Wow, Jon Corzine — Way To Fly Your Company Into A Mountain
Well, this one’s right up there with the most spectacular CEO disasters ever.
Yesterday, 18 months after Jon Corzine took over the helm of MF Global with the goal of building it into a real investment bank, he flew the company into a mountain.
Why?
Because part of becoming a real investment bank, apparently, is betting the company.
Jon Corzine bellied up to the global market tables, bet MF Global, and lost.
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.
Oops.
Suddenly the powers-that-be decided to force Greek bondholders to take a 50% haircut on Greek debt, which increased the risk that bondholders for Spain, Italy, Portugal, and other basket-case countries might actually be held accountable for their idiotic loans, too.
And when MF Global customers saw that Corzine’s traders had bet the firm and lost, they ran away screaming.
And even Moody’s freaked out.
And that was it, poof. No more MF Global.
As we noted yesterday, Jon Corzine, the pilot who took over the MF Global plane and flew it into a mountain, contractually has the right to a $12 million golden parachute, which would presumably go a ways toward easing his regrets. We hope that, for decency’s sake, he waives it.
If he doesn’t waive it, he can get in a long line of creditors including CNBC, from which Corzine’s MF Global bought (and didn’t pay for) some $845,000 of advertising. And, hopefully, if there’s any justice in the world, Corzine will be at the end of that line.
Because he really shouldn’t get a cent.
Three years ago Jon Corzine bet all of New Jersey’s Democratic delegates on Barack Obama even though the NJ voters picked Hillary.
Two years ago Jon Corzine lost his job to Tony Soprano Chris Christie even though Obama campaigned for him.
Once you get the Obama curse on you you’re toast.
Here’s the real scandal:
And that brings us to the real reason Corzine and his traders bet the firm:
Because it was in their personal interests to do so.
Corzine and his traders, we imagine, put the odds that Italy, Spain, et al, would get bailed out at, say, 90%, and the odds that they wouldn’t get bailed out at 10%.
And, presumably, the $6 billion of bonds Corzine and his traders loaded up on were priced as if there was only, say, a 60% probability that those countries would get bailed out.
So Corzine and his traders saw a marvelous opportunity to coin money and become a real investment bank:
The odds were 90% that they would cash in big.
And only 10% that they would fly the firm into a mountain.And thanks to the fact that Corzine and his traders really had no huge personal downside other than forgoing a bonus for a year or two and the hassle of finding new jobs, they presumably concluded that these odds were spectacularly in their favor.
Nine times out of ten, they would win big and take home a boatload of cash.
One time out of ten, they would… well, carpe diem!
Someday, perhaps, the shareholders of Wall Street firms will wake up and realize that it’s better to make less money this year and be here next year than it is to continuously bet the firm into order to make more money now. But until those shareholders wake up and incent the people they hire to manage their firms, to actually manage them that way, though, nothing will change.
When you give gamblers all of the upside and very little of the downside, it should be no surprise that they keep betting their firms.
There is a silver lining:
If there’s any good news here, it’s that the government didn’t freak out and bail MF Global out. Shareholders actually don’t like losing everything. And, eventually, if they keep losing everything again and again and again, they’ll finally begin to wake up.
We keep hearing how rich people deserve to be rich because they took risks and earned the rewards. Okay, fine, as long as they’re betting with their own money.
But if we’re going to let the winners keep the spoils then it’s not fair to socialize the risk. That just encourages gambling.
After all, we don’t bail-out the losers in Vegas, do we?
The Crawdad Hole 
Karma, baby. (Except Corzine himself probably won’t suffer any real consequences, amirite?)
Unfortunately, yes.
In business, media and in politics when you fail spectacularly you don’t disappear in disgrace, you get a better job.
Exhibit A: Elliot Spitzer.
(I can’t actually think of any ladies to include on the exhibit list.)
Good point.
Gah.
He’ll probably get appointed to the Obama admin if there’s a second term.
Fox Business News has been doing :facepalms: all day over this. As in, why isn’t OWS at Corzine’s front door ?
Glad you posted this myiq, otherwise, I was just scoffing off the Fox ringers 😉
http://online.wsj.com/article/SB10001424052970204394804577012061970129588.html?mod=WSJ_hp_LEFTWhatsNewsCollection
they admit to mixing customer money with business money
Looks like Corzine’s lobbyists & connections are not as strong in the EU as they are in DC. Too bad, so sad.
Beltway Confidential:
Corzine was also Obama’s re-election team’s contact with Wall Street fundraising.
Not that the NYT will tell you that.
I’ve been reading all about it over at Zerohedge. Riverdaughter has a good article up on it, but still waiting on Skydancing and Cannonfire.
Jon Corzine, he’s one major MFer.
yepper!!!!
FBI Plans To Investigate MF Global, Person Familiar Says – WSJ
We’ve seen that movie before. A 2 year sentence at a country club out west, where the aspens turn, shortened to probation after 6 months. But Empty Wheel will give you front page reports from the trial, so some good will come of it, I suppose…
This guy and he and his other WS cronies puppet Obama are what OWS should be protesting. Well, and the Dem party on top of that. And similarly this corruption and it’s connection to Obama is what the NYT and the WaPo should be reporting on. Times sure have changed.