John Thain And That 'No More Capital' Prediction

It's hard to argue that Merrill Lynch needs capital -- and lots of it. One can't seriously dispute Merrill's decision to unload $30.6 billion of its mortgage-related debt at a loss.

What's interesting about this decision is not that CEO John Thain had to do it, but that his doing so is a stunning repudiation of the comments that he made to me (in my recent Condé Nast Portfolio profile), to other journalists, analysts, and the rest of the world a few months ago -- that he would not have to raise capital. In fact, he said that he had more than enough capital.

He didn't.

Thain wasn't lying. He honestly believed he would not have to do that, and events have overtaken him, and neither this very smart guy nor his staff of very smart guys has been able to do anything about it.

Merrill not only had to sell all those CDOs at a loss, but it had to sell $8.6 billion in new shares.

Thain is not a CEO who shoots from the hip. If he was taken by surprise by the depth of the problems in the mortgage market, it only one thing: things are getting worse, and worser, and worser......

UPDATE: I love the illustration in this Wall Street Folly item:



Such is the price of unwarranted optimism.

© 2008 Gary Weiss. All rights reserved.