As MF Global takes its place among the top 10 U.S. bankruptcies of all time, there is some good news for Jon Corzine, the Wall Street investment firm's now departed CEO: arrogance and foolishness are not yet against the law. I say "not yet" because the rhetoric employed by many politicians in the wake of the financial crisis suggests they would prefer to make it so.
Those refrains have been noticeably absent during the past few weeks as MF imploded, filing for Chapter 11 on Halloween and tarnishing the reputation of Corzine, a former Democratic governor and U.S. Senator from New Jersey. Perhaps that's because the left is reluctant to take shots at one of its own.
As a politician, Corzine supported all manner of new regulations for Wall Street banks. But he was unwilling or unable to entertain thoughtful risk management when it came to running his own firm. That's a harsh indictment, but it's true nonetheless: MF Global carried more exposure to shaky European debt than even JPMorgan--a bank many times its size.
The lessons of this teachable moment concern arrogance and moral hazard and should make big-government advocates uncomfortable. MF Global presents policymakers with yet another demonstration that all the regulation in the world won't stop humans from making poor decisions, and all the oversight in the world cannot--and should not--prevent firms from going under.
Running a multibillion-dollar company is heady business. All CEOs have their strengths and weaknesses, but not many lack self-confidence. Corzine believed his combination of trading and political experience made him unique. Having dwelled both on Wall Street and among the political classes, he felt certain that European governments would ultimately protect the value of their sovereign debt and acted on that belief.
When his hubris collided with government activism, the results were disastrous. For the past three years, governments around the world signaled time and again that they were willing to step forward with an answer even when they had none. The Federal Reserve maneuvered to salvage a struggling Bear Stearns, TARP gave a lifeline to the U.S. banking system, and taxpayers took ownership of Fannie Mae and Freddie Mac. In Europe the 14th debt-crisis summit has demonstrated resolve to keep Greece afloat, if not a clear path for getting the job done.
Lost amid this economic activism is the principle that laws should clarify and facilitate the process for dealing with insolvencies but never pretend they can be avoided. To think otherwise constitutes a form of legislative arrogance, one that mirrors Corzine's business arrogance. Too many lawmakers believe government can oversee, manage or invest with more insight and efficiency than the marketplace. That attitude not only contributed to MF Global's failure, but it has also cost taxpayers billions though multiple policy misadventures.