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November 04, 2011

Thick As Thieves: Corzine Crony Relented on Rule-Change That Might Have Saved Loss of $630 Million of Customers' Money

First of all, Corzine just resigned as head as MF Global. I think that's a breaking development.

"I have voluntarily offered my resignation," Corzine, 64, said in a separate statement. "This was a difficult decision, but one that I believe is best for the firm and its stakeholders. I feel great sadness for what has transpired at MF Global and the impact it has had on the firm's clients, employees and many others."

Corzine's "regulator" at the Commodities Futures Trading Commission (which was supposed to regulate MF Global) is an old Corzine crony from Goldman Sachs.

Gary Gensler, the regulator overseeing the investigation of Jon Corzine's collapsed securities firm, built close ties to Corzine as they rose through the ranks of Goldman Sachs. Later, they collaborated on Capitol Hill to pass an anti-corporate fraud law.

When Corzine ran for New Jersey governor, Gensler gave $10,000 to the state Democratic Party, which was trying to get Corzine elected.

Now, Gensler, head of the Commodity Futures Trading Commission, is leading an inquiry into how hundreds of millions vanished last week from client accounts at Corzine's firm, MF Global.

And now he's talking super-tough about his old crony:

At a Senate hearing Thursday, Gensler had harsh words for Corzine's company.

"You don't put your hand in the cash register; you just don't," Gensler said.

He said MF Global's failure to separate clients' money from its own assets violated "the core foundation" of investor protection.

Gensler has a clear conflict of interest here, and people are demanding he recuse himself from the investigation.

Now, Gensler actually did try to get this rule changed. He tried to change the easy-peasy current rules about firms like MF Global "borrowing" its employees money for its own purposes.

But after some intense lobbying by his old crony Corzine, he relented.

The proposed rule would have restricted a complicated transaction that allowed MF Global in essence to borrow money from its own customers. Brokerage firms are allowed to use customers’ money to earn interest, not unlike banks, but this rule would have outlawed using customer funds for a loan to the firm itself.

While such financing is not unknown on Wall Street, it carries substantial risk. An outside lender would require a firm like MF Global to produce strict accounting for a loan. Without that oversight, regulators worried that firms could use such internal customer money inappropriately, including bolstering the business in hard times. The proposed rule would have affected several dozen other financial firms.

Regulators are now examining whether these transactions explain the missing money at MF Global, according to people briefed on the investigation.


Just three months ago, Mr. Corzine’s firm assured regulators that the proposed rule could cripple the futures brokerage industry by hurting their profitability. In a letter, MF Global told regulators that they were trying to “fix something that is not broken,” adding that the firm was not aware of any brokerage firm like itself that was unable to “provide to their customers upon request any segregated funds.”


Leading the government’s effort to curtail these arcane practices was Gary Gensler, the chairman of C.F.T.C., who had worked for Mr. Corzine at Goldman Sachs. Mr. Gensler pushed for the proposed change in October 2010, and planned to bring it to a vote this summer.

MF Global has four outside lobbyists in Washington, tiny by Wall Street standards. But it was Mr. Corzine who marshaled the firm’s response to the proposal, lobbying most of the agency’s five commissioners directly. One commissioner said he visited with Mr. Corzine in MF Global’s headquarters, and acknowledged being impressed by the Wall Street titan, said a person with direct knowledge of the meeting who asked for anonymity because the meeting was private.


Mr. Corzine’s efforts culminated on July 20, as the agency was preparing for a vote on the proposal. That day, MF Global executives were on four different calls with the agency’s staff. Mr. Corzine himself was on two of those calls.

One of the calls was with Mr. Gensler. Both men are active Democrats, and served on financial panels together recently.

Shortly after the calls, Mr. Gensler, aware that he lacked the support to push the vote through, decided to delay the proposal indefinitely. He did so at the urging of Republican commissioners, according to people familiar with the matter.

Again, I have to note that Gensler at least seemed to want to change the rule. I don't know if his old crony Corzine effectively lobbied him or just lobbied enough of his fellow regulators to make the matter moot.

But it is interesting, isn't it?

Let me talk about Herman Cain for a moment. Newsbusters reported that, as of two days ago, the major news outlets had done 50 stories on Herman Cain.

Now, some conservatives say this isn't a story at all. I disagree. I think of course it's a story.

But just because something is a story doesn't mean it is, or should be, the story.

Now, the media, supposedly, is all interested in these crony connections between Wall Street and government, and Wall Street getting big favors due to influence and money and the revolving door system whereby a guy walks out of Goldman Sachs, gets a position regulating Goldman Sachs, and then rejoins Goldman Sachs immediately after regulating it.

Gee, I'm sure that someone in that situation is really, really, really incentivized to be tough on his once and future employer.

Here we have a story that would seem to illustrate this perfectly.

Alas... it's about Democrats. The media is not interested in Democrats who are are stealing the public's money, just like they're not interested in stories about Democrats in sex scandals.

They are only interested in pushing these stories if they involve Republicans.

This one doesn't, so hardly anyone is talking about, despite the fact that Jon Corzine, Wall Street Titan and former Democratic Senator and former Democratic Governor, has hired a criminal attorney to represent him as the FBI probes his company, and despite the fact that Corzine's supposed regulator was an old crony who donated to his political interests.

By the way, the suspicion is that the money was "borrowed" to finance purchases of risky sovereign debt in all the European countries that are probably going to go under. MF Global denies that, but that's the point of the investigation.

Nothing to see here, folks. Move on.

The Media Protects Those On The Side of History: 97% of MF Global's political donations went to Democrats.

According to research by the Center for Responsive Politics, MF Global employees have contributed $408,000 to federal candidates and political parties since 2007. That sum includes $38,000 in donations to President Barack Obama, who is the largest recipient of MF Global employee contributions.

During the 2008 election cycle (the last full cycle before Corzine joined the company), Democrats received 68 percent of MF Global employees' total contributions. But after Corzine joined in 2010, employee contributions shifted even further to the left: A full 97 percent of MF Global-related campaign contributions benefited Democrats during the 2010 cycle. Democrats had maintained that advantage this year, as well, collecting about 94 percent of MF Global employee donations through June...

... A known supporter of Obama, Corzine also fund-raised for the president during his 2008 presidential run and has tapped his moneyed connections to bundle upwards of $500,000 so far for Obama's 2012 run.

Only one tracked donation (donations under $200 aren't tracked) went to a Republican -- one lone MF Global employee donated $2,500 to Romney.

Let me propose the media's actual rule for covering scandals:

If the scandal is about sex and a Democrat, they don't cover it, because it's just about sex.

If the scandal is not about sex, but is about a Democrat, they don't cover it, because it's not about sex; it's too confusing and dry. Hey, we're a business, right? We have to sell product.

Thanks to WilliamAmos.

Money Found? ZeroHedge, without a cite, says it is "said" that the money has been found at JPMorgan. I don't see any indication of who's saying that. Answer: Guy Fawkes says it from the NYSE Market Ticker. Still, it doesn't say the money is at JPMorgan, just that it's "said" to be there. Not confirmed, then.

Thanks to kdabear.

Obama: Corzine is "Our Wall Street Guy:" Was his Wall Street Guy. Now Corzine is just, as an article noted yesterday, just a "volunteer fundraiser."

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posted by Ace at 01:46 PM

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