Politically, this failure unites both liberals and conservatives.
Liberals can rejoice, rightly, that Wall Street's pushback against the "Volcker Rule" - the provision in the Dodd-Frank act that said banks should not engage in proprietary trading - has been exposed as completely spurious.
And conservatives can rejoice in the come-uppance of a man who represented the worst of modern Wall Street's obsession with trading and flirtation with left-of-center politics.
Indeed, Jon Corzine turned Goldman Sachs Group Inc. (NYSE: GS) from a respectable corporate finance house into a dodgy trading-dominated casino. And, as if that weren't bad enough, he pushed New Jersey to the edge of bankruptcy. What a career!
Of course, apart from enjoyable schadenfreude on both sides, there are lessons to be learned. But before we get to exactly what those lessons are, we must first perform an autopsy on MF Global to see exactly what went wrong.
How to Kill a Company in 19 MonthsMF Global started as a medium-sized derivatives broker before taking over Refco - a major name in commodities brokerage - after that group's 2005 collapse. And while it may be hard to believe now, MF Global at one time was extremely well connected, effectively managed, and had a solidly established business.
Of course, that all changed when Jon Corzine took over in March 2010.
Fresh from his term as governor of New Jersey and flush with cash from his lengthy stint at Goldman Sachs, where he was chairman and CEO from 1994 to 1999, Corzine was determined to make MF Global a major investment bank.
To accomplish this goal, Corzine essentially bet on the same equation he had used in his transformation of Goldman - that brokerage plus hedge fund equals investment bank.
To that end, he took risks with its own capital and maintained an advantage over Goldman and Morgan Stanley (NYSE: MS) by having no banking license. The absence of a license meant MF Global was free from onerous banking rules on leverage and (potentially) on proprietary trading. And under Corzine's direction, MF Global made the disastrous decision of betting too heavily on European sovereign debt.
Corzine believed that bailouts would continue ad infinitum, and that investors would not be made to suffer losses on their investments in such debt. Naturally, under "mark-to-market accounting," the write-down in MF's positions gave the firm enormous losses.
MF Global filed for Chapter 11 bankruptcy Monday after credit downgrades led to margin calls on some of the $6.3 billion in Eurozone sovereign debt the bank held. The position was five-times MF Global's equity.
And so MF Global failed just 19 months after Corzine took over.
As I said earlier, we can take some time to bask in the schadenfreude of all this, or we can take the opportunity to relearn some important lessons - three to be exact.
Those lessons are: