Jon Corzine and the Scooby-Doo Defense

Fitzgerald was right: The rich really are different. Photo: (Hanna-Barbera/WB via Fanpop)

WASHINGTON, October 25, 2012 – This election year, more than any modern election year we can remember—except maybe for 1980—politics and economics seem inextricably, almost viciously intertwined. Voters of every persuasion are profoundly serious yet civil—for now. But if the victors this November start playing the usual games when they’re sworn in this coming January, things could get ugly.

The problem is, at this juncture, that there seems to be no possibility of resuming any semblance of a normal life in even the remote future, in the Western world at least. Part of this is due to a stubborn political and fiscal stupidity coming from the left that’s aided and abetted by political indolence on the right. The result is that increasing numbers of voters don’t believe that anyone or any party has the capacity to serve as the Messiah, or, at the very least, swagger into town like John Wayne or Clint Eastwood and start righting some very obvious wrongs.

General case in point: Why aren’t a lot of bankers and investment bankers in jail over this mess, along with the politicians who worked with them hand in hand to destroy the discipline and the profitability of our financial systems for personal gain and pure greed?

“Who, ME?” Scooby-Doo and Shaggy. “RHUT-roh!! Scoob-inspired legal eagles invent a new kind of defense. (Hanna-Barbera/WB trademarked characters via Fanpop)

Specific case in point: Jon Corzine, a deeply flawed character who milked both the business and political systems for all he could get, becoming fabulously wealthy in the process. He screwed with hallowed Goldman Sachs as that institution’s CEO until he was discreetly eased out. Then, he bought a New Jersey Senate seat and, tiring of that, the governorship of that state, causing grievous political damage in both posts. For which he was awarded another lucrative private appointment as head of MF Global.

Now we read that Corzine “seems likely to escape prosecution for the demise of MF Global, which collapsed nearly one year ago.

‘After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear,’ The New York Times reported in August.”

Oh, really? Whatever happened to “The buck stops here,” a bold, sensible pronouncement made decades ago by President Harry Truman and one we could use today in an era where seemingly every public sector, private sector, and political bigwig routinely cops the Scooby-Do Defense: “Who, ME?”

And so it is with Corzine, whose team of hotshot shysters “are seeking to have a civil case dismissed.” A case, BTW, that’s been brought by several major banks like JP Morgan and, in our own back yard, the Virginia Retirement System.

And why, pray tell, should the case be dismissed? “Corzine’s lawyers claim the case ‘makes no sense’ because Corzine bought 50,000 shares of MF Global two months before the collapse, The WSJ reports. Furthermore, Corzine’s lawyers say the firm collapsed because of ‘unsuccessful business strategies,’ not fraud.”

This defense is a deli sandwich of sheer chutzpah. According to a post several months back by one of our favorite go-to sites, ZeroHedge (can no longer find the link), Corzine and his firm’s “unsuccessful business strategies” included the killer—taking advantage of bizarrely loose London financial regs that somehow permit the re-pledging of assets that have already been pledged elsewhere, known in the trade as hypothecation and re-hypothecation.

Let’s say you want to take out a second mortgage on your house—assuming you can find a bank that will do that for normal people nowadays. After the usual paperwork, you now have that second trust or line of credit for X dollars from Bank A—money borrowed against the equity you have in your house—to do with what you will.

Let’s say you’re ambitious, though, and somehow manage to take out another second, and another from Banks B and C. You’ve now successfully pledged that same equity in your house as collateral for not one, not two, but three loans from Banks A, B, and C. Problem? If your personal finances go belly-up, there’s only one chunk of equity a bank can go after, so how can Banks A, B, and C be made whole? Simple answer: they can’t.

Which is why you’ll likely never be able to pull off the maneuver above. As the loan app to Bank B is being processed, your slick maneuver will be discovered and you’ll never get past that point. (And Bank B might even report you to the authorities.)

But this slick trick is what MF Global was pulling in London, likely with the full knowledge of Jon Corzine, or at least his passing acquiescence. After all, it’s legal in London (not here), so, as usual in this corrupt world, where’s the case?

In addition, in point of fact, Corzine’s purchase of 50,000 shares of MF Global provides at least anecdotal evidence of his awareness. MF Global’s stock was already being pressured at the time and this is a classic (and often successful) move by Corzine to inspire public confidence in the company. (ZeroHedge concurs.) Problem is, too many things were too far gone.

As Corzine probably knew at this point, a lot of MF Global customer money had literally disappeared because it had been pledged as collateral multiple times. That’s why until this day, a lot of other people’s money “can’t be found.” Which Corzine and many others at MF Global had to have known well in advance of the company’s collapse.

Calling this and “unsuccessful business strategy” when it was routinely put in motion on this scale is simply begging the question—big time. Such a “Who, ME?” explanation is but a legal smokescreen to cover an ongoing strategy that looks a lot like fraud to everyone else.

That said, it’s a good bet that Jon Corzine—like Countrywide CEO and huckster extraordinaire Angelo Mozilo and heaven knows how many others—a politically well-connected Democrat and longstanding member of the 1%, will skate. Intriguingly, this may be why Corzine’s lawyers are making their move now. With the possibility increasing that we may not have Obama II in 2013, perhaps it’s best to try to cut a deal now before less friendly government types start taking over Federal positions in legal and regulatory agencies. Or maybe Corzine—at least formerly a big Obama bundler—could get one of those swell pardons in advance.

On one level, this is all very confusing to the public. But on another, Joe Sixpack gets the essence. As far as Joe is concerned, it’s just another proof of what he’s known all along. Mainly that if you’re rich and politically well-connected, you can do whatever you want. And if you screw up, you’re political friends will conspire to bail you out. And contrive to stake you to another plum CEO job that you never deserved in the first place.

Meanwhile, Joe’s unemployment is running out and he wishes he could get those second mortgages from Banks B and C like Jon Corzine and his cronies did.

Novelist F. Scott Fitzgerald* got the essence of this just right: The rich really are different from you and me.

 

  * The full quote, excerpted from Fitzgerald’s 1925 shot story, “The Rich Boy,” is actually quite enlightening in this context: “Let me tell you about the very rich.  They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where we are hard, and cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand. They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves. Even when they enter deep into our world or sink below us, they still think that they are better than we are. They are different.”

 

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

 

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17

 


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  

 

 

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