Merrill's Fund Raising Sets a Bad Precedent for the Financial Sector

7/31 - "You really can fool all of the people all of the time (or so it would seem). Writedown after writedown, lies and more lies: and yet, Wall Street believes in the Investment banks. The DJIA was up over 266 points yesterday!...Fool me once, shame on you. Fool me ten times, shame on me." Investors just don't seem to get it yet."

"Yesterday, a further $ 8.55 billion stock sale was announced, including a stock sale to Temasek (an investment company of the Government of Singapore)...Thanks to a downside protection clause, Temasek will be compensated for the nearly 50% loss suffered on their December 2007 ‘bailout investment’ in Merrill Lynch...This is definitely going to set a precedent, as new capital becomes more expensive and comes with many strings attached.

Worse still, as investment banks look to dump toxic CDOs and avoid mortgage related securities, the slowing MBS market is going to result in the unwillingness of banks to lend to the residential housing market in the US.

If you are looking to buy the US Financials, now that the worst is behind us - caveat emptor."