Why owning gold is a good thing

Seems some smart boys at Merrill Lynch sold a bill of goods to, among other suckers, the city of Springfield, Massachusetts: "Manuel Choy and Carl J. Kipper, two Merrill brokers hired by the Springfield Finance Control Board, were told to pick 'instruments that yielded more than Merrill’s money market account as long as the products were triple-A rated by the major credit-rating agencies.' The pair invested about $14 million of the city’s newfound budget surplus into three so-called collateralized debt obligations — pools of debt securities that were backed by residential mortgage-backed securities and commercial-backed securities (which in turn are pools of residential and commercial mortgage loans). Some of the debt obligations were backed by other debt obligations and synthetic securities, securities backed by derivatives."

Rico doesn't begin to understand what all that actually means, but in the end the state of Massachusetts had to sue Merrill Lynch for the money, and won: "The suit says the brokers did not communicate to the city that they had invested the city’s money in collateralized debt obligations, never explained the risks of the investments and never produced the documents laying out certain risk factors."

This little financial oops apparently cost Merrill Lynch some serious money: "Merrill agreed to buy back the securities at their original value, $13.9 million, after determining that its brokers had not been authorized by Springfield to buy the securities on the city’s behalf."

Rico says this is one reason he doesn't play in the market; what you don't understand can cost you...