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tv   Bloomberg Business Week  Bloomberg  August 20, 2016 3:00pm-4:01pm EDT

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>> welcome to "bloomberg businessweek." i am carol massar. we're inside the magazine's headquarters in new york city. in this week's issue, behind rising crime at walmart. also, the dealmakers many love to hate. and uber is going into high gear when it goes to driverless cars. it's all ahead on "bloomberg businessweek." ? ♪ carol: i am here with the editor of "bloomberg businessweek." you guys write about hong kong and the growing independence movement, what is going on? >> there are people think hong kong should separate from china
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and go off on its own. it is a small movement. but it has taken more root than most people expected. a couple of years ago there , was a lot of protests about hong kong's role and its relationship with china. and people don't like that china was insisting at one point that they come up with the nominees to be the chief executive. anyway this is a continuation of , that debate. hong kong is very dependent on china for water, food, lots of things. of course, it has a history as being a british colony. the future of hong kong is still being hammered out. carol: the economy was doing so well, but now not so while that is making it trickier. >> is making it trickier for the chinese and the people who live there. the economy is really in bad shape for a variety of reasons. housing prices are very high.
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there are a lot of people who live in hong kong who have dual passports because when the british were withdrawing the question was where they were going to go. there is a lot of uncertainty. carol: you have a story about the family. there is quite a dispute going on spilling into the aisles of the supermarket chain. why this battle? >> aldi is a private company. it is a supermarket that we're beginning to see some of and the -- in the u.s. it is run by the descendents of theo albright. his fortune was worth something like $15 billion. it is split into aldi north and south. now, one part of the family is fighting. most of it has to do with the spending of the sister-in-law. carol: its always -- is always an in law.
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thinks she issons spending too much. that isn't good for the empire. that is an good for the store. aldi is known for really stripped-down stores. really frugal. this family is sort of a frugal family. this dispute will bubble up to be who controls that company. carol: it was a push to do some modernization, correct? but the dispute is preventing that from happening. >> that is the question, because of her spending and the dispute will that mean they will have less money for the modernization? that is important, because food markets are changing rapidly. lots of competition. carol: let's talk on the cover story. it is all about walmart. a lot of crime going on. who knew this was going on? >> i didn't, but police departments all over the country do know. it turns out walmart is a magnet
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, for crime. it isn't just what you would expect, people trying to steal stuff. it is also violent crime, very serious violent crime. some of it is in the parking lots because a lot of walmarts are open 24 hours. you can camp out in the parking lots. some of it is the experts say because walmart has fewer people stores, in front of the stores. the theory goes that if you have more people out on the floor, there will be less crime. it is a deterrent to crime. it is a huge problem. the people who are really mad about it is, aside from the victims , is police departments. carol: their footing the bill to govern the walmarts. >> you have angry local officials and police departments because they are constantly running back and forth between walmart and back to headquarters. we visit one walmart where there
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is a police officer stationed there all the time. again, it is having an impact on local budgets. carol: there was an officer walmart. i spoke to shannon pettypiece about the story. >> gerald rossway we spent two days running around with in tulsa it's a police officer. when we showed up at the tulsa police department, that is what his division chief he said i want to introduce you to officer walmart. some days, he spends almost his entire 10 hour shift at walmart. he is employed by the police department. he gets called to walmart so often for so many shoplifters, or trespassers, that he ends up some days spending his entire shift there. sometimes the police department has to send a van to transport all the people who get apprehended at this one walmart store in tulsa either
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shoplifting or have warrants out for their arrest. all sorts of thing. carol: you did the drive along. tell me what the experience was like. shannon: it is interesting because there is this room and walmart, this asset protection room were all the shoplifters and people they suspect of fraud get taken. they get brought to this room. it is almost like this counseling center within this giant retailer. we had an 18-year-old boy who stole a microwave. he said he stole it because his mom's microwave broke. you hear these people's whole life stories. one woman was some kind of drug phony giftng to use cards. another woman caught that there was a victim of domestic violence. she came in with a big black eye and was stealing a bike tire and $15 sneakers.
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the police officer kind of jokes about this. he said i like having all my bad guys in one place. he can just show up at walmart and councils a teenager and a domestic violence victim in a three-hour span. in a bigger scheme, he is employed by because of police department. he has the busiest commercial district in tulsa to police and can't have one of their officers and in some cases two or three officers spending their whole day at walmart. carol: one number you said in the story was over 5000 trips over five years to this one location. because of crimes of some sort. shannon: they get calls -- the vast majority are shoplifting. there is no shortage of violent crimes, shootings, fights. about two thirds of shoplifters have drug paraphernalia on them. i am talking about this one store. across the country, there is no great national crime database
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out there so we had to go city by city. so, based on the information we found it is fair to say there will be hundreds of thousands of crimes committed at walmart this year. carol unbelievable. : shannon: this year, there have been more than 200 violent crimes across the country. that is just the ones we know about from public media reports. is some violent crimes happening somewhere at a walmart across the country. carol there are other retail : stores across the country, what is going on at walmart specifically? shannon: that is what i tried to figure out. this tulsa store, the target had 44 calls last year, hundreds at the walmart. i think part of it is the nature of the walmart. there are more of them, they're in low income neighborhoods. they have lots of merchandise.
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you can steal anything in the world from a walmart. that is part of the nature. but there is also a corporate policy that has led this crime to flourish. the past managers neglected the stores. there is aggressive cost-cutting. the stores went downhill. there are fewer employees per square foot. the stores became disorganized, they moved the famous greeters way from the entrance and , haven't taken a proactive approach to crime. it has been apprehend, not deter. not prevent. the company is very focused on cost cutting. they have neglected this. they say they are trying to clean it up now, but they have a big problem on their hands. it is going to be an expensive task to get under control. carol: there is a lot of crime at walmart stores around the country, what goes into making that cover? >> we sent the photographer out
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o two of the cities where most of the reporting happened. he got a very moody shot of walmart at night. you can see this nighttime shot . there was a bunch of cars in the parking lot. it had the creepy mood appropriate for the story. from there, reading the story there are all these statistics which are also surprising. one of them was on a national scale, a violent crime happens in a walmart every day. we thought that in itself didn't need much embellishment. we simply put it on the cover and have an arrow pointing to the sign. carol: it sounds like you knew that this was what you're going to do. >> in the past when we have done walmart stories we have gone , conceptual and playful for walmart stores in the past. this one is serious.
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you can't have too much of a lighthearted approach about violent crime. we knew that we wanted a documentary image. once we found a statistic that was compelling enough, it did itself. carol: did you automatically hone in on that statistic? >> there was one other that referred to tulsa that was every hour a crime happens in the walmart. we were debating between those two. we want to speak to a broader trend. we decided to go with the national one. carol: up next, insurance companies are hurting when it comes to obamacare. we will take a look at the future of the affordable care act. ♪
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carol: welcome back to "bloomberg businessweek." i am carol massar. you can also find us on radio and on am1130 in new york and boston, washington, dc, and the bay area. in the politics and policy section, a checkup on the affordable care act. we talked to zach tracer about why so many insurance companies are backing away from obamacare. >> you've seen the big u.s. health insurers say they can make money on the affordable care act. they're reporting hundreds of millions of dollars of losses. carol: what is the problem? >> i don't think anyone knows exactly what it is. there have been a few things. at an elementary level they are , saying we are getting people who are too sick and are not charging enough money to cover the cost.
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they pointed out people may be gaming the system, signing up for little while, getting a bunch of care, then dropping coverage. there may be some things going on like that driving up costs. carol: walk me through those big u.s. health insurers and who is dropping out. health which is the biggest in the u.s., has said they're pulling out of 31 of the 34 states. carol: that is a lot. >> a huge retreat. they have said they think they will lose $850 million this year. by far the biggest retreat and , one of the biggest losses. anthem cells out of the blue cross blue shield brand. they have said they will have at least 300 million in losses. aetna expecting something like $300 million in losses as well. they are broadly pulling out 11 of the 15 states.
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carol: what does this mean for the public looking for insurance? less choice? >> there will be less choice for people. really in a big part of the country this year. between the exits by humana and united health you will see many places where there's only one or two options. some whole states may have only one or two options. for people going to shop for insurance, that could be a real problem. carol: you want more choices, hopefully to get better costs. what does the obama administration, this is the legacy of domestic policy for the obama administration. what do they say about all of these health plans backing out? >> they think obamacare is still a healthy market. they think there will be choices for people. but you have seen the president call for a public option, some sort of public government run health plan to compete with private plans, particularly in these rural areas where there is
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not a whole lot of choice. the president has also said there may be a need to think about keeping even more subsidies to people to help them afford insurance. carol: up next, two silicon valley dealmakers making a lot of waves in the m&a world. he made his fortune betting on the collapse of the subprime mortgage market. we will tell you about his next big call. ♪
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carol: welcome back to "bloomberg businessweek." i am carol massar. alex sherman profiles the m&a bankers many love to hate. >> catalyst is a tech advisory m&a firm. they are very prominent in silicon valley. they do almost all sell sides.
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if a technology company wants to sell, they will hire catalysts to sell. they have earned a reputation for getting high premiums. so, most recently just a few months ago, linkedin hired to run its sales process. they sold to microsoft at a 9% premium. if you turn back the clock a few years, they did a number of high-profile deals. they sold autonomy to hp, which turned out to be a disaster. from the sell side, what a great job. of course, there may have been fraud. that comes with controversy. they have sold a number of companies for enormous premiums over the years. carol: as i read your story, this is company that is well respected are able tohow they get great premiums for the sale of companies. but they also seem to tick off other people.
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>> the initial lead for this story drew comparisons to the sports teams like new england patriots, duke, manchester united. you love to hate them or hate to love them, or something like that. they irritate a lot of people and have for many years. the c.e.o., who i spoke to, has irritated many people on the buy side, or other advisors that have worked with him. you could argue one of two things. some people say he is abrasive. some people say he is aggressive and just doing his job to get the best price available. catalyst have some tricks up their sleeve they tend to use pitting different buyers off each other. that can cause tension. carol: also, lightning round auctions to make a decision quickly? >> several people told me one of the tricks they use is basically
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say you must make your final bid today. today is the deadline. some buyers say we would like to do more due diligence on this. catalyst says time is up. you have to hit this price or walk away. that has irritated buyers over the years. they have said we would have liked to have done more or not even bought this. one of the examples is silver lake which almost bought shutterfly. someone familiar with the matter told me catalyst basically put a gun to their head. they said they were out. that company never sold. carol: a short seller who called the collapse of the market. >> he used to be a hedge fund manager who made a big an early bet on the housing market. he looked at all the mortgages and saw that the subprime market
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was going to completely collapse. he made a big that on it. carol: he is not a flashy guy. >> not at all. he drives a smart card. he likes to watch television. he makes all of these movie references. he is very funny, and has this little bush belt thing going. carol: i love it. tell me what he is doing right now. >> now he workes at newberger and berman, a traditional money management firm. he has just started doing these separately managed accounts. he will go long stocks and short stocks the way he would if he were a hedge fund manager. he's only charging about 1.25%. carol: that is a lot less if you look at your traditional hedge funds. >> normally, it is two and 20. it is a lot lower. it is a little more expensive than, say, a regular mutual fund.
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but not that much more expensive. carol: talk to me about the two and 20. they go back to the hedge fund guys. that has come under a lot of scrutiny in the last year or so. we haven't seen the performance of many hedge fund managers. >> that is correct. investors have always complained about hedge fund fees. but they paid them because in the past, they often have posted very good performances. since the financial crisis, and -- a lot of funds have struggled. a lot of it has to do with low interest rates, the stock market has gone up. if you hedge, you will lose out. a very difficult environment for making money. 1/5 of thetaking money you make, that is a huge headwind. carol: up next, what it takes to build a mosque in america.
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how one financial disruptor disrupted itself. it is all ahead on bloomberg businessweek. ♪
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carol: welcome to bloomberg businessweek. we're inside the magazine's headquarters, more transparency at what went down on lending club. and driverless paper cars are just around the corner. it is all ahead on bloomberg businessweek. ♪ with the are here editor bloomberg businessweek, ellen.
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so many must-read. we talk about turkey, what is going on there? attempted coup and the president continues to be strongly popular. he was able to put down the coup without a lot of problems but it was relatively short-lived. and we talk about why he is popular. so some of it is what is sort of retail politics. he was mayor of istanbul years ago and he took care of people who were in dire circumstances. he replaced a dump that was legendary with real development. and he made sure the city became a modern city. so there is a huge segment of the population that feel like he actually improved their lives. and for that reason, he is unlikely -- we raise the question is he "coup proof?"
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he may be. there is a lot of controversy about him. carol: this goes back to the basics of the economy. he improved people's lives. >> they become popular because they actually say they were better off -- they are better off than they were and it was the president that did it for me. carol: talk about the features section, you go to new hampshire and there is a group trying to build a mosque. >> it has been going on for years and they already have a place of worship, it is in a mall. and it was their dream to build a real mosque. and they finally found a piece it.and and bought and there have been problems ever since. pure lot of it is prejudice, but it is all cloaked in other things.
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they have had problems with permits, problems with -- do they have to fix a road? they have had problems with neighbors who are worried about parking. there was a dispute over what ghost roadd as a come a road that doesn't exist. carol: one thing after another. >> it is one thing after another and it goes on and on. and these people are not professional fundraisers. there is something poignant about the story, because these are people that just want a house of worship. and they have jobs to do. they are engineers, physicians, they have other things to do besides raising money. and it is all being complicated by the community not really being supportive of their dream. carol: yes. and they continue to raise money, but they are still working towards it. >> they are. carol: also in the features section, there is more on the
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lending club. this story continues to unravel. it provides more transparency about what really went on. >> so the ceo left and there were questions about whether a bunch of loans that they had sold were dated correctly. was talking to a guy who wanted to set up a credit rating system for lending club's loans. and remember, they are one of you can go onere and brown money and other people go on the site. carol: it is your too. . --. two. . >> yes. total peer-to-peer, they were a leader in it. and there were people taking multiple loans some of them that risky.e rated
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and not risky. but for both. they found to some degree that there was an effort to juice it by the end. people were getting more loans at the end of the year. so it raises questions about what is really in the loans. and if they are being as transparent as they say they are. carol: there are great details in the story. we caught up with max who has more. >> a few months back i got an e-mail from somebody i had known for a long time, who said there is more to this story than you know. he basically is somebody that is interested in data science. he started it digging into the data and he found a bunch of loans that looked questionable. he says it looks like maybe the wasceo or somebody close taking these out. it is just a guess. maybe a conspiracy theory. and two weeks later, lending club disclosed that. so we have more details about
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the disclosures in a basically a bunch of information that kind of cast doubt on the company's business practices over the past half decade. or more. carol: this is a company with peer-to-peer lending. people thought they were doing it right, wall street -- pick your accolade. in terms of the added that -- in terms of the other data coming out, does it have to do with the loans or transparency issues? >> yes, bloomberg had a report about a man in a company that company's own mandates. they were taken out of the engine of loans, then using the data and returns from those early loans that were taken out 2007, 2008,-2000 -- 2009, and saying they were good investments. when you look at the press from a few years back, they were
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saying how well they were doing during the recession. this information cast doubt on that story and it makes the larger story seem problematic, especially in light of the fact that there were additional issues with the company that happened more recently, which ultimately led to the departure of the ceo. carol: the ceo. what does this mean for peer-to-peer lending? is it a one company thing? >> it is hard to know. i think the industry has done a lot of smart things. the idea of getting alone on the internet makes a lot of sense. on the other hand, i do think that we do not really know how good this business is because we haven't gone through a recession with these companies. and i think that would be the ultimate test. carol: what is next? where are we? >> they are trying to get past this. they have done some audits.
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there is a new ceo. and they are frantically, maybe trying to raise additional capital. part of the problem they have is they were trying to disrupt the banking system. carol: and they were. >> they were. but the problem is, much of the capital is not super reliable. we are talking about hedge funds, and most of the investors were flighty. in the wake of the scandals, the investors flew away. compared to banks which have deposits that are not flighty. so they are trying to make the case that this is sustainable. that is real. they are making loans. the business is not going away anytime soon, but it may have to grow -- but it may have grown too fast. carol: coming up next, a drug that made the great northwestern university. ♪
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♪ carol: welcome back. you can also find us on the radio. in new york.1130 also in boston, washington, d.c. and the bay area. in our markets and finance royalty fromthe one drug was just what the doctor ordered at northwestern university. >> we are talking about the drug lyrica, which is pfizer's bestseller today. you may have seen the commercials during the olympics. it was developed in the chemistry department at northwestern more than 30 years ago. these drugs take a long time to develop. it was patented and approved by the fda in 2004. and eventually, the sales became over $5 billion. that is a lot. that is a blockbuster. >> that is right. and it is pretty rare to be
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developed at universities. especially at research universities, there are not many had blockbusters like this. carol: what is the set up? how is it splits up? if a professor develop something at a university, who gets to keep all the royalties? is it split between the university and the professor and the drug company? >> after 1980, the federal law change allowing the school to -- changed, allowing the school to keep royalties. most schools have an agreement that they share their profits with the inventors. at northwestern, they decided it would take some risk of the table and sold that stake in the -- in for $700 million. 2007 the other usual thing about the story, not only did they have this blockbuster but they put virtually every penny of the royalties they received into their endowment. so the endowment today is the eighth largest in the country,
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about $10 billion. and you have money coming into the endowment annually. and usually, endowments grow when you have investments returns. they can to keep some of that as well as fundraising. they had this additional amount of money that kept growing. carol: what is unusual is it they could have taken the proceeds from selling the patent rights, and they could have built a new building or done something, but because they put it to the endowment, that is unusual. >> yes. usually when schools decide to sell and get a big chunk of money, they decide to use it to build a building or higher maybe additional professors. northwestern made a different choice. they wanted to sustain whatever they did. then you wouldn't have money to operate a building if he spent -- if they spent all of it. or if you hire terrific faculty you need money to sustain them. carol: some spaces are not just
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a place to plop down and plug-in. she spent a week checking them out in new york city. >> i spent a week in co-working spaces. there are over 100 brands throughout brooklyn and manhattan. i decided to spend a week working out of them. carol: you mentioned the pioneer that started a few years ago. 2010.y did start in they are more than a pioneer, they are a behemoth. they are worth $16 billion. those numbers have been slashed a bit recently. but they have really succeeded and paved the way for these companies. carol: when you talk about co-workspaces, those of us that work for large companies don't do that. but this is where people go to do -- >> it is an office. we are used to going to an office where it is one company in all of our coworkers and we're sitting in desks next to people that we know. but cut working spaces are shared office spaces. it is a lot more flexible and
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cheaper. so for a startup, or an entrepreneur it is a much easier way to get into a space where -- without the start of cost of renting out in office. carol: one that you would too was primary, that one focuses on wellness. >> yes, it is a brand-new space. there is green juice and healthy snacks and free yoga. it just feels very calm. they hope that will attract people to their space. carol: wi-fi, was is still great? >> their password was "feel great." carol: another place you went to encapsulates brooklyn. >> there are these neighborhoods committee figure if you live in a certain neighborhood you like everything about your neighborhood and he would like to work in a place like that. so i went to coworkers, which is
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gentrifying neighborhood in brooklyn. it is exactly what you would think of. it had exposed beams and a lot of it was fashioned to be that way. and there was artistic know copy and everybody that was there looked very hip. lena dunham's newsletter runs out of there. carol: up next, taken a ride on the driverless side. and talking about chickens and sheep, oh my. ♪
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♪ carol: welcome back to bloomberg businessweek, uber is revving up
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on driverless cars. >> uber is not first to this game. basically a year and half ago , they went on a big hiring binge around carnegie mellon university. it is the center for driverless car research. everybody wondered what they were up to. carol: they wiped out their department. >> they put a hit on the department. i think it is a complicated relationship. i think carnegie mellon overall is happy with the arrangement, but everyone was wondering, what is going on with this company? they are not profitable, they're fighting battles with regulators. there is a lingering labor issue. carol: they just gave up their business in china. >> why would you take this additional challenge on? what i found out, having travel ed to pittsburgh to see their operation and meeting with the ceo, is basically they see driverless cars as the critical issue for the company.
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they feel like it is inevitable that google and tesla will introduce their competing ridesharing services using driverless cars. and if uber does not have their own technology they will go away. so he has been throwing huge amount of money at this. carol: and as you pointed out, 80% of uber's cost of the -- cost is the drivers. >> it is a huge sum of money. that is not quite true in the developing world. but in the developed world, for sure. the idea is that even for a long trip, even in a world area, -- rural area, taking an uber could be cheaper than a car. they are doing big investment. so we are reporting that volvo has a deal with uber to develop a self driving car. they will spend about $1.5 billion, jointly. and this is a pretty big coup for them, a driverless car company called auto.
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we think this is a big deal maybe the biggest deal in the , autonomous vehicle industry to nail down the numbers still. but it basically brings in all of these former googleers into the uber program. carol: auto is who? i have not heard about them. >> they have only been around for a few months. this guy, one of the key engineers of the original driver less car programs. carol: back at google? >> yeah, he was involved with those challenges in the mid to thousands. he took a big team of people from google and some other companies including apple and tesla and started up this trucking thing. the idea is that we will have driverless trucks on highways. so if you are a truck driver, you drive a truck onto the highway then switch it on to robot mode and take a nap.
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this is a little bit different from what tesla is doing. what tesla has today is sort of an advanced cruise control, where the car steers and accelerate and brakes. but you still need your hands on the wheel. where their technology is, the hope is even can take a nap or do something else while driving. carol: and it is not just about cars or places to stigma animals are also getting in on the game. >> we know the sharing economy can help us when it comes to getting a taxi or going on vacation. but it can also help you if you own a farm, or if you are interested in having a couple of chickens at your house. carol: who is not? >> to get farm fresh eggs. what we are seeing is a lot of companies popping up supplying everything from sheep and goats to falcons and bees. carol: i love the falcon one. what is it called -- a falcon of
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force. why do you want a falcon? >> you want a falcon if you have a fruit crop. there are starlings in small -- or other small birds that will try to eat that. the falcons are trained to scare them away. it is fascinating, they are kept at a flying way to make sure that they do not eat the birds, but just scare them off. carol: if i want to rent a falcon, , what does it cost? >> it is $65 to get started. if you own a blueberry farm, which is what we talk about, you will probably get me before them. and it ends up being cheaper than the insurance against crop loss. carol: i like the chicken idea. you rent it and then give it
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back for the winter season? >> six month later, they will come and fetch everything. as much as i love getting the farm fresh eggs, they develop an infinity for the chickens -- affinity for these chickens. and they wanted taking on personalities and become like pets. carol: there are different kinds. you can also rent a goat. >> goats are great lawnmowers. they will eat and grays and talking about sheep, they will actually fertilize. if you want to go all natural there is an easy way to do it. carol: what does it cost? >> the goats are pretty cheap. we interviewed one owner who did not spend very much and he got -- had about 4000 square acres of land farmed in the seattle area. they are not expensive. hiring people tends to be more
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pricey. carol: bloomberg businessweek is available on newsstands. see you again next week. ♪
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