“We hang the petty thieves and appoint the great ones to public office.” ~ Aesop
First, let’s start with some good news for a change. It turns out we all have reason to applaud Judge Jed Rakoff[1]. In late October, he challenged the SEC’s settlement with Citigroup for $285 million. In a Goldman Sachs like maneuver, Citigroup had assembled a $1 billion mortgage backed security offering in 2007. The problem was Citigroup, for this particular security, had hand-picked the worst loans they could find in their portfolio. How do we know that? Well after Citi sold the security, they took out credit default swaps in a huge bet that the portfolio would fail – which it ultimately did to the tune of more than $700 million. In addition, this is the same judge who initially rejected the SEC settlement with Bank of America in 2009, because it required shareholders to foot the bill, without any financial participation by the executives that had caused all the problems. I know right!? When has any regulator or judge in this whole mess considered making the crooks pay the fines? Bravo Judge Rakoff!
Now speaking of Goldman Sachs, we are provided with an excellent segue to talk about Jon Corzine. If they ever build a Hall of Shame for the worst 
financial cheats in US history, you can be sure Corzine’s jersey will hang prominently in the men’s room, above John Thain’s golden commode. Corzine, of course, ran Goldman Sachs from 1994 to 1999. His tenure there was notable for two things. First, he took Goldman Sachs public which netted him $400 million personally. Then he followed that up by orchestrating the failed bailout for Long Term Capital Management. This latter ill conceived investment resulted in him being forced out of the firm the same year.
So what do you do with $400 million to burn? In Corzine’s case you buy yourself a US Senate seat from New Jersey. In 2000, he spent $62 million of his own funds and set a record for the most expensive Senate race in US history. However, the Senate turned out to be boring, so Jon moved on to the governor’s office in 2006. At least this time, he only had to spend $38 million. Unfortunately, life in the governor’s office proved to be difficult. In his first year, he had to shut down the government during the 4th of July holiday, and for the first time in New Jersey’s history. That was particularly ironic since Corzine’s party controlled both the state house and senate, and the impasse involved his proposal to hike the state sales tax, in order to address the state’s ballooning debt problem. Sound familiar? Well thanks goodness Governor Corzine got his way and was able to make use of his superior financial acumen. Having entered office $31.8 billion in debt, by the time he was voted out in 2009, he had managed to increase New Jersey’s debt to $51.2 billion[2] – another state record!
That brings us to MF Global and its recent chapter 11 filing at the end of October. Jon became CEO of MF Global in March of 2010. MF Global was a major global financial broker and a primary dealer for the US Treasury Department at that time. In fact, MF Global had approximately $51 billion in assets under management. Long story short – in a little over a year, Corzine was able to run the company straight into the ground. However, it’s the circumstances around this collapse that are so inexplicable. It appears that Jon comingled and borrowed against customer’s accounts, which is outright illegal. “What investments were so compelling, they were worth swapping for a potential prison term for,” you ask? Well that would be for a $6.3 billion dollar position in Greek, Spanish and Italian debt! Yep, genius – pure genius! And according to the Washington Times[3], “It was revealed that the company was leveraged 40-1. Even in the height of the subprime crisis a 40-1 leverage would have been considered extremely risky.” But it get’s even better. As I write, the trustee of the bankruptcy court has just disclosed there is a shortfall of $1.2 billion dollars[4] that has somehow gone missing. I guess that would explain why Jon decided to forego his $12 million severance package, and we he instead hired Andrew J. Levander[5], one of the most renowned white-collar criminal defense lawyers in New York.
In closing, I just want to leave you with another quote from our Vice President, Joe Biden, given in a speech back in May of 2009, during Corzine’s
failed re-election bid. “Jon Corzine helped craft the Recovery Act. It’s not coincidental that the things he did here (New Jersey) turned out to be the exact same things the recovery act has. Because way back in the transition period before we were sworn in, when Barack Obama and I were literally sitting at a desk in a high rise in Chicago beginning to plan how we would try to get this economy out of a ditch, literally the first guy I called was Jon Corzine. Not a joke. Not a joke. Because first of all, he’s the smartest guy I know in terms of the economy and on finance.” I guess that explains the current state of our economy, as well as anything else I’ve heard. God help us all!
[1] http://www.ft.com/cms/s/0/c1a2c78c-00cd-11e1-8590-00144feabdc0.html#axzz1eIR36Fkn
[2] http://www.state.nj.us/treasury/omb/publications/11bib/BIB.pdf – page 16
[3] http://www.washingtontimes.com/news/2011/nov/20/williams-jon-corzines-reckless-governance/
[4] http://www.reuters.com/article/2011/11/22/us-mfglobal-idUSTRE7AK1G120111122
[5] http://dealbook.nytimes.com/2011/11/04/corzine-hires-criminal-attorney/
