start by describing bud brown and the day his son was shot. mike: it was new year's eve, and they live in a rural area of georgia, south of atlanta.

his son, jared, was going out to do some shooting early in the morning, some hunting with his best friend, and he really wanted to use his dad's relatively new pistol. it is a firearm made by a brazilian firearm maker called taurus, who exports to a lot of different countries. handguns, rifles, and pistols. it is one of the most popular selling handgun makers in the united states. and so this was a taurus pt-145 pistol, which has a clip. it is not a revolver, and it is a very popular gun, or was for a long time. so this gun is the gun that went off without apparently anyone touching it, while it was in the holster, and after this tragedy, jared brown's friends started googling this gun, because they could not believe their friend had actually pulled the trigger. what he found was a notice from

the company saying that they reached a class action settlement, a lawsuit, and had agreed to fix, repair, or replace this gun model, and several other ones, because of potential defects. carol: and that is key -- fix or replace. it was not a recall. obviously, there was something, it seems, faulty with the safety mechanisms of this gun, so they said they would fix or replace it, but not recall it. julia: and nine others as well. michael: that is correct. it is nine different models of taurus guns that are covered by this litigation. and the company was very careful and very adamant about not being forced to call this a recall in its settlement with victims of misfires that had sued. what they call it is an offer to is, if you send in your gun, if you want to, if it is one of

these models, we will fix it or make sure it is working properly, or we will give you some money to buy a new one, or we will replace it. so that is basically what you might want to call a recall. but it is not really a recall in essence, because no one is telling them they have to do it. they are only doing it because they got sued and lost, essentially. julia: the crux of this is who polices that? when you have a company with lawsuits, 16 cases against it. which bureau, which commission, in the united states forces them to recall faulty weapons? michael: the simple answer is no government entity has the power, or the right, if you will, bestowed upon them to force a gun maker to recall a firearm in america. carol: wait -- julia: how can that be? carol: cars, food, teddy bears, as you point out in your story, are overseen by a government agency for safety concerns in this country, but nobody oversees guns?

michael: that is correct. not even the atf. the bureau of alcohol, tobacco, firearms. they do not either. they do not have the power. that is a result of an explicit effort by congress, supported by the gun lobby, if you will, the nra, to make it that way. julia: in the politics section, it has been five months since record-breaking wildfires in california. carol: local and state officials appear set to repeat those mistakes that put homeowners at risk in the first place. julia: here is our reporter, chris flavelle. chris: 2005, california just had one of its most expensive wildfire seasons. lawmakers are saying, how are we going to pay for this? ms. bautista was a policy analyst. she wrote a report that was incredibly prescient. she said we have a situation where local governments in these beautiful areas of california,

these pristine edge of the forest areas are building homes, and they are doing it in part because they know that california will step in and pay the cost of fighting fires that are almost inevitable. the way this part of the world works is -- it is a "mediterranean climate." you have fires all the time. they will happen. the question is, who will pay for it? so this policy analyst, in her 30's, did not have a lot of weight, said lawmakers, you better change these policies, or we will have much more expensive fires to come. fast-forward 13 years -- she was exactly right. as we wrote in our story, california seems to now be doubling down on those same policies that encourage building, perhaps with not much attention to the future risk of even more wildfires. julia: so what you have got going on here is local governments building houses in highly fire-prone areas, rebuilding where we have seen fires, and you are saying fast-forward several years, and everything she predicted has happened.

talk about the costs that we are now seeing, compared to what she was talking about back then. chris: the state of california just finished its most expensive fire season ever, in terms of state spending on firefighting, wildfire fighting. they topped $700 billion in the first seven months of this fiscal year. the previous record was in the $600 billion range, and this year is not done yet. as everyone notes, when you ask about wildfires, they used to be seasons. and now, it is almost constant. the real challenge -- i don't want to give the impression that local officials are making decisions recklessly. i think they are aware, based on my conversations, of the risk that if you build in the fire area, these homes could well burn again. i think they are struggling, though, with how to balance that future risk against the very real and current need for, a, more housing -- there is a housing shortage in california -- and, b, you have people that

were burned out and want their homes back. it is a real challenge. julia: up next, why fcc chairman ajit pai is not afraid of congress. carol: and xi jinping's plan to shut down virtual private networks in china. julia: this is "bloomberg businessweek." ♪

julia: welcome back to "bloomberg businessweek." i am julia chatterley. carol: i am carol massar. you can also join us on radio on sirius xm channel 119. am 113.0 in new york, 106.1 in boston, 99.1 in washington, d.c. and 960 in the bay area. julia: and in london and asia. this week's game changer is ajit pai. carol: he is the anti-regulation regulator at the federal communications commission. here is our report from todd shields.

todd: he would not say he is against net neutrality. he would say he is against rules put in place during the democratic administration that he says will diminish company's role and put government roll over top of companies. he ensures that consumers will have a better internet experience and that competition among companies will ensure the precept of net neutrality, which is no blocking, no throttling, clean flowing traffic. this is contested here at washington. julia: of course, the democrats will fight. he has a core base to battle on that front. as you eluded to, he has systematically reversing president obama's decisions. what is the endgame?

what is the past? what is he trying to achieve? joel: from what i can see of his biography -- and i've had the chance to interview him and watch him in action for a while -- he sincerely believes, so far as we can tell, that a problem with the communication sector is government intrusion. old rules that were in place for decades that need to be lifted. and that if they loosen those rules, the extremes will be better for everybody, for both companies and consumers. others say as he loosens those rules, companies will move to take advantage, to consumers' detriment. one arena that is contested right now with the net neutrality battle in essence out of the fcc's hands and in congress' -- is media ownership, where he is diminishing ownership, and sinclair broadcasting is looking to buy stations that broadcast to reach two thirds of the american audience. there is a critic on the fcc, a democrat, and says gee, our roles now are being for companies, and she objects strenuously to that. carol: he was appointed by president obama and yet he is overturning the net neutrality rule. tell us about his background. what makes him tick?

what is interesting about him? todd: he is a small-town success story. he grew up in parsons, kansas, a little town. made his way to harvard. made his way to university of chicago law. then became a federal judge and onto the justice department, where he worked in the antitrust department and became familiar with issues of competition. he did time on capitol hill dealing with competition and companies. and then he also did some time at verizon communications as a lawyer for them before mr. obama selected him as a minority member of the fcc. that is the way it works in washington. the fcc has three seats in the president's party, two in the minority party. so at the time, it was a republican's open seat, mr. obama selected him, and mr. trump elevated him to chairman. carol: in the technology section and on the opposite side of deregulation -- julia: virtual private networks, a centerpiece of chinese president xi jinping's crackdown on internet freedom. carol: the shutdown for vpns in china is march 31. we talked to editor jeff muskus.

jeff: virtual private networks, which you have probably heard about around the time edward snowden, which relates to similar privacy scandals in the u.s., are ways to disguise encryption to your electronic communications. typically, although you can set up a vpn yourself, it is a little expensive and tough to do. typically the way most people do it is pay $6, $12 a month to have another company route their electronic communications or internet traffic through another sort of virtualized software-created private server, generally crated on some sort of cloud at work, whether an amazon network or others. carol: how is that different from other internet service providers? jeff: it is virtualized, which is to say the traffic is disguised as though it is coming from another source, or it is routed around the world so that when you are visiting your gmail client or something, the traffic is disguised to look as though

you are not visiting gmail at all and you are operating from somewhere other than the u.s. julia: so this is the key. i could go in china, for example. i could be using my gmail, or trying to access my gmail. but to someone outside looking at me, i may not be in china. i may not be looking at my gmail. is that right? jeff: right. exactly. this has been a way that, for the past decade and change, millions of people in china have been able to circumvent, to some degree or another, what is known as the great firewall, this level of surveillance and censorship that underpins the chinese network. carol: how many vpns are out there? jeff: there are thousands, but at the moment, china is in the middle of an enormous internet crackdown that partly is blocking or outright banning hundreds of vpns, so far, over the past year. julia: explain what vyprvpn is, and how, at a time when china is cracking down, they have been able to survive.

jeff: partly by trying to stay one step ahead, whether by renting additional servers from amazon or other clients, when three years ago the chinese government engaged in sort of the first effort, according to vypr's president, to shut them down by finding what servers they were using and blocking them all. the solution is to rent more servers. to some degree. and then the other solution they have tried to hit on so far is to develop software in-house that can disguise traffic from their vpn servers as more legitimate chinese-accepted traffic, or as though it is coming from channels the government has approved. julia: up next, what extending xi jinping's presidency means for china and the world. carol: and how china is helping ethiopia reinvent itself as a manufacturing mecca. julia: this is "bloomberg businessweek."

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julia: welcome back to "bloomberg businessweek." i am julia chatterley. carol: i am carol massar. still ahead in this week's issue, the deepening cult of xi in china. julia: check your labels for "made in ethiopia." carol: and dubai is headed to mars. julia: all of that still ahead on "bloomberg businessweek." ♪ julia: we are back with "bloomberg businessweek" editor in chief joel webber. plenty of must-reads, but i want to hone in on the remarks

section, and some pretty significant moves we saw from the chinese president in his ongoing consolidation of power. joel: this is sort of a must read, because what has happened is china has removed term limits for its president. basically, we have a president who is extremely powerful, has done some amazing things from a reform standpoint, internally, and you will see him as the face of the country for potentially years. julia: president xi jinping could now be president, if this goes through, for many, many years. joel: it could become a lifetime position. julia: in terms of democracy and in terms of economic reforms, what does this ultimately mean? he has been trying to make all sorts of changes, some good, some concerning. joel: it does not feel like democracy, but it does speak to a lot of the reform he has been able to pull off, and his consolidation of power will probably help him continue to do that. it also just provides stability.

there is a theme in global politics right now -- the strongman motif that becomes, as democracy seems to have scaled back, we see strongman enter. we have seen that in russia and we have seen it in china. it is an ongoing theme. julia: i believe he has visited russia more than any other country in the world. what we also know and have seen is they have cracked down on some of the big chinese incorporates. to use your term, that stability. they also want to introduce that into the financial sector to a greater degree. what can we learn from the crackdown we have seen on anbang? joel: that anbang moment is a really interesting, because the company got way out over its skis, and the state has stepped in and actually taken control of it. and there are other conglomerates in china that all eyes are on them, to see how the state reacts to them now. but this is really a moment of that stability. as a reformist, which is sort of what the world sees in him and what the chinese see in him, this is an example of how that is playing out. julia: what does this mean for

the relationship both with the president of the united states and u.s. administration, too? does it change the relationship with the united states, given the ongoing discussions, tensions, can we call it? joel: i think the real takeaway is that china has a much longer trajectory. they think in centuries -- decades, centuries. millennia, to some extent. in the u.s., especially, we think in four-year election cycles. so their trajectory is just a much longer trajectory, which, to some extent, provides advantages. julia: do you think it buys xi jinping some latitude here to negotiate on the economic front if he wants to give something away as far as some of the trade restrictions the president is always complaining about? joel: i think the tray thing is a really interesting dynamic in this. because this will not be something the trump

administration, whether it is four years or eight years, will be riffing with. potentially, this is even a longer-term thing than that. so i think the chinese ability to get what they want out of this equation is sort of stacked a little bit more in their favor. julia: china is also a very important theme in our asia cover story this week. and that is where we are looking at ethiopia, what is going on there. joel: interesting story. ethiopia has become a new version of what southeast asia looked like not so long ago, where the apparel industry opened up a bunch of factories. that was basically were the cheapest apparel came from. where all the world basically outsourced its apparel. now the new low rung has become ethiopia. what we are seeing, and where the story centers, is an

industrial park that did not exist two years ago. it was farming. subsistence farming. chinese money poured in, built a ton of facilities, and now that is where all of the world's cotton goods are coming from. it is changing is ethiopia, and ethiopia might have a chance at a middle-class that it might not have had otherwise. julia: good questions. let's get to editor miranda about that story. miranda: the government of ethiopia is making a concerted effort to industrialize the country. they have taken about $10 billion in loans from chinese central banks. carol: that is a lot of money. miranda: yeah. and that is just a number we have until 2015. i think -- numbers suggest that has only been increasing. in the past couple of years. chinese companies have built our rail word, industrial parks for apparel, which our story focuses on. julia: let's go there.

this is really fascinating. hawassa industrial park. where exactly is it, and talk about the company you focus on? miranda: the industrial park is in central ethiopia, in what is -- it is on the outscored of what is actually a resort city. there is a lake, called lake awasa, and there is a little resort city nearby where ethiopians go to get away. not a fancy -- you know, not like palm beach resort town. and all around is subsistence farming. this industrial park was built on what was a series of small plots of land for farming. carol: that must have ticked off the farmers.

miranda: yeah. it was -- a lot of the farmers spoke about feeling tricked. because they were offered a certain amount of money, and they signed contracts, but they did not actually -- they do not speak the main ethiopian language. there are 70 ethnic groups in ethiopia, and the farmers in this region were largely sidama -- they signed contracts not being able to read the writing. many of them have second grade educations. they are farming. they are not highly educated in academic institutions. they could not read the contracts. julia: up next, dubai looks to the stars for the hunt for its next big thing. carol: the grand plan meets grand delays in paris.

julia: this is "bloomberg businessweek." ♪

julia: welcome back to "bloomberg businessweek." i am julia chatterley. carol: i am carol massar. you can also find us online at businessweek.com. julia: and on our mobile app. in the economic section this week, as dubai comes of age, one of the key challenges -- how to keep growing. carol: could a trip to mars be a key answer? cristina: they have come to a crossroads and want to reclaim the status of being a city of firsts, so they will launch a probe to the red planet within the next three years, with the help of some u.s. universities. julia: it has had a date impact. you have students changing degree courses to focus on space. they are not taking this likely.

cristina: right. going to a degree of math and science. basically, what is going on, this is a part of the world which loves to draw these big, ambitious blueprints. carol: and big, big buildings. [laughter] cristina: lavish spending of all sorts. and so dubai is basically looking at transforming itself into a sort of digital hub. it wants to run the city on blockchain, the same technology that underpins bitcoin. it wants to launch a fleet of driverless air taxis. julia: yes. the drone taxis. carol: love that. cristina: already, when you go to dubai at the airport, your uber is more likely to be a tesla than any other vehicle. and they also want their police force to ride these hover bikes. they will also be in the air. julia: "back to the future." carol: we are having fun, but this is a place that has reinvented itself when many other people thought it could not before. take us back.

cristina: 50 years ago, it was a sleepy little port. it was very poor. basically, it just started climbing to the skies. it still has, the burj khalifa, the world's tallest building. oil production peaked around 1991 and has been declining, so they said, let's be a place that still attracts oil money from the region. the morals are looser. it is a place where literally the rest of the gulf goes to let its hair down. so restaurants and nightclubs. carol: shopping. cristina: yes. and many people have had second homes there. many people in the region. something like 80% of the population is foreign. julia: how are they financing this latest effort? and what risk mitigation efforts are they taking 10 not have the kind of debt fuel that we saw? cristina: they have not released

to many figures about how much this is going to cost. what we were able to find out is, for example, they are doing a lot around the world expo 2020. this is the first country in the middle east to actually be able to hold this event. that alone, the budget for that alone, is $6.5 billion. but we do not know how much the mars program is costing, or some of the other initiatives. so we do not that this is a place that had a near-death experience with debt and needed a bailout from other emirates. carol: in the focus on section, french president emmanuel macron wants to leave his mark on the paris metro. julia: but his grand plan has faced plenty of criticism. here is our reporter, carol matlack. carol m.: it is a massive plan to expand the paris metro system, which currently, mainly serves the city of paris itself. and push it way out into the suburbs and almost double the number of kilometers of track.

julia: in terms of vision, it sounds like a really great thing to do. the execution, though, has been somewhat of a struggle. talk about the escalating costs of this project. carol m.: the project has been talked about for quite a number of years, and it has only been the last few years when they have actually started to do the engineering and let the initial construction contract that the price tag has just started to balloon, and they are now talking about 35 billion euro construction costs, which is about twice what the estimates were just a few years ago, i think as recently as 2010. and just to put that in perspective, in today's dollars, that would be more than half of what it cost to tunnel under the english channel to build the chunnel. julia: that is a great comparison, to make at this stage. clearly, we have a problem with this project. and they are having to prioritize, perhaps, where they

go first, in terms of the transport links. just talk about what they are prioritizing, because the president is getting some pushback in that he is favoring tourists, perhaps, rather than frenchmen and women, and commuters. carol m.: the context of this is that paris is preparing, in 2024, to host the olympic games, which is something the city has wanted to do for a long, long time. and these huge cost overruns, and just the difficulty of building some 200 kilometers of new track and dozens of new metro stations, has meant the initial timetable, which called for finishing everything pretty much by the time of the 2024 olympics, cannot be met. and so what they have done is they have prioritized and said that they will build, primarily by 2024, projects that will go

to the key olympic sites. but they are going to put off some other lines that would serve, for example, a big research center that the government is trying to develop out south of the city. on the other side of paris, there is a plan for a very large leisure development called europa city that would cost over 3 billion euros, and that line also has now been delayed. i think the underlying controversy in all this is that paris commuters have been waiting a very long time for this project. not so much the people living in paris.

there is about 2.2 million people in the city. they have got pretty good service. if you have ever ridden the paris metro, you can get to a metro station in just a couple minutes walking, no matter where you are in the city, and it is quite efficient. but as soon as you get outside the city limits -- and that is where most of the population now lives -- the metro area of paris is over 10 million. the service is much worse. julia: up next, a #kfccrisis in britain. carol: and australians have cabo tourists catch some waves. julia: this is "bloomberg businessweek." ♪

carol: welcome back to "bloomberg businessweek." i am carol massar. julia: i am julia chatterley. you can listen to us on the radio on series xm channel 119. and also on am1130 in new york. 106.1 in boston. 99.1 fm in washington, d.c. and am 960 in the bay area. carol: and in london, and asia

on the bloomberg radio plus app. in the business section, kfc restaurants had a major problem in the u.k. julia: some thought it was a real crisis. they ran out of chicken. carol: they did indeed. we got to the bottom of the problem with reporter chris jasper. chris: kfc went through the better part of the week with a severe chicken shortage that cost them to close around 600 of their 900 u.k. outlets. and a few days into that crisis, we even had, believe it or not, some people calling local police stations for advice on where to go for kfc. queues outside shops that people thought might be the first open. and, generally, a growing crisis as brits wondered where their next bucket was going to come from. carol: and it became a hashtag, #kfccrisis.

what went wrong? why couldn't the chicken get to the kfc restaurant? chris: i am going to try and hold back on the puns, because there are so many. julia: please, do not hold back. [laughter] chris: you might say, ultimately, and this is probably be one -- that they were guilty of putting all their eggs in one basket. [laughter] carol: nicely done. chris: what happened is they went from more traditional distribution system for their chicken, which used a south south african company called bidves, the world's largest food distributor, largest outside the u.s., which ran five depots across the u.k. and then moved to just one mega-hub in central england, operated by dhl, who, of course, are more familiar as a parcel delivery firm rather than a food supplier. and in the very first week of operation, the system went into meltdown. now, kfc has not said exactly what went wrong, but the understanding was that there was a software glitch, as is so

often the case these days. dhl was twinned with another german company that provided the stock management, and suddenly they were getting chicken in but they were not getting any out again. there were problems of both software, of lorries snarled up at the depot. within a day, it became apparent they were not going to be able to supply all of those 900 outlets, and they pulled the plug. at one point, two thirds of the system was closed down. julia: to what extent was this attempt to centralize their supply system about cutting costs, and to what extent was it exacerbated by the fact that we are dealing with fresh chickens and not frozen? so the timing is far more

critical. chris: i think that is the crucial thing. if an office gets a dhl package a day late, it may be a problem, a major problem, for one company. but if an entire business is unable to get chicken when that is actually what it sells, and the only thing it really sells, than that obviously translates into something rather more serious for that customer. the chicken and the food service industry sort of revolves around getting a product from the farm through the processing plant to the kfc shop in a matter of days. in fact, kfc uses fresh chicken that is processed in a fairly rudimentary way and is delivered fresh to the outlets. that is where it is dumped into the secret formula and fried off, on premises. there is no frozen chicken is used. so they did not have anything stored away that they could resort to. and because they only have this one huge hub, there was no

fallback option in terms of distribution. so when the lorries stopped moving and the chicken was all eaten, there were not any left, and there was no way of getting it to those outlets. there is one in northern scotland and at the tip of cornwall in southwest england -- each of those are several hundred miles from this distribution center, so they became completely cut off. julia: in the pursuit section this week, a story of both love and australian style surfing. carol: both work well in cabo san lucas. here is chris rosner. chris: the heart of this story is surfing, and we sent our writer to cabo san lucas to learn how to surf. there is a new company program. there is a rigorous, 10 step course to learn how to surf. there are surfing classes all over the world, but not a lot of curriculum and written rules, and this is one of the first systems.

it started in australia. is now in indonesia and nicaragua and is now in cabo. julia: i want to get into this and how it went, but first we have to talk about the code message between a potential proposer and his friend to make sure he did the deed. chris: our writer jim told his friend he had a ring in his backpack, spent time with family over christmas, no one found it -- and he told his friend, keep texting me, make sure i do this. but you cannot say, "did you ask her?" say, "catch any waves?" so the whole week, he was getting texts, "catch any waves?" reminding him to do it. carol: and he struggled to catch waves. chris: in terms of real waves, he was really bad. julia: the teaching was good but he was rubbish. chris: the teaching was good. the girlfriend was good. the riding -- not so much. carol: there really is not a book you can pick up and learn how to surf.

you just have to do it over and over again. chris: you surf. you know. carol: i do. chris: before you get on the board, you spend a lot of time paddling, and before you get in the water you have to do drills on the sand and learn to get up on the board, the hardest part. this guy who works out of a resort in cabo. he costs about $400 a day, and will get you to the place where you can jump up in one day. julia: this is a huge, growing industry as well. the size of this is pretty incredible. chris: one million in 2017, and more and more luxury resorts are adding classes like this. people want experiences at luxury hotels. they do not need amenities anymore, they want to get out and do something. these classes are boosting the industry. carol: and this is one of the things that you can, in a lesson, get up on a board and feel pretty cool. i have done it. chris: that is what the writer said. he has a quote from some famous surfer, and the story says, "what is your favorite wave?"

"the next one." he said the minute i caught a wave, i was obsessed with it. carol: we said this was about romance. did he pop the question? chris: he popped the question, she said yes. carol: he caught the wave. "bloomberg businessweek" is on newsstands now. julia: and online on businessweek.com and on our mobile app. i do not need to ask you -- critical debate, no matter where you stand, the issue of gun control. carol: we have been talking about this story all week long, a gun maker, taurus, and a line of their guns that has allegedly been killing and wounding people, the gun going off by mistake. what is fascinating, eye-opening for me, was we have a government agencies overseeing food, pharmaceuticals, teddy bears, things as simple as that, but we do not have an agency overseeing problems and flaws in guns. julia: you can recall all the simple products, but you cannot do it for guns in the united states. so many different issues here. the power of the gun lobby,

particularly in a week where we have heard the president talked to bipartisan lawmakers about taking action. carol: an interesting overseas element as well. julia: more bloomberg television up next. ♪

♪ anchor: polls close in italy after an election marred with delays and confusion. also unlikely to produce a clear result. the advisors of president defend his calls for terrorists -- tariffs. america's allies will not be exempt. endor: the boj signal the of the easy money era. >> and the chart of political and