I was going to write a new post about how pathetic it is that Merrill raised capital again under desperate terms despite all the previous claims that it didn’t need more than it already had. Then I realized I had written stuff like that already…several times. So to avoid wasting my time trying to write an original post about a story that it seems most investors love to ignore or only see the “positive side”… here is a bunch of snippets from related posts in chronological order.

From March 12, 2007 about the Subprime Ripples that I was expecting:

But it really doesn’t stop there, subprime divisions became popular at quite a few companies when the housing bubble was throwing off huge returns. Morgan Stanley’s acquisition of Saxon last August might not turn out so great and Merrill Lynch’s $1.3 billion purchase of First Franklin Financial looks like it will be a charge to 2007 earnings compared to the original accretive claim. In addition to direct operating units, Wall Street firms have benefitted greatly from the securitization of these loans and from lending to them directly. So, I am looking forward to the earnings reports coming from Wall Street in the next week and will be paying a lot of attention to guidance from the impacts of subprime.

And then in closing….

But despite what you might hear elsewhere - subprime is not a small problem and it has ripple effects thoughout our economy and markets.

From June 21, 2007 about being Afraid Of What We Do Not Understand and how Merrill Lynch’s pressure on the Bear Stearns hedge funds over a few billion dollars would create a cascade of problems for the markets.

As I expected, Bear Stearns and Merrill found a way to temporarily avoid a huge meltdown from the marking to market of these products. But what has been exposed in the process is extremely threatening to almost every aspect of the markets and now that the genie is out of the bottle, it will be tough to shove CDOs back into the junk drawer or under the rug. CDOs are too complex for people that are not investing in them and the majority of investors don’t play in this game. So when they hear that CDOs are a threat to their assets, it’s a dangerous situation.

Did Bear Stearns draw the short straw? That’s what a group does to pick the unlucky guy that needs to sacrifice himself for the good of the team. I keep looking at this BSC hedge funds / CDO / subprime fiasco and feel like they either were the only ones to make a mistake or they drew a short one.What’s curious to me is the odd way this got exposed. I seriously doubt that Merrill didn’t contemplate the consequences of their actions before telling the market of their plans to pressure BSC and more importantly, the entire CDO market. Wednesday’s afternoon drop gave a very quick measure of letting this Pandora all the way out of the box. It should surprise no one that Merrill backed off. It was much better for the team when “CDO” were just three letters that other investors heard and tried to use in a sentence at cocktail parties.When no one ever really liquidates an asset and all we see is a product category that has expanded past $1 trillion, it’s easy to just assume lofty pricing that will only head higher. Now that we had this little episode, the players in this crowd and anyone who is giving this some thought will know the risk of trying to sell it. And that is a scary point - if a small group is getting nervous about products that they can only sell to each other, what do you do? Somehow a CDO ETF doesn’t sound so good. So it looks like the guys that created these products will have to find a way to deal with them on their own.If the CDO market is entirely stable other than this one problem at BSC and with subprime mortgage risk, everything is okay. If not, I’d hate to have to draw straws and be the next member of the team to take a hit.

I have a new suggestion for solving the Subprime problems and the housing market price declines. You ready? I bet each of those houses has at least two sinks(bathroom and kitchen) and depending on whether they were jumbo mortgages with lots of bathrooms the foreclosure fortresses might even have 5 or more. So each troubled homeowner should remove their sink(s) preferably with the help of a plumber but if you are a do-it-yourselfer you could click here for some instructions. Once removed, the homeowner should promptly throw it in the front yard and then make a public announcement to all the neighbors that the worst is behind them. This strategy seems to be working exceedingly well with financial stocks like C, UBS, MER, and WM so I thought it might do the same to make troubled homeowners feel better and increase the value of their home. Of course, I am joking and I don’t want to see sinks in the front yards of America. However, I have a sinking feeling that the tactics of our financial sector is a big joke as well.