Corzine Crashes Like It\u2019s 2008<\/strong> By JOE NOCERA<\/p>\nWhen Goldman Sachs went public on May 4, 1999, Jon Corzine, who was then the firm\u2019s chief executive, held a stake that was suddenly valued at $305 million. So, perhaps, it\u2019s uncharitable to complain about the piddling $12 million severance he was poised to gain if he had managed to sell his current firm, MF Global Holdings, over the weekend.<\/p>\n
But I\u2019m going to complain anyway. The idea that Corzine, who single-handedly destroyed MF Global Holdings, was in a position to command so much as a penny in severance is horrifying. It suggests two things. The first is the extent to which \u201cheads-I-win-tails-you-lose\u201d remains the operative concept for Wall Street compensation. The second is that one\u2019s politics doesn\u2019t much matter when it comes to lining one\u2019s pockets. Corzine is an avowed liberal who has decried income inequality and Wall Street pay \u2014 but right up until the end, he had his hand out for millions he didn\u2019t deserve.<\/p>\n
To read a recounting of Corzine\u2019s tenure at MF Global Holdings is to wonder how he missed the 2008 financial crisis. Oh, yes! That\u2019s right: he was the governor of New Jersey, a job he won in 2005 after one term in the Senate. Still, you would think that as a former Wall Street titan, he would have noticed that taking giant bets on shaky, long-term bonds while financing your operations with overnight loans that can be pulled at any second is not exactly a recipe for success.<\/p>\n
But that\u2019s exactly what Corzine did. After taking over the firm in March 2010 \u2014 just months after losing his re-election bid to Chris Christie \u2014 he decided to transform the derivatives broker into something sexier, something more like his old firm, Goldman Sachs. In particular, he wanted MF Global to risk its own capital, trading for its own account, just like Goldman had so successfully done when he was running it.<\/p>\n
Stunningly, the risky bets he took at MF Global were on European sovereign debt. \u201cEurope wouldn\u2019t let these countries go down,\u201d he reportedly told another Wall Street executive, according to The Wall Street Journal. The firm\u2019s position in European bonds grew to $6.3 billion \u2014 and its leverage ratio to 40 to 1, according to Egan Jones, a ratings agency. That is, it had $40 of debt to every $1 of equity. It was remarkably 2008-ish.<\/p>\n
As was the denouement. After a poor fiscal second quarter was announced last week, its stock fell off the cliff and Moody\u2019s downgraded its debt. Its trading partners became skittish, and its access to the overnight lending market started to disappear. It was the classic modern Wall Street run on the bank \u2014 just like Lehman Brothers. Finally, Corzine\u2019s only hope was to sell the firm. When that effort failed early Monday morning, a bankruptcy filing was inevitable. Just like Lehman.<\/p>\n
When I read MF Global Finance\u2019s second-quarter results, though, what popped out at me was its compensation expenses: 64 percent of revenues went to compensation. In any industry but Wall Street, that would be obscene. Indeed, in a talk he gave at Princeton last year, Corzine said that he\u2019d been \u201carguing about compensation sins of Wall Street\u201d for decades. Not enough to actually do anything about it, though, once he was back in charge of a firm.<\/p>\n
Then there\u2019s Corzine\u2019s own compensation. When he walked in the door, he negotiated a salary of $1.5 million. (Incredibly, MF Global Holdings paid a $400,000 fee to Corzine\u2019s lawyers.) He also received a signing bonus of $1.5 million, and $11 million in stock options.<\/p>\n
But here\u2019s the kicker. Like many executives \u2014 on Wall Street and off \u2014 Corzine\u2019s agreement also covered his eventual departure. If he left MF Global because, say, it was sold, his $11 million in stock options would immediately vest, and he would get a $12.1 million golden parachute. Of course, the MF Global proxy statement doesn\u2019t call it a golden parachute. It calls the payment \u201cseverance.\u201d<\/p>\n
There is nothing in the proxy statement about what would happen if Corzine destroyed the firm by making bad trading bets. There is nothing that links his payout to, you know, performance. No matter what, he would be owed the $12.1 million. All he had to do was sell the firm.<\/p>\n
So that\u2019s what he tried to do. I\u2019m not saying the payout was his only motive or even his primary motive. But, in less than two years, he took a $7-a-share stock and turned it into a $1.20 stock. Had he succeeded in selling MF Global, the price would surely have been less than $1. It seems almost criminal that Corzine was still entitled to a $12.1 million payment after destroying so much value. Yet that would have been the result. And you wonder why people are angry?<\/p>\n
Instead, the deal he had been negotiating fell through \u2014 and so did Corzine\u2019s severance. Now he\u2019s just another unsecured creditor. In this day and age, I guess that counts as progress.<\/p>\n
![\"\"](\"..\/wp-content\/uploads\/2010\/08\/HarryNewtonNewShot2.jpg\" "\\"HarryNewtonNewShot\\"")
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\n<\/strong><\/div>\nHarry Newton who sees Europe as boring and worsening.<\/p>\n","protected":false},"excerpt":{"rendered":"
Gold has crumbled and may tumble more before it comes back. Meantime, AMZN and TIP are doing OK.\u00a0 But nothing else is. The mortgage REITs\u00a0 have high dividend yields but are falling out of favor. Annaly’s earnings are, predictably, under pressure. Annaly reported last night. Here are two reports — the first is in two […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-9882","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/9882","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9882"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/9882\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9882"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9882"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9882"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}