Simple, Jon Corzine, fresh off a destructive stint as the leverage-loving governor of New Jersey, returned to Wall Street with the itch. You know the itch. The one that eats at you to make the big trade. The one that wakes you up at 3 am and whispers in your ear “Now!” The itch that allowed the monsiuer to pocket $600 million back in his heyday at the head of Goldman Sachs.
But that was then (the Greenspan era), and this is now (a punishing structural bear market).
What the returning Jon Corzine didn’t understand was that the 1982-2000 bull market – his native habitat as it were – has long been over; it would not be there to backstop foolish bets as it had been during his original “accumulation period.” The old school tricks of the trade have lost their effectiveness in an age of ratings agencies playing it straight and counter-parties who shoot first and ask questions never.
And so it did not take long for Corzine’s massive, completely uncalled-for $6.3 billion bet on Euro sovereign debt to turn against his firm – leverage being a mean-spirited bitch when she’s working for the other side. Traders familiar with the situation are estimating that these aggressive trades were running at 40-to-1, a leverage ratio exceeding that of the Lehman and Bear Flying Circus just before its own ignominious denouement.
And so Corzine’s best hope is an emergency merger today, some type of deal that doesn’t completely wipe out the equity and employment of the firm. Here’s hoping that Old School still has the chops to at least pull that off.