Tuesday, October 30, 2007

The bonfire of subprimes

n hindsight, it's not hard to see why so many home buyers got burned in the subprime mortgage meltdown. They might not have fully grasped the risks they were taking. Or perhaps they refused to believe housing prices could actually fall, or were desperate to keep up with others and achieve the goal of homeownership.

But if that explains the unsophisticated home buyer, what explains Stanley O'Neal?

He was CEO of Merrill Lynch as it lost a staggering $8 billion on mortgage-backed investment products. He's a smart man, surrounded by smart people. Surely he should have known better than to allow so much of Merrill's money to be bet on dicey instruments built on what former Fed chairman Alan Greenspan called a housing market "froth."


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