MF Global brokerage goes bankrupt :Excessive leverage and overexposure to European debt seem factors

MF global a U.S. brokerage house headed by Jon Corzine, a former executive with Goldman Sachs, a former U.S.Senator and former Governor of New Jersey has declared bankruptcy in New York, apparently a victim of excessive leverage and over exposure to European debt. The bank, with significant exposure to this , J.P.Morgan Chase claims its exposure is less than 100 million on the 1.2 billion in debt on which  it acted as an agent. MF Global had bet on some 6 billion dollars of European bonds and it was apparently this bet that caused its downfall because rating agencies according to the FT considered this too aggressive.  Lets hope that this is an isolated case because the last thing we need now is more panic in the banking sector. If, in fact, excessive leverage was involved in this bankruptcy it is a sign that further reforms are needed to limit leverage to much more prudent levels.History has taught us that excessive leverage , essentially taking out large  speculative bets with borrowed money is a very risky strategy that sometimes can backfire big time. No one is immune to this kind of outcome, even the most sophisticated of investors as MF Global surely was. The days ahead will reveal if this is just an isolated event or if it has repercussions elsewhere.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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