Jon Corzine should be the bête noire of the Occupy Wall Street protests. He served as CEO of Goldman Sachs during the 1990s and used this cache (his enormous wealth and Wall Street connections) to win political office and shape public policy for a decade. After leaving office, he returned to Wall Street and picked up right where he left off.
Corzine’s wealth bought him a seat in the U.S. Senate in 2000. He represented the Garden State in Washington for five years, before he set his eyes on the governor’s mansion in Trenton.
He spent $34 million to win this position, running on a platform of universal health care, gun control and state-funded college education. The Republicans never had a chance; their candidate, incumbent Jim Florio, only raised $3 million dollars and was out-spent 10 to 1 in blue state New Jersey. Upon losing the race, Florio called Corzine’s privately financed campaign “a threat to democracy.”
The New Jersey economy tanked while Corzine was in office. Voters sent him back to private life in the 2009 off-year election; Chris Christie, a U.S. attorney succeeded Corzine in Trenton. Corzine quickly landed on his feet: In March 2010, MF Global asked the former Wall Street titan to serve as its chairman and CEO in March 2010.
The ex-politician’s transition to civilian life is all too common among America’s oligarchs. The Wall Street to Washington nexus has many members. Who can forget that Bush Treasury Secretary Henry (Hank) Paulson came to serve the 43rd president after a stint as Goldman Sachs CEO?
Paulson and Bush implemented the bailout culture during the financial panic of 2008, creating the moral hazard that is “too big to fail.” That milieu still permeated Wall Street when Corzine took over MF Global.
Things went smoothly at first. Stocks surged upon his announcement as CEO. By August, Corzine led the company to its first profitable quarter in a year and a half, after shredding jobs and cutting employee pay.
But those early results weren’t good enough for Corzine. The new CEO said: “much work remains in the next few quarters” and set about changing the way the company operated.
He decided the company should start acting like Goldman Sachs, a move which revolutionized the firm from a brokerage house into an investment bank. Shortly thereafter, Corzine made a decision which led to the firm’s downfall.
MF Global, Corzine thought, should hedge on European debt because there was no way the EU would let profligate members (Greece, Spain, Italy, Belgium and Ireland) default on its obligations. If a EU member defaulted, it would tear apart the European experiment and shatter an economic and political union.
Surely that wouldn’t happen. France and Germany would bail out its big-spending neighbors at the end of the day. Once that occurred, Corzine’s investments would soar and MF Global would come out stronger than ever.
The firm went all in on this decision. As Joe Nocera reports in his Times column: “the firm’s position in European bonds grew to $6.3 billion-and its leverage ration to 40 to 1…That is, it had $40 of debt for every $1 of equity.”
This increasingly concerned investors, as the company over-leveraged itself in 2011. Two ratings agencies exacerbated this fear last week when they downgraded the firm’s rating to “junk” status. Investors began fleeing en masse.
Last week, MF Global lost 67% of its market share. The Times reports that Corzine spent late October desperately trying to line up the necessary capital to keep the firm afloat. By the weekend, MF Global thought it had averted bankruptcy when its rival, Interactive Brokers, offered to buy some of its units.
But while Interactive Brokers conducted its due diligence, they discovered that hundreds of millions (approximately $700 million) of MF’s customer money was missing. The deal was abruptly called off and regulators were called in to investigate.
The Commodity Futures Trading Commission filed subpoenas. The FBI said they were also interested in investigating.
Hours later, on Monday October 31, MF Global Holdings Ltd announced it was filing for bankruptcy. Observers noted the company’s downfall (as of yesterday, it was the seventh largest company to go belly-up) resembled the Lehman Brothers collapse three years ago. Fortunately, experts noted, the fallout could be contained.
Corzine’s behavior shows that the free-wheeling river boat gambler mentality still exists on Wall Street. The tycoons have not changed their ways in the aftermath of the 2008 financial crisis.
And why should they? Those firms were bailed out.Washington said they were too big to fail. CEOs who ran the global economy into the ground escaped with sweetheart severance packages.
OWS abhor the plutocrats. These fat cats in Washington and Wall Street are the 1% who scratch each others’ backs, OWS contend. Wall Street money finances political campaigns. Once elected, politicians give preferential treatment to their fundraisers. This incestuous relationship has gone on for years.
Unfortunately, the OWS crowd think government is the solution to the problem, when in fact, the size and scope of government are the reason why these problems exist in the first place.
Bill Clinton ushered in financial deregulation in 1999, signing legislation into law which allowed banks, brokerages and insurance companies to enter into each others sphere of influence for the first time in 65 years. This created a culture where bank mergers-investment banks and commercial banks-became commonplace.
Fannie and Freddie pushed home loans on people who couldn’t afford them. Republicans bought into this notion, too. The push for affordable home ownership for all created the housing bubble. George W. Bush and Republicans stood by and watched this happen while they controlled Congress and the White House from 2001-2006, and the executive branch from 2007-2009.
Critics claimed these decisions were creating a housing bubble. It could not last forever.The bubble burst in 2008 when the financial panic sent Wall Street to the verge of an economic collapse.
People like Jon Corzine and other oligarchs came out of the financial panic unscathed. The same can not be said of the 99% who feel they’re living through a lost decade.
Keynesian stimulus did not resuscitate the economy. Financial regulation did not prevent Wall Street from earning record profits. Wall Street thrived while Main Street endured a malaise. Unemployment has remained stubbornly high since 2008. The middle class has been squeezed. Economic frustration remains high.
That unease sparked the OWS movement. But OWS still doesn’t understand who their anger should be directed at.
When will OWS wake up and see that the cozy relationship between Wall Street and Washington threatens the nation’s future? When will they acknowledge that Democrats just as much money from Wall Street as Republicans?
Big business uses government policies for its own end. They call it crony capitalism for a reason. Financial oligarchs use their pals in government to implement market distorting rules and regulations that destroy choice and competition and prevent economic growth.
Jon Corzine is the poster child of this economic oligarchy. Too bad the OWS crowd has not acknowledged this.