Randomly Noted

The UAW says it will try to claw back benefits it gave up when the U.S. auto industry nearly went under. Great. Just when there’s a glimmer of hope that at least two of the U.S. auto makers – Ford and GM – will survive (I’m still not sure about Chrysler), here comes the United Auto Workers with their old-thinking. The global auto industry is in such flux, the post-crisis UAW needs to be a partner, not a problem. Nissan-Renault CEO Carlos Ghosn, visiting our newsroom this week, spoke of the multi-billion-dollar bet his firm is placing on the advent of electric vehicles. I can’t tell you if electric cars will take off in a big way or experience a slow climb in popularity. What I do know is there will be more electric cars on the road in coming years, just as there are increasing numbers of hybrids. It’s also clear that the established auto makers face mounting competition from upstart rivals, including a surging Hyundai and a pack of Chinese up-and-comers. Let’s hope the latest UAW rhetoric is simply a cheap effort to excite the rank and file rather than a sign the leadership has learned little from the American industry’s near-death experience.

In Berlin to try to secure Germany’s assent for a Greece bailout deal, IMF boss Dominique Strauss-Kahn said earlier today that we “shouldn’t believe too much in what rating agencies say.”

One has to agree – on a number of levels. Over the past decade, Moody’s, Standard & Poor’s and Fitch have proved time and again they can be fallible – and late – in identifying all manner of credit vulnerabilities.

Moreover, during the Greek crisis, the rating agencies have become prime actors rather than arbiters – issuing downgrades and decisions that principally shape markets’ direction (in a fairly brutal way) rather than enlighten and inform.

DSK may in fact hold rating agency industry in contempt. But today what he’s really trying to do is calm markets. The rating agency downgrades – of Greece, Portugal and Spain – over the past two days have pushed the euro down significantly and spurred stock market selloffs around the world.

Senator Pryor asks this question. Dan Sparks hems and haws. Says he hasn’t thought about it enough to respond. Josh Birnbaum says it’s complicated – too much credit sloshing around - and says we all contributed. Sparks concurs. I say: Yes, that’s right. Goldman and many other institutions and individuals brought the economy down. The financial crisis was a collective cultural failing. The only truly interesting and relevant issue in the Goldman hearing is this: Should Wall Street bankers behave more ethically by selling only products they believe in? The answer: It’s up to the bankers and their employers. The rest of us need to invest more prudently. (By the way, the core issue isn’t about banks’ disclosure obligations- customers of the notorious CDO had access to info about the toxic junk it contained.)

Here’s the thing that will likely save Goldman from the SEC’s clutches: High-level investing is a complicated endeavor, and as Dan Sparks has just said, investors can “like” a deal and still short it because it makes sense in the context of a broader strategy. Is it ugly and shameful that a bank or banker could sell a likely-to-fail package of synthetic subprime mortgages to a customer in order to allow another one to bet against it? Yes. But should we be surprised? No. Should it be illegal? No.

“A second-lien subprime deal” – Goldman’s Dan Sparks has just told the Senate hearing about a particular product the bank was peddling and it was chock full of this stuff. Second-lien subprime! If the buyers – sophisticated financial firms – didn’t beware, it was their own fault – assuming they knew they were betting long on synthetic products based on American homes with two liens. TWO LIENS! If Goldman managed to sell this cr*p, well, that’s their prerogative. As Sparks has just said, a lot of clients had “appetite” for this stuff.

Let’s say you’ve been called to testify before a Senate committe after the SEC has charged your employer with fraud. Do you shift into tearful Oprah confessional mode? Or do you answer minimally? Duh! The senators feigning outrage that the Goldman guys aren’t fessing up are, well, feigning outrage. They’re accusing the Goldman bankers of dodging questions but I actually think the bankers are playing it straight, and smart: when they sold products they weren’t functioning as investment advisers to buyers. They were selling products that didn’t come with warranties – these weren’t vacuum cleaners.

“Answer my question!” barks Sen. Levin as the question-and-answer session kicks off in the Goldman Sachs hearings. The Senator’s unanswered question, which I hereby paraphrase: Shouldn’t Goldman have revealed to long-betting clients the bank was on the short side of a complex, mortgage-based financial product? Goldman’s Dan Sparks says his team would have answered “any questions” from clients. He avoids being engaged by the Senator. It sure looks like Sparks was well-prepped to avoid uttering embarrassing sound bites. “I don’t think you wanna answer,” Levin says. My take: You do business with Goldman Sachs or competing firms, it’s all about CAVEAT EMPTOR.  Buyer beware. Ditto banks bearing mortgage deals that are too-good-to-be-true.

As grotesque as Goldman Sachs’ culture evidently was, it’s hard to see the Goldman bankers as black-hat-wearing villains. Whether hailing from France (Fabrice Tourre) or the U.S. or elsewhere, they’re the boys-next-door who went to college and often business school, and landed at the world’s most prestigious, powerful investment bank. There, they created and peddled an alphabet-soup of financial products, and this trade contributed to the economic crisis just as American homeowners who had no business owning homes did. Listening to today’s Senate hearing – the immensely dull Senatorial opening remarks now followed by the rote remarks of the Goldman guys – I find it hard to summon up much outrage. As Michael Swenson has just said, “numerous clients” wanted the stuff – some wanted to bet “long,” others “short.” All these “clients” knew they were dealing with an investment bank with a lot of conflicting interests – proprietary trading, highly favored hedge fund clients, run-of-the-mill institutional clients, profit-seeking shareholders, and so on. My favorite of the line-up is, naturally, young Fabrice Tourre, of the confessional emails. He’s speaking now with French-accented fluent English, reading a prepared text which hit the Dow Jones Newswires earlier this morning. He’s “surprised” ACA believed hedge fund mogul John Paulson, on the other side of the transaction, was taking a long position. He denies the SEC’s charges. The Q&A will hopefully be interesting but so far – an hour into the hearing – there’ve been no revelations.

Read about the 1940 massacre of some 22,000 Poles in Russia’s Katyn forest and one is reminded of the hideous history that buried Europe during the last century. Today’s crash of a Katyn-bound, Soviet-made plane carrying Poland’s president and other top government officials for a commemorative ceremony brings it all home: Simply put, the memory of Stalin’s murders, lies and acts of aggression lingers across great swathes of the globe. And in Poland, fierce resentment persists because the Russian government has declined to take full responsibility for Katyn, as colleague Marcin Sobczyk wrote from Warsaw this week. If Vladimir Putin and Dimitri Medvedev want to put things right, they will fully acknowledge Stalin’s culpability in the 1941 killings of imprisoned Polish officers and others while Poland mourns the loss of its leadership and prepares for constitutionally mandated elections. Here’s a Katyn website displaying what it describes as archival photos taken in 1943 by the Nazis as they exhumed the Polish dead. A U.S. Central Intelligence Agency website offers this account of the Katyn massacres. It’s an astounding tale that starts with the Russians invading eastern Poland as the German Nazis entered from the west. Stalin’s forces took thousands of Polish officers as prisoners of war, steering them into the Katyn region and murdering them. Next: Stalin and Hitler fell out, and Stalin forged opportunistic, if temporary, ties with Poland’s government-in-exile in London. In 1943, the Nazis, now in Katyn, found the mass graves and exhumed the dead – revealing Stalin’s culpability. But  Stalin blamed the Nazis and the lie stuck for decades to come, even as evidence to the contrary emerged. With Glasnost and the fall of the Berlin Wall, Mikhail Gorbachev and then Boris Yeltsin accepted responsibility and the latter revealed documentary evidence of Soviet involvement. And yet modern-day Russia’s leadership still refuses to acknowledge the country’s responsibility. It’s an incredible piece of history worth recounting on an incredible, sad day for modern Poland.

We met with Sergio Cabral, governor of the state of Rio de Janeiro today. The 47-year-old is a smooth pol who never goes off message. His message today was: A bill to redistribute oil royalties is unconstitutional, and unfair to Rio, which produces the lion’s share of Brazil’s oil. We’ll let Brazilian lawmakers duke it out in Brasilia – and in the press – as they have been doing in recent days. When Rio won the 2016 Olympics last year, I wrote that the related costs would saddle the city with massive debts and *white elephant* facilities. I still view this as a risk, with a caveat: If Cabral and his coterie deploy Rio’s wealth wisely, the city will turn a corner and become a livable and visit-able world-class city — offsetting any negatives associated with the Olympic games. Cabral himself is a bit of a cipher, but I felt reassured by the smart, worldly Joaquim Vieira F. Levy, a former national Treasury minister now serving as Rio state’s Secretary of Finance. I met Cabral and Levy at an “Invest in Rio” conference sponsored by The Wall Street Journal. Also interesting were some of the industrialists and public pension fund managers with stakes in Rio’s future – such as Fabio de Oliveira Moser, chief investment officer of PREVI, Banco do Brasil’s employee pension fund. He has money to deploy in Rio, and is scrutinizing commercial and residential redevelopment opportunities. One came away from the conference believing that Rio’s huge, decrepit port area will emerge as an attractive, thriving destination for tourists, not to mention locals; and that an ongoing effort to more effectively police the favelas is having the sort of impact that will genuinely improve the lives of the poor. It’s so hard to gauge the future of Rio from afar. But one has the sense that 1) Brazil’s robust 5% annual GDP rate — likely to continue for a decade, according to superstar businessman Eike Batista; 2) the burgeoning oil sector centered in the state of Rio; 3) this autumn’s national elections which will underscore democratic Brazil’s political stability; and 4) the World Cup and Olympic games in coming years – all of these factors add up to a real turning point for Rio de Janeiro. “Rio is becoming a garden of opportunities, said Moser. The dynamic, youthful Elvio Gaspar, director of BNDES, the Brazilian Development Bank, said Rio’s fortunes depend on a “regularity of growth” beyond a surge in Olympics-related economic development. This, Gaspar argued, can and likely will happen as long as the political class stays clean: “Any shadow of corruption will destroy our dreams.”