Jon Corzine, MF Global, and Italy

Why do guys like Jon Corzine get to run anything? He took Goldman Sachs public and then was booted out. He then bought himself a Democratic Senate seat with some of the $400 million he took out of GS, and pursued rather standard liberal policies. He then bought himself the governorship of NJ and ran into a budget buzz saw. He was then booted out by the electorate who put in Chris Christie in his place. With nothing to do, he was put in as head of MF Global in March 2010. There he decided to turn the firm from a trading enterprise to a proprietary investment company like most of the big Wall Street banks. He insisted on taking big positions and big bets ($6.3 billion) on Italian and Spanish bonds because they were cheap. Word is that he put a lot of his own money into the deals. So today MF went into bankruptcy. It only took Corzine a year and a half to run the 230 year old firm into the ground. [MF was spun off from Man Group, plc. in 2007 as an independent trading entity. Man is a $68 billion investment management company.]

According to a Wall Street Journal story yesterday:

In late 2010, Mr. Corzine started making big bets on bonds issued by European countries. He sometimes placed orders himself based on a list of prices left with an assistant, according to people familiar with the situation. Mr. Corzine, who made his name and fortune as a Treasury bond trader at Goldman, was convinced that sovereign debt from countries like Italy and Spain with high yields was a steal, these people said.

“Europe wouldn’t let these countries go down,” Mr. Corzine, who is also chairman of MF Global, told another executive at the New York City company early this year. When the lower-ranking official suggested that the trade was too big, Mr. Corzine brushed the concerns aside, responding that his career on Wall Street and in politics made him confident about the bets. …

Mr. Corzine’s no-holds-barred bet on European sovereign debt last year stood out for its heft: MF Global’s exposure was far greater than that at Morgan Stanley, a much larger securities firm also whipsawed in the past few months by European trades.

It was the kind of gutsy trade that helped make Mr. Corzine a star at Goldman in the 1990s. “If it was a good trade for $100, he wanted to make it $1,000 or $1 million,” a former colleague recalls.

To make things worse, today Italian bonds tanked which can only increase their liabilities. Why anyone would have put faith in the euro zone bailout in light of the realities of their financial situation boggles the mind. But B/K is what happens in capitalism when one reduces investment decisions to gambling and then makes bad bets. Welcome to real capitalism, Mr. Corzine. It works just as it is supposed to.