The core lesson of the Corzine imbroglio and his "Who me?" testimony before various congressional committees, has not been instinctively overlooked, but certainly not emblazoned into our consciousness, as well it should be.
Only a few days ago, the New York Times, in a revealing article ("A Romance With Risk That Brought On A Panic" 12.12.11) focused on Corzine's lust to trade at levels that 'risked the farm' detailing his thirst to engage enormous risk to achieve maximum returns -- betting $6.3 billion on European debt, plunging MF Global into a wager that would wipe out the firm five times over if it went bad. Risk that was taken not with his money, but against the firm's balance sheet, and as things went wrong, it now appears also client accounts to cover trading losses and to replenish overdrawn bank accounts.
A veritable financial disaster on a bet that had no economic nor structural benefit to the society at large adding nothing other than putting into play grandiose ambitions for maximum profit on a casino gambit for the players, in this case most notably Mr. Corzine. A classic example of short term investing having no meaningful impact on the structure of the economy other than providing Mr. Corzine unlimited access to his BlackBerry roulette wheel on which he compulsively traded.
Mr. Corzine is no ordinary player. For years (1994-1999) Mr. Corzine was the CEO at Goldman Sachs, inheriting a Goldman whose standing, before the short term trading proclivities and 'profit is all' agenda of such as Corzine, was legend in the financial world and throughout, being the toughest of competitors on a level playing field. Goldman was the pace setter in the financial arena respected for its acumen and integrity under the leadership of men like Sidney Weinberg, Gus Levy, John C. Weinberg, and John C. Whitehead.
But as the young Turks acceded to the throne, things began to change at Goldman, which Corzine joined in 1975, quickly gaining a reputation as someone who took big risks and generated big profits. Slowly the culture of the institution and that of Wall Street began to change. Then in 1999, the year Corzine was to leave Goldman, the dye was firmly cast. From a partnership risking the capital of its partners, Goldman Sachs became a public company, with a massive pool of investor's capital and multifaceted reporting requirements mandating quarterly updates of activity at hand. That same year the Glass Steagall banking law, introduced as response to the Wall Street's collapse of 1929 was repealed, effectively removing the separation that previously existed between investment banking which issued securities, and engaged in proprietary trading with growing zeal, and that of commercial banks which accepted deposits.
Corzine left Goldman in 1999 with many hundreds of millions from the public offering, which he had strongly propagated during his tenure as CEO. Yet something fundamentally had changed on Wall Street where proprietary trading and paper derivatives began to bring enormous riches to the players. The new Goldman Sachs became an aggressive participant and in doing so, helped change all of Wall Street and the financial sector. It was a mindset where virtually the only thing that mattered was the profit at hand, and if risk could be shunted aside, so much the better and for a handful of years the house of cards stood tall, until the Fall of 2008.
It could not have happened in a vacuum. When the House of Cards collapsed in 2008, the 'old boy network' was hard at work bailing out club members left and right (Lehman seemingly hadn't paid their dues). Corzine, in his new guise as Chairman of MF Global was able to play this card as well as recently as this year, personally lobbying the New York Fed in order to fast track MFGolbal becoming a "primary dealer" (a select group of 21 banks and investment firms authorized to trade directly with the Federal Reserve). In spite of concerns voiced by the Commodity Futures Trading Commission signaling a need for MFGlobal to overhaul its internal controls, with Mr. Corzines's personal intercession the Fed was to waive a one year waiting period normally imposed after such CFTC findings. According to Thomas C. Baxter, Jr. general counsel for the New York Federal Reserve, the exemption was made "without fear or favor." Yup!
Given Corzine's proclivities for maximum risk without redeeming social benefit other than personal profit, with access to government programs, and as proven in 2008, a government safety net, the MF disaster becomes a cautionary tale of the demise of our financial sector. This, by repeating once again the events leading up to the disastrous failings of 2008.
It brings into clear focus the continued inability of our government and its lame oversight agencies such as the SEC and too often the CFTC, to quell the financial distortions that have been so costly to our economy.
It further underlines the mounting risk of the ongoing emasculation of the Dodd-Frank Bill being done with the concurrence of a hapless and lobbied Congress, a Bill that had been meant to deal with these very issues replacing in kind and spirit the long lamented and sorely missed Glass-Steagall Act. Is it any wonder that Time Magazine chose "The Protester" as Person of the Year??
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