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2011-12-14

Corzine Grilled over MF Global Collapse After Witness Suggests Knowledge of Misused Funds

Guests

Nomi Prins, former investment banker turned journalist. She worked at Goldman Sachs and Bear Stearns. She is the author of several books, including It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street. Her latest book is a historical novel about the 1929 stock market crash, titled Black Tuesday.

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Former New Jersey governor and U.S. senator, Jon Corzine, testified Tuesday on Capitol Hill about his brief stint at the helm of the failed commodities and derivatives brokerage house MF Global, which in October became the largest failure on Wall Street since the collapse of Lehman Brothers in 2008. After MF Global went bankrupt, regulators discovered that up to $1.2 billion in customer funds that should have been kept segregated were missing. Corzine says he never directed anyone at MF Global to misuse the funds, but a witness testified that Corzine was aware of loans that may have used customer money. We speak with Nomi Prins, a former investment banker turned journalist. "We’re listening to someone try and dodge his way out of responsibility and accountability, which is very much what all of the CEOs on Wall Street have done through the subprime crisis and through past crises," Prins says. "When you see 5,500 arrests across this country for the Occupy movement and you see zero on the part of the CEOs and senior executives from Wall Street who took trillions of dollars out of our economy, out of the European economy, [and] are going around the world, doing the same thing to Asia now, and so forth, it is absolutely heinous." [includes rush transcript]

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We turn now to a major banking scandal here in the United States. Former New Jersey governor and U.S. senator Jon Corzine testified Tuesday on Capitol Hill about his brief stint at the helm of the failed commodities and derivatives brokerage house MF Global. Corzine resigned from the firm last month after it filed for one of the largest bankruptcies in American corporate history, with almost $40 billion in liabilities. It was the largest failure on Wall Street since the collapse of Lehman Brothers in 2008.

After MF Global went bankrupt on Halloween, regulators discovered up to $1.2 billion in customer funds that should have been kept segregated were missing. Last week, Corzine told the congressional committee that he never directed anyone at MF Global to misuse customer funds.

REP. JAMES LUCAS: Did you authorize a transfer of customer funds from these segregated accounts?

JON CORZINE: I never intended to break any rules, whether it dealt with the segregation rules or any of the other rules that are applicable.

REP. JAMES LUCAS: Are you aware of any transfers, authorized or unauthorized, of funds out of customer accounts?

JON CORZINE: I am—I’m not in a position, given the number of transactions, to know anything specifically about the movement of any specific funds.

AMY GOODMAN: That was a former U.S. senator, New Jersey governor, and head of MF Global, until recently, Jon Corzine, speaking before the congressional committee last week. He also was the former CEO of Goldman Sachs. On Tuesday, Corzine faced more questions, this time from his former Senate colleagues. This is Senator Pat Roberts of Kansas.

SEN. PAT ROBERTS: Funds don’t simply disappear. Someone took action, whether legal or illegal, to move that money. And the effect of that decision is being felt across the countryside.

JON CORZINE: I never directed anyone in MF Global to misuse customer funds. I never intended to. And as far as I’m concerned, I never gave instructions that anybody could misconstrue.

AMY GOODMAN: Well, toward the end of Tuesday’s Senate hearing, the chairman of the Chicago Mercantile Exchange Group, Terry Duffy, testified that Corzine was aware of loans that may have used customer money.

TERRY DUFFY: A CME auditor also participated in a phone call with senior MF Global employees wherein one employee indicated that Mr. Corzine knew about the loans that it made from the customer segregated accounts.

SEN. PAT ROBERTS: Mr. Duffy, we’ve spent a lot of time here today. We probably should have had you on first. You have sort of tossed a bomb here, right in the middle, of who we’re trying to find out who is responsible, who has the responsibility, who has the authority.

AMY GOODMAN: That was Senator Pat Roberts reacting to the chairman of the CME Group, the Chicago Mercantile Exchange, Terry Duffy. Corzine will appear a third time on Capitol Hill when he goes before a House committee on Thursday. In addition to the alleged misuse of funds, MF Global filed for bankruptcy in part because of risky bets on debt issued by Italy, Portugal and Spain.

Well, for more on this latest banking scandal and the larger European debt crisis, we’re joined by Nomi Prins, former investment banker turned journalist. Prins worked at Goldman Sachs and Bear Stearns. She’s author of several books, including It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street. Her latest book is a historical novel about the 1929 crash, Black Tuesday.

Nomi Prins, welcome to Democracy Now!

NOMI PRINS: Thanks, Amy.

AMY GOODMAN: Talk about the significance of what we are just listening to and watching.

NOMI PRINS: We’re listening to someone try and dodge his way out of responsibility and accountability, which is very much what all of the CEOs on Wall Street have done through the subprime crisis and through past crises.

What you have to understand about how MF Global operated, which is not indicative from the questions that are being asked on those panels, is why money would have been used from customer accounts, from which they are missing—everybody understands that. And the reason that money would have been used is because of these bets that Corzine made, and that he knew about, and that he authorized, and that he several times in SEC reports and with conversations with rating agencies said he was in charge of. He was betting that the powers that be would bail out European countries if they got too bad. And if you bet that was going to happen, you were going to make a ton of money. And he bet the equivalent of the farm on that.

The problem was, he couldn’t stay in the bet. He had to borrow money to stay in, because it didn’t happen fast enough, because European countries continued to deteriorate, because the money that, therefore, he was betting on them being bailed out wasn’t coming to fruition quickly enough, so he had keep putting money in and see if it will come to fruition, keep putting money in, keep putting money in. And it turned out he didn’t have enough money left, from which he had borrowed, in order to stay in that trade. And that’s why customers’ money somehow disappeared. It was because it was segregated, and it should not have been used to act as a backing for those bets. But it was.

And for him to sit there in front of Congress and talk about "not intending" and "I didn’t know" and "I didn’t instruct" and "I didn’t misuse" and all these sort of legal maneuvers around this issue really is deplorable.

AMY GOODMAN: During his testimony last week, Corzine disputed claims there was anything wrong with MF Global’s books, until the last few days leading to the firm’s collapse. He evoked—he invoked audit committee reports to support his claim. Let’s go to that clip.

REP. JAMES LUCAS: How would you respond to charges that MFG’s books were a mess?

JON CORZINE: Mr. Chairman—

REP. JAMES LUCAS: And you were a supporter of Sarbanes-Oxley, too, I believe, just like myself.

JON CORZINE: Mr. Chairman, my understanding is that our books and records were reflecting the chaos that occurred in the last two or three days as the firm was under severe pressure and had lost the confidence of the marketplace. I think that is distinct from the books and records—I think I have reason to believe, based on at least the reporting that occurred in our audit committees over a period of time, that our books and records weren’t in a mess.

AMY GOODMAN: Nomi Prins, your response?

NOMI PRINS: One of the things that their books indicated was that he was so-called hedged against these European bets, meaning, even though he had borrowed money in order to stay in these bets, even when they were losing money and kept putting more and more into them, that somewhere along the way he was hedged, or he reduced that exposure somewhere else, which makes no sense, because if you’re in the bet and you’re putting everything into that bet, you’re not trying to reduce the exposure. He was hardcore into betting that these countries would be bailed out. And in the books, it actually shows a reduced net exposure, meaning it looks as if he has hedged that amount, but obviously he hadn’t. And he would have had to have known that, because it was his idea to do those bets.

AMY GOODMAN: The New York Times has an interesting description, saying, "His obsession with trading was apparent to MF Global insiders over his 19-month tenure. Mr. Corzine compulsively traded for the firm on his BlackBerry during meetings, sometimes dashing out to check on the markets. And unusually for a chief executive, he became a core member of the group that traded using the firm’s money. His profits and losses appeared on a separate line in documents with his initials: JSC."

NOMI PRINS: Yeah, exactly. And also, I looked at a couple of the old documents where just a couple months ago he was transferring stock into—this was while—this was about in September, so where things were actually starting to go a little haywire, into annuity trust with his family as beneficiary. So he was definitely not only trading, he was moving stuff around. And so, this is not a man who wasn’t aware of the condition that the firm was in, and the fact that it went bankrupt all of a sudden wasn’t some big shock.

AMY GOODMAN: What would you have asked Corzine, if you were there? Coming up on Thursday, what do you think people should ask him in Congress?

NOMI PRINS: I think the line of questioning should be, "Look, Jon, Honorable Jon, where is the money?" And I know that question has been asked in different ways. But the—

AMY GOODMAN: I mean, yesterday, him and the other MF Global execs asked that exact question. Each one said, "I don’t know. I don’t know. I don’t know."

NOMI PRINS: They were all evasive. And I would have them there, and I’d say, "That is not good enough. Tell me—come here prepared. Give me the documents. I want to see the actual transactions that occurred. Don’t tell me that, you know, six weeks after your company declared bankruptcy, two months after you knew it was going in that direction, you do not know where a significant amount of capital is. I don’t buy that." I don’t—

AMY GOODMAN: Yesterday, it was very poignant also as a farmer testified and talked about losing his life savings. What did Jon Corzine make off of MF Global?

NOMI PRINS: It’s not clear what he made. I mean, he certainly came in and was making millions of dollars off of MF Global. Now, of course, he had a lot of stock in MF Global that is worth zero now, which was partly why the money was being used. It was used to elongate the game so that he could make more money out of the stock that he had been moving around out of MF Global into annuities and into other parts of his life.

AMY GOODMAN: Talk about the Occupy Wall Street activism taking place here at the same time.

NOMI PRINS: I think it’s fantastic that there’s a visible and vocal group of people across the country and linked across the world that are saying, "Look, what’s happening at this level, at the bank level, at the fraud level, at the inequality level, at the economic problem level, this is not caused by us. It’s not caused by the 99 percent. It’s caused by fraud. It’s caused by crime. We’re not going to stand here and be quiet. We’re going to not just be on the internet. We’re going to be everywhere, and we’re going to grow."

And this is very much a global movement. I’ve been spending a lot of time talking with the European movements and people that are looking at the situation there. This is something that had to happen here, and I’m so glad it happened when it did.

MF Global is just yet another example that, no matter what happens in Congress, no matter what is passed, it doesn’t do anything to disrupt the status quo and the business-as-usual practices of the banking community.

AMY GOODMAN: We’ve seen some of the largest mass protests in the history of this country right here in New York with the Occupy Wall Street movement. In one of the arrests alone, over 700 people. Yet, when it comes to Wall Street executives?

NOMI PRINS: Zero. It is—every so often, there will be someone thrown under a bus for some sort of minor trade that happened, but none of the executives that had the accountability, that made the millions of dollars, that had the power, that had the political connections, that had the meetings in Washington that enable them to do what they do, none of those people have been arrested. And it’s because of the questioning like that and because, ultimately, even if that questioning goes to the Department of Justice, there is a big punt going on at the Washington level. And when you see 5,500 arrests across this country for the Occupy movement and you see zero on the part of the CEOs and senior executives from Wall Street who took trillions of dollars out of our economy, out of the European economy, are going around the world, doing the same thing to Asia now, and so forth, it is absolutely heinous. So I hope these movements continue. And I think—

AMY GOODMAN: Has anything changed since 2008, since the fall?

NOMI PRINS: With respect to how banking operates, it’s only gotten worse. For example—and MF Global is an example of something blowing up—Goldman Sachs has—the relationship of how many derivatives they’re trading relative to how many assets they have has grown by something like 30 percent. In other words, they’re doing many more esoteric things, since supposedly this crisis was contained and we got the Dodd-Frank Act, which is completely useless.

AMY GOODMAN: Talk about the Dodd-Frank Act.

NOMI PRINS: The Dodd-Frank Act was supposed to be this sweeping, great overhaul thing that President Obama and Treasury Secretary Tim Geithner and everybody signed off on.

AMY GOODMAN: The Dodd-Frank Wall Street Reform and Consumer Protection Act.

NOMI PRINS: Right, and it doesn’t protect consumers, and it didn’t reform Wall Street. So, you can call it anything you want to call it, but the fact is that these banks, that were big before the subprime component of what is now a global crisis, are bigger than they were. They have more derivatives exposures than they did. They are taking more risks than they did. They are getting away with more than they did. And they are doing it with more reliance on federal subsidies than they did before what happened in 2008. So everything, by every standard, with respect to risk and coddling of Wall Street, is worse than it was before 2008, before that act. And there is no opposition in Washington, which is why—you know, talk about an Occupy movement. That’s about the only opposition that’s happening right now.

AMY GOODMAN: Nomi Prins, talk about your latest book and why you felt this book had to be fiction. You wrote It Takes a Pillage. Talk about this book.

NOMI PRINS: Black Tuesday was the day when the market crashed by its most in 1929. And when I started looking at the historical facts leading up to 1929, they were so ridiculously similar to what we had leading up to the subprime crisis—bankers making stuff up, inflating the value of assets, getting individuals sucked in. Now we get pension funds and we get small towns in Europe sucked in. But basically, the exact same modus operandi, and the same six banks that were in charge of Wall Street and the global financial economy back then are operating now. They’re just different faces. So that was the historical context.

But I wanted to write it as a novel to look at the humanistic effect, the heart, the impact, and take a look at a story that’s really just about a young girl coming to America, knowing nothing about this, and living in the Lower East Side in her tenement apartment with her dying aunt and her cousins who work on the docks on Fulton Street, and seeing that life every day, and then coming into contact with the Wall Street life through working at a Wall Street diner, and just her navigating those two worlds. And there’s a love interest in it to sort of have more of the human dimension in the struggle and the moral implications of that to her, because she doesn’t start out to be an activist or a heroine. She just is a girl trying to make it in this world. And then, what I show through her and her struggles is how sometimes you’re called upon to do something that’s really actually uncomfortable. Not everyone is that militant protester. But you do what you have to do when things are down. And that’s kind of the evolution of the story.

And one thing I didn’t realize back then—the book came out just before the Occupy movement really took off—is there is a scene that I got from a newspaper clip back then at the Fulton Street market, where, in 1929, bonuses were being given out, even though the market had crashed, to the Wall Street bankers, and they were docking the pay of the guys there. And there was a protest there. A lot of guys were arrested, same like with the Occupy movements, and obviously no one on Wall Street back then was arrested, either. So it’s kind of sick how history repeats the wrong things.

AMY GOODMAN: Toward the end of the book, you have this confrontation in a courtroom.

NOMI PRINS: Yeah, and this is where you have to use fiction, because can you imagine that those—that the people could actually try Jon Corzine and MF Global or Lloyd Blankfein at Goldman Sachs? The idea there was there was a fraud committed against a significant component of the population. And Leila, the main character, has to, because she comes in contact with information about it, either ignore it and go about her life or confront Jack Morgan, who is the—he’s a real character—in the book, it’s a fictional account. And she actually confronts him in a court, with a lot of the people who really want to tell him what they think of him. And it’s kind of my favorite scene in the book. And you can’t do that in real life, because we just don’t have that mechanism. But it would be awesome if we did.

AMY GOODMAN: And because these executives are not being taken to court.

NOMI PRINS: They’re not—yeah, they’re settling out, or they’re being given little quasi kind of show investigations.

AMY GOODMAN: Last quick question. You said, in Washington, has taken a punt. We’re moving into an election year, 2012. President Obama is adopting some of the language of the Occupy Wall Street movement, and yet he is also receiving more money from Wall Street than any president in history.

NOMI PRINS: Right, exactly, which is why nothing will happen that will hurt his relationship with the Wall Street community. So, what he says—and I believe, truly, they discount what he says with respect to supporting the Occupy movement. And it’s nice that he’s saying it, but in terms of actually doing something, he has shown—he had the opportunity to really push through major reforms, and instead backed this very lukewarm act that does nothing. And I don’t see him doing anything different than that besides talking, unfortunately, between now and the election. He’s really acted more than he’s spoken. I mean, well, he’s done both, but his actions speak louder than his words, I should say.

AMY GOODMAN: Nomi Prins, I want to thank you for being with us, former investment banker turned journalist, worked at Goldman Sachs and Bear Stearns, author of several books, including It Takes a Pillage. Her latest book is called Black Tuesday.

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