Whatever Happened to Merrill Lynch?

When I read that 249 more foreclosures were recorded in San Benito County for the month of August, I started fuming all over again.

These foreclosures are the local end of a problem that extends through banks, mortgage lenders and investment banks, all the way to Merrill Lynch, the venerable and, one thought, invincible titan of stock brokering and other sophisticated, high-roller type financial activities.

You know, the Merrill Lynch that was so bullish on America that their logo includes a bull.

It's not directly Merrill Lynch's fault that so many homeowners have been pushed into default and foreclosure. It's partly the fault of the homeowners themselves, for failing to read the fine print and for failing to ask enough questions about the likelihood of their too-good-to-be true low mortgage payments suddenly going through the roof.

For failing, in other words, to understand what "adjustable rate" really means, especially when the initial interest rate is unnaturally low, and the eventual adjusted rate will more closely reflect the true market interest rate.

But it's also the fault of the lenders, who created these mortgages, along with concepts such as the "stated income only" loan. This is a loan where no proof of income is required. So maybe the eager, potential homeowner will include income in his statement that doesn't quite exist yet. And worse yet, the lender will write it down and go on to the next question.

It's unethical, but I know that there have always been unethical people in the world.

What gets me is how stupid it was.

Couldn't they guess what was going to happen when people with too-little money suddenly had to pay double or so the mortgage payment?

Even though the original lender may have sold the mortgage to another institution, and washed their hands of it, eventually the defaults would bite the company that owned them. And that's what happened to Merrill Lynch.

They call it "exposure," meaning they've invested in a bunch of potentially bad loans and they really don't want your house. They'd really rather have the money.

Merrill Lynch was able to find a bigger, more stable (one supposes) company, Bank of America, to buy them. The equally venerable Lehman Brothers, suffering from the same queasiness about its balance sheet, failed to find a buyer and has sought bankruptcy protection.

I still want to know what these companies were thinking. Where was the board of directors, who is supposed to protect shareholder interests, during all this? Merrill Lynch stock has fallen 45% during the year so far, compared to about 14% for the S&P 500.

Board oversight can't prevent all stock price fluctuations, of course. But theoretically it can prevent a corporation from pursuing a stupid course of action, and that sure didn't seem to happen here.