DealBook delivers the goods:
Soon after taking the reins of MF Global in 2010, Jon S. Corzine visited the Wall Street firm’s Chicago offices for the first time, greeting the brokers, analysts and sales staff there.HT: Felix Salmon at Reuters who writes:
One broker, Cy Monley, caught Mr. Corzine’s eye. Unknown to MF Global’s top management in New York, the employee, whose job was to match buyers and sellers in energy derivatives, was also trading a small account on the side, using the firm’s capital.
“How are you making money on side bets? What else are you guys doing to make money here?” Mr. Corzine asked enthusiastically, his eyes widening, the broker recalled. The new chief executive grabbed a seat and spent an hour questioning Mr. Monley as other top executives from New York hovered impatiently nearby.
Although Mr. Corzine had been a United States senator, governor of New Jersey, co-head of Goldman Sachs and a confidant of leaders in Washington and Wall Street, he was at heart a trader, willing to gamble for a rich payoff.
Dozens of interviews reveal that Mr. Corzine played a much larger, hands-on role in the firm’s high-stakes risk-taking than has previously been known.
An examination of company documents and interviews with regulators, former employees and others close to MF Global portray a chief executive convinced that he could quickly turn the money-losing firm into a miniature Goldman Sachs.
He pushed through a $6.3 billion bet on European debt — a wager big enough to wipe out the firm five times over if it went bad — despite concerns from other executives and board members. And it is now clear that he personally lobbied regulators and auditors about the strategy.
His obsession with trading was apparent to MF Global insiders over his 19-month tenure. Mr. Corzine compulsively traded for the firm on his BlackBerry during meetings, sometimes dashing out to check on the markets. And unusually for a chief executive, he became a core member of the group that traded using the firm’s money. His profits and losses appeared on a separate line in documents with his initials: JSC....MUCH MORE
Jon Corzine, rogue trader
Dealbook has a big piece on what went wrong at MF Global today, which removes any doubt about the way in which the firm’s sudden death was entirely the fault of Jon Corzine. The idea that Jon Corzine was a “rogue trader” has been raised in the past by the likes of Bill Cohan and John Carney, just on the basis of the size and riskiness of MF Global’s $6.3 billion bet on European sovereign debt. But now it’s looking increasingly as though Corzine demonstrated virtually all of the pathologies of the rogue trader more generally.
Lots of financial firms make big bets and blow up. But what we saw at MF Global was much more than that. In fact, as Corzine detailed at great length in his prepared testimony last week, his big sovereign-debt bet didn’t actually lose money at all. But MF Global died all the same, because the bet was so large and risky that it caused a fatal cascade of downgrades and margin calls.
Now the risk of such a fatal cascade is always front of mind at any broker-dealer, and all such firms have mechanisms in place to prevent any single bet getting big enough to imperil the company as a whole. What distinguishes rogue traders from traders who simply have big losses is fourfold...