It’s been a rough couple of years for Jon Corzine, and it looks like things are about to get worse:
Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.
The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.
Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.
As of right now, it looks to me that Corzine, another Goldman wonderboy, thought he was invulnerable:
Now, the inquiry threatens to tarnish further the reputation of Mr. Corzine, the former Goldman Sachs executive who had sought to revive his Wall Street career last year just a few months after being defeated for re-election as New Jersey’s governor.
When he arrived at MF Global — after more than a decade in politics, including serving as a Democratic United States senator from New Jersey — Mr. Corzine sought to bolster profits by increasing the number of bets the firm made using its own capital. It was a strategy born of his own experience at Goldman, where he rose through the ranks by building out the investment bank’s formidable United States government bond trading arm.
One of his hallmark traits, according to the 1999 book “Goldman Sachs: The Culture of Success,” by Lisa Endlich, was his willingness to tolerate losses if the theory behind the trades was well thought out.
So far, this reads to me like every out of control gambler in every two bit casino in the country- the losses are mounting, and instead of walking away from the table, going home and telling the wife that you spent the rent check, you mortgage the house and raid the kid’s college fund and double down because, as we all know, if these bets hit you will be in the clear! Be nice if my suspicions are wrong, but I really doubt it. That’s the mentality of these guys. They aren’t shrewd businessmen, they are reckless gamblers.
Tom Levenson
The real weirdness of the story is that it appears that Corzine’s shop was both inexcusably sloppy and potentially criminal. The $900 million initially thought to be missing has dropped to $700 mil, at least as of an hour or so ago. That 200 million dollar difference turns up because MF Global didn’t know where it’s clients’ money was.
That’s some special fail, on its own.
It may yet turn out that such incompetence is the story…or it could be that MF Global hit the dessert topping/floor wax bifecta, both playing with other people’s money and being unable to keep track of the dollars in the first place.
The moral: when someone tells you Wall Streeters need their compensation because of their unique skills, laugh at them. Then steal their lunch money.
deep cap
These men are the Randian ideals! Their sociopathy is a sign that they are REAL men.
Svensker
He’s an arrogant bastard. I’m pretty sure he had presidential aspirations, so jumped out of the Senate to run for governor thinking that was a better springboard to the very top. He knocked out a really good Dem candidate for governor to do it, then saddled NJ with Chris Christie when the state got sick of his corporatist crap. Too bad, so sad, Jon.
Linda Featheringill
@Tom Levenson: #1
LOL! Beautiful!
beltane
Jon Corzine’s behavior is typical of a cocaine addict. If he is not a cocaine addict than he is simply one psychotic sonofab*tch.
JGabriel
Svensker:
Agreed, but I never got the feeling that Corzine was an incompetent arrogant bastard. I’m honestly surprised by the apparent sloppiness of MF Global’s failure.
Of course, I’m also surprised the company was called MF Global. Where were the motherfucking marketing people when they came up with that name?
.
JGabriel
@beltane:
That would explain quite a bit.
.
General Stuck
Cole is correct. Junkies rifling through their neighbors medicine cabinet for a fix to make them whole again.
Could be book keeping fuckup. But one thing about financial corps is that if they know nothing else, they know where the money is. It’s like Herman Cain forgetting where the teevee camera is pointed.
FedSec
The worst part is they have no sense of shame. And if Corzine gets his parachute, I say we burn this shit down!
MattF
This is somewhat theoretical-and-abstract, but the next time someone claims that ‘financial innovation’ is a wonderful thing that lubricates the flow of capital, or whatever, point them here:
http://physicsoffinance.blogspot.com/2011/10/sharing-risk-can-increase-risk.html
And, yeah, Corzine is a gambler and an incompetent shithead. Who could have known?
Odie Hugh Manatee
You can bet that the money he lost has been well received on Wall Street. I view the whole process as rigged against everyone but the few at the top. I’m sure that Corzine thought he was someone great in the world of finance but that is what they wanted him (and everyone else) to think. Now that money/profit is getting scarce, it’s time to call in the lower level ‘rich’ cattle and milk them dry.
Gotta feed the vampire squid. That’s all that matters.
cervantes
How can you mortgage the house if you’re renting it?
Nathaniel
This dude’s loss to Chris Christi makes me less sad every day.
ksmiami
I tweeted about the overall criminal conspiracy yesterday; Matt Taibbi: “Why Isn’t Wall Street in Jail?” (Complete Interview) http://bit.ly/ve1Qg3 .
The problems are so vast and deep, that without flushing the whole system, it will continue to be a dangerous cancer and it starts with the fact that the SEC is completely unable and disincentivized to act as police
Nevgu
LOL….Wrong Again Cole giving an opinion about this is like an illiterate giving an opinion about literature.
eric
@cervantes: say you own it, create some documents that allow for the “perception” that you own it and then “buy” it with the money you make later on to make it all appear kosher with hindsight.
JPL
@Nathaniel: I definitely agree. Madoff might have company soon.
nancydarling
@Tom Levenson: Tom I just emailed John on this but you might find it interesting too. Investment “whiz kids” are buying up used car lot chains, securitizing the loans, just like they did with subprime mortgages and selling the securities—some with a AAA rating.
http://www.latimes.com/business/buy-here-pay-here/la-fi-buyhere-payhere-day-two-20111101,0,2598239,full.story
Mind boggling stuff.
JGabriel
@General Stuck:
Or Michele Bachmann.
.
General Stuck
@JGabriel:
Michelle thinks the entire universe is one big camera pointed at her
cmorenc
@John Cole:
That sells them a bit short…they are highly skilled, in a similar manner that professional poker players are both shrewdly skilled AND sometimes daring gamblers. The part I do agree with is that back in flusher times, they increasingly pushed the line between prudent investing and gambling further and further toward the latter, because for many years the deck seemed so full of face cards and suited hands that placing bold bets paid off often enough to make this level of risk-taking seem the new “normal”. The result was that any hedge-fund manager not taking high risks that objectively should have been considered as speculative gambling rather than investing, could not competitively survive because for several years there were so many others who seemed to possess uncanny acumen at drawing aces. Except that they weren’t, because the game was rigged for several years to turn up abnormally high hands.
When reality finally re-imposed itself, the fact that all this shrewd “investing” was actually risky speculation became much clearer. This does not change the fact that players like Corzine had crossed the line over into skilled gamblers who could lose their entire stake going all-in on the wrong hands.
soonergrunt
OT–An Occupy OKC participant, a homeless man that was given a tent and fed and basically had been adopted by the campers was found dead in his tent last night.
http://www.newson6.com/story/15917745/occupy-okc-protester-found-dead-in-tent
http://www.dailykos.com/story/2011/10/31/1031964/-Death-at-Occupy-OKC-encampment?via=tag
scav
Once we get rid of those pesky burdensome regulations about hiving to give (fucking leaches!) the customers money back to them, well, THEN well see some real innovation.
The Moar You Know
The house always wins, but I have yet to meet ONE gambler that understands this very simple, unalterable rule.
ericblair
@General Stuck:
I don’t know about this. I think financial corps have less of an idea how much they have and where it is, because everyone involved is incentivized to manipulate it. The shit that the company does as a whole, like inventing bullshit asset valuations and “borrowing” the wrong money to go double-or-nothing, gets repeated at the lower levels in the company because management have to make their internal numbers, too.
Risk management with a bunch of arrogant hyperaggressive gamblers at the helm is a joke.
eemom
@Nevgu:
dayum, that one little firing neuron of yours must be exhausted after coming up with that brilliance.
Stillwater
The upfront shenanigans are bad enough, but this gets closer to the Randian spirit embraced by the investor class:
Rafer Janders
They aren’t shrewd businessmen, they are reckless gamblers.
There is often not as much difference between the two as you would think. Often a shrewd businessman is just a reckless gambler whose bet has paid off. Success washes away many sins.
cleek
people read Nevgu ? why ?
Paris
@Nevgu: or like pointing out that the emperor has no clothes. Sometimes its just obvious.
kindness
I’m waiting for some MSM individual to accompany this news by tying it to President Obama.
Somehow this HAS to be bad news for Obama.
@Nevgu: Troll.
Elizabelle
@nancydarling:
You beat me to it, nancy. Definitely front pager post stuff. Kudos to the Los Angeles Times for reporting on this.
Investment companies are securitizing the loans made — at average 38% profit — on decade old cars with high mileage — sold to buyers who cannot get credit. And who are desperate to pay $500/month for an old Ford Taurus to commute to work.
Buy Here, Pay Here — the buyers must make their loan payments at the auto lot so that repo-ing the car is that much easier.
http://www.latimes.com/business/buy-here-pay-here/la-fi-buyhere-payhere-day-two-20111101,0,2598239,full.story
Where HAVE we heard that before?
Gin & Tonic
Interesting Reuters article on the situation here. At one point it mentions the firm as of last week or the week before had about $1.2B in equity and was holding over $41B of assets, a lot of them Eurozone sovereign debt. That’s pretty damn leveraged, if you ask me.
soonergrunt
@cleek: I don’t know. Guy keeps going on and on about pie. It’s almost as tiresome as m_c that way.
PeakVT
You know, we really should be thanking Corzine for keeping MF Global small enough to fail.
Elizabelle
@soonergrunt:
I want some brisk coffee with my pie.
Good morning all, and good to see you soonergrunt.
Feudalism Now!
But Wall Street Banksters wear nice suits and gamblers don’t or something.
The investment groups, the sainthood of the Church of Finance, wants everyone to believe that they are analogous to the ” house” in the gambling metaphor. The odds are stacked in their favor. But, the truth is they are like that cousin you have who tells everyone that he has a system to work the craps table and if you lend him some of your money he’ll triple it in a weekend.
Petorado
Well at least MF Global was aptly named. I bet there are a lot of folks this morning calling Corzine an MF. Now if Goldman Sachs would rename itself POS Investments we’d see some truth in labeling.
p.s.- it’s too early in the morning to have pie on the menu
Hypnos
The gambler analogy is wrong. Most casino games, like poker, have outcomes based on skills.
Skills are completely irrelevant in stock trading. 50 years of statistical data from investment banks shows that all traders have equal results, comparable to throwing dice.
http://www.guardian.co.uk/science/2011/oct/30/daniel-kahneman-cognitive-illusion-extract?fb=native&CMP=FBCNETTXT9038
You could put illiterate Somali goatherds in their place and nothing – NOTHING – would change, except that there would be an overall increase in human decency at honesty at investment banks, as Somali goatherds tend not to be sociopaths.
Rafer Janders
Specifically, the former head of Goldman Sachs and governor of New Jersey authorized his traders to scarf up $6 billion in bonds issued by Spain, Italy, Portugal, Belgium, and Ireland. The bet, presumably, was that the powers-that-be in Europe would bail out these and other bondholders to the tune of 100 cents on the dollar, because in our global bailout spree, that’s what powers-that-be do.
That’s false. The bet would not have to be that they’d be bailed out at 100 cents on the dollar, just that they’d be bailed out a certain price higher than the price you’d paid.
Say you buy face value $1 European sovereign debt for, say, 60 cents from a current holder who’s nervous about losing it all. In scenario A, the debt is then bailed out at 70 cents on the dollar and you’ve made 10 cents on the trade. (So even though it’s not redeemed at par, you can now sell for 70 cents what you bought for 60).
Option B, the debt is bailed out at only 50 cents on the dollar and you’ve lost 10 cents.
General Stuck
@Elizabelle:
Predators are always on the prowl for more victims of unfortunate circumstance. In this case, the lizard brane senses the credit wounded as promising new prey to pursue.
David Hunt
@The Moar You Know:
My understanding is that they’re out there. They’re the ones who play poker and other games where they’re not playing against the house, but against the marks who sit down at the table with the sharks. There’s an easily path to an analogy about how Wall Street works there, but I’m usually terrible at making those sorts of comments so I’ll leave it for others to pick up or let lie.
soonergrunt
@Elizabelle: {waves} Hi, Elizabelle!
Liberty60
Slightly OT, but on the theme of financiers somehow being superior members of the wealth creation team;
Wealth and job creation happen when a number of factors come together- skilled labor, capital, social and physical infrastructure, and consumers among other things.
Take away any one of those factors and the system breaks down. So why has America bought the idea that out of those factors, only finance is worthy of respect, and needs to be protected?
Yevgraf
There’s a ridiculous amount of acceptance of sociopathy and ineptitude ingrained in ‘Murkan white culture, so long as the perpetrator is wearing a nice suit, has nice things and projects a large amount of hubris.
This is what explains the continued eager acceptance of the “wisdom” of assclowns like Donald Trump.
Roger Moore
@cleek:
FTFY. Some of us can’t get a version of the pie filter for our favorite browser, so we wind up seeing his shit. But that doesn’t excuse responding to it.
gypsy howell
Best headline on the whole affair:
Wow, Jon Corzine — Way To Fly Your Company Into A Mountain
But is it really gambling if you own the casino regulators and can make the rules? And it’s definitely not gambling if you leave the casino with a payout either way. You know he’s going to find a way to walk away with that $12 mil. The only ‘gamblers’ here were the fools who gave him their money.
burnspbesq
@Stillwater:
It was not irrational for Corzine to believe that those countries would get bailed out. It may have been irrational to bet the company on that belief.
Guy got fucked by Angela Merkel (shudder).
Roger Moore
@Liberty60:
Because finance has been systematically trashing the other parts of the equation as moochers for so long that people have started to believe them. SATSQ.
nancydarling
@burnspbesq: Burns, don’t judge Angela’s book by her cover.
300baud
Truly, many of them are irredeemable gamblers with delusions of competence. Want to know how it works?
Imagine if you took all the change out of your change jar and flipped each coin once. Ones that came up heads you kept, calling them special and brilliant. Once that came up tails, you fired as incompetent.
For all the remaining coins, flip them once again. For heads, tell them they are going places and could have a future with your firm. Tails, dump ’em.
Now keep playing this game. Round after round. Keep the “winners”, fire the “losers”, while investing emotionally in the results. Even knowing it’s BS, you will catch yourself feeling things. Pennies? You knew they couldn’t cut it. Not like quarters. Fuckin’ pennies. Except that wheat penny: he’s ok.
Now do this with people. Make it complicated enough that the can pretend it’s not obviously bullshit. Give every “winner” a big bonus, and reward them again when they argue for a bigger one. And ask yourself: What kind of monsters have you bred?
burnspbesq
@nancydarling:
I’m not. The book also sucks. Fucking over the entire world so that German banks don’t have to publicly admit that they’re all insolvent? Not OK.
nancydarling
@burnspbesq: Point taken, and agreed upon.
Someguy
@burnspbesq:
So you wanted her to insist that the Greeks pay up 100%? This would have wiped out the French banks first, as the largest holder of Southern European debt; then the Germans.
Their banks aren’t insolvent, except to the extent that they’ve loaned money to a bunch of skells who have no intention of paying it back, and who are still griping that a 80% haircut is insufficient. WTF? So what exactly was she to do?
Roy G
The other moral of the story may be what Corzine thought was his genius was actually Goldman’s rigging of the roulette table.
gene108
@Nathaniel:
I take it you don’t live in NJ?
Corzine is an arrogant prick, but as someone pointed out up thread, he hasn’t been an incompetent arrogant prick before.
Corzine made sure there were funds for the poorer towns in NJ, which Christie has slashed with glee.
Corzine put in a 4% tax on income over a million dollars to pay for things. One of Christie’s first actions was to repeal this tax and then cut the state’s education budget for public schools because there was no money.
@Svensker:
I disagree with the Presidential aspirations part. The Republicans had the majority in the Senate, when he was there.
I don’t think being a freshman Senator, in the minority party, fulfilled the being in charge side of his ego.
When you’ve been the top dog, it’s hard to step back into being on the bottom rung of the ladder in a new career, which is basically what a freshman Senator in the minority party is.
burnspbesq
@Someguy:
The banks are technically not insolvent because no one is requiring them to mark their sovereign debt holdings to market on a regular basis. That is, quite clearly, an illusion. By any rational accounting, the value of their assets is less than their liabilities.
The only answer, as we’re about to find out when the Greek people vote “no” in the referendum, is for Greece to default and exit the Euro, admit that all the major German and French banks are insolvent, and then either bail them out (the US answer) or temporarily nationalize them, put tax dollars in to recapitalize them, and get the public’s money back in a subsequent IPO (the Swedish answer).
daveNYC
Thing is, these guys can be both shrewd businessmen and insane gamblers at the same time. So on the one hand they might take a position that makes sense (say, they shorted Lehman or Bear back in the day), but they do so with so much leverage that any move in the wrong direction would cause margin calls to wipe them out. Fine line between clever and stupid is quite an accurate description.
Anyway, the main issue here isn’t that MF Global went tits up due to bad prop trades. It’s that they might have used customer money to try and keep things together, and that they seem to have ‘misplaced’ $700M. Those things aren’t just making a bad trade and losing money, that’s straight up criminal.
Jay C
Joe Nocera, on the NY Times’ Op-Ed page today, kinda-sorta makes up for his inane “Borking” column by opining on this very subject.
My most-interesting takeaways from it were:
1) that MF Global dedicated 64 fucking percent of its revenues to “compensation”, and
2) the revelation that Jon Corzine had not only negotiated the terms of his hiring at MF Global, but the terms of his departure, as well: pre-setting the size of his “golden parachute”, thus ensuring that he would pocket no less than $12.1 million for his (?first year?) tenure there, come hell or high water. Of course, that pesky little “bankruptcy” issue has made those conditions moot, now; but if he had been able to
fob off MFG on some suckersell the firm as a “going” concern, he would have collected his full ticket: even for running the company into the ground.Gin & Tonic
Felix Salmon is referring to this as “a truly ignominious end to Corzine’s career.” I think of it as just deserts. Potayto, potahto.
Derfbot 9000
@kindness:
Easy, sweetums. The former governor is merely one of the President’s ten largest financial bundlers, to the tune of nearly a million dollars so far in 2012.
I mean…they barely know each other!
Rafer Janders
1) that MF Global dedicated 64 fucking percent of its revenues to “compensation”, and ,
Though, on the other hand, what else are the revenues going to go to? In a finance concern like MF Global, your only real assets, the only thing actually producing revenues, is your people. You’re not really making anything, so you don’t need to devote your revenues to R&D, the physical plant, upgrading manufacturing facilities and machinery, etc. All you really need is a bunch of smart people and high-speed internet connections. So if you don’t plow your revenues back to them in the form of compensation, where else are they going to go?
daveNYC
@Rafer Janders: In theory, to the shareholders.
Which is why having the major IBs go public was a bad thing. Before, they were doing things with their own money, so partners really were interested in things like long term viability. Once you start playing with other people’s money, well, that and fat paychecks and golden parachutes kinda changes one’s perspective.
The Spy Who Loved Me
Look at the bright side: Now that Corzine has finished running MF Global into the ground, he has lots more time to troll for Wall Street cash for the Obama re-election campaign!
Wasn’t there talk at one time of Corzine as a replacement for Geithner as Treasury Secretary? I guess we should be glad that one didn’t work out.
Derfbot 9000
But just so you poor widdle obots don’t think I’m being unfair to El Presidente, Mitt Romney and family were all up in the ponzi scheme business! The hits just keep on coming.
http://thinkprogress.org/economy/2011/11/01/316040/romney-solamere-ponzi/
Elizabelle
@Jay C:
Thank you for pointing that out.
I think Nocera’s Bork abortion of a column was an outlier, and that he’s usually reliable.
Saw that about 64% compensation. Might that be criminal?
kindness
We have a winner!!!!
Congratulations Derfbot9000, you are the first person here to link Corizone’s fraudulent behavior to President Obama. What do we have for the lucky winner? Well Derfbot9000, hold on to your screenpants because we have just entered you into NAMBLA! That is right! You now have a years membership in the fabulous NAMBLA civil ‘rights’ group courtesy of the Obots here at BJ.
When I say ‘Boy are you lucky’ I know you are thinking what a ‘lucky boy’ you are.
Derfbot 9000
I can’t help but notice you couldn’t even come up with an actual retort regarding the layer of separation and culpability between a politician and one’s donors, or the stark difference in financial ties between the President and his Republican “opponents” to Wall Street, or anything to that effect.
Nope, you went straight to the “You spoke against the Messiah! Pedophile. Pedophile! PEDOPHILE!” card. How clever.
I understand this is hard on you right now.
Jay C
@Elizabelle:
Ummm, “criminal”? Morally, if not legally, though
Rafer Janders @ #59 has a good point: “investment” companies don’t really own much in the way of hard assets, and use no “materials” (other than electricity) in their business, so outside of the office rent, it’s not surprising that personnel costs (“compensation”) would be the major expenditure.
Though figures like this, IMO, simply reinforce the negative image of the FS sector as relates to the economy as a whole: they produce nothing, but rake off enormous amounts of money for themselves (i.e., the industry insiders lucky enough to have control of the compensation process) by pushing even more enormous amounts of money around in a rigged casino-game “market”. That much of the latter is fundamentally illusory makes no difference to the insiders, as they can be assured – for the most part – of being considered “to big to fail”.
David in NY
@Derfbot 9000: I don’t read people who don’t write like grownups.
kindness
@Derfbot 9000: Hey now…I was snarkin’ you but if the shoe fits….enjoy your membership. Oh yea…the Feds have now bugged your everything.
Rafer Janders
@daveNYC:
Ah, I had thought that MF Global was privately held. It’s actually public.
Tom Levenson
@nancydarling: Yikes! This is a horrifying story on more than one level.
If I can, I’ll try to dig into it a little. Much on my plate though.
bjacques
Jon Thorazine goes home with nothing. Actually, less than nothing, and the thermonuclear lawsuits headed his way are merely a courtesy extended to our most daring traders.
pluky
@JGabriel: Corzine’s market strategies and instincts were developed during the bull bubble (pun intended). Applied now, after the bull has hit the fan, those strategies and instincts are clearly a recipe for disaster.
burritoboy
After a couple decades of me somewhat unhappily wandering around the investment industry:
Hate to do something like partially defend Corzine here, but his bet wasn’t irrational. He just calculated the chances of various bonds being bailed out as higher than what other people thought the chances were. He was wrong, but there’s little reason (at this point in time) to say he was irrational or even notably foolish.
The problem is that his resulting portfolio was seemingly entirely composed of this one investment idea. Second, he doesn’t seem to have hedged out the risk (or, at least, he didn’t hedge it particularly well probably because the hedges were very expensive). He also took on a high level of leverage. Those things together, of course, meant the portfolio was extremely risky.
And extremely risky can be fine! Corzine should have raised a side fund, letting everyone know he was going to be a super wild-ass macro trader in it, and run with that structure. If it blew up, MF as a firm would be protected, the investors in that fund would of course get hosed, but he was upfront about them about that. Instead, he used all of his firm’s capital and blew everything up. Yeah, sure, he’s a prop trading guy, but MF wasn’t Goldman, which has many other businesses besides prop trading to keep them semi-solvent.
The missing money is another matter, and that’s super not cool.
burritoboy
Almost all the costs of an investment firm are compensation. 64% actually sounds a bit low to me. Perhaps they had high borrowing costs.
The only other major expenses you have in an investment firm are rent, IT, trading costs, borrowing costs, legal expenses, marketing costs, access to various databases and accounting expenses.
Bruce S
Exactly right! And it’s a fine line between the hubris and the stupid.
He shoulda worn his seat belt…again.