More Wirehouse Monkey Business

Surprise!!!! A major Wall Street brokerage house is the subject of an article in today's Wall Street Journal. The article is on page C1, to be exact, and Merrill Lynch is the offender du jour. This time, they are being accused of selling CDOs (collateralized debt obligations) to improperly-informed "accredited" investors. Understand that some of these investors lost millions, and at one point were told by a Merrill Vice President that they should put even more money in these CDOs, as they had "zero risk".

Merill's defense is basically that these high-net worth investors have lots of money and therefore should know better...that's kind of like saying that someone who can afford an expensive luxury car should be prepared that it's possibly a piece of junk and may fall apart as you are driving at 85 mph on your family vacation, scattering parts and people in every direction. Imagine an auto manufacturer using THAT in their advertising campaign.

Even more damning about this situation is this quote from the article:

"It was common practice for Merrill to pitch retail clients (i.e. you and me) the lowest-rated CDO slices - a permissible transaction under the SEC rules - while it sold the higher-rated tranches to larger institutions, according to people familiar with the matter."

Back to our car analogy. This is like BMW selling their best, road-tested, highest quality-controlled cars to their "best" customers and pushing the lemons onto the unsuspecting, uninformed first-time buyer. Fortunately for all of us, auto manufacturers don't engage in such practices.

So when Sally Krawcheck talks about how investors prefer to work with large, stable institutions like hers (Merrill Lynch), a large grain of salt is in order.

Perhaps Merrill Lynch should decide who they really want as clients, and stop trying to have the public believe they are something they are not.