What Corzine Did to MF Global

MF Global was a futures brokerage, not a hedge fund.  Yet it went bankrupt because of  what sounds like a multi-billion dollar directional bet on European sovereign debt.  Chief executive officer Jon Corzine apparently decided to hold this large, dangerous position, the kind of thing a risk-seeking hedge fund might do.

His decision had terrible consequences for brokerage clients, whose trading was disrupted and assets frozen, as well as shareholders, whose equity was wiped out. This is not just a bet gone bad. There should not have been such a trade in the first place: it is not what a futures brokerage is expected to do.

If you want someone to trade European debt for you, you would hire portfolio managers with the appropriate expertise and risk control. Why was MF Global acting like a credit manager with high risk appetite?

Media commentaries describe Mr. Corzine as a Wall Street star because he was once the head of Goldman Sachs. That is badly misleading. He was forced out by the other partners at Goldman Sachs, which was at the time still a private partnership.

Of course, the Goldman partners did not announce why they ganged up on Mr. Corzine and got him out of there. But they were reportedly unhappy about his having involved the bank with Long-Term Capital Management.

Mr. Corzine’s relationship with LTCM shows a very bold player. After the near-collapse of LTCM in 1998, the Goldman Sachs partners evidently did not want to trust his judgment any more. The MF Global debacle suggests they were correct.

Investigations are in process as to the missing client assets at MF Global—subpoenas were just issued.  Mr. Corzine will have to answer a lot of questions, to start with about the missing money and then about why he was holding a huge position in debt that has been shaky for over a year. Shareholders will want to know.

Certainly their lawyers will. Whether or not there’s any criminal charge, the filing of civil cases is just about a sure thing.

Incidentally, the voters of New Jersey are to be congratulated for not allowing Mr. Corzine a second term as governor of their state. He might have invested the state pensions in Greek bonds!


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