And they didn't even go bust!
This week a new wave of stories chronicling the decline and fall of Wall Street as we knew it take some pointed jabs at Merrill Lynch (MER) as it tumbled toward its final sale to Bank of America (BAC).
Over at Portfolio, Michael Lewis revisits his "Liar's Poker" days with this nugget about short-seller Steve Eisman of FrontPoint Partners:
Not long after that, FrontPoint had a visit from Sanford C. Bernstein’s Brad Hintz, a prominent analyst who covered Wall Street firms. Hintz wanted to know what Eisman was up to. “We just shorted Merrill Lynch,” Eisman told him.
"Why?" asked Hintz.
"We have a simple thesis," Eisman explained. "There is going to be a calamity, and whenever there is a calamity, Merrill is there." When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman's logic - the logic of Wall Street's pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain.
That comes after Gretchen Morgenson's Merrill takedown on Sunday where she finds the firm's "often inscrutable financial dance was emblematic of the outsize hazards that Wall Street courted."
While questionable mortgages made to risky borrowers prompted the credit crisis, regulators and investors who continue to pick through the wreckage are finding that exotic products known as derivatives - like those that Merrill used - transformed a financial brush fire into a conflagration.
As subprime lenders began toppling after record waves of homeowners defaulted on their mortgages, Merrill was left with $71 billion of eroding mortgage exotica on its books and billions in losses.
On Sept. 15 this year - less than two years after posting a record-breaking performance for 2006 and following a weekend that saw the collapse of a storied investment bank, Lehman Brothers, and a huge federal bailout of the insurance giant American International Group - Merrill was forced into a merger with Bank of America.
It was an ignominious end to America's most famous brokerage house, whose ubiquitous corporate logo was a hard-charging bull.
"The mortgage business at Merrill Lynch was an afterthought - they didn't really have a strategy," said William Dallas, the founder of Ownit Mortgage Solutions, a lending business in which Merrill bought a stake a few years ago. "They had found this huge profit potential, and everybody wanted a piece of it. But they were pigs about it."
Thain may be right, but he is well behind the curve of analysts who think that the global economy shares some aspects of the Depression. He has gotten in late with his comments and his track record for calling the future of events is poor.
Thain to some degree represents the class of poor man's fortune-tellers who ran Wall St. as it slipped into disaster. Everything was going well until it didn't. Now things are worse than they have ever been. It is a good way to slip the blame which belongs to them.