Former New Jersey Governor Jon Corzine had little trouble finding $500,000 in his role as a top Obama campaign bundler, but locating the missing $1.2 billion in customer funds he oversaw as the head of MF Global funds is proving far more difficult–impossible even, reports the Wall Street Journal.

A person close to the investigation told The Journal that a “significant amount” of customers’ money appears to have “vaporized”:

Nearly three months after MF Global Holdings Ltd. collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.

As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a “significant amount” of the money could have “vaporized” as a result of chaotic trading at MF Global during the week before the company’s Oct. 31 bankruptcy filing, said a person close to the investigation.

Many officials now believe certain employees at MF Global dipped into the “customer segregated account” that the New York company was supposed to keep separate from its own assets—and then used the money to meet demands for more collateral or to unfreeze assets at banks and other counterparties as they grew more concerned about their financial exposure to MF Global.

During a House hearing in December, Mr. Corzine said he “doesn’t know” where the $1.2 billion went or is.

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The same man who oversaw MF Global’s $1.2 billion in missing funds, Bradley I. Abelow, is also currently listed on the Environmental Protection Agency’s website as the current chairman of the EPA’s Financial Advisory Board.

From the Washington Times:

During two days of recent congressional hearings into how as much as $1.2 billion disappeared from MF Global customer accounts, the chief operating officer of the imploding investment firm responded again and again that he did not know.

Yet as the House and Senate interrogated Bradley I. Abelow and other top executives at MF Global Holdings Ltd., lawmakers did not mention Mr. Abelow’s role as a financial adviser for the Environmental Protection Agency, which as of Tuesday listed him as the chairman of its financial advisory board.

Even as he finds himself the public face of a bankruptcy and admitted to lawmakers that he had no idea how client funds disappeared, Congress and the administration have voiced no public concern about Mr. Abelow’s role advising the $8.6 billion government agency on its finances.

Mr. Abelow also served as former New Jersey Governor Jon Corzine’s chief of staff before Mr. Corzine went on to become MF Global’s CEO.  Interestingly, current EPA Administrator Lisa Smith also previously served as then-Gov. Corzine’s chief of staff.  Whether the Corzine connection played any role in Mr. Abelow’s appointment to the chairmanship of the EPA’s Financial Advisory Board is as yet unclear.

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The European Sovereign Debt Crisis that morphed into the European Banking Crisis is about to morph into a powerful worldwide deflationary spiral. The bankruptcy of MF Global, a former primary dealer for the U.S. Federal Reserve, has propelled a growing electronic bank run as many depositors have lost faith in the liquidity and solvency of many of their financial institutions. The banks, brokers and other lenders are responding by firing bankers to slash costs, selling off assets, and curtailing lending. As borrowing becomes more difficult large companies and virtually unavailable for smaller firms; production will fall and unemployment will rise.

On February 2, 2011 MF Global was accepted as one of the 21 “primary dealers” for the U.S. Federal Reserve Bank on the strength of the economic and political clout of Jon Corzine, former CEO of Goldman Sachs and Governor of New Jersey. Primary dealer is a formal title for the world’s most elite financial institutions that are allowed to act as direct market-makers with the U.S. Federal Reserve System (“the Fed”). The stellar credibility of this designation gave the firm inside access about funding requirements for the U.S. budget deficit and implementation of Fed monetary policy. Primary dealers legally use this information to distribute debt of the U.S. at home and around the world.

Less than eight months later on October 30, 2011, MF Global announced a “material shortfall” in client funds. The next day regulators froze assets and the company filed the 8th largest bankruptcy in U.S. history with $1.2 billion of missing customer funds. What creditors are now learning is the “hypothication agreements” banks routinely require their customers to sign, allow banks to re-hypothecate customer funds to invest repurchase agreements (repos).

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss how MF Global went bankrupt, why the CPI is an inaccurate reflection of life for an average American, and what the real financial situation is for many families today.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Ex-MF Global CEO Jon Corzine denies allegations
Why MF Global Really Went Bankrupt
Inflation holds steady in November
Accelerating Health Care Costs Wiping Out Much of Americans’ Income Gains
Japan mulls relaxing beef import restrictions

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JOE BIDEN:  [handing President phone]  Axelrod calling from Chicago, Boss.  He sounds pissed.

OBAMA:  Hey Axe!  Whassup?

No, I don’t know who leaked our decision to abandon blue collar whites.  Soon’s we find the S.O.B., we’ll dress him up like a banker and drop him into the middle of an OWS protest.

You’re kidding.  We gotta reverse course because word got out?

Okay, I understand: you want me and Joe to be regular people for a while.  Suggestions?

Avoid Camp David.  Fine.  Too rustic for my taste, anyway.  Anything else?

Wait until after the election to eminent domain Lafayette Square and build a White House pitch and putt complex?  No problem.  That it?

What?!  Aw, c’mon, man!  You can’t be serious.  That would demean the office of the Presidency.

All right, all right, I’ll do it.  Yeah, we’ll brainstorm more ideas, too.  Okay, later. [hangs up]

BIDEN:  Chief?

OBAMA:  First thing tomorrow, Joe, you and I begin hanging new drapery in the East Room.

JAY CARNEY:  I’ll alert the networks to have camera crews in place by 10:00 a.m., sir.

BILL DALEY:  Your 9:00 o’clock tee time with Tiger at Congressional, Mr. President?  I’ll call him and canc. …

OBAMA:  Ixnay!  SNL’s Fred Armisen owes me big for resuscitating his career.  Request his presence here at dawn in work clothes and cap.   Jay, don’t give the signal to start taping until Fred and Joe are atop their ladders.  No close ups.

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WASHINGTON (AP) - Jon Corzine plans to tell a House committee that he doesn’t know the location of clients’ money that went missing from failed investment firm MF Global.

The former U.S. senator has been subpoenaed to explain how MF Global, which he led for about 20 months, collapsed into the eighth-largest bankruptcy in U.S. history and why an estimated $1.2 billion in client funds is unaccounted for.

In prepared testimony posted Thursday on the House Committee on Agriculture’s website, Corzine apologizes to “all those affected” by MF Global’s failure. The company filed for bankruptcy protection on Oct. 31. Corzine resigned as CEO on Nov. 3 and hasn’t spoken publicly since.

“I simply do not know where the money is, or why the accounts have not been reconciled to date,” Corzine says in the statement. He says he can’t say whether there were “operational errors” at MF Global or whether banks or other companies have held onto funds that should be returned to MF Global.

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We are one of the world’s leading brokers in markets for commodities and listed derivatives. We provide access to more than 70 exchanges globally and are a leader by volume on many of the world’s largest derivatives exchanges. We are also an active broker-dealer in markets for commodities, fixed income securities, equities, and foreign exchange. We are one of 20 primary dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York.

This quote is what investors read in MF Global’s Prospectus Supplement in August 2011. MF Global issued $325 million of 6.250% 5-yr senior notes that month. The deal was led by Investment Bank Jefferies and co-managed by Investment Banks Bofa Merrill Lynch, BMO Capital Markets, COMMERZBANK, Natixis, Lebenthal & Co., LLC, Sandler O’Neill + Partners, L.P. and US Bancorp. I provide this backdrop because you have to see that, once again, those who have a fiduciary responsibility to protect investors failed.

The banks on this deal are underwriters of securities who are obligated to perform due diligence on the issuer (MF Global) to protect investors. I have no doubt that the bankers performed their due diligence on the objective facts about the company: e.g. financial statements, management background, market share, customers, etc. But did the bankers adequately assess the character of MF Global’s management? Is it possible for a banker to protect investors from managers with impeccable credentials who are willing to take reckless risks with other people’s money?

Rating agencies, rating agencies, rating agencies. Sounds familiar huh? Moody’s, Fitch, and S&P once again did not meet their fiduciary responsibility to investors. How can a bond deal be executed in August and the company file for bankruptcy shortly thereafter? Like the bankers, the rating agencies surely did their analysis on the objective data. However, can they warn investors about reckless management?

The facts are on October 25th, Jon Corzine stated he was confident that MF Global would successfully manage its $6.3 billion exposure to European debt (Spain, Portugal, Belgium and Italy). Yet one week after a failed attempt to sell the company, MF Global filed for Chapter 11 bankruptcy on October 31st 2011.

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BG contributor Charlie Gasparino in The New York Post:

Jon Corzine appears to have committed more than a few sins in the runup to the demise of MF Global, including possibly using client money to pay for the risky trades that forced his brokerage firm into bankruptcy over the weekend. But possibly his biggest sin was his steadfast belief in the power of government.

The former New Jersey governor and Goldman Sachs chief executive went wrong by assuming that a government bailout would somehow turn his firm’s bet on some of the worst investments in the world — the sovereign debt of Italy and Spain — into gold. That absurd faith has doomed many chief executives — Dick Fuld of Lehman Bros. chief among them, just a little more than three years ago.

And, more than any of the other shenanigans that may have taken place during the ill-fated firm’s final hours, it’s what did in Corzine and MF Global.

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Flashback to August and what was then called the Obama clause at MF Global:

Corzine’s Obama Clause in MF Global Offering Stuns Wall Street

MF Global Holdings Ltd. (MF) took the cult of the Wall Street chief executive officer to a new level with its sale of bonds that pay a higher rate if Chairman and CEO Jon Corzine quits to take a job from the U.S. president.

Come on down and open your present, Democrats. But be warned, Obama-clause seems to be delivering coal for your stockings.

Meanwhile, MF Global CEO Jon Corzine reportedly had a handshake deal Sunday evening for Interactive Brokers  to buy the company.

But as the potential acquirer sifted through MF’s books, officials became concerned about the amount of customer funds held on deposit by MF Global. The difference was roughly $900 million at one point, although the amount remained fluid and never was resolved, according to WSJ sources.

Federal regulators have now started investigating the situation. According to the New York Times, authorities believe that the amount of unaccounted money could be close to $700 million. The report said that investigators are concerned that rather than just sloppy accounting, MF Global in its rush to remain afloat diverted some customer funds to support its own trades.

Flashback. Obama: Corzine is ‘our Wall Street guy‘

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Now we’re begging: Will someone PLEASE bring back Glass-Steagall? The Glass-Steagall Act was, of course, the legislation passed in the early 1930s in response to a certain banking crisis that led to a particular Great Depression. Among other things, the Act erected a “Chinese wall” between a financial institution’s investment banking and merchant banking functions. In less complicated terms, the law forced banks to separate any business it was transacting on behalf of clients from the speculative moves it made with its own money. For the layman: banks can’t make dumb bets with clients’ money.

Sort of makes sense, doesn’t it?

Well apparently it seemed a bit stingy for President Clinton and the Republicans in Congress in 1999. We have Senator Phil Gramm and Representative Jim Leach to thank for that one. Here’s the problem: The heads of big banks have this terrible habit of thinking that they’re the smartest guys in the room. Anyone who doesn’t believe that need only watch Ben Bernanke talk for more than 30 seconds. Actually, let’s refine that a bit. The problem isn’t that banking executives think they’re savants, the real problem is that they aren’t.

In the modern financial age, a lot of very highly paid guys with impressive titles who look at way too many numbers and think they make sense have concocted some very complex “hedging” strategies for “managing risk.” They think they understand the crafty derivatives they’ve invented – which are completely unregulated and totally opaque – and all the counterparty risk involved. They don’t, and therein lies the rub.

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The collapse of MF Global, the brokerage dealer headed by former New Jersey Governor and Goldman exec Jon Corzine, may seem like just another case of Wall Street fat cats paying the price for their speculation (actually, though Corzine may have run the firm into the ground, he’s reportedly going to receive a $12 million golden parachute).  The MF Global affair, however, signifies something even deeper:  how crony capitalists like Jon Corzine have used state pension funds for their political and financial benefit.

MF Global has declared Chapter 11 bankruptcy after Corzine led the firm to buy big holdings of debt from Spain, Italy, Portugal, Belgium, and Ireland at a discount.  Now federal regulators are investigating how hundreds of millions in customer money has gone missing.  But these were not simply financiers.  Some of Corzine’s biggest clients were pension funds for teachers, public employees, and others.   The fifth largest shareholder was TIAA-CREF, which owned 6% of the stock (MF Global’s Bankruptcy Petition is here).  In 2008,  before Corzine arrived, MF Global was sued by numerous pension funds over losses they had sustained because of MF Global trades, including the Iowa Public Employees’ Retirement System, Policemen’s Annuity Benefit Fund of Chicago, Southeast and Southwest Areas Pension Fund, and the State-Boston Retirement System.  MF Global settled the suit for $90 million.

The MF Global bankruptcy will cost pension funds a lot.  Pension funds around the country will likely take severe hits as their shares in the firm, bonds, or other holdings suffer huge losses.  The Oregon pension fund had a heavy stake MF Global.  Others are likely to follow. (more…)

From NYT’s Dealbook:

The last-ditch rescue effort is a major blow to the reputation of Mr. Corzine, 64, who formerly co-led Goldman Sachs and was also a United States senator. With a sale of MF Global, Mr. Corzine’s role at the firm will almost certainly end, though he is expected to receive a severance payment of nearly $12.1 million.

Still, the departure will be bitter for Mr. Corzine, whose first stint on Wall Street ended with his ouster from Goldman Sachs. Along with Henry M. Paulson, another Goldman co-chief executive, who would later become Treasury secretary, Mr. Corzine, a former trader, led the firm through the Asian financial crisis of 1998. But trading losses in the last quarter of that year, on top of ill will within the firm over the decision to go public, led to Mr. Corzine’s exit in January 1999.

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The debate agitating many in New Jersey right  is whether or not the state’s Governor, Chris Christie, is actually doing much to reform the state as it needs to be. I have to say that I wasn’t impressed with him during his campaign for the Republican nomination against Steve Lonagan. Having no interest in the politics of politic, he sounded like a big government Republican to me.

With that in mind, I was nicely surprised by the turn that Christie’s campaign against Corzine took and by some of his policies. He talked about small government, the need for reforming New Jersey, rejected the millionaire tax, capped property taxes and proposed budget cuts. But now that I am catching up on New Jersey reforms, I am skeptical again.

Let’s start with by comparing Christie’s FY 2011 $29.3 billion budget to Corzine’s FY 2010 budget of 29.8 billion. Given today’s economic climate, a 1.5% cut is not one that deserves immense praise. However, for a second I thought, “spending cuts are spending cuts and better that than nothing.”

That’s until I came across the alternative budget prepared by Americans for Prosperity called New Jersey Taxpayers’ Budget FY 2011. The AFP budget adds up to $25.9 billion. That’s $2.4 billion less than what is proposed by Governor Christie. Plus, they did this, without raising taxes. Unlike Christie’s budget.

That’s right, as part of a compromise on the budget, Christie made a deal with Democrats: he will put back millions into his budget (to buy things such as keeping open Hagedorn Psychiatric Hospital in Hunterdon County, funding for cultural sites including the Battleship New Jersey and the Newark Museum, more funding for projects in Urban Enterprise Zones) in exchange for  a series of new tax and fee hikes are being put forward as supplemental bills.

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An April 30th Press Release issued by Leading Authorities, Inc., announces Andy Stern’s latest move:

“Leading Authorities, Inc. has signed Andrew (Andy) L. Stern, the former president of the 2.2 million-member Service Employees International Union (SEIU), the fastest-growing union in North America. Stern turned SEIU into a powerful political force, and Stern and SEIU were widely credited for helping elect Barack Obama in 2008.

“We are extremely proud and privileged to be representing Andy Stern,” said Leading Authorities founder and CEO Mark French. “He is a major force in Washington politics. He transformed the labor movement, raised huge sums for President Obama’s election, and exerted monumental influence on the health care debate. Everyone at LAI is thrilled to be working with Andy.”   The release goes on to state,  “Stern will be addressing audiences about politics and issues such as fiscal policy, entitlements, immigration, healthcare, and the future of the labor movement.  He will speak independently, and also be matched with leading Republican thinkers.”

About the company:

“Leading Authorities, Inc. is one of the nation’s most progressive event design firms as well as a renowned lecture agency and production house. LAI represents thought leaders in business, politics and contemporary life as well as nationally-recognized entertainment acts. Our award-winning video and production departments provide professionally managed events and cutting-edge media products. Our experiential event design experts conduct workshops to improve attendance, engagement, and return on investment. With tools such as our Strategic Event Evaluation and our Event Design Workshops, Leading Authorities is setting the standard in customized, fully integrated event design.”

Aw, Andy’s got himself an agent.  Show him the money.

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New Jersey’s State Constitution is unconstitutional.  That’s apparently what one New Jersey election official seems to think.

A committee seeking approval from the state to petition registered voters on whether to move forward with a special election to recall US Senator Robert Menendez was denied that request, in a letter on January 11^th which stated that the US Constitution does not provide for such a proceeding.

But in 1993, the people of New Jersey overwhelmingly voted to reserve for themselves “the power to recall, after at least one year of service, any elected official in this State or representing this State in the United States Congress” (emphasis added), and in 1995 made this amendment to their state constitution under Article I, 2b.

This has left many New Jersey voters wondering why Secretary of State Nina Mitchell Wells, a member of the Executive Branch, not the Judicial Branch, would take it upon herself and her position to declare the NJ state Constitution unconstitutional.  After reviewing the committee’s preliminary appeal statement, a judge in the Superior Court of NJ Appellate Division has just issued an order allowing a motion to accelerate the appeal.

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During the Presidential “Media Fest” Campaign of 2007/08, many tried to impress upon the American people that Obama was an empty suit.  Quite simply, he had no significant legislative achievement to call his own.  Heck, as an Illinois State Senator, Obama voted “present” nearly 130 times, according to the New York Times:  “effectively sidestepping” issues.  The point of those who pressed Obama’s lack of executive experience and sidestepping tactics was that we could not afford a President who would do the same.

Ten months into the Obama Presidency, it is pretty clear that Obama is living up to his Absentee Legislator past.  Painful examples abound:

1. Trying Khalid Sheikh Mohammed in Criminal Court.  Arguably one of the most detrimental legal and foreign policy decisions of our time, and Obama openly admits it wasn’t his call – it was an underling’s call – Eric Holder.  It was a terrible decision and, as Senator Lindsey Graham pointed out, an unprecedented decision.  While I doubt Obama sat purely on the sidelines on this decision, it shouldn’t surprise anyone that someone other than Obama has to take responsibility for this decision – good or bad.  And when it goes bad, then Obama will simply dump Holder.  Problem solved.
2. Health Care.  What’s a President to do when he is devoid of any significant legislation to his name?  Allow the most significant piece of legislation in the last 40 years to be written and managed by others.  Literally.   Before us is the biggest makeover of the relationship of the private sector and government since the Great Depression and Obama is merely a passenger on a bus being driven by Nancy Pelosi and Harry Reid.  When it fails the American people, and it will, Obama will rightfully claim it wasn’t his bill.  Such is the prerogative of an Absentee President.
3. The Stimulus Bill.  It’s failing.  Indeed, over 3 million jobs have been lost since the Stimulus Bill was passed – a bill laden with pork because its passage was driven by someone other than Obama (not to say he would have passed a trimmed down bill).  Beyond that, we find out that the AIG bailout money was misspent – who would have thought?  Since the President can’t be in charge of such failures, and Obama can’t blame Pelosi or Reid,  the fall guy will be Treasury Secretary Timothy Geithner – because, in time, simply blaming President Bush won’t be effective anymore.
4. The November Elections.  Even though Obama went and put his personal prestige on the line for New Jersey Governor Corzine, Corzine was soundly beat – as was the Democrat candidate in Virginia – a race Obama wouldn’t touch.  But those results, according to Obama, had nothing to do with him – those were races with local implications not national influences.

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An interesting document found its way to my inbox last weekend. It was a PowerPoint presentation of an analysis done by the New Jersey Education Association, regarding its efforts to re-elect Democratic Gov. Jon Corzine.

The document can be found at NEAexposed.com.

Citing “Electile Dysfunction,” meaning the polls were telling them that voters, including teachers, weren’t as enthusiastic about Corzine as they would like, the union’s Director of Government Relations, Ginger Gold Schnitzer, proposed a double-dose remedy: “A robust member-to-member campaign,” followed by “an independent communications campaign to inoculate the public.”

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As the Bank of America (BofA) CEO, one of the first phone calls that Jon Corzine might receive could come from Service Employees International Union (SEIU) President and White House frequent guest Andy Stern asking Corzine to forgive SEIU’s $88 million debt or at least to renegotiate the BofA terms. As former head of the Democrat Senatorial Campaign Committee and a Democrat governor from New jersey, Corzine knows all too well how much the Democrat party owes SEIU bosses. Corzine as head of Bank of America could create interesting opportunities for Stern.

SEIU Debt Ceiling

Debts are increasing at every level of the SEIU purple conglomerate. SEIU’s national headquarters reported that at the end of 2008, its total liabilities grew to $156 million, a total debt increase of $36 million from the prior year. And, about $60 million of its assets are receivables owed to it by SEIU affiliates.

Even though SEIU’s national headquarters reports receiving $247 million in dues revenue called “per capita taxes”, much coming from workers who would be fired if they did not pay, its combined “Representational,” “Political,” “General Overhead,” “Union Administration,” “Benefits,” and “Gifts” activities cost the union $285 million.

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From the Associated Press:

WASHINGTON (AP) – Republicans surged to victory in governor’s races in Virginia and New Jersey on Tuesday, wresting control from Democrats in both states as independents who swept Barack Obama to a historic 2008 victory broke big for the GOP. It was a troubling sign for the president and his party heading into an important midterm election year.

Conservative Republican Bob McDonnell’s victory in the Virginia governor’s race over Democrat R. Creigh Deeds and moderate Republican Chris Christie’s ouster of unpopular New Jersey Gov. Jon Corzine was a double-barreled triumph for a party looking to rebuild after being booted from power in national elections in 2006 and 2008.

The outcomes were sure to feed discussion about the state of the electorate, the status of the diverse coalition that sent Obama to the White House and the limits of the president’s influence—on the party’s base of support and on moderate current lawmakers he needs to advance his legislative priorities.

His signature issue of health care reform was dealt a blow hours before polls closed when Senate Democratic leader Harry Reid signaled that Congress may not complete health care legislation this year, missing Obama’s deadline and pushing debate into a congressional election year.
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