Thursday, November 3, 2011

Corzine taking a lot of heat...

...and deservedly so.

The collapse of MF Global--the broker turned investment bank--has brought the spotlight back to former New Jersey Governor Jon Corzine, since it was under his leadership that MF Global reinvented itself, rolled the dice, and crapped out. Of course, the view from the street--when Corzine took over--was that MF Global was on the way up:
After Mr Corzine took charge of MF Global, its star initially burned bright. In February the New York Federal Reserve Bank admitted the firm into a select club of “primary dealers” in government debt. The risks that it was taking with its own balance-sheet were seen as offsetting a slowdown in its traditional businesses of helping clients make trades. 
Mr Corzine’s stock rose, too. His position as a conduit between Wall Street and Washington, DC made the prospect of his becoming treasury secretary likely enough—and painful enough—that a special provision was included in MF’s August bond issues providing a higher payout if Mr Corzine left for that office.
One has to seriously question the Federal Reserve here, I think. On what basis did it decide to give MF Global such special treatment? Well, duh. We know the answer: Geithner (former head of the New York Fed) and Obama. Corzine had an "in"with all the right people. But the decision was stilli the Fed's to make, and looks to have been mindbogglingly stupid:
Numerous lessons will be drawn from MF's collapse. In its bankruptcy filing, it revealed that it had less than $1 billion in equity supporting more than $40 billion in assets, a staggering level of leverage in an era when financial firms were meant to be ratcheting down risk. That a primary dealer could be so leveraged may well prompt questions about the New York Fed’s scrutiny of firms it routinely deals with.
Of course, maybe the Fed was completely snowed. Just a few weeks ago, Corzine was still touting MF Global's excellent situation:
"Reflecting the stressed markets in the quarter, we deliberately chose to reduce overall market exposure in most principal trading activities and focused on preserving capital and liquidity," Mr. Corzine said Oct. 25. "We also used the dislocation in the markets to add quality people for strategic roles, as well as expand our client relationships across our businesses." 
See, MF Global wasn't winding down, as Mr. Corzine put it then. Quite to the contrary, it was loading up. 
"We were particularly pleased with the repositioning of our mortgage, credit and foreign exchange businesses, the performance of our commodities group and the common alignment of our brand to strategy," Mr. Corzine added. "These efforts reflect positively on our ability to execute and deliver competitive returns to shareholders in the quarters ahead."
As recently as July and August, both Barclays and J. P. Morgan Chase were upbeat on MF Global and its future. Boy, the analysts really earned their paychecks, didn't they?

Let's go to the charts, shall we?

MF Global over five years:

Over the last three months:

That's right, MF Global--a two-hundred year old company--is in penny land. Corzine took over in March of 2010. As we can see from the charts, his leadership (read: political connections) didn't do much of anything for MF Global in the short term. He wanted to turn it into another Goldman Sachs and he gambled its future--and all of the shareholders' money--on his ability to see the future. To be blunt, he didn't have a clue.

He used his political capital, however, to make MF Global look like a major player and garner plenty of new customers. Now, the question is what did MF Global do with its customers money? Because right now, there's more than $600 million of it that has gone missing.

And this is a guy that the admin was considering for Secretary of the Treasury?

I can't decide whose business acumen is the worst: Corzine's, the New York Fed's, the admin's, or the Wall Street analysts.

But one thing I am certain of, if that money doesn't turn up, someone is going to jail.

Cheers, all.

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