The New York Times offers a long narrative about the fall of Merrill Lynch. The basic story line is that "two indispensable members of (Stan) O'Neal's clique"--Osman Semerci, who, among other things, ran Merrill's bond unit, and Ahmass Fakahany, the firm's vice chairman and chief administrative officer--helped O'Neal tailor dubious risk practices. Those practices allowed the firm to build up the CDO portfolio that would eventually topple the firm, forcing it into the hands of Bank of America. That it ended up holding so much of its product seems shocking. You would think it would want to offload the product as soon as they could create it. My sense is that they were probably forced to hold the senior portions because they couldn't sell it; people wanted the higher yielding stuff back then. In the end, perhaps, there is some poetic justice to choking on your own food.

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