All of it made possible by his close ties to Democrats and the world of Goldman “Government” Sachs.
On December 15, Jon Corzine (D-NJ), former CEO of the suddenly bankrupt commodities and futures brokerage firm MF Global, finished three days of testimony before the House Financial Services Oversight and Investigations Subcommittee. This followed the December 2nd decision of the House Agriculture Committee to subpoena Corzine after a request for a voluntary appearance went unanswered. Two other congressional committees subpoenaed Corzine in the next several days. To say that it is unusual for Congress to issue a subpoena to a former United States senator (and, in this case, governor) is an understatement. As an Associated Press article noted, “Congressional historians and Capitol Hill insiders can’t recall another time when a former member of Congress was summoned by his former peers to testify about a matter under federal investigation.”
In fact, the move was so rare that even the New York Times, Washington Post, and Politico—each of which had reported remarkably little on the eighth largest bankruptcy in our nation’s history and America’s biggest financial failure since Lehman Brothers—had to take notice.
The bankruptcy was caused by Corzine’s decision (if I may borrow a phrase from Corzine’s good friend, President Barack Obama) to fundamentally transform MF Global from a sizeable but relatively staid commodities brokerage firm into a gambling enterprise. MF, which was spun off from the British firm Man Financial in 2007, not only risked the firm’s own money but then used customers’ funds to plug the holes when Corzine’s massive speculative purchases of European government debt went south. Fundamentally transforming something that was already working pretty well is perhaps not the best strategy for success.
In testimony before a House committee on December 15, 2011, Terry Duffy, chairman of the Chicago Mercantile Exchange—which, as MF Global’s first-line regulator, is intensely focused on protecting its own reputation—said, “A CME auditor also participated in a phone call with senior MF Global employees wherein one employee indicated that Mr. Corzine knew about loans that had been made from the customer segregated accounts.” Not surprisingly, Corzine denies all knowledge of these transfers.
WHY ANYONE WOULD HAVE expected a different outcome from Corzine management is a good question. Corzine, who had been a trader at Goldman Sachs, became the company’s chairman and CEO in 1994. As a 2000 New York Times hagiography of Corzine noted, “While he helped build the bond trading department of Goldman Sachs into a wildly profitable arm of the company, he was admittedly careless as an administrator and was forced out of the firm because several senior partners were angered that he made major decisions without consulting them.”
That is a charitable description of a man who ran a firm that had a nasty reputation (including when I was a trader on the Chicago Board Options Exchange) for “front-running” its customers’ orders, most famously the collapsing positions of Long Term Capital Management (LTCM). As Roger Lowenstein described in his seminal book When Genius Failed, “translated, this meant that when…Goldman got wind of which way its customers were running, it often ran there too—and fast. This was why Goldman’s previous stewards had refused to get involved in proprietary trading; the possibility of conflicts of interest was just too great.”
Corzine aggressively courted Nobel laureate-founded LTCM as a client for Goldman, structuring a deal that allowed Goldman some knowledge of what LTCM was doing, and then copying LTCM’s strategies for Goldman’s own accounts. As LTCM was collapsing, Goldman posed as a potential white knight while trading in a frenzy for its own accounts; after all, since they had copied LTCM, that firm’s losses were turning into Goldman’s losses. Lowenstein quoted Corzine: “[Goldman] did things in markets that might have ended up hurting LTCM. We had to protect our own positions. That part I’m not apologetic for.” Does anyone now believe Corzine’s crocodile tears over protecting MF Global’s positions by putting at risk roughly a billion dollars of its customers’ money?
In the end, Corzine’s LTCM-related activities cost Goldman about half a billion dollars. In other words, he wasn’t forced out of Goldman because he didn’t “consult” with other partners. It was because he was, and obviously remains, an out-of-control gambler—and I say that as a professional trader inclined to give other traders the benefit of the doubt.
IT WASN’T JUST HIS Goldman activities that should have given MF Global second thoughts before hiring Jon Corzine. His financial management of the State of New Jersey while serving as its governor from 2006 to 2010 was little short of professional misconduct.
Perhaps the best description of Corzine’s mismanagement came, not surprisingly, from his successor, Chris Christie, in a February 2011 speech at the American Enterprise Institute:
When I came into office we confronted a $2.2 billion budget deficit for fiscal year ‘10. The one that had five months left. The one that Governor Corzine told me was just fine, cruise path into the end of the fiscal year; Governor, don’t worry about it, everything is fine. $2.2 billion…Imagine that. The state that has the second highest per capita income in America had so over-spent, over-borrowed, and over-taxed—that it would not meet payroll in March of 2010. So we acted immediately to use the executive authority of the governorship to impound $2.2 billion in projected spending…without raising taxes on the people of the state who had had their taxes raised and fees 115 times in the eight years preceding my governorship. 115 tax and fee increases in eight years.
Corzine has given nearly $3 million dollars to Democrats, mostly through donations to the Democratic National Committee, as well as serving as major “bundler” for Barack Obama’s presidential campaigns.
So it should come as no surprise that two of Jon Corzine’s biggest supporters are Barack Obama and Vice President Joe Biden. At a Corzine campaign rally in Edison, New Jersey, in October 2009, speaking of the administration’s quandary regarding how to deal with the banking turmoil in 2008, Biden made it clear why, in retrospect, the Obama administration’s economic policies are so reckless and confused:
I literally picked up the phone and called Jon Corzine and said “Jon, what do you think we should do?” The reason why we called Jon is because we knew he knew about the economy, about world markets, about how we had to respond, unlike almost anyone we knew.
Biden went on to say that Corzine gave the administration the framework for a national economic recovery plan. Thus, the Obama stimulus, which wasted a trillion dollars of our children’s future earnings, was inspired and perhaps designed by an inveterate reckless gambler and financial mismanager.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
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