Jon Corzine & MF Global

The Wall Street Journal ran a somewhat scathing article on Jon Corzine's plans for MF Global, the firm of which he became CEO last March, after losing his re-election for governor of New Jersey in late 2009.

You know the Journal isn't positive on Corzine's ambitions, because the headline, Corzine Builds MF In Goldman's Image, suggests a sort of vengeful lack of imagination on the part of the failed politician and former Goldman co-head. They also quote Corzine as arrogantly declaring,

"We had such a limited business plan the day I walked in the door."

The article alleges that Corzine denies he's trying to clone Goldman at MF Global, but his plans for expansion feature proprietary trading, government bond dealing, and the potential purchase of an asset management operation.

If that were all there were to the story, it would be pretty much open and shut that it's likely Corzine is attempting what the Journal article contends, bolstered by this passage,

"Mr. Corzine likely wants his job at MF Global to end differently than his 24-year career at Goldman. In 1999, after Mr. Corzine pushed for a Goldman initial public offering that would make him and other partners of the firm very wealthy even by Wall Street standards, he was pushed out in a power struggle with Goldman bankers led by former Treasury Secretary Henry Paulson, who went on to become CEO.

In terms of revenue, MF Global is about 2% of the size of Goldman."

But wait....there's more.

At the very end of the piece is this passage,

"After losing a re-election bid in 2009, Mr. Corzine was encouraged to take the top job at MF Global by J.C. Flowers & Co., which owns a stake in MF Global. The private equity firm's founder, J. Christopher Flowers, was a colleague of Mr. Corzine's at Goldman. Mr. Corzine is a partner at J.C. Flowers."

Now the picture becomes a bit different. It's not so hard to connect the dots.

Corzine loses re-election, but his friend and former colleague, Christopher Flowers, gives him a partnership in his firm. After all, despite his failed political career, Corzine has made many contacts while in the Senate, and at Goldman, so, like many former politicians or candidates (NJ's Bill Bradley and, before him, Pete Dawkins, come to mind), remains a potential rainmaker. Flowers has a significant stake in sleepy MF Global, for what reason we don't know. But he would like to transform it into something with selected aspects of the Goldman Sachs both he and Corzine helped run.

So Flowers, whose firm has a board seat at MF Global, held by partner David Schamis, convinces the rest of the board to hire Corzine, now a Flowers partner, too, as CEO.

At a stroke, Flowers has cleverly taken effective control of a public company by handpicking the CEO. His plan is evidently to transform the staid financial services firm into something more robust and profitable, albeit with more risk. But through his holdings, Flowers essentially gets other people's money to absorb risk and fund his plan to use MF Global to do things he probably can't accomplish with his own private equity firm.

So, now, the spotlight really shifts from Corzine to Flowers. We don't know if the business plan to which Corzine referred was limited in terms of timeframe or scope. But it really doesn't matter so much what Corzine thought of it. He's a high-priced, high-profile pawn in this affair, and the public face of Christopher Flowers at MF Global.

It's Christopher Flowers' views that really matter. Views which we will likely never know directly, because he's implementing them through two MF Global board members who are also Flowers partners.

And you wonder why retail investors and the public in general are concerned about webs of influence and suspect dealings in private equity and the non-commercial side of banking?

This is why.