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.
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.