Follow-up: Maine Piles On

Treasurer Lemoine Congratulates City of Springfield. So reads the banner posted at maine.gov last Friday as the Treasurer of Maine leads the cheers for all those lawyers seeking restitution from Merrill Lynch for trafficking in subslime securities. Forgive Mr. Lemoine for getting emotional. After having his pocket picked by Merrill last summer, our CFO needs all the help he can get. "The Maine State Treasurer’s Office," trumpets Lemoine, "continues working with both the Maine Attorney General and the Maine Office of Securities to support their investigation into details of the Mainsail II investment." In other words, he is on the case, or they are, or maybe somebody is.

Let us hope Maine is not too late. A credit analyst for Standard & Poor's has issued a warning today that Merrill may be in big trouble. "Bond insurers are suffering as a result of their roles as guarantors of mortgage-related securities, and downgrading them could affect all markets in which they are active, including the municipal bond, commercial mortgage-backed securities, and other structured finance areas," Tanya Azarchs wrote in a note to investors. "In turn, dislocation in those markets could affect banks."

Merrill is the bank most at risk. The company thought it had hedged its CDO positions with guarantees purchased from bond insurers. But the insurers themselves are being overwhelmed by a perfect storm of credit defaults. Expect even more write-downs in the months ahead as Merrill is forced to eat it losses.

After the lawyers get their share, one wonders if there will be anything left from the carcass for aggrieved investors.