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John Thain: Merrill's structured products were so complex that nobody understood them

08 October 2009  |  7968 views  |  1 bully

Former Merrill Lynch chief John Thain says that the structured products created by his firm were so complex that it could take up to three hours to model one traunch of a single CDO correctly when using "one of the fastest computers in the United States".

In a recent open Q&A at Wharton Business School, Thain reflected that the bundles of securities created by Wall Street firms were so devious that "there is no chance that pretty much anybody understood what they were doing with these securities".

On reflection, he says, the degree of complexity that was created in the securities, and "the lack of anybody's ability to really understand how they were going to perform", was a bad mistake.

"Creating things that you don't understand - that the buyer doesn't understand, that the rating agency doesn't understand, that the regulator doesn't understand - is really not a good idea no matter who owns it," said Thain. "The fact that the firms that created them were stupid enough to own them doesn't make me feel any better."

Thain was forced out of Merrill in January after the firm posted more than $15 billion in surprise losses following its take over by Bank of America. He left with his reputation tarnished following leaks about his bonus demands and lavish spending on his executive office suite.

Quizzed about his extravagant $1.22 million redecorating bill, Thain quipped: "If I had that to do over again, I'd furnish it in Ikea."

Read the full transcript:» Download the document now 103.7 kb (PDF File)

Comments: (1)

Stanley Epstein
Stanley Epstein - Citadel Advantage Ltd - Modiin | 09 October, 2009, 09:15

One really wonders how so many people could have been fooled for so long by such nonsense. At the bottom of this of course is greed, self interest and the genuine but childish hope that maybe this was all true.

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