Thursday, November 3, 2011

John Corzine aka Icarus

Everyone wants to know why John Corzine, former senator and governor of New Jersey, former senior partner at Goldman Sachs made the colossally bad decisions that brought down the fall of MF Global a company that traded derivatives. The buck should have stopped at Corzine, but his ratio of borrowing to equity was approximately 40-1 and he was betting on the spectacularly volatile Euro debt as if there were no tomorrow. In one sense he wasn’t totally bonkers. As Times columnist Andrew Ross Sorkin wrote in his DealBook column, “In truth Mr. Corzine’s bet may still prove to be correct. Many of the Italian and Spanish bonds that Mr. Corzine bought…are still trading at 98 and 99 cents on the dollar…But Mr. Corzine’s bets also relied on short-term funding and given the skepticism in the market, counterparties quickly ran for cover.” (“It's Lonely Without the Goldman Net” NYT, 10/31/11) Okay there was solid thinking mixed with some gambling and the carpet got pulled from under the former Democratic golden boy who’d only recently received another rude awakening in the upset he endured at the hands of Chris Christie. Maybe the answer goes back to his accident in 2007. Here was another instance in which the man felt himself insulated by power from the vicissitudes of fate. The then governor had failed to wear a seat belt and was severely injured. Hubris is the Greek word for this kind of narcissistic megalomania and Icarus, who flew too close to the sun with wings made of wax, was the mythological embodiment of such financial over extension. Though Corzine suffered greatly, he wasn’t chastened by his accident. He didn’t get the message. Icarus had a father named Daedalus and Daedalus had the cunning to create the labyrinth in which the minotaur was trapped. So is there hope the proteges of Corzine from MF Global and elsewhere will look back further to storied predecessors who relied on simpler value based theories of investing?

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