Mick Weinstein The Week's Best Stock Blogs

Merrill Lynch swallowed a very bitter pill on Monday, unloading over $30 billion in toxic mortgage-related assets to private equity firm Lone Star Funds. The deal was done at just 22 cents to a dollar in face-value, with Merrill actually financing most of Lone Star's buy and taking a huge writeoff in the process. In addition, Merrill announced it will sell over $8 billion in new stock (read: significantly dilute its shareholders), despite repeated recent statements from Merrill executives that the firm wouldn't need additional capital. The bloggers' take:

• Bespoke Investment Group cite all of the recent statements from Merrill CEO John Thain that were proven dead wrong by this week's deal: "The message coming out of Merrill Lynch's management is clear: Disregard everything we say."

• Wall Street veteran Roger Ehrenberg wonders "is there even more to come?... If we believed bank CEOs every time they said ‘The worst is behind us' we'd all be in the poor house... Come on, John. Better disclosure, my man. You have the chance to take the leadership on best practices in this area. Because without it, you and your banking buddies are still leaving investors with a murky outlook, and your share prices will continue to reflect this lack of confidence."

• Portfolio.com's Felix Salmon finds in the announcement proof positive that banking CEOs are overpaid, specifically the Merrill boss: "John Thain has lost all his credibility. All of Thain's promises in January - all of them - have been broken... Over the past six months, Thain has gone from visionary to embattled and defensive, and at this point he's no better than anybody else. Or, to put it another way, CEOs don't matter: if the company is going down the toilet, neither John Thain nor anybody else is going to prevent it from doing so. You could have put a monkey in charge, and the outcome wouldn't have been materially different."

• Barry Ritholtz concludes that the financial firms "obviously think investors are utter fools. And for a while, they were correct. They suckered people into buying into this mess the whole way down. Bottom calls each and every level -- all of which failed...The banks have adopted a Chinese water torture approach -- dribbling out the bad news in small doses over time. It's been working up until now, but I doubt it will keep working much longer... [Merrill management] must really think we are idiots, and that the SEC is in their back pockets to even attempt getting away with this crap."

• Portfolio manager Zack Miller of IsraelNewsletter.com laments this deal among other recent Merrill moves: "Come on, guys. I don't even own the stock, but this is the fourth share sale this year and all along management has said that it has sufficient capital. This is not a great way to treat existing shareholders, and certainly not enough to engender enough trust to lure new investors off the sidelines."

• Hedge fund manager Whitney Tilson thinks it's "an incredible deal for Lone Star... and horrible deal for Merrill." Tilson is particularly perplexed by the accounting - how was Merrill able to report a $6.7 billion "sale" on its books? "Did its auditors really sign off on this?!"

• Finally, some good dot-connecting work from Glen Dyer at Australia's Crikey, who believes that "The National Australia Bank's shocking write-down of $830 million worth of collateralized debt obligations (CDOs) can now be explained. It was triggered by a move from struggling US investment bank Merrill Lynch to get rid of billions worth of CDOs in which the NAB was a co-investor." So, as FT Alphaville asks, what did Merrill know of the deal - and when did they know it?

The Housing Bailout Bill

Earlier this week, President Bush signed into law the new housing bill, which includes the much-discussed government plan to rescue mortgage giants Fannie Mae and Freddie Mac. Market bloggers were generally not impressed - or relieved:

• Dealbreaker has a nice primer on the "lowlights" of the 700 page bill, and finds it's "is a naked subsidy to the mortgage lenders. This has honest graft written all over this... while there will be a lot of talk about tougher regulatory oversight for Fannie and Freddie, this is just smoke and blather. There's no need to speculate about whether the GSEs will ‘capture' their regulator. They already have."

• Yet Matt Cooper was looking for "a big cup of calm. And the housing bill that passed the House of Representatives this week should provide some chamomile tea (if not Xanax) for a jittery economy." That said, Cooper believes it's not a great bill and "it doesn't fix Fannie and Freddie in the long term, even if it provides more regulation. But the bill should help ease stress in the housing markets and, more importantly, if it hadn't passed, the guy on the ledge might have jumped."

• Andy Singh is annoyed that the cost of the bill is being funded by responsible American earners and taxpayers. "If you are in the "financially fit" category, like I am, you should be annoyed at having to bail out the rest of broke America...Why isn't there an additional tax or penalty on the financial institutions that got many homeowners into this mess through their financial trickery in the first place?" Moreover, "the bill will only delay the inevitable downward spiral. Unfortunately the American and global economy is heading into a recession, not out of one. So the housing bill, like the stimulus checks, will only have a temporary affect."

• Financial planner Andrew Horowitz wonders how the conversation went when the Senators "discussed how the U.S. government would now be partners with homeowners in their home's future price appreciation, as long as they take a deal they cannot refuse. To be honest, I think it is unconscionable that the U.S. government is now going to "own" a portion of the greatest asset that most people will ever have... The moral hazard has just entered the red zone gang."

• Bill Conerly says the bill won't really solve the nation's housing problem, since the real issue is too many housing units: "What will solve the underlying housing problem, of too many housing units? Population growth, which will come with time. You could also try to increase the number of households relative to the population. Kick the kids out of the house. Get divorced. Mostly, though, this problem will resolve itself slowly as the population grows, but there are no quick fixes."