The Star Ledger Doesn't Get It On ARC/Gateway Tunnel

The Star Ledger's editorial page doesn't get it when it comes to talking about the ARC tunnel and its successor, the Gateway Project.

It laments the billions that Gov. Chris Christie supposedly left on the table by killing the project because overruns would have been a multibillion dollar hit on New Jersey taxpayers.

Plans for a new rail tunnel between New Jersey and Manhattan took a nasty PR hit in 2010, when Gov. Chris Christie pulled the plug on the ARC tunnel, citing billions in potential cost overruns to the state.

That concern was reasonable, if overblown. But he left billions of federal dollars on the table that we might not get back. And his real motive, it seems, was to grab the money set aside by Gov. Jon Corzine, so that he wouldn’t have to raise the gas tax.

The ARC tunnel would have doubled rail capacity — helping commuters get to high-paying Manhattan jobs and increasing property values in New Jersey. It was set for completion in 2018. But Christie didn’t have a Plan B. A tunnel is still needed, and he isn’t committed to the Gateway plan.

Even that 2025 date will cause hardship. NJ Transit says tweaks — adding double-decker buses, encouraging commuters to use ferries and PATH trains — could wring another decade out of the existing transit system. That gets us to 2022.
After that? Doomsday.

Let's just ignore the fact that Gov. Corzine fast-tracked the ARC project to get it underway before he left office, ignoring the fact that NJ Transit has never been able to contain costs on its infrastructure projects.

The federal government understood this as they estimated the overruns to be anywhere from $1 to $5 billion, and the feds further refused to cover any cost overruns on this interstate project. Had the federal government wanted to keep the project going, it would have ponied up a deal to cover cost overruns. It knew, or had reason to know, that the overruns would be more than what NJ Transit was willing to admit, and there was no way that they would do so. Instead, they let Christie kill the project and touch off the ensuing political finger pointing.

Amtrak is better suited to be the lead agency on the Gateway tunnel project because it assures that the rail connections under Manhattan lead to a high speed rail setup, and not just a tunnel ending without any place to store trains when they are done with the run into Manhattan. The ARC project was ill-conceived and the Gateway tunnel is a far more practical approach to getting new capacity.

That doesn't mean that there aren't capacity issues with the existing infrastructure - there most certainly are.

However, NJ Transit has cut its capacity all while raising fares because it lacks the operating funds to run as many trains and there's no timetable on when those cuts would ever be restored (something that they admitted during a recent customer survey blitz in Hoboken). That means that the supposed 1-seat ride into Manhattan wouldn't happen, or it would mean reduced service to Hoboken - far from an ideal situation.

It's also interesting that New York, which stands to benefit greatly from whatever tunnel project is built, hasn't put up funding to cover its end of the deal. That's another reason why Christie killed the ARC project. ARC's funding structure was disproportionately hitting New Jersey residents, while New York gained benefits without contributing its fair share.

The Gateway project is truly an interstate venture, as it produces a major upgrade to the NEC - an interstate corridor and the only real high speed rail option for the country (the Acela service isn't anywhere near European or Japanese standards, but it's the closest thing that the US has in service). Upgrading the stretch in New Jersey through Queens, New York would shave significant time on a Washington DC to Boston run.

It's a project that has to get done, but the Star Ledger also oversells the benefits to New Jersey. Values cannot be expected to rise without additional service by NJ Transit. If the agency can't increase its operating budget to provide more service, it doesn't matter what kind of capacity is available.

MF Global Clients May Never See $1.2 Billion Recovered

MF Global, the company that was headed up by prominent Democrat and former New Jersey Governor Jon Corzine, may never know what happened to the $1.2 billion in mission client money even though investigators thought they were making progress in unwinding the company's actions immediately prior to the bankruptcy:

Previously it looked as though regulators and probably the company's CEO Jon Corzine knew where that shortfall ended up without saying where they thought it went publicly. Some news outlets reported that, for example, roughly $200 million of the missing customer money went to JP Morgan. And today, The Journal's Scott Patterson and Aaron Lucchetti make the case for why that missing $1.2 billion is gone forever. One hypothesis floated again is that MF Global employees dipped into customer money to improperly use in other parts of the company. Another theory is that the company simply lost customers' funds on bad bets outside of the European bond market: "Investigators also are examining other scenarios that have gained traction in recent weeks, such as the possibility that MF Global suffered steep losses on investments made using customer money."

That's right; no one knows what happened to the money and they are characterizing the money as having been "vaporized". If the trustee in bankruptcy can't find the money, then the clients whose money was stolen will have to figure out the next steps. I can't imagine them not suing Corzine and other key figures in the company for fraud and breach of fiduciary responsibility in both their individual and corporate obligations.

Still, the money wasn't vaporized; it was misappropriated and stolen from client accounts. That's a criminal matter, and I concur with the view that a grand jury should be investigating filing charges against key individuals at MF Global, up to and including Corzine.

MF Global so completely ignored general accounting principles and the first rule of investments and brokerages - to keep corporate and client funds separate. Their malfeasance is overwhelming and Congress will once again hold hearings on the situation on February 2.

Corzine Continues Getting Grilled on Capitol Hill

Disgraced former New Jersey Governor Jon Corzine continues to avoid making the big gaffe that might land him in a perjury trap over testimony given on the MF Global debacle, but he's not out of the woods just yet.

Corzine thought he could turn MF Global in to a new and improved Goldman Sachs. He brought in the same kind of attitude and risk-taking that he brought at Sachs. But because MF Global didn't have the size and track record, once those risks (namely the sovereign debt in Europe) became monetized, the company didn't stand a chance and everyone wants to make sure they got their money covered. Forced to pony up additional collateral the company was left scrambling to find someone to buy them out, and it was in that process that the potential buyers found all kinds of discrepancies - most notably the fact that client funds were being used for corporate purposes.

That was the first of many red flags that sent the company into bankruptcy.

And it was Corzine who was pushing to get MF Global more heavily invested in the European sovereign debt, because he thought he could make a bunch more money there than on other less risky propositions. He and his board ignored and side stepped risk managers who pointed out the problems with the strategy.

Yet, CME Chairman Terrance Duffy contradicts Corzine's testimony:


Corzine denies knowing about the transfers of client funds, even as evidence is emerging to the contrary.

CME Group Inc. Executive Chairman Terrence Duffy told a Senate panel Tuesday that Corzine might have known about a transfer of $175 million from customer accounts earlier than that. CME Group operates exchanges on which MF Global traded. It also was responsible for auditing some of MF Global's books.

According to Duffy, an MF Global employee told a CME auditor that "Mr. Corzine was aware" of the transfer. Duffy said he referred the matter to the Justice Department and the Commodity Futures Trading Commission. Both are investigating MF Global's failure and the disappearance of the customer money.

If true, Duffy's accusation would raise the possibility that Corzine misled Congress about when he learned that client money was missing.

The transaction Duffy described wasn't necessarily illegal. Brokers such as MF Global are allowed to borrow from customer accounts temporarily in some circumstances -- to reduce their own risk, for example.

But such cases are a narrow exception. A firm couldn't use customer money to pay trading partners if its speculative trades lost value. Even in cases where borrowing clients' money was legal, the firm would have to replace it with a safe, cash-like investment such as a U.S. Treasury security.

If that can be confirmed, then Corzine's got bigger problems considering he's testified that he didn't know about any transfers and that may lead to obstruction of justice and perjury charges.

And to think that Corzine thought he might get tapped by President Obama to be Treasury Secretary. Obama's probably thanking his lucky stars he didn't make that move.

Corzine; MF Global Executives Testify Before Congress Again Today

It's another day of testimony before Congress for disgraced former New Jersey Governor Jon Corzine and several top MF Global executives. They'll again have to state that they have no idea where nearly $1.2 billion in customer money went. They'll claim that they aren't responsible for the accounting of the monies, despite being in a position to not only be responsible for the company policies, but are fiduciaries for their clients and made the decisions that sank MF Global in the first place.

Bradley Abelow, MF Global's president and chief operating officer, and Henri Steenkamp, the chief financial officer, are also scheduled to testify to the Senate Agriculture Committee.

All three say they don't know where the money is, according to prepared remarks and Corzine's previous testimony to a House panel last week. Nor do they take responsibility for authorizing the movement of money out of customer accounts.

Depending on the circumstances, transferring money from customers' accounts could violate securities laws and, in some cases, could amount to a crime. Federal authorities have begun criminal investigations. And regulators are looking into whether the firm broke securities rules.

MF Global collapsed into the eighth-largest bankruptcy in U.S. history on Oct. 31 after a disastrous bet on European debt. Corzine stepped down as CEO on Nov. 4.

Corzine told the House Agriculture Committee last week that he didn't know what happened to the money. He said he didn't become aware of the shortfall until Oct. 30, one day before the firm filed for bankruptcy protection.

In his prepared testimony, Steenkamp says he had no direct involvement in the transfer of funds.

"Direct involvement with operational matters such as bank accounts or fund transfers has never been part of my duties," Steenkamp says.

Abelow says he cannot explain what happened to the money without having access to MF Global documents, which a trustee now controls.

They'll try to distance themselves from the scandal, but that's frankly impossible to do. They are going to do their best to avoid falling into a perjury trap, so the amount of information that they can shed on the inner workings at MF Global in the runup to the collapse will be at a minimum.

Anything they say can and will be used against them in what is likely to be a series of criminal and civil suits, but so too is the fact that they simply claim ignorance, being outside the loop of those responsible for the transactions that led to the missing $1.2 billion.

Corzine, despite his attempts to fall on his sword, continues to claim that he isn't a responsible party in the missing money. Is it possible that some underling undertook the illegal actions that led to the missing money? Absolutely. However, it was a policy initiated by Corzine to expand trading on sovereign debt that pushed MF Global to the brink. Corzine took the risks, removed those involved in managing risks and were warning about the downside, and pushed ahead despite the sovereign debt risks increasing MF Global's exposure.

Former NJ Governor Jon Corzine Can't Explain Where MF Global Money Went

Nearly $1.2 billion in client money disappeared from MF Global accounts without a trace, and Jon Corzine doesn't have a clue where the money went. The former New Jersey governor and alleged wunderkind at Goldman Sachs who headed up the late MF Global can't explain where the money went.

Corzine, who was CEO at MF Global during the collapse, said he was “stunned” to learn that client accounts could not be reconciled as the firm went down.

“I simply do not know where the money is, or why the accounts have not been reconciled to date,” he said. “I do not know, for example, whether there were operational errors at MF global or elsewhere, or whether banks and counterparties have held onto funds that should rightfully have been returned to MF Global.”

Corzine said in his statement he would not invoke his Fifth Amendment rights.

“Considering the circumstances, many people in my situation would almost certainly invoke their constitituional right to remain silent — a fundamental right that exists for the purpose of protecting the innocent,” Corzine said.

“Nonetheless, as a former United States senator who recognizes the importance of congressional oversight, and recognizing my position as former chief executive officer in these terrible circumstances, I believe it’s appropriate to respond to your inquiries.”

Corzine noted, however, he had little contact with the company since his departure, and likely would not be able to explain much about what has happened during the liquidation of MF Global, which went under after Corzine directed what turned out to be disastrous investments in European debts.

Curiously, he hasn't invoked his 5th Amendment rights against self-incrimination. That may be a boldly stupid call on his part, considering that he's open to both criminal and civil actions in the bankruptcy of the financial firm as a result of his flawed strategies and calls. Corzine wouldn't have knowledge of the operations at MF Global as it wound down after his departure following the bankruptcy notification, but he should have knowledge of what happened in the weeks and months leading up to the bankruptcy and inability to determine where client money was.

That's a core responsibility of all financial firms. You are not allowed to commingle firm funds with those of the clients. Yet, that's apparently what happened, and the clients got screwed.

Corzine would love to rewrite history, and claims that he reduced MF Global's leverage from the time he took over to his departure. He then glosses over the key problem with the MF Global debacle, the pending sale in bankruptcy, and the failure to reconcile hundreds of millions of dollars of client accounts (the numbers have ranged from as low as $600 million to more than $1.2 billion.

Fact is that Corzine was claiming that the company was stable and in good financial position for a restructuring/sale in bankruptcy, when that wasn't the case. That should open him to civil and criminal liabilities.

Trustee Liquidating Failed MF Global Finds $1.2 Billion Shortfall

MF Global's problems have doubled. The trustee liquidating the company's assets has found that the shortfall is $1.2 billion, which is double the estimates that had been floating around for the past couple of weeks since the financial firm announced its bankruptcy.

The court-appointed trustee overseeing the liquidation of MF Global’s brokerage now estimates that the shortfall in the firm’s customer funds could be more than $1.2 billion, double previous estimates.

Regulators currently suspect that MF Global improperly used customer money for its own purposes in the days before filing for Chapter 11 protection, according to people briefed on the matter.

The decision to release the updated figure on Monday came after authorities concluded that much of the customer money had left the firm, these people said.

By MF Global’s estimates to regulators, roughly $600 million in customer money was missing. But as forensic accountants pored over MF Global’s books in recent weeks, they began to question those estimates.

By Sunday, the accountants from Deloitte and Ernst & Young had discovered an even larger gap in customer funds.

The trustee, James W. Giddens, held a four-hour conference call on Sunday evening with staffers in New York City and Chicago before deciding to publicly reveal the new number, according to a spokesman, Kent Jarrell. Officials from the Commodity Futures Trading Commission and the CME Group, MF Global’s primary exchange, were consulted on Sunday night.

Turns out that the initial estimates were far closer to the amounts actually missing; yet even the $950 million initially estimated fell several hundred million short of the tally.

This is yet another discrepancy that MF Global officials and Jon Corzine have to address. Where did all the client money go? Two possibilities: One is that company used the money to meet trading partners’ demands for extra cash, which could come back (but that would require seeing some kind of paper trail). The other is that it was used to cover trading losses, which would be unrecoverable. Both would appear to be actionable for sanctions, and the latter is criminal.

The company's books are a shambles, and it appears that there was no kind of accounting controls or oversight, despite regulators being on hand to view the books just days before the company imploded when the sale of the company prior to bankruptcy imploded.

Investigators Continue Searching For $600+ Million Missing From MF Global Accounts

Investigators have a tall task ahead of them in trying to piece together all the illegalities at Jon Corzine's MF Global financial firm. They're still trying to figure out where more than $600 million in money went, and the condition of the company's books is atrocious. It also isn't the first time that the firm was sanctioned for violations of various securities laws and rules:

On Friday, the bankruptcy trustee overseeing the liquidation announced that nearly all 1,066 of the company's employees were losing their jobs, although as many as 200 could stay to oversee the dissolution of the company. MF Global says the disarray in its financials is due to hasty unwinding of positions as its massive bets on European sovereign debt began to collapse, but it has a long history of regulatory violations pertaining to risk and records management.

Over roughly the past decade, MF Global was sanctioned half a dozen times and fined a total of $12 million, including a $10 million fine levied in 2009 for "significant supervision violations" that occurred during the five years prior, according to CFTC enforcement archives. One 2008 infraction alone cost $141 million in trading losses on wheat futures.

"They're going to have to figure out what did people know and when did they know it," Elson says. MF Global had undergone a routine audit only days before its bankruptcy filing and nothing was found to be amiss. "Why was this not caught, and if it had been caught, what would have been the consequences?" he says.

Clients might have to steel themselves for a long wait and the possibility of a loss of funds. Elson points out that sorting out the fallout from the collapse of Lehman Bros. was a protracted process and says this could follow a similar timeline. A worst-case scenario would be customers losing what were supposed to be safe investments and triggering a crisis of confidence that spreads to other trading firms.

That no one seems to know where the money went is a bad sign for everyone involved. Accounts are frozen and no one can really proceed until the money is accounted for. This isn't just about aggressively interpreting securities laws; it's about illegality within the company and a complete and utter disregard for one of the fundamental rules in the financial sector - never commingling client funds with those of the financial firm.

MF Global already admitted as much; but the condition of the books is so bad that it's going to take investigators time to figure out who knew what and when, and how much money is involved.

Corzine remains on the hook since it was his decision to push the firm into taking positions on European sovereign debt that pushed the company into insolvency and the firm lacked the credit to back its positions. Bradley Abelow, who was Corzine's Chief of Staff while Corzine was New Jersey governor, was the firm's COO and should have done a better job managing the company's risk. However, Abelow wasn't a key player in determining the firm's trading policy.

Thus far, all of the company's broker-dealers have been fired, but some may be hired back to help wind down the accounts.

As far as the firm's clients and creditors are concerned, there's a huge mess waiting to happen. Some creditors are claiming that JP Morgan Chase tried to cut to the head of the line; Chase is MF Global's largest creditor and proffered a $8 million emergency loan on the day of the bankruptcy. Expect lots of lawsuits as the creditors try to jockey for position to recover some value from the firm.

MF Global Fires Over 1,000 People As Liquidation of Corzine's Company Continues

MF Global, the financial company that Jon Corzine took over with the hope of turning it into another Goldman Sachs, has fired its entire workforce of 1,066 people.

A total of 1,066 employees of bankrupt broker and dealer MF Global Inc. have been fired, according to a statement issued Friday by James Giddens, the court-appointed trustee for the liquidation of the company.
Marketwatch reports that between 150 and 200 former employees are being hired to assist in the wind down of the business and processing of bankruptcy claims, according to Giddens.
MF Global is not conducting business, and will not be reorganized. About 17,000 customer account positions and approximately $1.5 billion in customer account funds have been transferred to other future commodities merchants, Marketwatch reports.

The company was laid low by decisions made by Corzine and the inability to account for hundreds of millions of dollars of its clients money.

Investigations continue into Corzine's actions, as well as those of the company and how the money was not properly accounted for.

Trustees for the bankrupt firm are in the process of liquidating what few assets that they have; this includes the office space and closing out company positions.

ames Giddens, the trustee, aims to vacate MF Global's midtown Manhattan offices as soon as possible and rent out smaller, less expensive office space to handle the liquidation, according to the statement Friday. MF Global's Chicago offices will continue to be leased for a limited time period.

Some employees of MF Global in New York and Chicago already had been let go last Friday. Salaries for those dismissed in the trustee's action Friday will be paid through Nov. 15.

The 1,066 released Friday represent a little more than one-third of the 2,847 staff listed by MF Global as of March 31. The broker-dealer unit isn't being restructured and the termination of employees is a "necessary part" of the liquidation, according to the trustee's statement.

"We are saddened by the trustee's actions today to terminate to many of our colleagues," a spokeswoman for MF Global said in a statement.

The mood in MF Global's New York office was described as grim, as human-resources staffers went from floor to floor to speak to employees. Some complained of suddenness of the announcement, with numerous people learning of the terminations via newswires or television.

Corzine Resigns From MF Global As Investigations Continue

Things are not looking good for former New Jersey Governor Jon Corzine. First, his new company MF Global imploded after Corzine pushed the company to take risky bets on sovereign debt in Europe and failed to have sufficient collateral to back those bets.

Then, the company failed to provide proper protections for client accounts - commingling funds of clients with company money that is a huge red flag. That only came to light after suitors for the company started poring through the books and saw serious discrepancies. Those discrepancies total more than $630 million that cannot be accounted for.

The potential buyers fled, MF Global declared bankruptcy, and the regulators and investigators are now picking over the ruins.

And what of Jon Corzine? Not only has he resigned as head of MF Global, he's now hired a criminal attorney, which is natural because he's likely going to be facing charges relating to the commingling of funds, leading everyone astray with his reassurances at a time when he knew, or had reason to know, that his company was crumbling all around him.

We're supposed to be grateful that Corzine didn't seek his massive severance package, which totals more than $12 million? Sorry, but he's bankrupted the company; there's no money to collect.

Mr. Corzine resigned from MF Global on Friday morning and will not seek $12 million severance payments.

Federal authorities, including the Federal Bureau of Investigation and the Securities and Exchange Commission, are investigating the $630 million in missing customer money at MF Global.

Mr. Levander could not be reached as he is out of the country, according to his assistant. He did not return an e-mail seeking comment. Daniel O’Donnell, the chief executive of Mr. Levander’s law firm, Dechert, declined to comment.

In Mr. Levander, the chairman of Dechert, Mr. Corzine has retained a New York lawyer who is no stranger to defending prominent Wall Street executives. He represented John Thain, the former chief executive at Merrill Lynch, in a government inquiry related his role in Merrill’s sale to Bank of America. Ezra Merkin, a hedge fund manager who invested with Bernard L. Madoff, hired Mr. Levander to defend him against a New York attorney general’s lawsuit connected to the Madoff case.

“Andy is not just smart but has a deep understanding of the investigative process,” said Steven M. Cohen, a defense lawyer at Zuckerman Spaeder in New York and the former top aide to Governor Andrew M. Cuomo. “He understands how cases are built and therefore how they are defended.”

Other recent high-profile assignments for the bow-tie clad Mr. Levander include his representation of the outside directors of Lehman Brothers and Monster.com, a jobs Web site, in a government investigation relating to the backdating of employee stock options. In 2004, he obtained an acquittal for Michael Rigas, a former Adelphia Communications executive, in a criminal trial. A jury convicted Mr. Rigas’s father and brother in the same case.

Like much of New York’s white-collar defense bar, Mr. Levander is a former federal prosecutor in Manhattan. A graduate of Tufts University and Columbia Law School, Mr. Levander clerked for Judge Wilfred Feinberg on the Federal Appeals Court in Manhattan. He joined Dechert in 2005 after it acquired Swidler Berlin Shereff Friedman, a small New York firm where he had worked.

Corzine also hired another firm to represent him in bankruptcy proceedings and shareholder suits that are already being lodged against the firm and him personally.

This will not end well for Corzine.

UPDATE:
Is there a conflict of interests between the regulators and investigations into Corzine's actions. The head of the Commodity Futures Trading Commission (CFTC), is Gary Gensler. The two have crossed paths numerous times and raises questions as to whether Gensler can do his job to suss out all that went wrong with MF Global and hold Corzine accountable:

Gensler was a partner with Goldman Sachs, rising to rank of co-head of finance before leaving the firm in 1997 for a role in the U.S. Treasury department. At the time, Corzine, a 24-year veteran of the firm, served as its CEO.

The two men met up again on Capitol Hill, when Corzine, then the junior senator from New Jersey, in 2002 helped co-author the landmark Sarbanes-Oxley Act, which imposed massive new regulations in response to accounting scandals that caused Enron, Tyco and WorldCom to implode. Gensler was a senior advisor to Sen. Paul Sarbanes (D-Md.), then chairman of the Senate Banking Committee, for whom the act was partially named.

This week’s turn of events–MF Global’s meltdown and subsequent findings by its regulators that the firm allegedly violated requirements on customer segregated funds–promises to reunite the two men once again, though on opposite sides of the table. A CFTC spokesman did not return a message immediately seeking comment on Corzine and Gensler’s connection and whether it represents a potential conflict.

I don't think this will affect the investigations, since Gensler could recuse himself while others around him in the CFTC can do their jobs.

UPDATE:
Wouldn't you know it that Corzine lobbied to get regulators to reduce their restrictions on the very kinds of transactions that undid MF Global.

As a former United States senator and a former governor of New Jersey, as well as the leader of Goldman Sachs in the 1990s, Mr. Corzine carried significant weight in the worlds of Washington and Wall Street. While other financial firms employed teams of lobbyists to fight the new regulation, MF Global’s chief executive in meetings over the last year personally pressed regulators to halt their plans.

The agency proposing the rule, the Commodity Futures Trading Commission, relented. Wall Street, which has been working to curb many financial regulations, won another battle.

Yet with MF Global in bankruptcy and regulators scrambling to find $630 million in missing customer funds, Mr. Corzine’s effort may come back to haunt him.

The proposed rule would have restricted a complicated transaction that allowed MF Global in essence to borrow money from its own customers. Brokerage firms are allowed to use customers’ money to earn interest, not unlike banks, but this rule would have outlawed using customer funds for a loan to the firm itself.

Corzine's MF Global Missing $633 Million

In the wake of the collapse of MF Global, regulators have found that $633 million is missing. The regulators also found that the company sought to hide transactions from regulators as bankruptcy was looming:

MF Global, the dealer-broker firm run by former Gov. Jon Corzine, made several last minute transfers of customer funds in a manner apparently designed to avoid detection as it headed for bankruptcy, an industry regulator said Wednesday.

The statement, by CME Group of Chicago, came as federal regulators probe whether the company used customer funds for company business.

Federal regulations require that customer and company funds be kept separate. Lawyers for the Chicago Futures Trading Commission, which regulates futures and options trading, said $633 million in customer commodities funds is missing, Bloomberg News reported.

CME Group, the owner-operator of the Chicago Mercantile Exchange, said that any transfer of customer funds occurred after CME completed an audit last week.

"The results of our review indicated that MF Global was in compliance with its segregation requirements," in the audit period, CME said. But the statement added that "It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection."

The company, which filed for bankruptcy Monday, did not report the transfers to the Chicago Futures Trading Commission, which regulates futures and options trading, until early Monday morning, CME said.

It would appear that someone authorized these transactions following the audit period so as to cover the losses that were pushing the firm into insolvency and ahead of the bankruptcy sale to another brokerage.

That's criminal action - and those involved, including Jon Corzine must be held accountable.



Corzine pushed the company to get into sovereign debt bets as a way to expand a profit center, and the bets went badly particularly because the company didn't have sufficient collateral to cover the positions if they went bad.

The company failed to maintain adequate controls separating client accounts from the company's own monies.

The sale of MF Global prior to the bankruptcy was scuttled when the potential buyer ended up finding discrepancies. Turns out that the potential sale showed the failures and exposed all kinds of problems with the firm.

Corzine's Big Bets Bust Major Financial Firm; Regulators Want To Know Where Investor Money Went

One of the sacrosanct rules in finance (and law) is that you never commingle investor/client funds with your own. It's one of the few automatic ways that a lawyer can find themselves disbarred.

Yet, we're now learning that the financial firm headed up by none other than former New Jersey Jon Corzine is potentially in hot water over being incapable of accounting for hundreds of millions of dollars of investor funds after MF Global went belly up after Corzine bet big on foreign funds and lost.

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said. Additional funds are expected to trickle in over the coming days.

But the investigation, which is in its earliest stages, may uncover something more intentional and troubling.

Sloppy controls my ass. Banks and financial firms know down to the penny how much is in individual accounts and that MF Global was playing games and can't account for where all the investor money was is not just troubling, but it shows that regulators failed in basic oversight to make sure that the brokerage was playing by the rules.

How did MF Global get in this mess? Corzine bet company money on European debt - and didn't have sufficient capital to back up the bets. He did the same kind of thing at Goldman Sachs where some of those decisions went bust, but Goldman Sachs could absorb some of those losses. Here, he's dealing with a much smaller firm and by buying up big holdings of debt from Spain, Italy, Portugal, Belgium and Ireland at a discount, he thought he could turn around and profit if the Eurozone fixed its mess. However, it wasn't to be.

So, while the bonds may have matured in less than a year - we've repeatedly seen that failure to have proper capitalization can lay low major financial firms. MF Global was taking inordinate risk and lacked sufficient capital reserves; that's where the issue of investor money comes into play. Regulators are now poring over whether the company used those investor funds to paper over and increase the capital behind the bond bet.

The CME and other regulatory bodies are already saying that MF Global broke the rules. The question will be determining the extent of the mess.

And criminal charges should be coming down the road too. You break these kinds of rules, and you're essentially stealing from your clients in the hopes that you can make back your money. It's a losing proposition and the brokerage industry needs to know that these rules aren't to be trifled with.

Fallout From Christie's Decision To Kill ARC Tunnel Project

Many of the reports that are critical of Gov. Chris Christie's decision to kill the ARC Tunnel project focus on the fact that this was a project decades in the making.

That's not quite accurate. It's been on the wish list for transportation planners for decades and studies had been carried out from time to time. Funding for the project began in earnest last year when the Corzine Administration was hoping for a reelection bump. Construction began last year with great fanfare even though there were serious questions about funding and the alignment of the project.

Christie killed the project because the state of New Jersey cannot afford the project. The state is putting up about 1/3 of the cost of the project, with the federal government and Port Authority putting in the rest.

The costs have gone from $5 billion when proposed to more than $8.7 billion today. Cost overruns are expected to push the cost to $10 billion. It's the cost overruns that drove Christie to kill the project since New Jersey has no way to pay for the project.

With that in mind it's not surprising that Christie is meeting with Transportation Secretary Ray LaHood today, and one can expect that the federal government may end up taking up the issue and covering the cost overruns, rather than the state of New Jersey.

The politics of the situation are quite interesting. Christie wants to show fiscal responsibility, but needs to show job creation - and killing the project would kill jobs for construction workers. The Obama Administration needs to have job growth, and could use Christie's decision to embarrass him and to get the infrastructure project done to fulfill the government's goal of improving infrastructure. In other words, both sides need to get this done - so the terms of the deal will likely be revisited and reworked so that New Jersey doesn't have to shoulder the burden.

It's a bargaining tactic, and one that may end up benefiting New Jersey taxpayers because they wont need to cover the cost overruns that may end up being quite substantial. New York can't be expected to contribute either because they're in even worse fiscal shape and haven't contributed a dime to the project. The Port Authority and NJ Transit have already maxed out their contribution, so the only party that has the ability to fund the project is the federal government.

Still, I hope that the project ends up being reorganized to realign the terminus with Penn Station rather than Herald Square because the separate terminal is an additional cost that is unnecessary and ignores the fact that Amtrak is interested in doubling its own tracks into Penn Station (something that NJ Transit says wasn't feasible). This may actually cost more to do than the alignment to Herald Square, but eliminating the duplication would end up saving taxpayers and commuters even more.

Corzine's Last Acts and Christie's Inauguration

Today marks the end of the road for Governor Jon Corzine. Before he left office, he granted several pardons, but the big news is that he signed the medical marijuana bill into law that makes New Jersey the 14th state to legalize the use under strict circumstances. The medical marijuana law is effective in six months.

The marijuana bill (S119) is expected to take effect in six months. Only patients with specific illnesses would be permitted to get a prescription: cancer, glaucoma, multiple sclerosis, HIV/AIDS, seizure disorder, amyotrophic lateral sclerosis (also known as Lou Gherig’s disease), severe muscle spasms, muscular dystrophy, inflammatory bowel disease, Crohn’s disease and any terminal illness if a doctor has determined the patient will die within a year.

The law allows the state health department to include other illnesses when it writes rules implementing it.

The law has other restrictions, such as forbidding people from growing their own marijuana, ensuring it is dispensed through licensed “alternate treatment centers,” and requiring designated caretakers who retrieve the drug on behalf of someone severely ill to undergo criminal background checks.

While some people think that the bill sends the wrong message to children, I think that the medicinal benefits outweigh the problems. Under controlled circumstances, marijuana appears to have medicinal value and can help patients suffering from a range of ailments. It's about moderation and the law balances the medicinal benefits while preventing the drugs from falling into the wrong hands.

Speaking of moderation, New Jersey will also now require chain restaurants to post calorie counts on their menus, even as other reports indicate that the calorie counts may be off by up to 20% and still be acceptable. For a restaurant like Harold's (which isn't a chain and wouldn't be required to post the calorie counts),  the law will have no effect. Then again, one of the reasons that people go to Harold's is to attempt to polish off a  platter or portion that can provide a week's worth of caloric intake. The calorie content in such a case would be to see how much you can eat in a sitting.

While the nanny staters think that such things will help reduce obesity and force change from the top down, the single best way to reduce the waistlines of Americans is for individuals to engage in portion control. They don't have to polish off their plates; and the plates themselves can be smaller. Switching to a slightly smaller plate can reduce caloric intake without any extra effort on the part of the individual. Yet, restaurants are obliged to provide heaping portions because it's about the perceived value of the meals and not the health benefits of (or problems with)  those meals.

So, with that in mind, Republican Chris Christie takes office today and faces  a monstrous deficit and budget problems that are bigger than those of many other states. The state pension obligations are a ticking time bomb, education spending remains out of control and the tax burden continues chasing individuals and businesses out of the state leaving an ever smaller tax base on which a greater tax burden is heaped. These are not inconsequential problems and the legislature isn't likely to give Christie much leeway in trying to deal with these massive issues.

New Jersey Is Exhibit A In Fiscal Irresponsibility

Many states are facing massive budget holes that got papered over in FY 2009-10 because of stimulus funds. Instead of facing significant budget cuts to bring the budgets back into the black, they used the federal funds to keep the budgets pretty much unchanged (though some states like NY increased spending by 8% - over and above the prior year budget despite a gaping deficit). Next year, none of these states can count on federal assistance, so they're going to see their budgets whacked.

Hard.

These states are going to have to confront tax hikes and spending cuts - or both.

And even then there's no guarantee that the budgets will be balanced. See New Jersey as Exhibit A for the consequences of ignoring and deferring the solutions for too long. New Jersey's incoming Governor Chris Christie will not be able to pad the state budget with billions in dollars printed by the federal government as part of a federal stimulus package as Jon Corzine did in the FY 2009-2010 budget. Corzine used billions to paper over the fact that spending didn't decline, but even with the infusion of federal money, the state is still in the red.

The numbers in New Jersey are staggering:

Non-partisan legislative analysts predict New Jersey's next budget will have an $8 billion structural deficit, while Governor-elect Chris Christie predicts a gap of at least $9.5 billion. Here are some of the bigger items that make up the deficit:

$2.5 billion to fully fund a 2010 pension obligation that was skipped in 2009.

$1.6 billion in one-time-only federal stimulus funds that were used to balance the budget in 2009.

$1.6 billion to fully fund a property tax rebate program that was cut back in 2009.

$1.1 billion in lost revenue from tax hikes that were billed as one-time-only in 2009.

$700 million in normal growth planned for state government programs.

$500 million to fund an increase in school aid planned for the next budget.

$400 million in projected tax revenue that was not collected in 2009.

$379 million in one-time savings achieved in 2009 by delaying raises for state employees.

$200 million in debt service savings achieved by a 2009 refinancing.

$200 million in surplus funds used to balance the budget in 2009.

Source: New Jersey Office of Legislative Services

The state faces a multibillion dollar budget deficit, and Christie's choices aren't going to be pretty. He will face a Democratic-controlled legislature that is not going to cut spending willingly, nor will they look to improve the business climate by cutting taxes to encourage businesses to come to the state.

Perhaps, what the state needs is to completely reevaluate its tax structure; reduce the overall tax burden by reducing the overall tax rates, simplifying the tax structure, and eliminating tax credits and incentives - streamlining the compliance for businesses and individuals.

It may also make sense to eliminate or reduce enterprise zone sales tax rate discount, if coupled with a corresponding decrease in the overall state sales tax rate. Currently, the enterprise zones have a rate of 3.5%, whereas the state sales rate is 7% (which includes 1% that was supposed to go to property tax relief). Setting the state rate at 5.5% and increasing the enterprise zone rate to 5% would still provide an enterprise zone benefit, while increasing the competitive advantage of New Jersey compared to neighboring states.

Eliminating the property tax rebate system would save billions, and would also shelve a shell game perpetrated by the Corzine Administration when they enacted a rebate whose cost outstripped the revenue source (the sales tax hike). It enabled localities and the state to ignore fundamental and structural causes of recurrent deficits and a state workforce that remains bloated and costs taxpayers billions.

Note too that Corzine managed to avoid paying billions to the pension funds, and sought legislation to allow municipalities to do the same. The deferred nature of those payments means that those localities would have to come up with the money and there's no revenue source other than looking to hike taxes across the board - particularly property taxes at the local level. Far from getting the state on a path to fiscal prudence, Corzine further destabilized the state's fiscal picture by engaging in the fiscally irresponsible act of delaying and ignoring the pension funds; a time bomb of epic proportions that will only increase as the amount of the unfunded pension obligations grows with each passing year.

Legislating Fiscal Irresponsibility

I've railed against Governor Jon Corzine's incessant attempts to engage in the fiscally irresponsible action of deferring pension obligation payments so as to avoid the tough decision of cutting spending elsewhere or dealing with the massively underfunded pensions around the state.

Now, Corzine is hoping to allow the state and municipalities to get away with still more fiscal irresponsibility and incoming Governor Chris Christie is backing the measure.

Towns, cities and counties could put off paying half their required contribution into the pension system this year, under a bill introduced in both houses of the Legislature over the past week.

The proposal would essentially extend by one year a controversial measure pitched and signed into law by Governor Corzine earlier this year to stave off property tax increases during the economic downturn. It allowed local governments to delay up to a half billion dollars in payments.

The bill is sponsored by Sen. Sandra Cunningham, D-Hudson, a member of Governor-elect Chris Christie’s transition team who is advising him on issues that affect municipalities. Local governments that take the short-term cost saving offer would have to make up the cost of deferment later. Actuaries would determine the unfunded liability in the pension systems, and towns and cities would replenish the funds with equal payments over 15 years beginning in 2013.

The New Jersey State League of Municipalities, the lobbying arm for the state’s 566 towns and cities, backed the measure Monday.

“It’s designed to help municipalities to manage the cost of their budgets in these difficult times,” said league director Bill Dressel. “Most towns have already lost the fifth payment of [municipal] aid, towns are looking at unprecedented foreclosures, a proliferation of successful property tax appeals, mandates.”

No, it isn't letting them manage their costs; it's allowing them to ignore and shift costs so that they can avoid making the tough decisions. It's a cop-out.

New Jersey currently faces a $1 billion shortfall, and the sad fact is that this plan will continue to saddle these same municipalities with a larger debt down the road; it simply passes the buck and shifts the decisionmaking on to others.

Corzine Spreading The Patronage Around

Gov. Jon Corzine has just a couple weeks left in his term of office, and he's wasting no time trying to spread the patronage jobs around to his fellow Democrats. Usually, outgoing governors and incoming governors work together to figure out how to dole out those kinds of jobs - judgeships and other political appointees, but Corzine jumped the gun and started pushing his position without consulting incoming governor Chris Christie. Talks between the two camps fell apart, so dozens positions are being filled over Christie's objections.

Only minutes after Corzine and Christie parted company at the Newark swearing-in ceremony of U.S. Attorney Paul Fishman, Corzine’s office released more than 180 names for direct appointments and nominations to paid and unpaid posts.

The list was heavy with key Democrats, including labor leader Ray Pocino, campaign operative Patricia Mueller and the current and former chiefs of staff to Senate President Richard Codey (D-Essex).

More than four dozen nominations — including to the Sports and Exposition Authority and the Port Authority of New York and New Jersey, key government agencies with large budgets or regulatory authority — must be approved by the state Senate before the current legislative session ends Jan. 12. Christie, however, had previously threatened to use his allies in the state Senate to block as many of the nominations as he can.

The nominations came after two weeks of intense behind-the-scenes negotiations between top aides to Christie and Corzine failed to resolve the impasse. The dispute began when Corzine — without warning to the Christie team — submitted the name of his chief of staff, Ed McBride, for a judgeship in South Jersey. Christie balked and sent word that McBride would face public scorn if Corzine didn’t compromise on other posts.

"He really means what he says. He doesn’t talk in political-speak," Sen. Kevin O’Toole, the Essex County Republican chairman, said Monday night. "There’s some concern that we’re trying to jam every nominee through the pipeline in the last few weeks of a lame, lame-duck session."

Both the Corzine and Christie camps declined to comment Monday night. Earlier Monday, Christie said negotiations were ongoing and he was still hoping for a "successful resolution."

"If I ever got to the point where I felt like that was a lost cause, then you could be sure you would hear from me," Christie said at a news conference in New Brunswick.

While departing governors typically install allies at various state agencies on their way out the door, Corzine’s list is longer because of a backlog in nominations that was already built up before the governor lost his re-election bid.

What was Corzine waiting for in the first place? It is just another symptom of Corzine's dysfunction as governor to avoid doing the state's business and to deal with the financial disaster that is the state budget.

NJ Considers Gay Marriage Legislation

With just a few weeks in Gov. Jon Corzine's term remaining, proponents for a gay marriage bill have little time to act before his successor, Chris Christie takes office. Christie is on the record as opposing the measure and vowed to veto the bill if he crosses his desk. Corzine would sign it into law.

However, it is all but certain that the legislation would make it to the governor's desk. Democrats and Republicans oppose the legislation, including Democrat Paul Sarlo, who heads the Senate Judiciary Committee. The bill has to make it out of committee before the full Senate can vote on the measure.

Though similar legislation died in New York’s senate last week, proponents of gay marriage here think they still have a fighting chance and are focusing their lobbying efforts on senators they believe to be undecided about the issue.

Senate President Richard Codey (D-Essex) said lobbyists have been burning up the phone lines.

"Both sides are working furiously. Legislative offices are extremely busy with phone calls," he said. "Lobbying and lobbying and lobbying."

Advocates for same sex marriage see this as a last stand. In just over a month, Gov.-elect Chris Christie will take office. He has made it clear he will veto any gay marriage legislation that comes to his desk. However, Gov. Jon Corzine says he is prepared to sign it.

Sen. Paul Sarlo (D-Bergen), chair of the judiciary committee, said he would be voting against the legislation (S1967/2978), but he expects it to pass by a narrow margin.

"I’ve fulfilled my commitment and now my next challenge is to run a fair and open hearing. I am not lobbying anybody for their vote. I advise the members to vote their conscience," he said.

Codey said the issue won’t be decided through backroom deals.

"This isn’t about making deals," he said. "This is about your conscience."

I give the gay marriage proposal a 50/50 chance of being approved in the Senate. It will probably get voted out of committee, where people might vote to allow everyone to register their votes, rather than kill it in committee.

The full text of the bill is here. The key provision is as follows:

3. (New section) “Marriage” means the legally recognized union of two consenting persons in a committed relationship. Whenever the term “marriage” occurs or the term “man,” “woman,” “husband” or “wife” occurs in the context of marriage or any reference is made thereto in any law, statute, rule, regulation or order, the same shall be deemed to mean or refer to the union of two persons pursuant to this amendatory and supplementary act.

4. (New section) It is the intent of the Legislature that this amendatory and supplementary act be interpreted consistently with the guarantees of the First Amendment to the United States Constitution and of Article I, paragraph 4 of the New Jersey Constitution.

Marriage would no longer be defined strictly as between a man and woman, but rather between two consenting adults. It would supersede the civil union legislation passed several years ago, and other legislative changes would incorporate the new definition into relevant statutes.

States Waited Until After Election Day To Deal With Budget Mess

If you want an example of how feckless and irresponsible the so-called fiscal wizard Jon Corzine was, all you need to know is that the state is now going to deal with its budget disaster by contemplating cuts to attempt to balance the budget.

Any reasonable observer could have told you that the state's budget was a disaster despite protestations that Corzine cut the budget this year to reflect the economic woes facing the state.

It was a lie; he and the Democrats used stimulus money to maintain the state budget at the rates from last year, and there was no way that tax revenues would match projections given the recession and declining revenues that were expected.

Corzine couldn't address these cuts before the election because it would have been politically disastrous, but it shows just how the poisonous political environment trumps fiscal responsibility. The need to be reelected trumps doing the right thing.

A similar situation awaits in New York, where Gov. Paterson has been warning of a dire budget deficit that now exceeds $3 billion and the state's emergency reserve fund is pretty much tapped out. And as bad as Paterson says things are, Comptroller Tom DiNapoli says that they're even worse. The one thing that the state must do, Democrats will fight every step of the way. They will not cut state spending, even though that is the root of the problem. Tax revenues simply are not supporting this level of spending - and they haven't for years.

In fact, the high taxes in New York chases away the tax base, leaving fewer people around to support the state spending, increaseing the tax burden on those who remain.

Instead of keeping spending at reasonable levels, New York increased this year's budget significantly over last year's budget, creating a huge budget hole that can't easily be plugged because Albany made too many promises to too many people and now have to axe programs all over the place.

New Jersey's Budget Blowout

Despite all the protestations by outgoing Gov. Jon Corzine and legislators, the state remains in dire fiscal shape precisely because the Democrats in Trenton have studiously avoided having to make any tough decisions to curb the size of the state government and state spending.

The state now faces a $1 billion deficit, which is hundreds of millions above the figure thrown out just this week.

For months, Governor Corzine has been hinting at the need for such cuts as New Jersey grapples with the fallout from the deepest economic crisis since the Great Depression. Officials previously acknowledged a deficit of at least $8 billion for fiscal year 2011 and $190 million for this fiscal year. The depth of the state’s current shortfall was not revealed until Wednesday.

“It is going to be a gut-wrenching experience,” said Bill Dressel, executive director of the New Jersey League of Municipalities.

The crunch has already led to a disagreement with Governor-elect Chris Christie, who has called for spending freezes. On Tuesday, the two men clashed over emergency funding for food banks and soup kitchens.

A Corzine spokesman on Wednesday said the governor still wants to seek help for hungry and needy residents.

“During these tough national economic times, many families are struggling to put food on the table and heat their homes,” spokesman Robert Corrales said in a statement.

Corrales directed any questions about the state’s budget deficit to the Department of Treasury.

Through October, the state took in $412 million less than expected in income, sales and, most notably, corporate business taxes, according to a report the state Treasurer released Wednesday.

All the budget projections were wrong, and off by a wide margin. State spending remains out of control and despite the federal stimulus which masked the exorbitant state spending, the state still faces a gaping budget hole.

The fact that Corzine hinted at these problems - and did nothing - shows just how dysfunctional Trenton is and how feckless the Democrats have been. It also shows why Corzine was booted. Instead of showing leadership and curbing state spending to bring it in line with revenues, he did nothing. He only hinted at the problem, even as it unfolded in worse shape.

Moreover, it's not like you couldn't see this coming. The state economy has been in shambles and there was no sign of an economic recovery to justify the state spending and revenue projections. That too is on Corzine and the Democrats.

It will be up to incoming governor Chris Christie to fix this mess, because Corzine has been incapable of taking any steps to rein in spending.

Lame Duck Corzine Finally Takes Action

The lame duck Governor of New Jersey, Jon Corzine may have finally done something fiscally responsible for a change. He's called for a freeze in $400 million in spending that the state simply doesn't have. I guess we should be thankful for token measures and ignore the fact that the state budget passed for FY2009-2010 should never have included that spending in the first place, and that last year's budget (FY2008-2009) should have been vastly scaled back because of all the warning signs about the slowdown in the economy.The latest round of cuts would not have been necessary, or could have been scaled back had the state budget been much more realistic in the first place.

Governor Corzine is preparing $400 million in budget cuts and wants legislators to shelve any new spending measures during their upcoming lame duck session, all to offset revenue losses blamed on the poor economy.

A hiring freeze and travel restrictions will also remain in place as revenue collections continue to come in below original budget projections, the governor said Thursday.

"My administration will continue to live up to our responsibility to maintain a fiscally balanced budget during the next two months," said Corzine, who lost Tuesday’s election to Republican Chris Christie. "These cuts will be tough but necessary choices that need to be addressed now."

Last month, state Treasurer David Rousseau said revenue collections for the first three months of the budget year that began in July 2009 were off by $190 million, or about 3 percent.

Corzine, in response, said workforce reductions, a new employee pharmacy benefits program and debt refinancing were already generating savings during the first quarter. But he also asked department heads to identify $200 million in possible cuts that could be enacted on Dec. 1.

The governor said revenue collections in October were also off, and he called for up to $400 million in cuts to be ready by Dec. 1.

Meanwhile, the NY Times is operating as the excuse factory for Corzine's loss in the election, claiming that Corzine was aloof and unlucky. Sorry, but the Times can't make excuses for Corzine proffering a tax and spend plan that raised sales taxes to cover a property tax rebate only to sharply curtail the rebate limiting its effect on hundreds of thousands of homeowners throughout the state (and Corzine actually called for the elimination of the rebate during the budget negotiations). No, luck has nothing to do with Corzine's situation. Corzine failed to bring the state's spending in line with revenues. He did nothing to reduce state spending, and instead oversaw an increase in state spending at both the state level and watched as local municipalities continued to raise property taxes through loopholes he allowed in the property tax scheme he proffered. The state regularly rubber stamped increases above and beyond the 4% "cap" he put in place, making the cap a symbolic gesture. A hard cap would have forced municipalities to make hard decisions that they've refused to make for years; just as surely as the state had refused to make hard decisions on funding of programs that were unjustified or didn't work to achieve the goals anticipated. The stimulus funding granted the state papered over the inability of the state to control its spending.

Taxpayers saw through all this when they sent Corzine packing.

Now, Republican Chris Christie will have to do more than talk to get the state out of this fiscal black hole. He's going to have to put teeth into property tax reform and control profligate state spending.