It wasn’t all Corzine’s fault? Really

Last week Democratic members of the House Financial Service’s Subcommittee on Oversight and Investigations offered an addendum to the staff report issued by committee chair Rep. Randy Neugebauer (R-Tex.) on Nov. 15.

In it they expressed concern that the committee report put too much blame on Jon Corzine. Give me a moment to focus — this is not a joke; or at least not an on purpose joke.

While it is understandable that the Democratic members of the subcommittee may be upset over only having a day to review the report prior to it being released and — while I am no Congressional expert — the way a committee works everyone should agree on its conclusions, and if they don’t they offer any alternative view along with the report as it is released. Still to defend Corzine, even in the slightest, in this case is ridiculous.

While it would be fair to say, in any organization, that you win or lose as a team, whatever happened to the buck stops here? Corzine was the man in charge and that alone makes him responsible. But in this situation you add the fact that it was his plan to turn MF Global from a futures broker to an investment bank; he initiated the trades that put the firm on thin ice; he fought with and eventually got rid of the risk manager who challenged the wisdom of the size of those positions — going so far as to alter organizational reporting so that risk managers would report to him and his longtime minion Bradley Abelow instead of directly to the board of directors. So yes the board has some responsibility in this but mainly it is its failure to oversee Corzine’s activities. A board of directors shirking its responsibility is not unique to MF Global, but a head trader slash Chairman and CEO is.

The addendum points out that Corzine’s plan to transform MF Global into an investment bank is not the reason customer funds were inappropriately used.

While, in general, that is a correct statement in that investment banks can fail without misusing customer funds, MF Global was a large futures commission merchant that was struggling and unprofitable when the plan was hatched. So it would be fair to ask where does the money come from in an organization that had been losing money and whose prime function is futures brokerage? A futures broker earns money by executing trades for its customers and by earning interest on the customer money it is holding. Proprietary trading requires another source of money, so it is somewhat odd for a futures broker to simply declare itself an investment bank. I don’t recall any large inflow of money accompanying this plan. There may have been a bond offering or two, but that may be even more troubling.

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