The meltdown of MF Global is a striking lesson in the degree to which our finance firms and our elected officials often do business in the same way — regardless of claimed ideology. It’s particularly telling because of the way MFG head Jon Corzine moved from Wall Street to government and back.
Back when Corzine ran for governor of New Jersey, he promised to bring fiscal stability to state finances and reduce the crushing property-tax burden on homeowners. Banking on a reputation for financial wizardry from his Wall Street days, he also boasted that he could expand access to health care, fund universal pre-kindergarten in public schools and pump billions into subsidized housing.
That platform made Corzine a darling among big-government types, who found it astonishing that a former Goldman Sachs chief could preach such “unabashed, old-fashioned liberalism,” as The New York Times put it. Once he became governor, however, the only way that Corzine could live up to his promises was through sharply higher taxes on some residents and accounting gimmicks of the sort that 21st century Wall Street and government often share in common.
After all, Corzine now has to explain not just the collapse of MF Global, thanks to his series of risky bets on European bonds, but also how some $1.2 billion in MF Global’s customer accounts, which are supposed to be kept separate from the firm’s own capital, seem to have disappeared. If the firm misused the money, someone is likely to go to jail.
Of course, in New Jersey, candidates typically make it into office by planning to spend other people’s money — that is, by making lots of expensive promises to special interests.
As governor, Corzine hiked sales taxes $1.1 billion to pay for popular property-tax rebates; later, the rebate program disappeared for most taxpayers but the sales tax stayed. He also instituted a 2.5 percent fee on all commercial development to subsidize his affordable-housing plans at a time when the state’s private economy was already collapsing. And, as the state’s budget foundered in 2008, he slapped a tax surcharge on higher incomes.
But in the end, Corzine also needed a little financial manipulation in order to keep paying the bills in Jersey. Beholden to public-sector unions who helped elect him, he did nothing to solve the state’s huge pension problem. Instead, he simply pushed billions of dollars in yearly pension costs the state should have been paying into the future. In doing so, Corzine taxed future Jersey residents, who had no say in the matter, by ballooning the state’s long-term liabilities.
Whether in government or finance, he seemed to always believe there’d be a bailout. He destroyed MF Global by betting that the European Union wouldn’t let some of its troubled governments default because they were, of course, too big to fail. In Jersey, he simply ignored one of the worst pension crises in the country because the idea that we’d let hundreds of thousands of government workers lose their pensions is also unthinkable.
In the worlds where Corzine operates, the next bailout is always just around the corner if you are big enough and daring enough.
Sadly, even politicians without time on Wall Street seem to share that faith. After all, other states collectively have accumulated $3 trillion in liabilities for pension promises that they haven’t funded. And outstanding state and local debt has soared from $1.3 trillion to $2.5 trillion in a decade.
Some of that money, recent press reports suggest, is being misused by politicians to plug current budget holes when it was raised for other purposes.
You can do such things in politics and suffer no consequences. You may even get re-elected. Corzine was safer back in New Jersey politics, where he could use other people’s money liberally and engage in shady accounting practices without worrying about the kind of dire consequences he may now face. Nobody’s going to occupy Trenton.
Steven Malanga is a senior fellow at the Manhattan Institute.