E. Stanley O'Neal Leaves Merrill Lynch The CEO resigned on Tuesday over accusations that he low-balled the impact of the sub-prime mortgage crisis on Merrill's cash flow, and went behind Merrill's board of trustees to schmooze Wachovia for a possible take over of his company. Terri Cullen, author of the column "Fiscally Fit" for the Wall Street Journal Online, explains why it matters to you.
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E. Stanley O'Neal Leaves Merrill Lynch

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E. Stanley O'Neal Leaves Merrill Lynch

E. Stanley O'Neal Leaves Merrill Lynch

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Oh, thank you so much, Rachel.


You're welcome.

BURBANK: Ali, okay, do you know what defenestration is?


I've not a clue. I don't think I want it to happen to me, though.

BURBANK: Well, you don't, because it's a fancy way to say you threw someone out the window.

STEWART: Wow, or under the bus.

BURBANK: Yeah, out the window and then under a bus. That is how Portfolio Magazine's Web site described what happened this week to a guy named Stanley O'Neal, who stepped down/was defenestrated by Merrill Lynch, where he had been CEO. It's been really big news in all the financial papers.

But we kind of didn't know if there was something that we should care about, which made us think…

STEWART: We should cover on the show (unintelligible).

BURBANK: …it's a perfect Make Me Care topic. And here to help us with that task is Terri Cullen, who writes the Fiscally Fit column for the Wall Street Journal Online. Hi, Terri.

Ms. TERRI CULLEN (Columnist, Fiscally Fit, Wall Street Journal): Hey, good morning, Luke.

BURBANK: Thank you for trying to make us care. I think I've already made people care about the word defenestration, so we're halfway home.

First, though, but back to Stanley O'Neal, can you give us some background? Who was Stanley O'Neal, and how did he end up on the chopping block?

Ms. CULLEN: Sure. Stanley O'Neal is one of the most respected people on Wall Street, actually. He runs Merrill Lynch, and is really credited with making Merrill a global financial powerhouse. So for him to lose his job as swiftly as he lost his job has really rattled Wall Street.

BURBANK: Somebody called him the Joe Torre of finance.

Ms. CULLEN: Yeah, exactly. And basically, what happened is two-fold. Merrill is just one of many financial services companies that, right now, is just getting slammed by these - all of these mortgages going bad.

So many lenders wrote risky mortgages over the last couple of years. And now, as those adjustable-rate mortgages starts to fluctuate, homeowners are finding they can't afford their payments. The loans are all defaulting in math, and billions and billions of dollars in losses are being reported.

The board of directors at Merrill were expecting losses of only about four and half billion when, actually, when the third quarter came out, it was closer to $8 billion.

BURBANK: All right, so all of these Richie Riches is in New York - you know, in terms of high-level Merrill people - had certain expectations. They weren't met. This guy is tossed out. The question still remains: Should we care? And to answer that question, we're going to put 60 seconds on the clock - the official Make-Me-Care clock. Oh, it's so cool. It actually has gold lettering on it. It's beautiful.

(Soundbite of laughter)

BURBANK: All right, Terri. You have 60 seconds. When you hear the ticking clock, you know you have just 10 seconds left. Make us care about Stanley O'Neal leaving Merrill Lynch.

Ms. CULLEN: Okay. Well, I think, really, what this mean is, you know, for something of this magnitude to happen at a bank that's one of the biggest financial services companies in the country, you really have to say to yourself, if it's happening there, it's going to be happening everywhere.

So take a look. If you're an investor, look at your portfolio. Check out your mutual funds and just make sure that you're not too overly invested in a financial services company. You know, anything more than 5 percent is probably too much. And there's great x-ray tools at morningstar.com that will do the work for you. So it's very easy to do.

Another thing that you should really consider, when it comes to this mortgage mess, it's really something that makes you sit back and think, you know, all of these people are losing their mortgages. These defaults are going on.

If I'm in the market for a mortgage right now, I really should take the time with my lender, with my broker, and ask about these loans. If you're looking or considering anything other than a fixed-rate loan, ask about the terms.

(Soundbite of ticking)

Ms. CULLEN: Make sure you know what's going to happen in a worst case scenario so that you're not one of those people who are contributing to all of these loans going bad.

BURBANK: Well, let's see, Terri Cullen. I think you made me care about mortgages and about making sure my portfolio is safe. Stanley O'Neal, not so much.

STEWART: I know, and he's leaving. So how much is he leaving with?


STEWART: A hundred and sixty-one million dollars in his pockets as he leaves…


STEWART: …even though the company lost a tremendous amount of money?

Ms. CULLEN: It's very hard to care for any of these people who are making more money than you could possibly ever make in your lifetime.

But I think, again, what's important is to look at the bigger picture. This guy is losing his job because a lot of consumers got duped into taking out loans that they really couldn't afford, you know, and it's all coming back to bite the lending industry - as it should.

But, you know, for Stanley, I don't think I would care very much about, you know, worry about his financial future. I think he's pretty much…

BURBANK: Yeah, I think Stan is going to be A-OK. Just a quick question, Terri. When do you see this kind of subprime crisis and the whole making-it-very-hard-to-get-a-loan situation, when do you see that getting better?

Ms. CULLEN: I tell you what. It's not going to be better anytime soon. From the numbers I've been seeing, the bulk of the loans that are about to reset, you know, when it comes to adjustable the rate mortgages, you have a fixed rate up front, and then it starts to fluctuate.

Sometimes you see payments go up more than a thousand, maybe even $2,000 a month more than you're originally paying. The bulk of these loans aren't due to reset until spring of '08. So you can imagine there are a lot of people out there who don't even realize that they're not going to be able to afford their loans. A lot of economists are saying that we're not going to see things start to get better until late in '09. So…


Ms. CULLEN: You know, it's going to be awhile.

BURBANK: Okay, well, good news, as always, from Terri Cullen…

(Soundbite of laughter)

BURBANK: …who writes the Fiscally Fit column for the Washington…

Ms. CULLEN: I'm here to scare you for Halloween.

BURBANK: Yes, thank you, very scary. The Wall Street Journal, as most people call it, Online. Thank you for making us care.

Ms. CULLEN: Okay, Jen…

(Soundbite of laughter)

BURBANK: That's all right. Just call me Jen.

(Soundbite of laughter)

Ms. CULLEN: Luke and Alison, have a good day.


Ms. CULLEN: Bye.

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