I've been taking it easy since March.Watching the credit crunch unfold.It's been a source of much amusement.I like it when companies go under,especially financials.It's Darwinian,it's necessary,destructive capitalism at it's best.It's exhilirating.There are just too many people working in financial 'services' companies.They're fat from the bumper harvests of previous years,I don't have a clue what most of these people do.Do you? Now the slaughter house beckons.Bring on the savage cuts,let the blood run,the downturn spiral.

All the FSA managed to do was fine Woolworths for inaccurate accounting,while Rome burns.Good work.Go back to sleep.The regulators in the US have been busy too,banning naked short selling (just go synthetic short-it's less risky & probably cheaper these days).They've also been busy ''nationalising'' failing US regional banks.In the home of unbridled markets,very odd.Friedman would turn in his grave.

So Merrill has written down approximately 45 billion dollars to date,and another record quarter of losses.Another round of capital raising.The nice chaps at Temasek are lapping up more stock.It's a bargain $22.50.As if they hadn't lost enough on their initial stake (see earlier blog).The best thing about modern Sovereign Wealth Funds is that they have deep pockets and will believe anything you tell them.That's where investment banks come in and fleece them,l mean allow them to invest in their businesses that are ideally positioned for growth in the future.

Bizzarely the market marked up it's shares after it's latest balance sheet re-structuring exercise.It sold about 31 billion dollar's worth of 'risky' CDOs to Lone star for around 22 cents in the dollar compared to face value.An epiphany in this particular episode of Merrill 's history? A watershed.Now it's all clean and fine and shiny and disease free right? Wrong.Look at the deal again, Merrill lent Lone Star most of the money to finance the deal.Ok nothing wrong with that,but the net effect of the deal is that Merrill has capped any potential upside from it's CDO portfolio,and has taken all the downside risk.If the instruments continue to drop in value,it's all pretty much worthless.They could end up LOSING on the deal.So though it looks good on paper for now,this particular method of balance sheet clean up is actually very stupid in this envirionment.I have no idea who advised them on this deal.Looks like they advised themselves.

One analyst has pointed out that Merrill is losing 52 million dollars a day.I'm surprised it's as low as that.Worse is to come.Can't wait.

RB