By William D. Cohan
One of the last refuges of a scoundrel is to argue that things are not nearly as bad as the news media makes them out to be. Enter Jon Corzine, the former chief executive officer of the bankrupt MF Global, who in his 21 pages of prepared remarks in anticipation of his Congressional appearance this afternoon, had the temerity to scold "the media" for making it seem that MF Global was overleveraged by reporting that its assets were 37 times its equity capital, implying that a 2.75 percent change in the value of assets could wipe out MF's equity value.
As any student of 2008 can tell you, having high leverage was one of the major contributing factors to why Bear Stearns, Merrill Lynch and Lehman Brothers went belly-up. Corzine sets the record straight. MF Global was not nearly as leveraged as the evil press makes it out to be. No, MF was not leveraged at 37 to 1, according to Corzine. Rather it was leveraged only 30 to 1, and Corzine is proud to tell you he had a hand in bringing that leverage down.
Never mind that, in the post-Dodd-Frank era, firms such as Goldman Sachs (of which Corzine was once the senior partner) have leverage now of around 12 to 1. Corzine would have us take comfort from the fact that, in his construct, MF investors were better protected thanks to him. At a 30-to-1 ratio, it required a 3.3 percent decline in the value of MF Global's assets to wipe out its equity capital. Thanks, Jon.
(William D. Cohan is a Bloomberg View columnist and the author of "Money and Power: How Goldman Sachs Came to Rule the World.")-0- Dec/08/2011 20:54 GMT