On March 23, 2010, MF Global, a third-tier commodities-and-derivatives brokerage firm with a market value of less than $1.5 billion, just about one seventy-fifth of the value of Goldman Sachs at the time, sent out a press release announcing that Jon Corzine, the former senior partner of Goldman, former New Jersey senator, and former New Jersey governor, would become its new C.E.O.
“Ten of us were e-mailing each other saying, ‘What the fuck?’ ” says a onetime Goldman trader, referring to a group of his fellow Goldman alums. “Has he lost his marbles?”
Not only was MF Global small compared with Goldman, it was struggling to survive. Its stock, which had traded above $30 in late 2007, was selling below $10. Its decidedly unglamorous business—operating as a broker and helping customers to buy futures contracts—was a hodgepodge that included the remains of Refco, a big futures brokerage that had filed for bankruptcy in 2005. MF Global had some big customers, including Koch Industries, the energy conglomerate owned by Charles and David Koch, and some hedge-fund clients. But many of its customers were from Main Street, not Wall Street. They were individual investors who were using MF Global to bet on, say, the direction of oil prices. They were cattle ranchers who were trying to hedge their exposure to the price of livestock. And they were farmers from all over the country who were trying to protect themselves against price swings in their crops. The firm made money in two ways: from the commissions its clients paid to do trades, and by investing its clients’ cash and pocketing the difference between the rate it paid them and the rate it was able to earn, much as a bank does. In good times, this was a steady moneymaker, but as interest rates plunged after the financial crisis, so did MF Global’s profits.
Why was a big shot, even a former big shot like Corzine, going there? As the New York Times DealBook put it, “It was as if a manager of the New York Yankees was making a comeback in the minor leagues.”
He didn’t need the money, at least in any normal sense of the word “need.” True, he’d burned through a lot of his Goldman Sachs fortune on his political campaigns and an ugly divorce, and people who had once been his peers could now buy and sell him 10 times over. But his second wife, Sharon Elghanayan, had a fortune of her own. And while Corzine was getting a hefty pay package from MF Global—including a $12 million severance payment if the firm was sold—he had been in talks with at least one big hedge fund for a less demanding job, a role in which he wouldn’t do much besides use his Rolodex to bring in business. “He could have made a lot more money with a lot less aggravation,” says one person familiar with the details of Corzine’s deliberations.
But those who know Corzine well concluded that, at 63, he still felt he had something to prove. “I think he is the most competitive guy in the world,” says a person who was close to him at MF Global. “Ninety-nine percent of people would say, ‘I ran Goldman, I was governor—it’s time to go have fun.’ Jon looks at it as ‘I was kicked out of Goldman. I was kicked out of the governor’s office.’ He knows there are people out there who don’t like him, and he wants to prove them wrong. He’s very focused on reputation and how he’s perceived. He wants to be perceived as a winner, and he will do what it takes to get there.” Says an old colleague, “He wanted to be in the game, to prove he was back, to prove he was the man.”
As soon as he arrived at MF Global, Corzine began radically revamping it into a full-service brokerage, one that would also buy and sell stocks and bonds for clients and use its own money both to help clients trade and to place bets for itself. He fired 1,400 people, including many old-timers, and hired 1,000 more, mostly high-priced talent from bigger Wall Street firms. It seemed as if he was trying to build a mini Goldman Sachs.
His attitude was “If you build it, they will come,” and his response to criticism was “I’ve seen this before. I know it can work.” The safer strategy would have been to cut costs mercilessly until the company could eke out a living, but as one former employee says, “Jon didn’t come to cut a business down to size! He came to build!”
Those who know him well believe he saw MF Global as a stepping-stone to a much bigger job: Treasury secretary. In that, he would have been following in the footsteps of two recent Goldman senior partners, Robert Rubin and Hank Paulson. “What made it worse for Jon, you know, was seeing Bob Rubin as secretary of the Treasury, and then Hank Paulson too,” adds an old friend. Paulson, in fact, had been Corzine’s nemesis at Goldman, the man who had engineered Corzine’s 1999 ouster from the firm. “It’s all about this grudge match between billionaires. I mean, here’s a guy, who, when he was 51 years of age, lost his identity [after he was fired from Goldman]. This is what the whole thing is about. From Goldman to the Senate to being governor to MF Global, this was Jon’s midlife crisis.”
But Corzine’s ambitions and plans for the future all came crashing down in the last week of October, when the Moody’s and Fitch rating agencies downgraded MF Global to junk status and the firm imploded. Corzine frantically tried to sell what was left of the firm, but any possibility of that ended when the accountants discovered that around $600 million of client money was simply missing. In the month that followed, regulators put the sum at double that.
On October 31, MF Global filed for bankruptcy, the eighth-largest in U.S. corporate history, with $40 billion in liabilities, and the largest on Wall Street since Lehman Brothers. The big question now is: Where did the clients’ $1.2 billion go?
That’s what U.S. congressmen mainly wanted to know when Corzine testified before the House Agriculture Committee on December 8. An informal survey of customers suggests that most think Corzine belongs in jail. Those who know him well, on the other hand, still don’t believe he could have known that money was being stolen. In his testimony before the House Agriculture Committee, Corzine said, “I simply do not know where the money is, or why the accounts have not been reconciled to date.” If that’s true, and if Corzine didn’t otherwise ignore warnings, charging him with a crime over the missing money is going to be a challenge. In theory, he could face charges over misleading investors about the amount of risk the company was taking, but there’s no evidence that the accountants and the board of directors didn’t sign off on Corzine’s moves. In any event, he’s sure to face a slew of civil cases, and his career is likely finished.
Corzine is a self-made man. He was raised on his family’s farm, in Illinois. His grandfather had been a successful farmer and was active in the local Republican Party, but he lost everything in the Great Depression, an experience that understandably had a lasting effect on Corzine’s father. “My father never had a credit card, was afraid of any kind of financial risk, because he saw what happened to his father,” recalled Corzine, who sat for five lengthy interviews with one of the authors of this piece, William D. Cohan, for his 2011 book, Money and Power: How Goldman Sachs Came to Rule the World.
Corzine spent his spare time in high school playing sports—basketball and football—and trying to get the occasional date. He was a six-foot-two-inch guard on the basketball team, where basketball was a form of religion, and he was the starting quarterback of the football team for three years. Playing sports in high school taught him lessons about how to get through life. “You’ve got to work for everything you do,” he said. “And when you get beat, you’ve got to get up. You’ve got to work together, particularly if you’re not the smartest or you’re not the biggest or you’re not a Michael Jordan. It was a great life lesson.”
At 13 he got his first job, selling hot dogs at the county fair, where he later ran a dance hall. Then, for a couple of summers, he worked on a construction site, helping to build a nuclear power plant. After high school Corzine went to the University of Illinois at Urbana-Champaign, where his high-school sweetheart, Joanne Dougherty, was also enrolled. It was only 45 miles away from home, but it was a big deal for young Corzine. “I used to say the biggest change that ever happened in my life wasn’t coming from Chicago to New York, or Columbus to New York, but was going from Taylorville to the University of Illinois, which had about 50,000 kids,” he said. He and Joanne married in 1969, and after graduation they packed their belongings into a U-Haul and drove to California, where Corzine had been accepted into the Ph.D. program in economics at U.C.L.A.
He attended classes for only four weeks before getting a letter from his draft board, whereupon he enlisted in the Marines. During basic training in San Diego, his drill sergeant nicknamed him “the Professor.” “I was the only college graduate in my platoon,” he recalled. “I remember getting the shit kicked out of me regularly.”
Corzine learned to shoot a mortar, but he never shipped out to Vietnam. After his discharge he and Joanne, who was pregnant, moved back to Taylorville, where she got a job teaching school. He had no luck finding work, however, and moved to Chicago by himself for a period. Finally he was hired to work in the back office at Continental Illinois National Bank and Trust to advise community banks in Illinois, Wisconsin, and Michigan about their investment portfolios, a job for which he traveled three days a week.
At night, he studied for his M.B.A. at the University of Chicago. Corzine remembers taking a course with Fischer Black, who was later cited by the Nobel Prize committee for his contributions to economics. “I swear I don’t know what the course was about to this day,” Corzine said. “It was all equations, all the time, and he gave me a C-plus. He was very kind. That was the moral equivalent of flunking.” (Black later became a Goldman Sachs partner, thanks in part to Corzine.)
After three years he decided to quit the bank to become a full-time M.B.A. student. To pay for his final year at Chicago, he borrowed using his credit card—just what his father would never have done. “That’s true of all this baby-boom generation,” he said. “They learned to borrow early and big.”
After graduation Corzine wanted to work on Wall Street, but both Merrill Lynch and Salomon Brothers rejected him. His former boss at Continental Illinois had moved over to BancOhio National Bank in Columbus, and he hired Corzine to help manage the bank’s bond portfolio. An institutional-bond salesman at Goldman Sachs in Chicago used to call on Corzine and eventually asked him if he wanted to interview for a job at Goldman, which had just started to build up its fixed-income group following years of neglect. After suffering through the usual Goldman endurance test of two dozen interviews, Corzine got the job.
He had never met anyone in the New York office before he showed up there, in 1975, for his first day of work. “I walked in with a sport coat,” he said. “I looked like a country hick.” He had been hired as a trainee on the government-bond desk. He had been making about $15,000 a year at BancOhio. Now Goldman was going to pay him $50,000.
The Goldman Goose
He took the job at Goldman not because it was perceived as particularly prestigious back then but because, with school loans to repay and a second child, he needed the money. For the next nine months, as his family stayed behind in Columbus, he delivered trading confirms, got coffee, and answered the phones before the second ring. “Oftentimes, it was a hooker or a bookie,” one member of that desk recalls.
Corzine was basically clueless about how to trade or what made a good trader. Eventually, though, he started to fill in for traders on vacation. One day he got a break after his boss, Don Sheahan, leaving for the night at five o’clock, asked him to check up on the Treasury bonds he had been buying. Corzine realized that Sheahan had bought up bunches of them with attached warrants—conferring the right to buy more bonds at a set price—without being properly hedged. “I was sort of ‘Holy sheep shit,’ ” Corzine said. “We have this great miscalculation. We were supposed to sell bonds at the same time we were buying warrants, and our team forgot to sell the bonds.” Corzine stayed with the clerks until four o’clock in the morning to figure out the magnitude of the problem. “We found out we were long—10 times over our limits—and it turned out to be a great trade,” he said. “But we had to call the Federal Reserve because we were over our regulatory limits.”
This was how Corzine met Goldman’s legendary senior partner Gus Levy, who called him on the phone and let loose. “He was madder than hell,” Corzine recalled. “That’s all I remember. We worked our way out of that trade and made … $10 million or something. It was a meaningful amount that should have never occurred, so nobody got any credit for making the money, because it could have been a big mistake.”
An even bigger break for Corzine came about 18 months later when a group of government-bond traders at Goldman, led by Sheahan, walked out and joined E. F. Hutton. During the time it took Goldman to replace them, Corzine was pressed into service. “I got to trade everything for about three months before the firm could go reload,” he said. “I made more money … than the desk had made in the previous couple of years. Pure luck, I’m sure, but it caught people’s attention.”
When a new partner, Frank Smeal, was hired from Morgan Guaranty Trust to rebuild Goldman’s fixed-income business, he took a shine to Corzine. “If you were successful at Goldman Sachs, people paid attention to you,” Corzine said. “If you worked harder than most folks, they paid attention to you.” And Corzine was incredibly hardworking, the kind of guy who, if someone offered breakfast at 8, he’d call it for 6:30 and maybe schedule another meeting beforehand. He didn’t have hobbies. He just wanted to work. After taking over the running of the government-bond desk, in 1979, Corzine became a partner the next year. He had made the run in four and a half years, a major accomplishment under any circumstances. He was just 33.
Corzine got a frightening taste of the dangers of risk in 1986. Under his direction, Goldman had constructed a large trade buying U.S. Treasuries with a coupon of 8.75 percent and shorting Treasury securities with a coupon of 9.25 percent. The trade went in the opposite direction of what Goldman had hoped, and soon the firm faced hundreds of millions of dollars in potential losses. Corzine had to jump back into the fray. “I went back on the desk for seven months,” he explained. “Every desk—the corporate desk, the muni desk, the J. Aron people [Goldman had bought J. Aron in 1981]—all had this same trade on.” After five nightmarish months, the bet began to reverse and the bonds behaved as the traders had expected. Corzine was able to turn a $150 million potential loss into a $10 million gain.
Corzine said the crucible taught him an important lesson. “Until you’ve actually traded,” he said, “and had to deal with one of those ‘Come to Jesus’ moments with a bad position and you have to make the decisions about whether to eliminate it, hold it, reduce it—those kind of existential moments involving the people you work with and your firm—those are the kinds of things that really get your attention.”
The firm’s investment bankers didn’t appreciate how risky the trade had been, and they questioned how he could have allowed such a potential loss to metastasize. But Corzine believed his ability to navigate the crisis successfully put him on a trajectory to become the firm’s senior partner, which he did, eight years later.
Corzine’s leadership prospects got another significant boost in 1993, when the firm’s traders constructed a huge trade on what Stephen Friedman, then Goldman’s senior partner, described as “the European-currency mechanism,” which was just an elaborate bet—in the days before the euro was created—on the direction a group of European currencies would move against one another. At that time, the deutsche mark was the strongest European currency, and Goldman bet it would continue to remain so while the other European currencies that were pegged to it—the lira and the franc—would continue to be weak. “If your trade was to be long the deutsche mark and short the lira, you were highly unlikely to lose money, because it was highly unlikely that all of a sudden the lira’s going to get much stronger against the deutsche mark,” Friedman explained. “I looked on it as the best trading opportunity I’d ever seen,” he said.
Many traders were making a similar bet, including hedge-fund manager George Soros, and winning. “That’s the time you break up the furniture and throw it in the fire,” Friedman said, recalling how Cornelius Vanderbilt had made his fortune by betting on steamships. “Things were going well for us, and we did very, very well in 1992 and 1993.” That was an understatement. Goldman made $2.7 billion in pre-tax profits in 1993—by far the firm’s most profitable year ever to that point. Friedman made $46 million, and other members of the Management Committee, including Corzine, pocketed at least $25 million each—unheard-of sums on Wall Street at the time.
Until then, Corzine had lived an unremarkable suburban life in the New Jersey town of Summit, a leafy haven for investment bankers and traders 20 miles west of the Holland Tunnel. For years he had carpooled to and from work with several chums in a cramped Volkswagen, refereed his children’s soccer games, and socialized at Summit’s Beacon Hill Club with a circle of Wall Street friends. But after he started to earn big money “a second social group emerged,” one Summit friend recalls, “full of people who just wanted to be around Jon because he was Jon, people who thought he could help their careers.” And Corzine became increasingly grand at the firm. Hank Paulson, who was then an investment banker in the Chicago office (and would later lead the firm, first with Corzine and then on his own), recalls that, when he and Corzine would take business trips to Asia, Corzine would travel with an entourage.
By this point the Corzines had been married for more than 20 years; however, for the first time close friends began to notice strains in their marriage. “The marriage was falling apart, mostly because Jon was a workaholic,” says a family friend. “But Joanne contributed to that, too. The more Jon brought in, the more she wanted a great big life. She loved being around people who told her how important she was. She had this circle of girlfriends—they shopped for shoes and furniture together. We called them ‘the Cadre.’ ”
Corzine had his eye on an even bigger payday. He had long been one of the more outspoken partners about the need for Goldman to abandon its partnership structure—as had most of the rest of Wall Street by then—and sell shares in the firm to the public in order to gain access to more capital. That would not only bring the potential to vastly increase profits, it would make Corzine and the other partners obscenely wealthy.
But Friedman worried that the firm’s 1993 trading bonanza might have been a fluke. He also knew something the others partners didn’t: because of health problems he was thinking of retiring, and without a seasoned leader at the helm of the firm an I.P.O. was unthinkable. Over the objections of Corzine and others, Friedman quashed the I.P.O. talk.
And it was a good thing he did. Soon after the fabulous 1993 bounty, Corzine’s F.I.C.C. (fixed income, currencies, and commodities) group stumbled badly. It designed a series of swashbuckling bets on the direction of interest rates which quickly caused the firm to rack up huge losses—during 1994 of around $100 million, or more, a month. In February 1994, the Fed raised interest rates, and “it just completely fucked up the firm’s trading position,” recalled a Goldman partner. “And the firm didn’t really know what the risks were.”
“It was a bit of a free-for-all at [Goldman] in the early 1990s,” explained Christian Siva-Jothy, then a proprietary trader on the London desk, where the biggest losses were occurring. “It was just kind of get-on-and-do-it-and-hope-for-the-best.” He described the attitude at the time among Goldman’s proprietary traders as “Suck it and see,” which can be translated from trader-ese roughly as “If you want to try a big position, try it” and “Make mistakes but learn from them.”
Despite the mounting losses and pleas from Friedman and others, Corzine would not reduce the firm’s exposure to the trade. “He just won’t do it,” Friedman told another partner on the Management Committee. “He says it’s a great trade.” Even Mark Winkelman, the co-head of fixed income with Corzine, could not rein him in. As 1994 dragged on, the pain across the Goldman partnership became ever more acute. The investment bankers, watching their capital accounts dwindle each month, put the blame squarely on Corzine.
Suddenly, over the 1994 Labor Day weekend, Friedman told the Management Committee that he was stepping down and that it had a week to select a new senior partner. Despite the ongoing trading disaster that had been unfolding on Corzine’s watch, the Management Committee thought him the man for the job. Corzine couldn’t have agreed more. “There’s an element of Machiavelli within Jon,” says one of his former partners. “He comes across as this simple guy from Illinois, but he kept [Machiavelli’s treatise] The Prince on his bookshelf and he followed it.”
The short time period Friedman gave his partners to settle this important decision made Corzine more or less the inevitable choice. Remarkably, though, even the people who most enthusiastically supported Corzine thought there had to be someone powerful paired with him. “I recollect no one other than Corzine being comfortable with Corzine alone,” recalled Friedman. “And most people thought Hank [Paulson] was the strongest one to be partnered with him.”
Corzine and Paulson had come from strikingly similar backgrounds. Both had grown up on Illinois farms and been jocks in high school and college (Paulson played football at Dartmouth). Both had spent their Wall Street careers almost entirely at Goldman—although Paulson had worked for a time in the Nixon White House before going into finance. Both were undeniably alpha males with outsize ambitions. But that’s where the similarities stopped. Corzine was given to wearing sweater-vests, which along with his avuncular air made him seem almost professorial. Colleagues and friends often describe him as “fuzzy,” referring not only to his beard but also to his thinking, his personality, and the fact that he rarely completes a sentence. Paulson, on the other hand, is as sharp as a knife. Known for being in your face and speaking his mind no matter the consequences, he is in command of every relevant detail. Unsurprisingly, the two were not destined to have a warm relationship. “Hank, even though a bully, clumsy, and prone to verbal gaffes, was a team player,” says a person who worked with them both. “Jon, while charismatic and like a big teddy bear, was less of a team player, much more comfortable making unilateral decisions.”
Make them he did, even though, according to Paulson, Corzine had promised him that theirs would be a true partnership. Referring to himself as Goldman’s C.E.O.—even though that title made no sense in a private partnership—Corzine became increasingly imperious. He sought to open branch offices around the world. “Jon wanted to do business in every country, everywhere, and wanted to be big,” one partner said. “He was like the guy going through a cafeteria and he wanted to take everything and put it on his tray. That concerned people.” In 1995, Goldman opened offices in Shanghai and in Mexico City and created joint ventures in India and Indonesia. Paulson and many others thought Corzine was moving too fast. Lloyd Blankfein, the current Goldman C.E.O., used to joke that “he was going to go away someday and wake up and find out we were opening up an office in Guatemala.”
Corzine also believed Goldman should thoroughly investigate the possibility of merging with another Wall Street firm. He urged Paulson to meet with the leaders of Salomon Brothers, JPMorgan, and Travelers to discuss the possibility, even though Paulson thought such a merger would be disastrous.
The final straw came toward the end of 1998, when Paulson discovered that Corzine and Chris Flowers, the partner in charge of Goldman’s financial-institutions group, had been holding secret talks with Frank Cahouet, the C.E.O. of Mellon Bank, about merging the firms. When Paulson asked Corzine about it, he claimed, “I just listened. I didn’t get into any details.” Paulson didn’t believe him and approached Flowers, who told him that Corzine had made a detailed merger proposal that included all the specifics, right down to who would be leading which business units. Paulson was enraged, and at the Management Committee meeting the next day he again asked Corzine to describe his meetings with Cahouet. Once more Corzine dissembled, whereupon Paulson called in Flowers, who repeated what he had said the day before. Getting caught in the fib, “Jon got so mad and angry he ran out of the room,” a partner recalled.
Paulson then set in motion a series of events that in January 1999 led to Corzine’s ouster from the firm. Corzine took the news hard, very hard. “He tends to be very emotional,” said a partner who was told about Corzine’s reaction. “There were elephant tears and vomiting and things like that. But he got the message. He was very unhappy, but he took it like a man.”
In the months between his ouster and his official departure, Corzine would take a town car into Manhattan every day, and, too embarrassed to enter the building, he would have an assistant bring work to him in the car. A mere five months later, Goldman engineered its immensely successful I.P.O. Although he was no longer part of Goldman, Corzine was worth in excess of $300 million the first day, and that sum would increase dramatically along with Goldman’s stock price, giving him all the seed money he could ever need to embark on a new, improbable career—one in national politics.
New Jersey State of Mind
Corzine’s departure from Goldman prompted a searching re-evaluation of not only his professional but also his personal life. For years Joanne had made a project of decorating the 6,200-square-foot beachfront home the couple had bought in the Hamptons town of Sagaponack. “Jon loved that house,” says a friend who spent weekends there. “He was able to relax there. It was huge. Everywhere you looked you could see how much money they put into it. Every bedroom had an armoire the size of the ceiling, like Joanne had bought them in bulk Not a personal touch anywhere you looked. I remember one of my kids asked me, ‘Where can we sit?’ ”
By the time Corzine left Goldman, though, the Hamptons house had become a metaphor for his marriage—all very pretty on the outside, but cold. Much of the friction, Summit friends agree, revolved around Corzine’s distant relationship with the couple’s three children. “He was just never around,” says a Summit friend. “The more the kids lost their way, the more he tried to compensate. He joked that he had given money to every private school in New Jersey [to keep them enrolled]. I know Joanne really tried to make him feel bad about [that].”
“Jon just felt guilty all the time, and he thought money could fix things,” recalls another friend.
For the moment, though, the more pressing issue for Corzine was what to do about his career. When New Jersey senator Frank Lautenberg announced he wouldn’t stand for re-election, Corzine, long a political junkie, began to caucus with old friends, asking what they thought about his prospects of entering politics. “When he asked me, I literally spit up coffee all over him,” recalls one friend. “It was just so out of his comfort zone, so out of character. I mean, he didn’t even vote.”
“I said, ‘Jon, are you crazy?’ ” recalls another friend. “‘Do you have any idea what New Jersey politics is like?’”
When friends asked why he wanted to do it, Corzine usually talked about how he missed the masculine competition of the trading desk, how politics seemed to offer an opportunity to compete and win at something again. To those closest to him, however, he gave another, more personal explanation: “He wanted to show the world and show himself—and he used to say this all the time—that his success was not dependent on Goldman Sachs,” says a close friend. “We would have these long debates [about his success at Goldman], you know, Was it the organization? Or was it Jon? Was it nature or nurture? He talked ad nauseam about this.”
Corzine sought out New Jersey’s other senator at the time, Robert Torricelli, who then guided the rookie candidate through the long months of meetings and speeches to be endured at union halls and schools across the state. It was a torturous process. While Corzine could be charming in small groups, attentive and empathetic, he famously proved a disaster in front of crowds, a humorless rambler far more comfortable with PowerPoint presentations than people. For the longest time he seemed uncomfortable with the very basics of retail politics, hugging retirees, kissing babies; at gatherings, while other politicians laughed and slapped union members on the back, Corzine typically hung back, sipping a glass of Chardonnay in the corner. Time and again, aides had to remind him just to make human contact. “As long as he was in politics, Jon was never able to be a good speaker,” remembers an ally. “His people tried everything. They sent him to some class out in Iowa, but nothing ever took.”
Less well known were Corzine’s difficulties one-on-one. As a former C.E.O., he was far more at ease issuing orders than listening. “That was always Jon’s biggest problem,” recalls a Goldman colleague. “I remember our chairman, John Weinberg, telling me once that it was Jon’s biggest flaw: that he didn’t listen.”
In his initial pair of political races, in 2000—first a Democratic primary and then a face-off against a onetime Republican congressman named Bob Franks—Corzine spent an astounding $62 million, not only the most money ever lavished on a Senate campaign but more than twice the previous record. He won both contests handily and in early 2001 moved to Washington, laying out nearly $5 million for a furnished Cleveland Park town house. Joanne, who had no desire to leave Summit, refused to go with him—to her friends, an ominous sign for the marriage. It was at some point during his first campaign that Corzine noticed Carla Katz, an attractive 39-year-old New Jersey union organizer. In January 2002, almost one year to the day after taking office, Corzine told Joanne he wanted a divorce. Soon after, he and Katz moved into a Hoboken luxury building, where Eli Manning, the New York Giants quarterback, was a neighbor.
The divorce would prove bitter. Corzine rarely spoke of it, and never in public, but friends say Joanne felt blindsided, and she drove a hard bargain. Corzine eventually agreed to give her roughly $300 million, then 45 percent of his assets, according to one source. “Jon gave her everything she wanted,” says a close friend. “Again, it was the guilt thing.”
One aspect of the divorce practically drove Corzine to distraction, however. It involved David Tepper, a onetime Goldman trader, and the Sagaponack house. For years, friends say, Corzine had felt Tepper and Joanne were becoming too close. Bad blood between the two men dated back to 1992, when Tepper, a fixture on the high-yield trading desk, was passed over for partner; he went on to form Appaloosa Management, a hedge fund, and, over time, became a billionaire. Just days before the divorce was finalized, Joanne startled Corzine by suddenly insisting on keeping the Sagaponack house. Corzine had hoped it would become a gathering place for their children and a way to rebuild his ties to them. But Joanne insisted, and he gave in, valuing the house at roughly $9 million. That might have been the end of the story, except that Joanne has what one friend calls “a real nose for real estate.” In 2010, after renting the house for a stunning $900,000 for a single summer, she sold it for $44 million. The buyer was none other than David Tepper. Corzine, friends say, was apoplectic. One suspects he grew even angrier when Tepper tore down the house to build one of his own. “That was just a massive fuck-you to Jon,” recalls a friend.
In the Senate, Corzine proved one of the most liberal legislators, but he was not happy there. It was ruled by seniority, and Corzine found himself on the bottom rung staring up at a long climb to relevancy.
Halfway into his term, an opportunity arose when New Jersey governor Jim McGreevey abruptly resigned after admitting a gay affair with an aide. When Corzine announced his run for governor, many in New Jersey assumed his dissatisfaction with Senate seniority explained it. In fact, among his closest friends, Corzine was candid about another reason: a governorship, especially one as powerful as New Jersey’s, would be a far more effective platform from which to seek the White House. “He felt it was his track to the presidency,” says a political ally. “Right around then, like 2005, is when Jon started thinking about that big-time. He never gave it up. If he had won [the governor’s race] a second time, I think he would have done it. Oh yeah.”
Spending another $43 million, Corzine steamrolled a little-known Republican, Doug Forrester, to become New Jersey’s governor. Getting elected, however, proved easier than governing the state. New Jersey was deeply in debt and already burdened with some of the highest property and income taxes in the country; solving its financial crisis promised to be no easy task. In Trenton, Corzine gathered a coterie of sharp Wall Street veterans, including several Goldman Sachs alumni—one of whom, Brad Abelow, Corzine would recruit as his number two at MF Global—to tackle the problems. Many in the capital felt they radiated a confidence bordering on smugness. “I remember being at a fund-raiser with Corzine’s staff, and they struck me as such an arrogant bunch of people, ‘the smartest guys in the room’ times 10,” says Ross Baker, a professor of political science at Rutgers University. “They were so overconfident, almost condescending. There was this unseemly air of hubris around Corzine’s governorship.”
And that, ultimately, was to prove Corzine’s undoing. He and his people were universally acknowledged to be earnest and numbers-smart, but they never jelled into a deep-rooted political organization or, like Corzine himself, showed any real interest in building bridges to state legislators whose support he needed to pass new laws. “I remember early on—this was at his first Newark campaign office back in 1999—Jon looked around and said to me, ‘Who are all these people?’ ” says a former aide. “I said, ‘Jon, you should know, you hired them all.’ That was always a problem. He never really assembled his own machine.” Instead, Corzine used lavish contributions to build alliances with the state’s two Democratic bosses, Steve Adubato Sr., of Newark, and George Norcross, of Cherry Hill, who controls much of southern New Jersey.
“The thing that shocked me is that throughout his tenure there were just so many instances where his efforts were stymied,” says Brigid Callahan Harrison, a professor of political science and law at New Jersey’s Montclair State University. “And that’s a testament to how he got into office. He essentially bought off the two Democratic machines and was successful early on in buying their allegiance. Norcross and Adubato, they clearly thought they could run roughshod over him, that he could be a puppet. But when push came to shove, when he actually tried to do things, that antagonized many bosses and legislators. And in the end, you know, that really came back to haunt him.”
Time and again, to combat state deficits, Corzine’s brain trust cranked out ideas—the most audacious was a $38 billion scheme to sell the New Jersey Turnpike and other highways—that went nowhere. Perhaps his greatest failing was that, as a liberal Democrat, Corzine proved unwilling to confront the powerful state-employee unions, whose cushy salaries and outsize pensions were slowly strangling the state. When he suggested even minor belt-tightening—asking union members to contribute more to their health plans—he lost more support from the Democratic machines. A popular governor might have rallied the public behind him, but while many New Jersey taxpayers admired Corzine’s intellect, few ever warmed to him personally. “He made a huge mistake leaving the Senate,” says Richard Codey, a former New Jersey governor. “As governor your personality is exposed. And I don’t think people much liked what they saw. He was someone who just couldn’t connect to the average person. He spent summers in the Hamptons, Saturday nights at Upper East Side dinner parties. The ordinary guy can’t relate to that. You know, we had a discussion one day. He said, ‘Dick, I get why people relate to you. How you kid around with people. With me, Dick, I don’t think I’ll ever get past the belief that I bought a Senate seat and a governor seat.’ I said, ‘Sorry, Jon, they’re correct. You did.’ ”
Then, on April 12, 2007, 15 months into his four-year term, came the moment that changed everything. Corzine had just left a meeting in Atlantic City, speeding north on the Garden State Parkway in a black S.U.V. driven by a state trooper, when the car drifted onto a grassy shoulder. The driver, whose speed would later be calculated at 91 miles per hour—the speed limit was 65—overcorrected and swerved left into the median, where the S.U.V. rammed into a guardrail. In the front seat, Corzine, who was not wearing a seat belt, smashed into the dashboard, breaking his left femur, sternum, collarbone, and 11 ribs. Rescuers found him unconscious and bleeding heavily; doctors later said he lost more than half the blood in his body. Airlifted to Cooper University Hospital, in Camden, he was rushed into emergency surgery, then put into an induced coma in an attempt to stabilize his injuries.
“They thought he was going to die,” says a friend who visited him in the hospital. “Jon tells this great story. He woke up in the ambulance and started taking a mental inventory. Of his body parts. And he couldn’t move anything. That’s when he freaked out, because he thought he was paralyzed. He was just strapped down. Then he felt he was rising. It was the helicopter taking off. But Jon thought he was dying, rising up to heaven. I told him, ‘Jon, you should’ve known things were O.K. If you were dying you wouldn’t be going up.’ ”
Asked about his reaction to hearing the risky circumstances around Corzine’s near-fatal accident, one of his former Goldman partners said, “That’s Jon.” Corzine emerged from the coma after 10 days. If there was a silver lining, it was that the accident repaired the estranged relationships with his three children; all rallied to his side and have remained closer with him ever since. It also brought him closer to the woman he began dating after he and Carla Katz went their separate ways (with Katz receiving a reported $6 million settlement). His new love was an attractive, wealthy New York psychotherapist named Sharon Elghanayan, now 65 years old; three years after the accident, in 2010, the couple would be married in a ceremony at Corzine’s Hoboken penthouse. Elghanayan had previously been married to K. Thomas Elghanayan, a real-estate tycoon whose family owns Rockrose Development Corp., a major New York property company. One person who is familiar with her finances says that she received hundreds of millions of dollars in her divorce settlement. “Jon’s ex-wife has his money, and Jon has his wife’s ex-husband’s money!” jokes one person close to Corzine.
Eighteen days after the accident, Corzine left the hospital in a wheelchair. His recovery, by almost all accounts, was miraculous. He threw himself into a physical-therapy regimen with a passion, and within weeks he was able to walk without a cane. A year later, he celebrated his full recovery by running a half-marathon. He became a tireless advocate for driver safety, at one point filming a public-service announcement. “I’m New Jersey governor Jon Corzine,” went the tagline, “and I should be dead.”
For the rest of his term, Corzine wrestled in vain with New Jersey’s finances; by the end of 2009, the state’s budget gap had grown to a whopping $8 billion. Some thought he was never as focused after the accident. “I think he got out of the hospital much too soon,” says Ross Baker. “He must have been on big-time painkillers, and frankly, I think it dulled his acumen.” Adds Callahan Harrison, “The accident really served to break his momentum. The timing of that, coming in a budget cycle where he thought he could make progress, that was an impediment to building any kind of momentum.”
By 2009, as a re-election campaign loomed, his approval rating stood at 37 percent, his disapproval rating at 52 percent. Still, until his final weeks in office, Corzine staffers confidently talked of their plans for a second term. “What we didn’t count on was the Democratic Party bosses forsaking him,” says Callahan Harrison. “If you look at the numbers, that’s exactly what happened. If Democrats had turned out in Democratic strongholds, Corzine would’ve won. But they didn’t, and in my view that was an intentional and calculated move by the bosses.”
That November, rotund Republican Chris Christie, a lawyer and lobbyist, won, with 48.5 percent of the votes to Corzine’s 45 percent. Once again Corzine was forced out of the top job.
Beware the Repo Man
The obvious connection between MF Global and Corzine was Chris Flowers, the Goldman banker who had been an ally of Corzine’s at the firm, but who had also inadvertently brought him down by telling Paulson and the Management Committee of Corzine’s secret merger talks with Mellon Bank. Inextricably tied to Corzine, Flowers had left Goldman around the same time Corzine did and subsequently founded a private-equity firm, J. C. Flowers and Company, which invested in MF Global. Flowers had stayed close to Corzine after their time at Goldman, contributing to his senatorial and gubernatorial campaigns. But those Goldman alums who thought that Flowers was a cause of Corzine’s downfall at Goldman were horrified to see Corzine throw his lot in with Flowers once again.
On top of all of MF Global’s other problems, back in 2008 a rogue trader there had caused $141.5 million in losses due to bad bets on wheat contracts. The Commodity Futures Trading Commission fined the company $10 million for bad risk-management practices. Rumors began to sweep the market that MF Global was going to go out of business. That’s when Flowers agreed to invest $150 million in the company in exchange for preferred shares that would yield a rich 15 percent return on his cash and a board seat. But when the economy crashed, in 2008, MF Global’s problems worsened. By the spring of 2010, it had lost money for three years straight. When its C.E.O., just before a trip to Singapore, unexpectedly told the board he was quitting, the board offered the job of interim C.E.O. to Corzine, who took it on the condition he could be the real C.E.O.
There was an immediate need for profits. MF Global, like all financial firms, needed to maintain its investment-grade rating from the credit-rating agencies, such as Moody’s and Standard & Poors, to stay in business. And Moody’s was saying that MF Global’s rating depended on its ability to produce $200 to $300 million in annual profits before tax, among other things. Corzine needed to make money and fast. When this need met twisted, modern-day financial accounting, you had a recipe for disaster. On top of that, changes in the rules governing customer funds may have increased the possibility for not just disaster but scandal.
Under the Commodities Exchange Act, which was passed in 1936, during the Great Depression, a customer’s assets were required to be kept segregated from the firm’s assets, so that customers could always get their money, regardless of what happened to the firm. Firms could invest a customer’s cash in excess of the returns promised, but only in the safest of assets, such as U.S. Treasuries. Everyone in the futures business knew that this rule was sacrosanct. The fact that customers didn’t have to worry about the safety of their money was the bedrock of the business. “The protection of its customers’ funds is MF Global’s paramount concern,” said MF Global on its Web site.
But, while few customers noticed, regulatory changes had made it easier for bad things to happen. In 2000, MF Global and its peers were allowed to invest customer cash not just in super-safe U.S. Treasuries but also in the sovereign debt of other nations—which at the time was thought to be super-safe, but not so now, after the crisis in the Eurozone. Finally, in 2005, yet another change allowed firms such as MF Global to lend themselves their customers’ cash and give the customers an asset such as, say, sovereign debt in exchange—all without the customers’ knowledge or consent.
To make matters worse, MF Global had discovered a useful twist in accounting rules. In essence, the rules permitted the firm to buy an asset, such as the debt of Italy, and to pay for it by getting a loan that used the asset as collateral, much as your house is the collateral for your mortgage. MF Global’s earnings would be the difference between the interest rate on the Italian debt and the interest rate it was paying its lender. And here’s the key to understanding what happened: The particular way MF Global set up these deals allowed it to take all those prospective earnings and book them up front, at once. Thus the assets—the Italian bonds, among other things—and the corresponding loans were all removed from its balance sheet. This was the case even though MF Global would ultimately lose money if, say, Italy didn’t pay its debt.
In other words, MF Global was able to book earnings that might not exist, and book them all at once, while removing the risk from its balance sheet, even though the risk was in truth still there.
MF Global had been doing this in a small way—until Corzine came on the scene. Unsurprisingly for someone who had come up through the ranks on Goldman’s government-bond desk, he began to invest heavily in the debt of European countries—Italy, Spain, Portugal, Ireland—using this structure. The uncertainty about Europe’s future meant that this debt yielded far more than U.S. Treasuries did. The chief danger was if one of the countries defaulted, but Corzine did not believe the European Union would allow any members to fail. Most important, he wanted to book the up-front profits. He referred to them as a “bridge” between the company’s current problems and its sure-to-be-glorious future.
People familiar with the company say that it’s highly unlikely that customer cash was used to pay for these trades—at least in the beginning. Still, Corzine’s trades—what one former employee calls his “secret sauce”—were immensely controversial within the company, both because people didn’t like the accounting and because they didn’t like European sovereign debt, which was looking riskier and riskier. Corzine was the chief architect—and the chief, if not the only, proponent. “On this, Jon became a zealot,” says one person. “He managed the process soup to nuts,” says a former employee. “He knew every number back and forth. He’d talk to the accountants and the board. He’s not a detail-oriented guy, but on this he knew every detail.”
Not content to sit in his office making executive decisions, he was most often to be found down in the trenches, as he had been during the 1994 crisis at Goldman. Trading oil, Treasuries, and currencies, in addition to European sovereign debt, he became one of the most active—and successful—proprietary traders at MF Global, according to the New York Times DealBook, which reported he was forever on his BlackBerry and dashing out of meetings to check the markets. “There was plenty of pushback” on the sovereign-debt trades, recalls a former employee. “But Jon would read it the way he wanted to read it.” In the fall of 2010, Michael Roseman, the firm’s chief risk officer, both confronted Corzine in one-on-one and small meetings and notified the board about the risks to the firm. Corzine threatened the board he would leave if it didn’t trust him.
The problem was no one really could push back, because Corzine was too big for the company. When MF Global did a bond offering in August 2011, it had to promise to pay investors a 1 percent raise in interest if Corzine left to become Treasury secretary.
Corzine would later tell investors that he made a $6.3 billion bet on sovereign debt, but the company’s filings made it look like he had a much bigger long position at the end of June 2011—$11.4 billion, offset by “short” positions of almost $5 billion. According to Moody’s, MF Global recorded day-one gains of $85 million from trades set up this way in the fiscal year that ended in March 2011, and another $37 million in the quarter that ended in June. Because there were barely any expenses associated with those trades, say people familiar with them, the gains were almost pure profit, and without the accounting trick the firm would have continued to lose money. “If those trades had not been there, MF Global would have been forced to sell or go out of business,” says one analyst.
By the time the summer came, however, MF Global was facing some big problems. One of its primary regulators, the Commodities Futures Trading Commission, now led, ironically enough, by Gary Gensler, a former Goldman colleague of Corzine’s, wanted to restrict the ability of a firm to invest its customers’ assets in sovereign debt and to use its customers’ cash to make loans to itself. MF Global (along with the rest of the industry) freaked out, writing to the C.F.T.C. that the agency was trying to “fix something that is not broken.” Corzine personally lobbied each of the C.F.T.C.’s commissioners, and after Gensler realized he didn’t have support from anyone, he was forced to delay a vote that was scheduled for July.
But the real problem for MF Global was that the markets were beginning to wonder whether European countries would really be able to pay their debts. Corzine continued to tell everyone who would listen that the trades were safe, that Europe would pay its debts. He may have been right. He may still be right. Corzine, who had never been acutely attuned to how people perceived him, seemed to forget that, in finance, perception really can become reality. If other people can demand money from you, and you have to give it to them—which is true to some extent for all financial firms—at some point it may not matter if you’re right and they’re wrong. Corzine didn’t add to the position, but neither did he sell. The tactic of waiting out a trade had worked for him most of the time at Goldman, but MF Global didn’t have the financial strength to back such a strategy. “He has lots of fortitude,” says someone who has worked with him. “The winds don’t buffet him. This is good when life requires being resilient, but it’s bad when it requires change.”
Monday, October 24, was the beginning of the end. Moody’s downgraded MF Global to one notch above junk, saying that the firm’s “weak core profitability contributed to it taking on substantial risk in the form of its exposure to European sovereign debt.” The next day, MF Global announced its earnings for the quarter. In part because Corzine had ceased doing the European-sovereign-debt trades, the company reported terrible results. By the end of that Wednesday, the stock had fallen more than 50 percent from the previous Friday’s close, to $1.70—and once a stock is in the low single digits, the stock price alone can become a self-fulfilling prophecy, as everyone takes it as a sign to get out.
From Wednesday on, MF Global’s headquarters at Park Avenue Plaza was command central for the crisis as the company tried desperately to raise enough cash by selling assets in order to pay the demands for cash that were coming in from customers, lenders, and exchanges around the world where MF Global did business. Chris Flowers came in and out, and bankers from JPMorgan, along with regulators and lawyers, roamed the halls. At first, Corzine seemed to be delusional. On Thursday night, a group of people were talking about how they needed to keep selling assets as fast as they could in order to save the firm. “But we have to keep something with some yield!” said Corzine. “I almost threw him out the window,” says one person who was present.
By Sunday afternoon, MF Global had a deal to sell its customer accounts to another firm, Interactive Brokers, whose C.E.O., Thomas Peterffy, was going to make an $800 million loan to help MF Global reorganize in an orderly way. That way, customers would barely have known anything had happened. At about eight P.M., MF Global’s directors approved the deal, and the company drafted a press release. “We were sitting around the boardroom feeling pretty happy,” says one person who was there. “It was almost the perfect deal.”
Except it wasn’t. There was supposed to be about $5 billion of segregated customer funds, and by about 10 P.M., the message was out: Not all of the money was there. Flowers, who had left that evening thinking there was a deal, called the boardroom around three A.M. to ask if the deal was on. David Schamis, the Flowers partner who answered the phone, told him there was a big problem. Echoing Lehman Brothers’ fate three years ago, Interactive Brokers pulled the plug on the deal, and the mood went from elated to despairing.
The next morning, Jerod Leman, who traded grain and livestock via MF Global from his office in Indianapolis, was in the middle of executing trades for customers when his screen froze, and he was locked out. MF Global had declared bankruptcy.
Many of the firm’s customers have been unable to get all of their money out. It is possible that they may have to get in line with the rest of MF Global’s biggest creditors, like JPMorgan. “It is a joke,” says Leman. “It is totally wrong. JPMorgan knew it was lending money to MF Global, and that the money might not be there. Customers didn’t.” That awful fact threatens to shake whatever faith individuals have left in financial firms, because no matter what happened, customers were supposed to be able to get their money. “We are witnessing the failure of the system and our individual rights to protection of private property,” says a former customer, an individual investor who kept mostly cash at MF Global. “Imagine you had your entire life savings in your bank account, your bank committed fraud, and as result you could not touch the money.”
What’s truly stunning is that, even a month after the bankruptcy, most of the missing client money still hasn’t been found. The likely explanations are that MF Global used customers’ cash either to cover trading losses or to meet trading partners’ demands for cash. While some thought at first that this might have happened accidentally, few continued to think that as the days went by. Indeed, C.F.T.C. commissioner Bart Chilton said, “It’s a distinct possibility, some would say probability, that somebody has done something with the money, and that it’s not going to be ‘all of a sudden discovered’ with an innocent explanation.” The practice of using customer funds may not have been an isolated incident occurring solely in the firm’s final days. The Financial Times reported in early December that it may have occurred for weeks prior to the bankruptcy.
It’s also stunning that another confidence-crushing collapse has come just over a year after President Obama signed into law the financial reform that supposedly made the system safe. Maybe modern finance is just too complicated to fix all the things that can go wrong.
On November 4, Corzine stepped down as C.E.O., saying he would forgo his $12 million severance. He’s been called to testify before two more congressional committees, and there are ongoing investigations by all of the regulatory agencies and the Department of Justice.
“There are a lot of us who consider Jon to be a friend and mentor,” says a former Goldmanite. “That group is horrified.” He continues: “There is another group who thinks this is par for the course.”
“At first I thought, Oh, Jon must be crushed,” says one person who knows him well. “It’s not like he was doing this [playing the accounting games] to earn a big bonus. But he needed to feed his ego that he would be perceived as being successful. And there are a lot of people who are paying a much higher price than he is.”
Corzine testified that he had very little of his own money in MF Global—just over $3 million. So there’s not much chance he’ll be on the breadline anytime soon.
At a 60th-birthday party for Estrellita Brodsky, the wife of Manhattan real-estate developer Daniel Brodsky, given in Paris one fall weekend, Corzine and Elghanayan told other guests about a château they were about to buy in the South of France. “It’s not in Cap-Ferrat,” one person remembers Elghanayan explaining, as if that somehow mitigated the obvious extravagance of the purchase. “To buy any decent château is at least a couple of million euros,” explains another person who attended the party, “and that is before the renovation with the air-conditioning and the new kitchen. Sharon was very excited. She said she was flying down there on Monday morning.” This was on October 15—two weeks before MF Global would file for bankruptcy.