It looks like a fairly innocuous comment: a note from a Merrill Lynch
Let us note, however, that Merrill is hardly a disinterested party. If the economy and the markets tank, so does Merrill's gravy train. But it's not only exposed to secondary fallout. Merrill Lynch actually provided some of the "liquidity" that has inflated the housing bubble over the past few years, and it's even bought into the front lines of the subprime game, acquiring lenders.
So yes, a housing-led recession would be ugly for Merrill, and for all of us. But you know what would be uglier yet? A Fed that set monetary policy in a vain attempt to avoid an inevitable and much-needed correction. I doubt that a rate cut would even matter for mortgages. It's recently become quite clear that the mechanism pushing down mortgage rates was not the Fed's lending rate, but the willingness of mortgage backers to accept overly risky loans. That party is over.
Economic medicine may be bitter, but from time to time, it's necessary.
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