The fallout is still yet to be fully realized from MF Global's historic meltdown at the hands of Jon Corzine. The fund had been taking increasingly risky positions in European sovereign debt while leveraging their assets to somewhere around 34 to 1. These signs would leave most investors to stay away from this firm but not MF Global. CNBC's John Carney proposes that investors thought MF Global was "Too connected to fail" What do you guys think? Can someone on Wallstreet be too connected to fail?
Carney's article gives two propositions. The first being that people thought that Corzine was well connected in the government. This was true since Corzine had already served in the New Jersey senate and as governor of the state, as well as helping President Obama raise over a half a million dollars for his campaign. Carney proposes that this led people to believe that he was too connected to fail, that if MF Global went down the government would bail them out.
The second proposition is that Corzine's connections in the US government would allow him a "insider track". This basically meant that since he knew people and helped them out they would give him some info that would allow the firm to profit even in rough times.
I think both propositions are a joke. Anyone who was under the impression that MF would get bailed out is smoking crack rocks for breakfast. Their bankruptcy certainly is more than a blip on the radar, but not anything to be concerned with. The general public would go on a witch-hunt if they were propped up. 0% chance of that possibility.
As for him having a pipeline to exclusive news that would allow profits....unlikely. I doubt it would lead to profitable opportunities unless someone was feeding him economic data or fed decisions way before the markets get a wiff.
Too connected to fail? Doesn't exist. I am sure it might help in seeking solutions from the private market, but short of a bromantic relationship with 7lb 8oz baby jesus.....uncle sam won't be footing the bill. I think a situation like LTCM and how it went down would be the most anyone would get.
LOL, 34 : 1 ?? THIS IS HOW THEY MADE MONEY? Borrow 97+ %, buy government bonds, and profit off the spread. There is absolutely zero skill involved here, just the ability to raise the debt.
What do you think 'carry trade' is? Borrow massive amount of Yen, pay a few percent, enter a FX forward contract, buy other 'riskless' or risky assets, earn the spread.
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