Is the Goldman Halo Slipping? (Please Tell Me It Is)

"But -- he was at Goldman."

For a long time now there's been a halo around Goldman Sachs, despite the occasional outrageous mis-step (Remember banking as "God's work"? Read my 2009 post about that here). But spend a few years at Goldman, better yet make partner at Goldman, and you could pretty much write your ticket. Those Goldman guys: they had the Midas touch.

Well, for those of you who don't remember your Greek mythology, the whole "turning everything you touch into gold" thing was one of those sneaky "be careful what you wish for" ways that the Greek gods would play "Gotcha" with mere mortals. It's great to be able to turn a piece of wood into a block of gold -- hey, running a kingdom costs money! -- but not so much fun when the juicy steak you were looking forward to eating turns into something that will break a tooth.

Oh and when you're thinking about how smart those Goldman guys are ... Would you please also remember that we taxpayers had to bail 'em out? (Yes, they did repay that TARP money, but still....)

When I first read that MF Global was filing for bankruptcy (New York Times DealBook article by Azam Ahmed, here), it didn't seem so startling. Unfortunate, perhaps, but not startling. Jon Corzine, MF Global's chairman and chief executive officer (and former New Jersey governor, and former US Senator from New Jersey, and, oh yes, former Goldman partner), had bet heavily on European debt -- that Europe would come to the rescue of its smaller, more troubled economies. While he may yet prove right in the long run, he'd bet that way for the short term, and after trying frantically to find a buyer for MF Global over the weekend, the firm filed for bankruptcy protection on Monday.

Times financial columnist Joe Nocera was not feeling particularly forgiving about the MF Global debacle this morning, however. Of Mr. Corzine, he wrote, "you would think that as a former Wall Street titan, he would have noticed that taking giant bets on shaky, long-term bonds while financing your operations with overnight loans that can be pulled at any second is not exactly a recipe for success."

But it's not just the relative stupidity of the strategy that made Mr. Nocera angry. It's the (as he put it) "heads-I-win-tails-you-lose" mentality. If Mr. Corzine had been able to find a buyer for the firm last weekend, Mr. Nocera noted, he would have been in a position to walk away from a company that he had effectively destroyed (stock price less than two years ago when Mr. Corzine took over: $7; stock price before bankruptcy filing: about $1.20), with a "severance package" of $12.1 million.

Now that I think about it, Mr. Nocera, I'm angry too.

Adding insult to the injury: Mr. Corzine apparently came thisclose to selling the firm to Interactive Brokers, when it was revealed that "hundreds of millions of dollars" were "missing" from MF Global customer accounts. According to another Times DealBook article by Ben Protess, Michael J. De La Merced, and Susanne Craig, the sum was originally estimated at $950 million, but is now thought to be "less than $700 million".

As the reporters noted, this might be simply a matter of "sloppy internal controls". But:

In any case, what led to the unaccounted-for cash could violate a tenet of Wall Street regulation: Customers’ funds must be kept separate from company money. One of the basic duties of any brokerage firm is to keep track of customer accounts on a daily basis.

At this time, neither the firm nor Mr. Corzine have been accused of any wrongdoing.

But really -- was 2008 that long ago? With the "loss" of something more than $600 million (per this afternoon's DealBook article by Messrs. Protess and De La Merced), you're talking gross mismanagement, or theft, or both. There really aren't any other possible explanations.

As one Times reader commented: "Sure, you can leave a ten spot in your pants pocket and bring your pants to the cleaners, but $600 million?"