Jon Corzine began as a bond trader at Goldman Sachs in 1975. Through a climb that made him head of bond trading and then CFO, Mr. Corzine eventually became chairman of Goldman in 1994. After leaving Goldman in 1999, he became a U.S. senator, representing New Jersey, then governor of New Jersey, and then, in 2010, he was brought to MF Global. He had returned to Wall Street as a heavy hitter.
Problem is that MF has declared bankruptcy, the FBI is taking a closer look at what exactly happened at this failed firm, and investors realize they have lost their shirts by doing business with another Goldman alum. Mr. Corzine is already lawyered up, a good idea given that he spent the last five days at the company trying to find $659 million in customer accounts. Oh, and he also spent the past year lobbying regulators in DC to not impose restrictions on how firms such as his could move cash around. Might the Barometer suggest that those regulations could be just the ticket for avoiding losing customer funds?
The problem with all things Goldman is the culture in which people and processes at steeped. “Filthy rich by forty†is the Goldman motto. Such a credo does not leave much room for personal values or ethical discretion. Goldman breeds glitz that breeds temporary success with a wide swath of destruction left in the wake of that short-lived success. Corzine was ousted because of problems with his partners at Goldman. A corruption scandal dogged him during hi gubernatorial re-election campaign. He lost to Chris Christie. And now he leaves behind a failed firm and investors with portfolios full of bonds from three of the four European PIGS (Italy, Spain, and Portugal – somehow Corzine managed to avoid investing in Greek bonds – perhaps the riots in the street last year tipped him off that a melt-down was coming). Then again, Mr. Corzine was never one to subscribe to the importance of moral hazard in free markets. He believed, “Europe wouldn’t let these countries go down.†Europe may not have a choice. Mr. Corzine bet arrogantly on PIGS’ bonds, and he was wrong. Ironically, in a tip of the hat to moral hazard, no one bailed out MF Global.
The scariest part of the sordid tale of MF is that people continue to follow blindly after the Goldman standard. Be afraid of iconic leaders who seem to defy odds when it comes to financial performance. Character and past actions, in all their misguided glory, matter. Perhaps this MF failure will encourage investors to take a closer look at both before laying their cash on the table.
