Jon Corzine's MF Global is Bankrupt


The global financial crisis took yet another turn for the worse on Monday. According to Yahoo! Finance:

MF Global's meltdown in less than a week made it the biggest U.S. casualty of Europe's debt crisis, and the seventh-largest bankruptcy by assets in U.S. history.

The chief executive of MF Global Holdings Ltd. is Jon Corzine. According to The Economist recently, Mr. Corzine is:

Another former head of Goldman Sachs [potentially] running America’s Treasury, Mr Corzine (who is also a former governor of New Jersey) is seen as a long-shot candidate for the job when Tim Geithner steps down, or as a possible future White House economic adviser.

The Economist also mentions what it refers to as "The Corzine put". This cunningly constructed derivative means that MF Global:

Is offering an extra percentage point of interest to investors in its latest bond issue, should Jon Corzine, MF’s chief executive, quit to take a government job before July 2013.

I wonder what MF Global bond holders make of that extra percentage point now? I also wonder what valuation MF shareholders are putting on their holdings today? In view of the current news it seems unlikely Mr. Corzine will ever achieve that position in government, although I suppose stranger things have happened. According to Reuters, ex Democratic New Jersey Governor Jon Corzine:

Has been a major fundraiser for Obama, having donated the maximum of $5,000 that an individual can give for a presidential campaign.  He also held a lavish $35,800-a-head fundraising dinner for Obama at his home in April and raised or "bundled" donations of at least $500,000 so far for Obama's 2012 re-election effort.

Maybe in return Mr. Obama will send some of his own "political capital" in Mr. Corzine's direction one day, when memories have faded a little? Or there again perhaps not. According to The Economist once more:

It is unlikely that Mr Corzine will stage another comeback. On October 31st MF Global filed for bankruptcy after frantic efforts to sell assets or find a buyer failed. The cause of the firm’s demise were trades and strategies driven by Mr Corzine—not least disastrous bets in the market for European sovereign debt, making MF Global the largest American casualty of the euro-zone crisis so far.

The US regulators that are supposed to be keeping a close eye on this sort of thing have issued a statement on the MF Global fiasco. According to the U.S. Commodity Futures Trading Commission:

For several days, the SEC, CFTC and other regulators had been closely monitoring developments affecting MF Global, Inc., a jointly registered futures commission merchant and broker-dealer, in anticipation of a transaction that would include the transfer of customer accounts to another firm. Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm. The SEC and CFTC have determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets. SIPC announced today that it is initiating the liquidation of MF Global under the Securities Investor Protection Act (SIPA).

It sounds a lot like it's not just MF Global shareholders who will be forced to undergo a haircut. It sounds like there are some deficiencies in the supposedly segregated accounts of MF Global's customers too.  According to the New York Times:

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said.

For a closer look at the many billions of dollars involved in the latest Wall Street crash let's turn for assistance to Michael Bloomberg, who is an expert in such matters. According to Bloomberg Businessweek:

MF Global Holdings Ltd., the holding company for the broker-dealer run by ex-Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy protection as it seeks to reorganize after making bets on European sovereign debt. Its broker-dealer unit, MF Global Inc., faces liquidation. The firm listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Manhattan.

Once upon a time Jon Corzine looked very closely at the causes of the downfall of Long Term Capital Management, according to Roger Lowenstein in another article on Bloomberg. However it doesn't seem as though he learned very much from that particular piece of financial history. This time around it looks like he's not only thoroughly cooked his own goose, but he's also burned considerable amounts of MF Global Inc.'s customers' money, supposedly safely protected from such abuse in "segregated" accounts. Losing money on the deal is a risk MF Global's shareholders and bondholders were presumably prepared to take. MF Global's customers believed they were taking no such risk. It now seems as though that belief was mistaken.

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