The New York Times beat the world with a story by Jenny Anderson and Landon Thomas Jr. that says Merrill Lynch & Co.’s embattled chairman and chief executive, E. Stanley O’Neal, talked to Wachovia about a possible merger.

This is beyond your usual deal story and is a window into just how far-reaching the subprime disaster may turn out to be. Merrill is a Wall Street pillar, one of the last stand-alone pure securities firms, as opposed to outfits like mega-banks like Citigroup, which owns large brokerage and investment banking operations within the context of a commercial bank.

The Times tells us, moreover, that O’Neal, who just presided over a record loss as a result of subprime management, did not get approval for the foray from his own board, and that his already shaky hold on his job is now hanging by a thread.

Merrill’s board was so upset with Mr. O’Neal that it even discussed the names of potential candidates to replace him, according to people with knowledge of the board’s proceedings. Candidates who were discussed include Laurence D. Fink, chairman and chief executive of BlackRock, an investment firm partly owned by Merrill, and John A. Thain, chief executive of the New York Stock Exchange.

That’s pretty good detail. The deal probably won’t happen, but the fact that Merrill has reached this point is significant.

I also like Merrill’s non-denial:

Jason Wright, a Merrill Lynch spokesman, said early today that there had been no contacts with any potential merger partners, but he declined to comment on whether there had been conversations with any banks.

Charlie Gasparino, at CNBC, advances the story with word that O’Neal expects to be fired.

The Wall Street Journal, strangely, misses the point in pretending this doesn’t matter. O’Neal reaching out to a possible merger partner is news. Period. And if these unauthorized talks cost him his job, this misjudgment will come back to haunt the Journal.


Meanwhile, Roger Ailes and Fox Business News are still trying to figure out whether it’s a pro- or anti-capitalism story. Let us know, Roger. We have all day.

Also notable:

Bloomberg posts two interviews with two analysts predicting oil will go up, to $95 or $100 a barrel, depending on which one you believe. I didn’t know those kinds of worrisome numbers were even on the table.

Meanwhile, Krugman is right again on the role of deregulation in the deteriorating subprime situation.

As it turns out, a Federal Reserve official, Edward M. Gramlich, had been trying to get his bosses to pay attention to subprime lending since 2000. And he wasn’t the only one.

I’ve seen these numbers before, but they are still stunning:

As late as 2003, subprime loans accounted for only 8.5 percent of the value of mortgages issued in this country. In 2005 and 2006, the peak years of the housing bubble, subprime was 20 percent of the total — and the delinquency rates on recent subprime loans are much higher than those on older loans.

When one of five of American mortgages is subprime, what does that mean?

Krugman writes:

In a paper presented just before his [recent] death, Mr. Gramlich wrote that “the subprime market was the Wild West. Over half the mortgage loans were made by independent lenders without any federal supervision.” What he didn’t mention was that this was the way the laissez-faire ideologues ruling Washington — a group that very much included Mr. Greenspan — wanted it. They were and are men who believe that government is always the problem, never the solution, that regulation is always a bad thing.

Conservatives have succeeded in making regulation a dirty word, but in my view it’s never been a red-blue issue. Bad actors hurt the market.

If publicly traded actors like Countrywide Financial post huge gains while making imprudent loans that will—not might—but will go bad a few years later, the rest of the market, even good actors who know better, must do the same or face the wrath of shareholders.

This goes beyond banking, of course. If Allstate Insurance Co., to take a name at random, doesn’t pay post-Katrina insurance claims, to take hypothetical situation, it will outperform competitors, especially in a laissez-faire regulatory environment that doesn’t require insurers to disclose their claims performance. Meanwhile, confidence in the insurance industry as a whole erodes.

In mining, one player, absent regulation, will always want to cut corners on worker safety, outperforming others who resist the temptation.

In the nuclear industry, one company will delay that maintenance work while others won’t. And so on.

More to our purposes, inadequate regulation presents a journalism problem.

We have regulators. Let’s cover them.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.