Halloween Horror! Jackass Investing “Poor-folio” Award to Jon Corzine, as he transforms MF Global from Powerhouse to Poorhouse

MF Global, the brokerage firm headed by ex-Goldman Sachs head honcho and ex-New Jersey Governor, Jon Corzine, filed for chapter 11 bankruptcy protection today. It took Mr. Corzine less than two years to transform MF Global from a futures brokerage powerhouse into a disgraceful poorhouse (read: http://cnnmon.ie/tYDuEi).

The story is both familiar and disturbing, and includes reckless gambling, incompetent credit rating agencies (again!) and unfortunate employees. It started shortly after Mr. Corzine’s appointment as MF Global’s CEO in early 2010 (following his unsuccessful bid for re-election as New Jersey’s Governor). In an interview with Dan Collins of Futures Magazine in December 2010 Mr. Corzine announced,

“I expect that we are on track to move from a broker to a broker/dealer, to an investment bank, and from being a significant participant in futures and options markets and commodities markets to being a full-fledged, quality player in all of the activities that we choose to be involved – including those that historically involve foreign exchange, equities, currencies, advisory and money management over time.” (read: http://bit.ly/sEE7Pk).

Unfortunately, in his attempt at turning Mf Global into a global investment bank on the scale of Goldman Sachs, Mr. Corzine personally steered MF Global into making a $6 billion bet on the sovereign debt of Portugal, Italy, Ireland, Belgium and Spain (every one of the “PIIGS” with the exception of Greece). The old adage, “bulls and bears make money, but pigs get slaughtered,” played out here precisely on cue. A slaughter is what occurred. But I would venture to guess that it affected Mr. Corzine’s reputation more than his pocketbook. I doubt he’s personally in the poorhouse as a result of his reckless gambling. The same can’t be said for many of the hardworking employees of MF Global, who had accumulated stock and stock options acquired through years of hard work (I personally know many of them).

But Mr. Corzine was not alone in bringing down MF Global and destroying the wealth of its investors. The credit rating agencies were also active participants. Less than three months ago Mr. Corzine orchestrated a $325 million bond offering for MF Global that received an investment-grade rating from the ‘big three’ agencies; Moody’s Investors Service, Standard & Poor’s, and Fitch’s. And while Moody’s and Fitch’s did downgrade the debt last week, Standard & Poor’s maintained its investment grade rating until after today’s bankruptcy filing. At least S&P understands the meaning of default! (Do people really pay for this ‘advice’?). For my view on the uselessness of credit ratings agencies and other ‘experts,’ read this complimentary link to my chapter “Myth #13: It’s Best to Follow Expert Advice“.

Taking unnecessary risks is the definition of “Jackass Investing.” The result of Jackass Investing is to turn a “portfolio” into a “Poor-folio.” Because of the precision with which Mr. Corzine followed the script of Jackass Investing that I lay out in my book, I am awarding him this Jackass Investing “Poor-folio” Award. Once again, I’d also award one to each of the credit ratings agencies if I hadn’t already done so. But it’s certainly impressive at how consistently incompetent they continue to be.

UPDATE 11/4/2011
Since I wrote the initial part of this post above, the situation at MF Global has gone from bad to worse. With the disclosure that customer segregated funds were misused, executives of the firm are now likely facing civil, and potentially criminal, charges. In my 30 years of trading I have never seen such a misuse of customer funds, which indicates panic among its top executives, as well as such a bungled process for transferring customer funds. A “Poor-folio” award is too good for these people.

Share this post:
  • Facebook
  • Twitter
  • email
Permalink

Another Jackass Investing “Poor-folio Award”

This award goes to Moody’s, Standard & Poor’s and Fitch Ratings, the three credit rating agencies whose incompetence contributed to one of the greatest destructions of wealth and confidence in the global financial system ever, and helped precipitate the financial crisis of 2008.

The greed and incompetence of the credit ratings agencies is now well-known.  I first described this and their conflict-of-interest addled ratings process in Myth #13: “It’s Best to Follow Expert Advice” of my book Jackass Investing: Don’t do it. Profit from it. You can read the full text of that chapter here: Myth #13. (The chapter also weaves in interesting references to stock market gurus, financial analysts, ways that rats outsmart humans, and the Apollo moon landings.)

But now it becomes apparent that the greed and incompetence of the ratings agencies were built on a foundation of corruption. The disturbing case of corruption was reported in a 78-page “comment” made by William J. Harrington, an 11-year employee and Senior Vice President of Moody’s, one of the big three ratings agencies. The story was reported by Henry Blodgett here: http://www.businessinsider.com/moodys-analyst-conflicts-corruption-and-greed-2011-8. (And Blodgett certainly knows corruption and conflicts-of-interest. He was sanctioned for putting public buy ratings on stocks that his employer was underwriting, when he personally believed them to be “dogs.”)

Harrington wrote that – surprise – Moody’s often gave out ratings that its clients wanted, against the private conclusions of its analysts; and that Moody’s product managers, those who were responsible for growing business and keeping clients happy, also voted on ratings decisions. You can read Harrington’s comments in their entirety here: http://www.sec.gov/comments/s7-18-11/s71811-33.pdf.

It would have been justification enough to issue this award on the basis of greed and incompetence alone, the charge of corruption makes Moody’s more worthy yet.

Share this post:
  • Facebook
  • Twitter
  • email
Permalink