And you get a publication like Forbes trying to cover its tracks. Its April 7, 2008, cover story on Merrill turned out to be way off track—“The credit-markets seizure aside, Merrill is in damn good shape”—and got explained this way in October:
Our cover story on Merrill Lynch said the brokerage giant was doing ‘great’ after its $22 billion writedown for lousy mortgage-backed securities. Not great enough. After rival Lehman Brothers was forced into bankruptcy in September, Chief Executive John Thain agreed to sell Merrill to Bank of America for $29 a share, or $50 billion. That was a 70% premium over the market price of $17 a share but well below the $48 a share the government of Indonesia and Davis Select Advisors paid when they pumped $6.2 billion into Merrill in December. Merrill’s fate wasn’t a total surprise, however. Our story cautioned that Merrill still carried on its balance sheets $90 billion in dicey loans and squirrelly derivatives.
Oh, well, all right then. Excellent ass-covering there, Forbes.
Everyone makes a mistake, you say? Maybe, until one remembers that it was precisely this kind of reflexive business-press boosterism—in which all ties go to Wall Street—that helped land us here.
The Journal gave us a nice inside look at negotiations between Merrill and B of A, making clear how active the government’s role was in pressuring Lewis to stick to the deal.
And a few days later, the Times further crushed Thain’s reputation as a manager and exposed the flimflammery cooked up by Republican PR veteran Margaret D. Tutwiler:
Ms. Tutwiler quickly scheduled a series of interviews for Mr. Thain from Merrill’s trading floor. As the cameras flashed, he shook hands with the troops. When the cameras left, so did Mr. Thain.
‘He went on a series of speeches all over the world. He was being called a hero. The press was incredible,’ remarked one Merrill Lynch executive. ‘What was not happening was that he was not meeting with Merrill people.’
This is pretty damning stuff. Furthermore, the piece takes aim at Thain’s financial strategies, very definitely suggesting that while he did inherit a horrendous situation his own choices were nonetheless in part responsible for Merrill’s continuing losses:
Several individuals familiar with the alt-A trades, as well as others involving bets on such things as interest rates and equity derivatives, say that these gambits contributed about a third of the firm’s $15.3 billion fourth-quarter loss. But a senior Merrill trader and a former senior Merrill executive contend that there were no ‘significant’ trading losses taken in the quarter. The former executive said that any investigation of the firm’s trading would support that fact.
Whatever transpired on the trading desk, Merrill was still contending with withering assets that predated Mr. Thain’s arrival. Despite the fact that Mr. Thain inherited these assets, Merrill insiders say they could have been hedged—moves well within Mr. Thain’s purview as head of risk management at the firm. Yet he never did so, according to three people who worked closely with him. An individual familiar with Mr. Thain’s thinking said that Mr. Thain didn’t believe hedges would have been effective.
To put it bluntly, what we read in this piece rendered the bulk of Thain coverage obsolete. It is one big “never mind.”
The financial crisis changes the whole game. Like Wall Street itself, the press doesn’t need to just tweak its old model, it needs to scrap it, and write a whole new one—one that doesn’t center on individuals but networks of institutions.