Eurozone Crisis Leads To American Firm's Bankruptcy

Europe's debt crisis claimed another victim Monday morning, and this time the casualty was an American firm. MF Global Holdings filed for bankruptcy after an unsuccessful effort to find a buyer for the ailing firm. MF Global is headed by Jon Corzine, the former governor of New Jersey, who reportedly bet on the direction of European bonds — and lost.

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ROBERT SIEGEL, host: From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel. MF Global, the securities firm headed by former New Jersey Governor Jon Corzine, has filed for bankruptcy. The firm's finances unraveled after an ill-timed bet on the European debt markets. Over the weekend, MF Global scrambled to find a way out. But this morning came word that those efforts had failed. NPR's Jim Zarroli has our story New York.

JIM ZARROLI: MF Global was a sleepy futures trading firm when investor Christopher Flowers arrived on the scene to help revive it. One thing he did was hire his former Goldman Sachs colleague Jon Corzine as chairman. Corzine had just lost his bid for re-election as New Jersey governor, and he was eager to turn MF Global into a Wall Street powerhouse, like Goldman. William Cohen, author of the "Book Money and Power: How Goldman Sachs Came To Rule The World," interviewed Corzine at the time.

WILLIAM COHEN: Basically, at MF Global, he told me he had found a company that was sort of mundane, people didn't want to take any risks, sort of more clerk-like. And he really - he told me he really wanted to ratchet up the risk. At first, MF Global earn healthy profits. But the risks the firm took under Corzine's leadership would ultimately sink it. The debt crisis was heating up in Europe and a lot of investors were pulling out of the market. But Corzine is said to have believed that the crisis was overblown. The firm decided to buck the odds and invest heavily in European government bonds. Sean Egan is managing director of the Egan-Jones rating agency.

SEAN EGAN: In the case of MF Global, they've enhanced their exposure and that was the wrong bet. The wrong bet at the wrong time, In September, MF Global announced a big loss and it was downgraded by the big ratings agencies. Suddenly, the hedge funds and institutional investors who were its main clients began to pull their money out. Egan says the firm wasn't able to survive long once they did.

EGAN: It was dependent on the good will of the market. And the company lost that good will in fairly short order. Soon, MF Global's share price had fallen by two-thirds and it was forced to draw down its credit lines to keep operating. But its days were numbered. MF Global's troubles were aggravated by the fact that it was highly leveraged. That is, it had borrowed heavily against the capital it held to invest. And once it began to lose money, its losses were magnified. William Cohen says what happened at MF Global has similarities to what happened at much bigger firms like Lehman Brothers and Bear Stearns.

COHEN: This is a lesson we all should have learned in spades in 2008. And, you know, I can't imagine that people with the kind of experience that Jon Corzine and Chris Flowers have could possibly put themselves in a position to be vulnerable like this again. MF Global is nowhere near the size of Lehman or Bear Stearns, and its bankruptcy is not likely to have the ripple effects through the economy that those firms had. Still, the creditors listed in today's bankruptcy filing include some of the biggest names in finance, including J.P. Morgan Chase and Deutsche Bank. And the collapse of the firm can only erode investors' already shaky confidence in Wall Street that was widely seen as a factor in the plunge of the stock prices today. Jim Zarroli, NPR News, New York.

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