Raging Bull at Merrill: Will He Pay Us Back?

When Kelsey Hubbard asked me on Market Watch my view of what went wrong at Merrill (before Stan O'Neal left), I said that my sources pointed first to O'Neal's proactive reduction of risk management and total disregard for the human capital of the venerable institution.

My sources had told me of O'Neal's removal of those who warned of excessive risk and that the subprime mess was not his first opportunity (he had done the same with Long Term Capital) to make investments so large and risky that they were "bet the ranch" while feathering his own nest.

Now, Gretchen Morgenson has written a terrific article in the Sunday New York Times. It is must reading for anyone who wishes to understand the finance industry's contribution to the crisis (put aside people who bought houses beyond their means with mortgages they could never carry).

Morgenson reports that O'Neal's top two henchmen (1) silenced critics, removed long-standing employees who spoke out and inhibited the flow of information about the risks and (2) loosened internal controls to pursue what were known to be extremely risky investment. And allowed "dicier assets to be passed off as high quality goods."

Under O'Neal's watch, Merrill stockpiled risky C.D.O.s in order to earn more fees and continued its growth in these products even after it learned that AIG would no longer provide insurance against Merrill losses. Pursuit of short term profits at any cost.

Stan O'Neal walked away with $231 million. The henchmen continued to be paid months after leaving. My question is this: where is the lawsuit to force O'Neal and his team to disgorge compensation based on performance that put Merrill in jeopardy, profits that were really front end returns with gigantic losses ballooning later?