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Merrill Lynch to Suffer Additional Write-Downs

The Wall Street Journal is reporting that Merrill Lynch & Co. is expecting to announce $6 billion to $8 billion in new write-downs this week.  This would bring Merrill’s total write-downs since October to more than $30 billion.

The write-downs have been caused (largely) by the subprime, CDO and credit crisisses.  But what is most interesting about the latest WSJ piece is that it appears Merrill was continuing to create new mortgage securities well after the risks of such securities were known.

It can be argued that Merrill was so taken by the large profits being generated by the creation of these new securities that even after it had become common knowledge that the risks of these products were greater than anticapated, Merrill did not relent in packaging and selling these securities to investors.  Now the SEC is investigating whether Merrill should have told investors earlier about the failing mortgage business.

The average individual investor can learn quite a bit from this story.  Namely, Wall Street and its brokerage residents often work in a vacuum.  They are all too frequently blinded by short-sided profit motives.  How else can one explain why Merrill Lynch kept digging itself into a subprime hole well after the hole began flooding?        

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