John Thain's interview

Well, Maria, as you know, over the course of the year-- we continued to have-- positions-- that really were there when I first started-- primarily in mortgage and mortgage-related assets and-- and later in the year in credit and credit related assets-- that-- continued to deteriorate in value. And so over the course of the year that I was at Merrill-- I was constantly shedding assets, selling assets. And then, of course, because-- they continued to fall in value, constantly having to be able-- be able to raise more capital.

And that process really just continued-- into the fourth quarter. The-- the deterioration of the
market-- moved away a little bit from mortgage related products into credit-related products. But-- it was really just a continued declined in asset values and particularly towards the end of the year-- really a complete breakdown in the functioning of the marketplace itself.

So cash assets completely separated from their derivatives. There were huge spreads between the prices of cash assets and credit default swaps as an example. And any type of forced selling drove asset prices down. And we were in a position of owning very illiquid things that really could not be sold and-- and had to be marked down.

http://msnbcmedia.msn.com/i/CNBC/Sections/News_And_Analysis/_News/__EDIT%20Englewood%20Cliffs/Thain_bartiromo_transcript.pdf

It looks like Merrill traders had bought junk debt, and hedged it with credit default swaps that blew out. Thain said that the trades have gotten a little better since the beginning of the year, as in here.

What looked like a profit opportunity evaporated, as the market didn't trust the counter parties selling the credit default swaps. So pricing became worse, and Merrill's hedges lost value. Who would want to sell insurance on bonds that don't have pricing visibility? Weak institutions!

The idea that traders sat idly by and just babysitted the "legacy" assets is just hogwash. Do you really need to pay $50 million for a babysitter?

In Merrill's case, they would of been better off. They paid the traders millions and then they lost billions.