Reuters does a nice Billmon like factbox of Merrill Lynch CEO Thain’s quotes on ML’s needs for fresh capital.
Thain consistently claimed that ML is well funded while raising billions over billions to make up for even more billions of losses.
Only twelve days ago ML announced its second quarter results. Thain then said:
"… right now we believe that we are in a very comfortable spot in terms of our capital."
Yesterday ML announced further losses of $5.7 billion and the need to raise capital by $8.5 billion by selling new stock.
He did not know that twelve days ago??? Barry Ritholz nearly calls this what it is – outright fraud.
Some people bought ML stock after the July 17th announcement. They should sue Thain out of his last sock.
There will be much more bad news coming from ML and other brokerages and banks. This credit bubble deflation is not over by half.
There is not much anyone can do about it. Last December I commented on calls by Roubini and others to lower Fed rates:
I regard this as pushing on a string with bad side effects.
…
I believe that any lowering of the central bank rates will push money not into the productive economy, but into some unproductive assets class, likely commodities, and induce another bubble there. The summary effect is increasing inflation in a recessive or stagnating economy.
Yesterday Krugman posted a chart at his blog that shows how right my analysis was. While the Fed lowered rates since December from over 4% to 2%, bond and mortgage rates actually went up. The Fed is pushing on a string. In the current situation rate cuts can not have the intended effects. But the bad side effects are also obvious. The average official inflation rate in 2007 was 2.85%. This years average is 4.23% so far and likely to increase further.
I closed the earlier piece remarking:
Only renewed trust between all economic entities, banks, manufacturers and consumers can repair the system. To regain this trust, the bad entities have to be shaken out. A real recession will do this. Any attempt to cushion it, by some half assed rescue schemes for faulty mortgages and bad investments, or by near zero-interest central bank money, will likely prolong the pain while at the same time inducing very unhealthy side effects, i.e. inflation.
With people like the lying Mr. Thain and the string-pushing Bernanke in the lead, trust between all economic entities will not be regained anytime soon. As a result the global economic situation will become more disastrous than it needed to become.