Friday, November 4, 2011

Corzine never learned a thing

In an amazing display of total unwillingness to learn the bitter lessons of the financial collapse of Wall Street in 2008, Jon Corzine has bankrupted a company that he recently took over:  MF GLobal Holdings Ltd.  

He did the same things that Lehman and Bear Sterns had done not long ago.  He leveraged his company to the hilt and beyond, taking massive and reckless risks, on the bet that he could become fabulously wealthy (which he already was anyhow) and make his new company one of the Big Boys of Wall Street.  His company was smaller than the Too Big to Fail financial giants, so he apparently slipped under the radar of the new regulatory system and found the unsupervised license to risk it all.  

He failed.  In fact, it looks like he may have done more than risk it all, he may have risked more than he was legally allowed to, as there are hundreds of millions of dollars of clients' moneys missing, and the suspicion is that he used clients' money for the companies proprietary trading.  Jail time?  

The story is the same as in 2008.  An out-sized, hyper-ego, testosterone crazed, super macho superstar thought his own brains and instincts were infallible, and he Bet the Farm expecting to generate billions of profits for the company and hundreds of millions for his own personal wealth.  And nobody had the courage to stop him.  The company founder, the institutional shareholders, the board of directors, the auditors, all of them were mute or powerless to oppose the super-aggressive Corzine.  

Corzine had been the top dog at Goldman Sachs (and was forced out in 1999 by Hank Paulson, apparently), then he became the Senator and then the Governor of New Jersey.  But the voters apparently were less that overwhelmed by his brilliance, and they fired him from both jobs.  He decided to make his comeback in Wall Street.  Fortunes were lost, as well as 3000 jobs.  

The bad news is that the Jon Corzines of the world are still crashing through china shops in Wall Street.  The good news is that it is harder for them to make the kinds of fortunes that they did prior to the Lehman Brothers collapse, as it appears that the new regulations are actually dampening the risk taking of the financial giants on Wall Street.  Thus, Corzine was forced to lower himself to take over a smaller player on the promise he would turn them into the next Goldman Sachs.

I think the point is that there is never going to be an end to hyper arrogant, ego-maniacal, super risk taking men who think they are the exceptions and who are confident that they alone will discover the keys to the financial kingdom.  To me the solution is to create a legal and regulatory system that can work to keep the damage that they do contained to themselves without cratering companies and countries with their reckless arrogance.