Merrill Lynch's (MER) last stand

It is not right to say that management misleads investors. That is too crass.

But the coarse language may come out when Wall Street talks about what Merrill Lynch (NYSE: MER) did today. After the bell, MER "said it expects to take a $5.7 billion pretax write-down in the third quarter due to losses on the sale of mortgage assets and plans to raise at least $8.5 billion by selling new common shares," according to Reuters. Well over $3 billion of that will come from Singapore's Temasek Holdings. It put some money into Merrill before, and this evening's news may have left it with a bad taste. But it stepped up anyway, probably to protect the cash it had already put in.

The trouble is this. John Thain, Merrill's CEO, has kept saying that the worst was behind the company. He said he had engineered a solution by selling Merrill's stake in Bloomberg and by taking what were supposed to be the lion's share of the writedowns last quarter. Thain's credibility bled out onto the floor late today.

The SEC will get to take something away from today. Merrill's stock began to sell off sharply at about 11 AM. By the end of the day, it was down over 11%. Someone knew something when they should not have.

Douglas A. McIntyre is an editor at 247wallst.com.