Merrill's Murder/Suicide
TSF - February 7, 2009 by Janet Tavakoli

Yesterday, Tom Patrick of Vernon Capital and former executive vice Chairman of Merrill Lynch (ousted from Merrill in 2003), told CNBC that Merrill Lynch committed suicide. He said that from June 2006 to March 2007 Merrill’s super senior CDO positions rose from $4 billion to $60 billion and it never sold a bond. (Click here - may require subscription).

Tom Patrick and CNBC just woke up to the problems at Patrick’s former stomping grounds. Sort of.

As appalling as Tom Patrick’s and CNBC’s late-to-the-party revelations sound, it wasn’t that simple and it wasn’t that innocent.

As I told CNBC on October 24, 2007 (Click here - requires subscription), Merrill suppressed key facts, hadn’t hedged properly quarters earlier, failed to report losses, and had an Enronesque problem. ( In January of 2007, I wrote an article for GARP saying risk professionals should bail out and short the positions.)

Tom Patrick confirmed what I had told CNBC (and many others) long ago. Merrill’s risk would boomerang back on its balance sheet. There were few actual sales, just temporary transfers of risk. But that was just a part of the problem.

It is a shame that Merrill couldn’t quietly commit suicide. In trying to delay its own death, it dragged others down with it.

As I explain in my new book Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (Warren Buffett will feature the book prominently at the Berkshire Hathaway Annual Meeting in May 2009) any investment banker worth their salt knew that “super senior” and “AAA” tranches and other “investment grade” tranches did not deserve those ratings, yet bond insurers, special purpose investment vehicles, and hedge funds participated in the madness adding risk and leverage to the financial community. Investments in pension funds, mutual funds and retail investments soured. For some of these "sophisticated investors” it seemed like a suicide pact with Merrill and other culpable investment banks. But for many naïve retail investors and for prudent financiers who are watching the effects on the global financial community, Murder/Suicide seems a more apt description. Moreover, Merrill was not the only investment bank that participated in this madness.

[See also my February 5, 2009 Financial Times commentary “The China Syndrome: It’s Our Fault They Don’t Trust Us”]

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