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Corzine Didn't Kill MF Global

NEW YORK ( TheStreet) -- The argument that Jon Corzine's hefty risk appetite put MF Global Holdings (MF) on the path to bankruptcy sounds plausible, but it isn't entirely true.

Looking at the firm's financial statements, under Corzine -- the former Goldman Sachs (GS - Get Report) co-head and ex-New Jersey governor -- MF reduced its exposure to foreign government debt while it lowered its leverage, assets and debt. At the same time, MF Global built up its long-term capital and even took leverage to record lows at one point in Corzine's tenure, signaling that he actually was stabilizing the firm.

Jon Corzine

MF Global did have a large proprietary European debt holding, but a key factor to Corzine's strategy likely was extremely low interest rates that ate at a traditional revenue source. MF Global's business model fell victim to ZIRP -- more widely known as the Federal Reserve's "zero interest rate policy" -- which cut the federal funds rate to nearly zero in an effort by the U.S. central bank to spur risk-taking.

So Corzine's failure isn't that he destroyed MF Global -- it's that his strategy simply couldn't save the firm.

MF Global filed for Chapter 11 bankruptcy, listing $39.7 billion in liabilities and $41 billion in assets -- making it the eighth-largest bankruptcy in U.S. history, according to Bankruptcydata.com. Finacial markets tanked, but so far, the bankruptcy hasn't precipitated a Lehman moment .

In the company's filing, MF also listed as many as 50,000 burned creditors with JPMorgan Chase (JPM - Get Report) and Deutsche Bank (DB - Get Report) being the largest. The narrative about the company's demise so far today is as follows: MF Global hired Corzine in March 2010. He then tried to turn the commodity broker firm to an investment bank and took up a giant position in European sovereign debt out of ambition and the recklessness of a bond trader with a fancy for speeding, which brought the firm to its knees and culminated in Monday's bankruptcy filing.

MF Global's problems worsened last week when the New York-based commodities brokerage disclosed it had lost more than $190 million in its most recent quarter and that its exposure to European sovereign debt was $6.3 billion, a larger risk position to the creditworthiness of European governments than better capitalized firms like Morgan Stanley (MS - Get Report).

On the news of the loss, the company's credit ratings were cut to junk by Moody's (MCO - Get Report) and Fitch and its future was jeopardized. The company's stock fell nearly 70% in a week's time, and sale rumors of last-ditch saviors like Interactive Brokers (IBKR - Get Report), Goldman Sachs, State Street (STT - Get Report) and Australia-based Macquarie circulated.

Those rumors weren't realized, and after trading suspensions at the Federal Reserve, and in clearinghouses and exchanges like ICE Trust (ICE - Get Report) and the CME (CME - Get Report), the company had no alternative but to file for bankruptcy.

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