Friday, November 4, 2011

Corzine Bets and Loses

John Corzine, former Senator and Governor of New Jersey and former Chairman of Goldman Sachs, stepped down today as Chairman of MFGlobal, as MFGlobal remained in the headlines for its bankruptcy filing two days ago. Corzine presided over the firm as it made huge bets on European sovereign debt, thinking that the worst of that crisis had passed. Unfortunately for Corzine and MFGlobal, the worst of the crisis is yet to come and MFGlobal and its leader are no more.

To Corzine's credit, he has always espoused the view that sovereign debt problems are imaginary and not real problems. He never had much interest in measures that might tame the growth in US national debt or the debt problems in New Jersey. So, at least, Corzine is consistent.

The blind spot that poisoned Corzine's reign at MFGlobal is the same blindspot that pervades current attitudes on the US's national debt (and the obligations of a number of state governments). These huge debt loads are not sustainable, blind spots notwithstanding.

One good thing worth noting is that there was no rescue for MFGlobal, which is good. Second, Corzine took no severance as he fell on his sword today. That is also good.

There is a whiff in the air that there might be a problem in customer accounts, but I suspect that that is probably not the case, but we shall see. Assuming no mingling of customer accounts, this seems to be a case where markets worked properly and the outcome is the proper one. The company made a big bad bet and it didn't work. The result -- bankruptcy. That is as it should be. Firms will learn if we let them.