Greed And Leverage Live…
…in the story of MF Global. And if you want to understand what happened, all you need to do is read this Felix Salmon post.
“A more accurate story would be to say that MF Global got involved in a complex liquidity-management trade, and that it didn’t have risk managers with the power or ability to cap the trade before it got too big.”
There’s lots more on the details of the trade and the supreme hubris of Jon Corzine, which was unchecked by regulation, risk managers, or a Board Of Directors.
But that’s the story of modern finance, isn’t it? And if you thought the story had changed since 2008, well I guess now is the time you should head on down to Zuccotti Park and join Occupy Wall Street.
UPDATE: The New York Times’ Joe Nocera also strips the hide from Corzine’s withering carcass in a column today. For example:
When I read MF Global Finance’s second-quarter results, though, what popped out at me was its compensation expenses: 64 percent of revenues went to compensation. In any industry but Wall Street, that would be obscene. Indeed, in a talk he gave at Princeton last year, Corzine said that he’d been “arguing about compensation sins of Wall Street” for decades. Not enough to actually do anything about it, though, once he was back in charge of a firm.
Then there’s Corzine’s own compensation. When he walked in the door, he negotiated a salary of $1.5 million. (Incredibly, MF Global Holdings paid a $400,000 fee to Corzine’s lawyers.) He also received a signing bonus of $1.5 million, and $11 million in stock options.
But here’s the kicker. Like many executives — on Wall Street and off — Corzine’s agreement also covered his eventual departure. If he left MF Global because, say, it was sold, his $11 million in stock options would immediately vest, and he would get a $12.1 million golden parachute. Of course, the MF Global proxy statement doesn’t call it a golden parachute. It calls the payment “severance.”
Read the whole thing for the full deja vu all over again experience. And if you truly want to do something about it, Rootstrikers is an excellent place to start. Here’s what they are about: