Corzine: I Can’t Show You The Money

Let’s face it. Former New Jersey Governor turned Wall Street sob story Jon Corzine wasn’t around at MF Global long enough to figure out where all the executive bathrooms were. If you aren’t around for at least two Christmas parties, you are really just an asterisk.

In Mr. Corzine’s case it would be an asterisk next to: “Lost $1.2 billion in client funds.”

Recently, the former chief executive officer of MF Global, a brokerage and derivative trading company, testified before the House Committee on Agriculture. The committee wanted to get Corzine’s take on the facts that led up to MF Global’s bankruptcy filing last October.

Media reports described MF Global as the first casualty of the European debt crisis. Investors panicked when they learned that not only had MF Global purchased sovereign debt from Belgium, Ireland, Italy, Portugal, and Spain, but that the debt purchased was financed via other debt transactions.

The downgrade in the company’s credit rating as a result of the exposure to European debt brought federal investigators sniffing around MF Global’s offices. During their investigation it was determined that $630 million in customer funds were missing, presumably used by MF Global to shore up some of the company’s trading losses.

Investors would have had good reason to panic regarding MF Global’s foray into Eurpean debt. Analysts and commentators have been singing the last requiem on the European economy given soaring deficits and the threat of recession on the European continent. In addition to putting together a bailout mechanism for troubled European banks, there are proposals out of France and Germany that would require Europe be fiscally and monetarily integrated.

In other words, as well as sharing a single currency called the Euro, the budgets of the European Union’s 27 member nations would be subject to review by non-elected bureaucrats whose mission would be to ensure that national deficits are being kept in check by non-elected bureaucrats in Brussels.

According to Corzine, investors did not panic because of MF Global’s bets on sovereign debt. The run on MF Global resulted from a $119.4 million valuation adjustment against a deferred tax asset. The asset was allowed to accrue tax benefits over the years, but changes in accounting rules required MF Global to show the benefits as a loss.

“At the time that MF Global entered into the [sovereign debt]transactions, I believed that its investments in short-term European debt securities were prudent,” said Mr. Corzine.

It didn’t seem that Mr. Corzine was running from responsibility for losses suffered by MF Global. “I accept responsibility for the RTM trades that MF Global engaged in from the time that I arrived at MF Global until my departure, on November 3, 2011, and I strongly advocated the trading strategy that I have described here,” was Corzine. “It is important to recognize, however, that MF Global’s involvement in RTM trades was disclosed to the board of directors, the senior officers of the company, the company’s accountants and numerous outsiders.”

And the $1.2 billion in customer trading accounts? Mr. Corzine testified that “I simply do not know where the money is, or why the accounts have not been reconciled to date. I do not know which accounts are unreconciled or whether the unreconciled accounts were or were not subject to the segregation rules.”

MF Global’s demise does not have the systemic impact on the financial market that Bear Stearns or Lehman Brothers had. As Mr. Corzine continues to appear on Capitol Hill to explain where this Wall Street firm ended up, it would not be surprising to see MF Global’s troubles become additional fodder for President Obama’s campaign rhetoric as he tries to bolster the support of independents and his liberal, anti-Wall Street base.

Alton Drew is a political economist and commentator. In addition to being a contributing writer at Politic365.com, Mr. Drew blogs at Law and Politics of Broadband, Paying for Dodd Frank, and The American Centrist. Follow him on Twitter @altondrew, become a friend at https://www.facebook.com/alton.drew, or visit his website at www.altondrew.com.

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