Pulling a Corzine
Continuing jitters about Europe ensured that Monday was a down day for financial markets. But perhaps the bigger news is that it was not a disastrous day, even as a significant broker-dealer filed for bankruptcy.</br></br>The Chapter 11 filing by MF Global was in part reassuring news that failure is still allowed on Wall Street. With $41 billion in assets, MF is much smaller than Lehman Brothers but still among the largest bankruptcies of the last decade.</br></br>Yesterday also offered a chance for market participants and taxpayers to reflect on their good luck that MF Global Chairman and CEO Jon Corzine was not running a bigger firm -- or the U.S. Treasury. While the collapse of his company was big enough to cause major headaches in the futures market where MF provided clearing services for a long client list, almost nobody considered it too big to fail. Similarly, although MF Global this year became one of the 22 "primary dealers" for the Federal Reserve Bank of New York to buy and sell Treasury debt, bond markets shrugged off the bankruptcy filing.</br></br>These facts allow policy makers who are paying attention to glean some relatively painless lessons from the firm's demise. For example: As ever, regulation by the Securities and Exchange Commission and the Commodity Futures Trading Commission does not prevent reckless risk-taking and financial trauma.</br></br>In a document related to its bankruptcy filing, MF Global said its regulators "expressed their grave concerns" after a series of negative headlines about the company last week, including news of a large quarterly loss and a credit downgrade.