Of course, even if people are paid well, nothing can make up for bad decisionmaking. The First Franklin deal is a prime example. In September 2006, with alarms already sounding about the mounting problems, Merrill bought the big subprime lender. Even then, the move was viewed as exhibiting all the strategic wisdom of a foray into Havana real estate in 1959. Jeff Kronthal, a leading Merrill fixed income executive, advised against the purchase, was fired for his advice, and was then rehired (by Thain) as a consultant.

Variations on the same phenomenon—huge, greedy bets on dicey ventures and risky financial instruments—had burned the Street, including Merrill, years earlier. "We'd all been through the mortgage area before," points out Win Smith, former chairman of Merrill Lynch International and the son of a co-founder of the firm. "We'd seen losses. We'd been through the liquidity problems of the Asian flu and the Mexican flu," he says, referring to the emerging-market debt losses that roiled the markets in late 1998, resulting in the failure of Long-Term Capital Management and big losses for Merrill and other banks.

Thain, who served as Goldman's representative on the L.T.C.M. board and helped design the bailout coordinated by the Federal Reserve, sees few parallels with the 1998 meltdown. But he notes that the loss of confidence in the markets after L.T.C.M., along with an aversion to complex derivative securities, resembles what's happening in today's climate. Still, he and other Merrill executives resist the temptation to publicly blame Thain's predecessor, whose spirit hovers over the World Financial Center whether they like it or not. Barely a year earlier, O'Neal, a rare African American in the upper stratosphere of corporate America, was widely lauded as a tough but innovative C.E.O. who adroitly managed Merrill in the tough post-September 11 environment. Merrill's headquarters stood on West Street across from the twin towers, and the company's divisions were scattered across the region after the attacks. "He led the firm through some tricky times during those years, in a very thoughtful way," says Rosemary Berkery, Merrill's general counsel, who occupied the same post under O'Neal.

But there was a flip side to the O'Neal persona, and press accounts of his tenure, even while singing his praises, told of personal slights and cruelties, such as a top executive who learned of his firing from a press release. "He was a mean person, a disrespectful person, and he drove out thousands of years of experience, which was ultimately what caused the subprime problem at Merrill," says Smith, who left during O'Neal's ascendancy in 2002 and is one of his leading critics. Pretty much anybody besides O'Neal would be welcomed by the ex-C.E.O.'s detractors, of which there appear to be quite a few. Thain—no doubt intentionally—has made the comparisons easier with his nice-guy offensive. "What he recognized early on is that this is a people business. And the first thing you have to do is create a culture where people respect one another, where anyone working in any level of the organization understands that the C.E.O. is a guy who respects people," Smith says.

Around the firm, Thain has been making nice at every opportunity. Two days before the earnings announcement, he flew out to Arizona to meet with Merrill's branch managers, who were having their annual conclave. Bob McCann, who as head of Global Wealth Management was boss of the brokers, recalls that Thain arrived in the afternoon, came to an evening cocktail party, and stayed for two and a half hours—all the while, McCann points out, wearing a name tag. The next morning, Thain appeared in shirtsleeves (and name tag), spoke for 20 minutes, and took questions for 25 more. Then he stayed to listen to other speakers before flying back to New York on Wednesday night. The office bush telegraph worked overtime. "People want to know that the person at the top is someone they can relate to, talk to, feel like he gets and understands the culture," McCann says. "In that week, with all that was going on, he took the time to go out there."