But there was Jon Corzine before a congressional committee explaining that $1.2 billion of his customers’ money had vanished, seemingly overnight, and “I simply don’t know where the money is.”
Apparently the congressional rewrite of the financial regulatory laws intended to prevent Wall Street from making investors’ money disappear still has a few holes. The lawmakers should put aside that “job killing” nonsense, at least long enough to patch them.
Corzine was CEO of MF Global Holdings and hardly an innocent on Wall Street. He is a former governor, U.S. senator and CEO of Goldman Sachs.
He learned the money was missing only the night before the broker-dealer was to file for bankruptcy. Corzine said he was “stunned,” as who wouldn’t be, and asked his staff to recheck their work. They did and, indeed, the customers’ money was gone.
The root of the problem was a $6.3 billion bet on European debt that was going bad. How they came to make that bet should make interesting reading when the details come out. (The Great Wall Street Flop of ’08-’09 was a bonanza for financial writers.)
The Washington Post hints at one explanation: When the firm’s chief risk officer questioned the investment in European debt, the board of directors got another chief risk officer.
The law prohibits broker-dealer firms from using the customers’ money to trade on the firms’ behalf. Nonetheless, MF Global employees breached the firewall between the firms’ accounts and the accounts of its customers, apparently in a desperate bid to cover its bet on European debt.
Corzine insisted, “I never intended to break any rules.” His only explanation was that his staff may have misconstrued his instructions on the eve of the bankruptcy: “Someone could misinterpret, ‘We’ve got to fix this’ — which I said the evening of Oct. 30 — ‘We’ve got to find the money.’ “
That kind of a misunderstanding seems a considerable stretch, but considering the bonuses Wall Street pays and the price of arguing with the boss, maybe not so much.
Corzine, perhaps optimistic to a fault, said, “My own expectation is that even at these late hours the money will be recovered.”
Betting on the banks and counterparties who erroneously received MF Global customers’ money voluntarily returning it may be an even worse wager than European debt.
The FBI, federal regulators and a whole host of plaintiffs’ lawyers are on the case, and out of those investigations there should come useful recommendations. Congress should act on them and quit bleating about the perils of federal regulation. For some people, $1.2 billion is real money.