It's A Deal

October 29, 2007

The Blame Game

Few people on Wall Street were likely to be more relieved by Merrill Lynch's confidence-shattering third-quarter results than Citigroup's CEO, Chuck Prince.

Not that the embattled exec would wish any ill-will on one of his peers, but it's only human nature to breathe a sigh of relief when someone else -- in this case, Merrill CEO Stan O'Neal -- is taking all of the heat the analyst and investor community can possibly supply.

Specifically, O'Neal is being taken to task for Merrill's risk management (see related story), or lack thereof. In a nutshell, some folks wonder how a $4.5 billion writedown could turn into a nearly $8 billion writedown in the span of about three weeks? Almost immediately, calls came from some market observers that O'Neal should be gone.

A few thoughts. First, to his credit O'Neal shouldered much of the blame for the third-quarter debacle. The earnings conference call may have been woefully short on specifics as to how Merrill got itself into so much hot water -- and how the bank was going to get out -- but he didn't shy away for a moment from taking the brunt of the blame. Of course, as CEO, that's his job.

Second, for a phenomenon (the credit-market meltdown) that has alternatively been dubbed "a perfect storm," a "once-in-a-lifetime-event," an "unprecedented event" and a "cataclysmic event," an awful lot of people have lost their jobs for not managing through it better. Are we to believe that if different personnel had been at the helm the outcome would have been different? Sure, just like a different fire chief could have stopped the devastation going on in Southern California.

Finally, in a day and age when so few people in any walk of life are actually willing to take responsibility for their own actions, it's galling how many are willing to so quickly place blame. "Fire Prince!" "Get rid of O'Neal!" As if any of these pretenders have any idea what it's like to run a $60 billion business with operations in 100 countries across the world.

There's an expression in science -- "not even wrong" -- that basically means that not only was a particular argument mistaken, but was so bad that nothing could be learned from it. That's not the case here. Yes, mistakes were made at Merrill, and at just about every other Street firm, and the end result should be dramatically improved risk management.

If not, fire 'em all.