That Old Sweet Goldman Magic

by Mitch Feierstein about 11 years 10 months ago

Ah, don’t you just love traditions? Hollowing out a pumpkin for halloween. Sitting down to turkey for Thanksgiving. Seeing family and friends around the winter holiday season.

And Goldman’s the same. It’s a traditional sort. Once it’s got into a habit – excessive leverage, taking huge risks and disguising them, helping to bankrupt Western capitalism, paying its staff huge bonuses – it likes to keep it up. Think of it as a sort of tradition. Think halloween crossed with a multi-billion dollar balance sheet … and remember that on Wall Street it’s always halloween.

The latest news from Chateau Goldman is this. The former Goldman CEO, Jon Corzine, came to head up a firm called MF Global. That fine firm ‘last week reported a record loss, had two of its credit ratings cut to junk and drained bank lines’ and is now facing ‘a pivotal few days as the futures broker pitches itself to potential buyers to avert failure.’ (more info from Bloomberg here.)

The problem: massive leverage plus crazy risk-taking.

The consequences for creditors: hideous.

The consequences for Mr Corzine: well, let’s see. But here’s my bet: nothing will happen.

And just one more comment. Massive leverage, crazy risk-taking, unsound investment goals, inadequate supervision. What does that sound like to you? To me, it reminds me a little of a Ponzi Scheme.

Now Ponzi Schemes are totally illegal and – just to be clear – I’m not accusing Mr Corzine or MF Global of criminality. But I do say that either what they did was illegal or it should have been. And anyone who operates a Ponzi Scheme should go to jail. For a long, long, long time.

That sweet old Goldman magic: part 2

Hey, what do you know? Since writing the previous post, MF Global – Jon Corzine’s baby – has gone bankrupt. That’s funny for a guy with some very well-connected friends. Bet he gets one less card this holiday season.

But the story gets stranger still. Investment firms need to keep client funds strictly segregated from the firm’s own cash. You’d think that Goldman-alumnus Jon Corzine would know that rule. After all, it’s quite an important one.

But Bloomberg reports that as much as $700 million of client funds are not yet accounted for. Not accounted for as in ‘gone missing’, vanished, gone AWOL. As a financial expert, I’m in a position to tell you that $700 million is quite a lot of money. And at the moment, no one knows where it is.

Care to enlighten us, Jon? Or perhaps, Mr President, you could ask your buddy where that money is. We’d sure like to know.