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Apparently, the big New York Times piece on the relationship between Goldman and AIG (okay, I’m self-serving — I’ll link you to my blog piece on it) has really struck a cord at Goldman. It has posted an item-by-item response on The Huffington Post (okay, fair is fair — here’s the link to that).

The responses seem namby pamby to me, using words rather than facts. But I’m not ready to go to the mat on that, maybe there’s more substance than I’m picking up on.

I can’t quite understand the choice of Huffington Post as the venue for combat, though. Toyota, after all, took full-page ads in newspapers detailing its recalls — and apologizing, while it was at it. Goldman apparently doesn’t think it has anything to apologize for — but it still seems to me that an ad, maybe even a double-truck, would make sense. Goldman certainly can afford it.

Why doesn’t it tackle the Times on its home court, buy ads in the business section to tell its side of the story? I don’t think Blankfein et al are silly enough to say they won’t financially support the paper that blasted them. But imagine the impact of an ad that says, The New York Times got it maliciously wrong — running in the New York Times??!! And I don’t think the paper would be silly enough to refuse to run it. If it did, think of the impact of an ad in, say, the Wall Street Journal that trumpets the fact that the Times declined to accept it?

All told, a muddled PR response in the Huffington Post seems way below the fight-back level I’ve come to expect from the Bad Boys of Wall Street.

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John Thain, the man who orchestrated Merrill Lynch’s transition from Wall Street star to Supernova to huge drag on Bank of America’s bottom line — all the while making sure his people got $3.6 billion in bonuses for their part in that sorry ride — has been named the new CEO of CIT Group.

Huh?

To hear CIT tell it, it’s almost as though the Merrill debacle is an inconsequential blip on his resume.

Prior to Merrill, Thain served as CEO of the New York Stock Exchange and president and chief operating officer of Goldman Sachs. A CIT spokesman said Thain’s role at the NYSE, where he modernized the exchange and better positioned it to compete in the global marketplace, was one of the accomplishments that most impressed CIT’s board.

I don’t know whether that praise is warranted (wasn’t that one of the things the NYSE board cited in justifying Richard Grasso’s $139 million compensation package?), but maybe it is. But that was several jobs ago.

From what I can tell, he did a masterful job of persuading Bank of America to buy Merrill Lynch, which was going down the tubes, big time.

Actually, I’m not being sarcastic here — Ken Lewis and the other BofA people have been charged with withholding news of Merrill’s huge losses from BofA shareholders, but no one has said Thain lied to them about it. And he sure got a good deal for his people.

But the fact remains, Thain was unable to save Merrill from financial implosion, he’s part of the huge-bonus culture, he’s a member of the Goldman old boys club — and let’s not forget his million-dollar renovation of his office. Does CIT really want to be led by someone who seems to have modeled his spending habits after Tyco’s (now-imprisoned) Dennis Kozlowski?

CIT has cost the taxpayer plenty (with little hope of repayment). But it really seems to have made great strides in solving its own problems. And most important (at least to me) this 100-year-old company seems to be one of the few (only?) bailed out financial firms that really is pumping money back into the economy, rather than just into its executives pockets:

The company moved through bankruptcy in just six weeks because its key bondholders had already approved a reorganization plan. It was able to cut its total debt by $10.5 billion and deferred debt maturities for three years. The same month it emerged from Chapter 11 it made plans to start lending again, committing to fund $500 million in new government-guaranteed loans to small business customers in 2010.

CIT is going back to its roots, which makes hiring a high-profile failure like Thain seem absolutely boneheaded. I’ll bet there are executives at regional banks, people who steered their institutions through the financial storms, who would be honored to run CIT as a conservative, fiscally sound lending institution.

But while I’m baffled at CIT’s choice, I’m not despairing. Thain is getting paid $500,000, with I think a bonus potential of less than $2 million.  For folks like me, that’s a small fortune; for folks like Thain, it’s chump change.  Wall Street pundits say that one of the main reasons he wanted the job was to repair his reputation.  If that is indeed his goal, he has every incentive to manage CIT conservatively and profitably, with an eye toward societal good.

Otherwise, all he’s done is failed upward.  The American way.

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Let me stem the barrage of hate mail before it starts: I said smarter, not better, or sweeter, or kindlier, or more ethical. (I don’t imagine I have to forestall any anger at calling AIG dumb)

Gretchen Morgenson and Louise Story have done a fascinating recap of how the relationship between AIG and Goldman led to Goldman’s coming out richer than ever as AIG went sailing down the tubes. I felt my eyes widen as I read.

Sure, I knew the basics — Goldman had taken insurance against losing money on securitized mortgage. But then one word in this graf started my eyebrows on their upward trajectory:

A.I.G. executives wanted some of its money back, insisting that Goldman — like a homeowner overestimating the damages in a storm to get a bigger insurance payment — had inflated the potential losses. Goldman countered that it was owed even more, while also resisting consulting with third parties to help estimate a value for the securities.

That word, of course, is “potential.” Homeowners, after all, don’t get to collect because the local weatherman said a hurricane is coming and they project they’ll lose their homes. But AIG agreed to pay off on potential losses?

The plot sickens.

In its dispute with A.I.G., Goldman invariably argued that the securities in dispute were worth less than A.I.G. estimated — and in many cases, less than the prices at which other dealers valued the securities.

There’s an argument over what those losses would be? No mention of value of security on day of claim?

I’m still trying to figure this out. If my 401K tanks on paper. but I never sell anything, do I get to claim the losses on my tax return anyway? And what if the stocks rebound and I sell? Do I get to deduct the on-paper loss I claimed in January from the actual profit I realized in March? The logic of the AIG policies dictates all of the above. My mind is boggling.

I have to digress for a moment, because I do feel a moral obligation to give the Goldman/Deutsch bashers something to rant about: I don’t fault Goldman for playing hardball on this. And I find it silly that there’s a whole investigation going on as to whether the insistence of Goldman and other policyholders on getting paid led to AIG’s downfall, and the need for a taxpayer bailout (yeah, I know, when they all got paid even more).

The reason we take insurance is so that if there’s a problem, we get paid; I have never worried whether Allstate can afford to pay my claim for car damage, or if Empire Blue Cross could afford my hip replacement. That’s why I pay insurance premiums; if the companies have written more policies than they can cover in a debacle, that’s their problem. That, apparently is what AIG did — so don’t blame Goldman for insisting on collecting.

Okay, back to the issue at hand. Apparently, AIG’s insurance policies started off relatively sane, in that they didn’t have to pay off when investments were starting to sour. But that apparently changed in 2003 — my guess is, so they could hike up the premiums. Goldman, ever the aggressive negotiator, actually got policies that said AIG would have to start paying off if the value of mortgage bonds fell by just 4%.

Ya gotta hand it to the Goldman guys: They give the concept of risk management a new dimension of meaning. And the AIG guys? What kind of imbeciles are they? Greed, I can understand. But this kind of stupidity? Nope.

Washington, AIG isn’t too big to fail. It’s too dumb to exist. Put it out of its misery as soon as possible.

But the final irony, which I won’t even comment on — but I’ll bet you can picture me grinning — is this:

On Aug. 18, 2008, Goldman’s equity research department published an in-depth report on A.I.G. The analysts advised the firm’s clients to avoid the stock because of a “downward spiral which is likely to ensue as more actual cash losses emanate” from the insurer’s financial products unit.

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Well, at least one New York steak house may have figured out a way to turn black humor about those obscene banker bonuses into a profit stream.

Smith & Wollensky, that bastion of artery-clogging deliciousness on 3rd Avenue and 49th Street in Manhattan, is running full page newspaper ads offering to accept stock certificates — “priced at the close of business” — as payment for restaurant bills.

Their pitch is hysterical. They site slashed income for personal shoppers, real estate brokers and pet psychiatrists as one of the catastrophic effects of the non-cash bonuses. And up there among the catastrophes they list the huge quantities of steak and lobster that will go uneaten. “One need not be an economist to see that something must be done,” they rightly note.

In fact, why paraphrase when their own words are so delicious:

By accepting stock in lieu of dollars we are taking the first important step towards getting those bonuses back into the city’s economy So bring us your CIT, your GS, your MS, your C; we’ll gladly exchange them for sirloins, porterhouse and ribeye. And yes, we’ll even accept GM.”

One of the things in the fine print: No cash refunds if the value of the stock certificate exceeds the cost of the dinner. These guys are not taking any chances here.

My only question: Think they’ll accept New York Times stock? Filet mignon, here I come!

Kudos to them for providing a giggle — and a steak — in these laugh-challenged times.

Image by Mdrewe via Flickr

Hey, rich people: I’m offering a sale on New York bridges this month, buy one, get the second half price. Oh, you can only drive on them on alternate Tuesdays and Thursdays, but you’ll get a share of the tolls I charge.

That’s the reaction I had to a New York Times story yesterday about new condos that have gone up with the following rules: You can buy your unit at a nice high price, but you can only use it one or two months out of the year, the rest of the time it must be available for rental. The developer gets 50% of the rent, you get the other 50%).

it’s happening with beachfront condos in California, where the state allegedly wants to insure that the public beaches don’t become rich-folk enclaves. Trump built a condo in New York with the same rules, although he’ll let owners use it 120 days a year (but only a month at a stretch). His reason had to do with local zoning, which allowed a hotel but not a residence, and this set-up mollified the zoners. The Times piece sites half a dozen other places where similar setups exist.

Okay, I understand the motivation of the regulators. But why on earth is anyone willing to buy something that comes with these rules? These are not cheap places, they sell in the millions (or did, before the market tanked — a lot of buyers are walking away from their contracts)

Sure, if you need the money, you rent out a room, or your vacation house, or whatever. But if you can afford $1.2 million for a studio (Trump’s price), and multiples of that for a couple of bedrooms, why would you want to let strangers sleep in your bed, scratch up your furniture, all the good stuff that comes with renting places out? And why would you let sellers tell you when you can and cannot come yourself?

And if it’s an investment property, why not buy in a condo with no restrictions whatsoever? You get to rent it out as much as you want anyway, but you reserve the right to use it yourself, even to move into it permanently. And when you rent it out, you get to keep the money, not just 50% of it.

I’m often outraged by the things that rich people do. But sometimes I’m just befuddled. This is certainly one of those times.