Europe’s debt crisis is being blamed for MF Global Holdings Ltd.’s bankruptcy filing yesterday, but the real culprit is hubris – specifically, Jon Corzine’s hubris.
Bad things tend to happen in the vicinity of Corzine, a former New Jersey governor who became MF Global’s chief executive in March 2010. He sharply increased the company’s exposure to risk with a big bet on European sovereign debt, which was disclosed to analysts last week. Corzine was apparently convinced that eurozone governments would never be allowed to renege on their debts. This conviction was misplaced, however, as evidenced by Greece’s impending renunciation of about half of the debt it owes to banks.
Trading in MF Global’s stock was halted Monday, and the company was suspended from doing business with the New York Federal Reserve. Bloomberg reported that the company’s board met through the weekend in an effort to avert the failure.
Corzine evidently thinks of himself as a titan of government and industry. He served as co-chief executive officer of Goldman Sachs in the 1990s, an environment where he undoubtedly grew to expect VIP treatment. He was good at his job but was known as something of a cowboy in his trading style even then. Risk paid off big-time for Corzine, and Corzine embraced it.
Next, he won a seat in the U.S. Senate – a great job in which you’re also treated as special, with the added perk that you are not held personally accountable for much of anything.
After a five-year career in the Senate, Corzine became governor of the Garden State. He is perhaps best remembered in that position for having his driver race down the Garden State Parkway at 91 miles per hour, while he himself didn’t wear a seat belt, in order to get back to the governor’s mansion in time to meet with the Rutgers women’s basketball team and radio personality Don Imus during the height of the controversy in which they were involved. Corzine nearly got himself killed for his trouble, which was stupid. His stunt also endangered the lives of others, which was inexcusable.
As a wealthy incumbent Democrat in blue-tinged New Jersey, Corzine should have been a shoo-in for re-election, but he lost to Republican Chris Christie. Corzine seemed to learn little humility before taking over MF Global. A few months after his failed campaign, he said of the MF Global position to The New York Times, “This was like a starburst. It’s hard to believe this kind of opportunity presented itself.”
The line between hubris and optimism can be slender. Corzine seemed to feel that his background in bond trading and government made him uniquely qualified to predict that no European government would ever renege on its debts. He acted on the assumption that it was impossible for his prediction to be wrong.
Who, then, will pay the price for this misstep? Corzine’s ego and self-perception may, perhaps, though his track record suggests that’s not likely. But almost certainly some 2,800 MF employees will. Many of them are likely to find themselves out of work due to the $6.3 billion worth of European debt that The Wall Street Journal reported MF Global held as of last week.
People succeed for a variety of reasons. Often talent and hard work are the main ingredients; luck is another. Successful people run the risk of believing that success is their destiny, not the result of internal and external factors whose mileage may vary. It’s easy to let prior success convince you that future success is inevitable. It never is.
Smart investors and managers follow the axiom “risk a little to gain a lot.” Doing the reverse is simply dumb, and Corzine is not dumb. He saw the opportunity for a big payoff, but he risked his company, and his staff’s livelihoods, to achieve it. He risked a lot to gain a lot, but I doubt he realized how much he was risking. Because of his unshakeable belief in himself, Corzine convinced himself that his big bet was tolerably small.
Hubris never recognizes itself until the damage has been done.