Merrill Lynch what were you thinking (or not)?

Portfolio.com

The WSJ has a wonderful narrative today of how Merrill Lynch managed to get so badly hit by the mortgage-bond crisis: apparently it's going to take even more write-downs in the first quarter, making an unprecedented three successive quarterly losses. So much for the kitchen sink theory.

The story in short:

Merrill was making a lot of money structuring mortgage-backed bonds. The junky bits were popular, the super-senior tranches at the top of the waterfall, less so, and the risk there had to be laid off to insurer AIG. But at the end of 2005, AIG said it didn't want that risk any more. What did Merrill do? It simply self-insured, keeping those super-senior tranches for itself. That was the first mistake.

The MBS business was now riskier than ever for Merrill, because it was putting its own balance sheet at risk with each deal. So how did Merrill respond to the extra risk? By doing even more deals. That was mistake number two.

With all the new deals, Merrill's internal risk officers started getting worried. And how did Merrill respond to such concerns? By overruling the risk officers. Mistake three.

It wasn't just the risk officers who were worried, however: the bond desk was worried too. Merrill's response bond traders and executives like Jeffrey Kronthal who wanted to throttle back on the MBS business? It fired them. Mistake four.

Eventually, the MBS market started falling, and Merrill started "de-risking". Except instead of just selling risky assets, Merrill decided that the smart move would be to bundle them up into CDOs, sell off the risker tranches of the CDOs, and hold on to the safer bits. Mistake five.

When the CDO market dried up, Merrill moved to Plan B: simply insuring its assets against default. But its counterparty of choice, XL Capital, didn't want the business. And neither did MBIA. So Merrill turned to tiny ACA, an insurer with just $400 million of capital underpinning $60 billion of insured securities. Mistake six.

And that's just the big mistakes which managed to make it into the WSJ's story. Yes, it's a catalogue of incomeptence and nearsightedness and greed. But it's also a cautionary tale: if this can happen to Merrill, it can, realistically, happen to any investment bank. Financial services is a risky business to be in.

some people are just morons

Philadelphia Inquirer

In the hurried life of the E-ZPass lane, there are slipups - moments when a driver forgets to lift the transponder into place against the windshield, or leaves home without it.

Then there are the cheats - zooming through the computerized lanes without ever opening an account, stealing a free ride on a toll road.

Among the latter, Frank Maier is considered a superstar.

According to Delaware officials, he is the state's top E-ZPass violator, accused of racking up 633 illegal trips through state tollbooths, mostly on I-95.

Now the 55-year-old Maryland man could face a different kind of trip - to state prison for up to two years. Under Delaware's new crackdown, E-ZPass evaders with more than $1,000 in unpaid charges face prosecution for theft of services, a felony under the state's criminal code.

Maier owes $4,748 in tolls and $30,000 in fees and penalties, said Darrel Cole, a spokesman for the Delaware Department of Transportation. He was aghast at Maier's alleged exploits, logged from Jan. 2, 2005, through Oct. 30, 2007.

"Six hundred thirty-three times is unbelievable," Cole said. "It's not a mistake, an 'Oops, I forgot.' It's 'I'm going to violate the law, and I don't care what anyone thinks.' "

Maier, who lives in Abingdon and does not have an E-ZPass account, could not be reached for comment.

Under E-ZPass, drivers typically open an account with a credit card and receive a transponder to affix to their windshield. The transponder triggers the monitoring system when the vehicle uses an E-ZPass lane, causing tolls to be deducted from the driver's prepaid account.

Cole declined to divulge specifics of Maier's case, saying, "I don't want to give tips on how to evade" the tolls. He said Maier was accused of "committing a fraud with a license plate."

Warrants for Maier's arrest were issued Monday, and he turned himself in. He was arraigned and released on $2,000 unsecured bail, Cole said.

"Oof, that's a lot," said Carl DeFebo, spokesman for the Pennsylvania Turnpike Authority. "I don't believe that we've ever had anybody in that range."

In New Jersey, Joe Orlando, spokesman for that state's turnpike authority, called the numbers in Maier's case "a valiant effort." But they pale next to those of Stephen Shells.

"Right now our reigning champion . . . is coming to us with 1,444 violations," Orlando said yesterday.

Shells was arrested April 3 by state police who went to his Lakewood home with thousands of pictures of his license plate taken by E-ZPass cameras. Most of the toll-dodging, Orlando said, was on the Garden State Parkway.

He owes $1,700 in tolls and $36,000 in administration fees.

But the title of New Jersey's most creative offender goes to a driver who hooked his license plate to a rope inside the car, Orlando said. Going through the tolls, he'd tug the rope, causing the plate to flip up so that the cameras couldn't catch the tag number. Details of the case weren't available yesterday.

While some escapades are humorous, they have a serious bottom line. Nationwide, bridges, tunnels and roads generate an estimated $8 billion in tolls annually. How much is lost to theft is hard to quantify.

Since Delaware began aggressively pursuing E-ZPass scofflaws a year ago, it has collected more than $2 million, mostly from drivers with "maybe a couple dozen" offenses, Cole said.

"We want a message sent that it's a serious business here," he said. "We don't take this kind of violation lightly."

File Under: Don't You Have Anything Else to Do? Thanks...

WASHINGTON -- With the Super Bowl fast approaching, a senior Republican senator says he wants the NFL to explain why it destroyed evidence from the New England Patriots cheating scandal.

"I am very concerned about the underlying facts on the taping, the reasons for the judgment on the limited penalties and, most of all, on the inexplicable destruction of the tapes," Sen. Arlen Specter, R-Pa., wrote Thursday in a letter to NFL commissioner Roger Goodell.

The story was first reported by The New York Times.

Specter, the top Republican on the Senate Judiciary Committee, said the matter could put the league's antitrust exemption at risk. In a telephone interview with the Times on Thursday, he said the committee at some point will call Goodell to address the antitrust exemption as well as the destruction of the tapes.

Keeping with Today's Drug War Focus

It's a real think piece, and not short, so here's a taste.

How America Lost the War on Drugs
After Thirty-Five Years and $500 Billion, Drugs Are as Cheap and Plentiful as Ever: An Anatomy of a Failure.

Ben Wallace-Wells

Posted Nov 27, 2007 12:56 PM
...
Even by conservative estimates, the War on Drugs now costs the United States $50 billion each year and has overcrowded prisons to the breaking point - all with little discernible impact on the drug trade. A report by the Government Accountability Office released at the end of September estimated that ninety percent of the cocaine moving into the United States now arrives through Mexico, up from sixty-six percent in 2000. Even Walters acknowledges that for all of the efforts the Bush administration has devoted to overseas drug enforcement, the price of cocaine has dropped while its purity has risen. More than forty percent of Americans support legalizing marijuana, yet the government continues to target pot smokers. In October, the administration announced it was planning a new military offensive, dubbed Plan Mexico, with a price tag of $1.4 billion. Things look so bleak that Walters was recently moved to describe a momentary upward blip in drug prices as "historic progress."

There are a handful of battles in the War on Drugs that have actually been won, times when fresh thinking prevailed over politics - but they are not the kind of victories that the Bush administration is eager to trumpet. In the summer of 2003, the police department in High Point, North Carolina, held its annual command-staff retreat in a small conference center themed to look like the log cabins of the pioneers who settled the region. One topic dominated the conversation: an increase in violent crime that was concentrated in three drug-dealing neighborhoods in the city. "The place we were at was that all the traditional enforcement was making no difference," says the department's deputy chief, Marty Sumner. "We agreed we weren't going to be able to eliminate drug use. We weren't even going to try to go after drug use. We wanted to change the marketing of the drug."
...

If Your Current Strategy of Giving the People What They Want Isn't Working, Maybe You're Not Giving Them What They Want After All

Editor Fires Parting Shot at His Chain
By RICHARD PÉREZ-PEÑA
Published: January 22, 2008

The ousted editor of The Los Angeles Times on Monday offered a scathing critique of the newspaper industry and specifically his longtime employer, the Tribune Company, arguing that cost cuts, a lack of investment and an aversion to serious news was damaging the business.
The editor, James E. O’Shea, left after he refused to carry out another in a series of newsroom budget cuts sought by the publisher in Los Angeles, David D. Hiller — 15 months after Mr. Hiller fired the previous editor over the same kind of dispute.

The current showdown and Mr. O’Shea’s parting comments made for a remarkable statement by an editor who was seen as a Tribune loyalist and was sent to Los Angeles to calm a rebellious staff.

“I disagree completely with the way that this company allocates resources to its newsrooms, not just here but at Tribune newspapers all around the country,” Mr. O’Shea wrote in a memo to the newspaper’s staff, echoing farewell remarks he made Monday morning in the newsroom.