Archive for October 11th, 2013

The Great Read-cession, Part VIII

Crash of the TitansOn the eighth day, John S reviewed two more books of the financial crisis, including the final report of the Financial Crisis Inquiry Report.

Crash of the Titans: Greed, Hubris, The Fall of Merrill Lynch, and the Near-Collapse of Bank of America

by Greg Farrell 2010

 

Having read accounts of the failures of Bear Stearns and Lehman Brothers, it seemed appropriate to read a book about the third investment bank claimed by the financial crisis: Merrill Lynch. Of course, Merrill Lynch didn’t fail outright—it was sold to Bank of America, making the story slightly more complex. Greg Farrell’s book, Crash of the Titans, is really a soap opera about how two banks ended up in a reluctant and unhappy marriage.

The first step towards this malignant matrimony was the downfall of Merrill Lynch. Merrill Lynch occupied an odd position on Wall Street. On the one hand, it’s probably the investment bank normal people are the most familiar with, thanks to its “thundering herd” of brokers. On the other hand, it suffered from a clear inferiority complex for not being as profitable or as elite as Goldman Sachs or Morgan Stanley.

In its quest to catch Goldman Sachs, Merrill Lynch became one of the leaders in the CDO market, holding more CDO assets than any other bank. As the housing bubble inflated, this led a streak of immense profitability, but the lust for profits blinded many Merrill executives to the risks they were exposed to. Continue reading