We found John Cassidy’s essay in the Oct. 5 New Yorker, “The Real Reason that Capitalism is so Crash-Prone,” to be illuminating about the challenges of managing in an irrational context, like the recent credit craze or the more distant dot-com and telecom bubbles. Cassidy argues that, even if managers know that they are in the middle of a bubble, they have little choice but to go along. Boards and investors tell them: “Do it, or move aside so that someone else can.” Few can resist such pressure.

We think it’s great that people are delving into failures like Merrill Lynch’s compensation plan to look for the roots of the problem. This investigation is especially important given that Congress seems likely to pass legislation that will dictate what Wall Street can and can’t do in paying employees, as the federal government tries to rein in the excesses that contributed to the Great Recession.

From our standpoint, there certainly seem to be problems with Merrill’s approach.

We’ve updated “Perfecting the Art of the Deal,” a working paper that applies our research to potential mergers and acquisitions. Read the introduction below and click to download the entire article in PDF form.

There’s something important that is getting overlooked in all the coverage of the stunning news that Bank of America has had to line up $20 billion in assistance from the federal government to handle problems at Merrill Lynch, just days after closing the Merrill purchase.

That something is this: The problems are just beginning.

When Bank of America announced its deal to acquire Merrill Lynch in mid-September, we noted in this space that we were skeptical. Based on the research for our book, we thought Bank of America was making a classic mistake: focusing so much on the benefits of an acquisition that it glossed over the potential problems. Merrill seemed to be fraught with potential problems–and they are now coming into painfully clear focus