When Goldman Sachs went public on May 4, 1999, Jon Corzine, who was then the firm’s chief executive, held a stake that was suddenly valued at $305 million. So, perhaps, it’s uncharitable to complain about the piddling $12 million severance he was poised to gain if he had managed to sell his current firm, MF Global Holdings, over the weekend.
But I’m going to complain anyway. The idea that Corzine, who single-handedly destroyed MF Global Holdings,
was in a position to command so much as a penny in severance is
horrifying. It suggests two things. The first is the extent to which
“heads-I-win-tails-you-lose” remains the operative concept for Wall
Street compensation. The second is that one’s politics doesn’t much
matter when it comes to lining one’s pockets. Corzine is an avowed
liberal who has decried income inequality and Wall Street pay — but right up until the end, he had his hand out for millions he didn’t deserve.
To read a recounting of Corzine’s tenure at MF Global Holdings is to
wonder how he missed the 2008 financial crisis. Oh, yes! That’s right:
he was the governor of New Jersey, a job he won in 2005 after one term
in the Senate. Still, you would think that as a former Wall Street titan,
he would have noticed that taking giant bets on shaky, long-term bonds
while financing your operations with overnight loans that can be pulled
at any second is not exactly a recipe for success.
But that’s exactly what Corzine did. After taking over the firm in March
2010 — just months after losing his re-election bid to Chris Christie —
he decided to transform the derivatives
broker into something sexier, something more like his old firm, Goldman
Sachs. In particular, he wanted MF Global to risk its own capital,
trading for its own account, just like Goldman had so successfully done
when he was running it.
Stunningly, the risky bets he took at MF Global were on European
sovereign debt. “Europe wouldn’t let these countries go down,” he
reportedly told another Wall Street executive, according to The Wall Street Journal.
The firm’s position in European bonds grew to $6.3 billion — and its
leverage ratio to 40 to 1, according to Egan Jones, a ratings agency.
That is, it had $40 of debt to every $1 of equity. It was remarkably
As was the denouement. After a poor fiscal second quarter was announced
last week, its stock fell off the cliff and Moody’s downgraded its debt.
Its trading partners became skittish, and its access to the overnight
lending market started to disappear. It was the classic modern Wall
Street run on the bank — just like Lehman Brothers. Finally, Corzine’s
only hope was to sell the firm. When that effort failed early Monday
morning, a bankruptcy filing was inevitable. Just like Lehman. (Continues here)