Jon Corzine's Gamble On European Bonds Backfired

Jon Corzine

For Jon Corzine, running MF Global marked a triumphant return to Wall Street after he failed to be re-elected as the governor of New Jersey.

A democrat, he was defeated by a republican in 2009 after almost a decade in politics.

The 64 year old, though, is best known for his time as head of Goldman Sachs, a connection which helped him secure the MF Global role.

The son of an Illinois farmer, Corzine was head of Goldman alongside Hank Paulson – who went on to be Treasury secretary during the financial crisis – until 1999 when he quit as the firm pulled off its stock market flotation at the second attempt.

A bond trader by background, he joined Goldman in 1975, made partner five years later and was named chairman and chief executive in 1994 – the year the firm posted trading losses that raised questions about his ability to control risks. At MF Global he is facing similar criticism. In an attempt to bolster revenues hit by the downturn in market activity and low interest rates which reduces its interest income, Corzine had stepped up risk-taking. He was in the process of transforming it from a brokerage to a "commodities and capital markets focused investment bank" and started taking bets on markets rather than just trying to match buyers and sellers.

According to the Wall Street Journal it was Corzine's personal decision to start taking positions in European government bonds at the end of 2010, making trades himself on some occasions, as he was convinced that bond prices were too low. The firm ended up with $6.3bn of Italian, Spanish, Belgian, Portuguese and Irish debt, driving the firm to report a loss last week and sparking downgrades by rating agencies.

It is sudden reversal in fortunes. In August the firm promised to raise the interest on bonds it had just sold if Corzine were to quit, citing the potential for a government role. Today, a call from the Obama administration seems less likely.

Powered by article was written by Jill Treanor, for The Guardian on Monday 31st October 2011 16.43 Europe/London © Guardian News and Media Limited 2010


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