CHICAGO — When it comes to rail traffic, Chicago is America’s speed bump.
Shippers complain that a load of freight can make its way from Los Angeles to Chicago in 48 hours, then take 30 hours to travel across the city. A recent trainload of sulfur took some 27 hours to pass through Chicago — an average speed of 1.13 miles per hour, or about a quarter the pace of many electric wheelchairs.
With freight volume in the United States expected to grow by more than 80 percent in the next 20 years, delays are projected to only get worse.
The underlying reasons for this sprawling traffic jam are complex, involving history, economics and a nation’s disinclination to improve its roads, bridges and rails.
Six of the nation’s seven biggest railroads pass through the city, a testament to Chicago’s economic might when the rail lines were laid from the 1800s on. Today, a quarter of all rail traffic in the nation touches Chicago. Nearly half of what is known as intermodal rail traffic, the big steel boxes that can be carried aboard ships, trains or trucks, roll by or through this city.
The slowdown involves more than freight. The other day, William C. Thompson, a project manager for the Association of American Railroads, stood next to a crossroads of steel in the Englewood neighborhood pointing to a web of tracks used by freight trains and Amtrak passenger trains that intersected tracks for Metra, Chicago’s commuter rail. The commuter trains get to go first, he said, and so “Amtrak tells me they have more delays here than anywhere else in the system.”
More delays than anywhere else in the Chicago area? No, he said. “In the entire United States.”
Now, federal, state, local and industry officials are completing the early stages of a $3.2 billion project to untangle Chicago’s rail system — not just for its residents, who suffer commuter train delays and long waits in their cars at grade crossings, but for the rest of the nation as well.
The program, called Create (an acronym for Chicago Region Environmental and Transportation Efficiency Program), is intended to replace 25 rail intersections with overpasses and underpasses that will smooth the flow of traffic for the 1,300 freight and passenger trains that muscle through the city each day, and to separate tracks now shared by freight and passenger trains at critical spots. Fifty miles of new track will link yards and create a second east-west route across the city, building redundancy into the overburdened system.
Fourteen of the 70 projects have been completed so far, and 12 more are under way, including the $140 million “Englewood flyover,” or overpass.
While much of the country’s attention in transportation issues is focused on high-speed rail projects trumpeted by the Obama administration, Create is largely about bringing old-fashioned low-speed rail up to modern standards. Innovative financing combines federal, state and private money from various programs, including the federal stimulus packages. Create even uses some funds tied to high-speed rail, since many of the projects are being designed to accommodate those lines in the future.
One of the biggest holdups for freight traffic is that Chicago’s crowded rails must also get hundreds of thousands of commuters to work and home mornings and evenings, and so by an agreement known as the Chicago Protocol, the shared tracks and intersections belong to passenger rail during rush hours.
The progress of a few recent trains as measured by the railroads shows how the delays occur. Among them was a coal train traveling 1,100 miles east from the Powder River Basin in Wyoming.
The train reached Chicago in 60 hours; its average speed, with delays for traffic control and a delivery schedule on the first leg, was 18 miles per hour. Within the “corral” of the greater Chicago area, the average speed dropped to 3.9 miles per hour, the pace of a rapid walk. It took more than 10 hours to move the 40 miles across the city. It had to stop completely on the outskirts of town during commuter rush hours and wait its turn at “interlockings” — go-slow rail intersections like the one at Englewood. Once outside Chicago, the train’s average leapt to 36 miles per hour.
Some of the causes of delay might have seemed outdated in the 20th century, much less the 21st, like manual switches that engineers have to throw after their trains have passed. Create is replacing them with electronic switches and online traffic control networks, but until then engineers at some points have to get out of their cabins, walk the length of the train back to the switch — a mile or more — operate the switch, and then trudge back to their place at the head of the train before setting out again.
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Chicago had lived with its rail anachronisms and idiosyncrasies for decades, but everything fell apart in a 1999 blizzard that paralyzed the city’s rails and backed up train traffic across the United States for months.
“The traffic just kept coming and coming and coming,” said David Grewe, a supervisor for Union Pacific Railroad. “We basically waited for the spring thaw.”
The resulting plan to fix its rail problems started with efforts to reduce delays by improving coordination among the six freight rail companies, an effort that includes Mr. Grewe, as well as Metra and Amtrak. “You would have thought that coordination would have taken place in the past,” Mr. Grewe said. “Unfortunately, it didn’t.”
Mr. Thompson, the rail association’s program manager for Create, said that building during a recession had produced a bonus, as construction companies eager to get the work have come in under budget on every project. “It’s a very good time to be building infrastructure,” he said.
With more than a dozen of the smaller projects in place, rail officials say they have already seen some reduction in delays, said Joe Shachter, director of public and intermodal transportation for the Illinois Department of Transportation, with bigger improvements to come. “The next two or three years in particular we think are going to show great advances,” he said.
But the full benefits will be felt only if all of the projects can be completed, Mr. Thompson said: a knot of interrelated problems requires a network of solutions.
And there lies a potentially larger problem than anything in the steel rails that snake across the city. While some of the financing for Create has come from private industry and state bonds, further progress depends almost entirely on the ability of Congress to pass transportation legislation. That legislation has historically been passed in a bipartisan manner. But Congress, eager to squeeze the budget and in continual disagreement about the nation’s priorities, has found itself repeatedly at an impasse over the current transportation bill.
To Brian Imus, staff director of Illinois PIRG, a consumer group, “it seems like as much gridlock as we’ve got with our trains, it’s even worse in Washington, D.C.”
Source: By Paul R. La Monica @lamonicabuzz February 7, 2012: 12:46 PM ET
Source: NY Times by By DONALD G. McNEIL Jr.
The Chinese drug artemisinin has been hailed as one of the greatest advances in fighting malaria, the scourge of the tropics, since the discovery of quinine centuries ago.
The Chinese drug artemisinin has been hailed as one of the greatest advances in fighting malaria, the scourge of the tropics, since the discovery of quinine centuries ago.
Luigi Rignanese
LATE BLOOMER Sweet wormwood provides artemisinin, discovered decades ago in China.
Artemisinin’s discovery is being talked about as a candidate for a Nobel Prize in Medicine. Millions of American taxpayer dollars are spent on it for Africa every year.
But few people realize that in one of the paradoxes of history, the drug was discovered thanks to Mao Zedong, who was acting to help the North Vietnamese in their jungle war against the Americans. Or that it languished for 30 years thanks to China’s isolation and the indifference of Western donors, health agencies and drug companies.
Now that story is coming out. But as happens so often in science, versions vary, and multiple contributors are fighting over the laurels. That became particularly clear in September, when one of the Lasker Awards — sometimes called the “American Nobels” — went to a single one of the hundreds of Chinese scientists once engaged in the development of the drug.
Mao’s role was simple.
In the 1960s, he got an appeal from North Vietnam: Its fighters were dying because local malaria had become resistant to all known drugs. He ordered his top scientists to help.
But it wasn’t easy. The Cultural Revolution was reeling out of control, and intellectuals, including scientists, were being publicly humiliated, forced to labor on collective farms or even driven to suicide. However, because the order came from Mao himself and he put the army in charge, the project was sheltered. Over the next 14 years, 500 scientists from 60 military and civilian institutes flocked to it.
Meanwhile, thousands of American soldiers in Vietnam were also getting malaria, and the Walter Reed Army Institute of Research began its own drug hunt. That effort ultimately produced mefloquine, later sold under the brand name Lariam.
While powerful, mefloquine has serious drawbacks, including nightmares and paranoia. In 2003, dozens of American Marines in Liberia got malaria after refusing to take pills because of military scuttlebutt that several Special Forces soldiers who killed their wives after returning home from Afghanistan in 2002 had been driven insane by the drug.
China’s effort formally began at a meeting on May 23, 1967, and was code-named Project 523, for the date.
Researchers pursued two paths. One group screened 40,000 known chemicals. The second searched the traditional medicine literature and sent envoys into rural villages to ask herbal healers for their secret fever cures.
One herb, qinghao, was mentioned on tomb carvings as far back as 168 B.C. and praised on medical scrolls through the centuries, up to the 1798 Book of Seasonal Fevers. Rural healers identified qinghao as what the West calls Artemisia annua, or sweet wormwood, a spiky-leafed weed with yellow flowers.
In the 1950s, officials in parts of rural China had fought malaria outbreaks with qinghao tea, but investigating it scientifically was new. It also had at least nine rivals from traditional medicine with some anti-malarial effects, including a pepper.
In the lab, qinghao extracts killed malaria parasites in mice. Researchers tried to find exactly which chemical worked, which plants had the most, whether it could cross the blood-brain barrier to fight cerebral malaria, and whether it worked in oral, intravenous and suppository forms.
Outmoded equipment slowed research. But by the 1970s it was known that the lethal chemical, first called qinghaosu and now artemisinin, had a structure never seen before in nature: In chemical terms, it is a sesquiterpene lactone with a peroxide bridge. Trials in 2,000 patients showed that it killed parasites remarkably rapidly.
However, the body eliminated it so fast that any parasites it missed made a comeback. So scientists began mixing it with slower but more persistent drugs, creating what is now called artemisinin combination therapy. (One new combination includes mefloquine.)
A 2006 history of the project by Zhang Jianfang, its former deputy director, contains some gripping details: petty disputes between rivals, Cultural Revolution street fighting that forced one laboratory into a basement, project doctors’ living on brown rice and vegetables as they did clinical trials in remote villages in China’s tropical southern mountains, and other doctors’ hiking the Ho Chi Minh Trail with the Vietcong.
Mao died in 1976; Project 523 was officially disbanded in 1981, though clinical work continued.
In 1979, Dr. Keith Arnold, a malaria researcher in Hong Kong who had helped the Army develop mefloquine, wangled his way into China, hoping to test his drug there. He met Dr. Li Guoqiao, who was testing artemisinin variants. They decided to try head-to-head trials, and the Chinese mystery drug beat his, Dr. Arnold said.
Soon, World Health Organization scientists asked for articles from China’s medical journals, the first of which had been published in 1977, in response to reports that a Yugoslav chemist was experimenting with wormwood.
EARLY CURE An illustration from the 1941 Bulletin of the History of Medicine depicted the idea that quinine’s source, the cinchona tree, was named for a countess in Peru
In 1982, The Lancet had an article by Chinese researchers. It won a prize, but the check, in British pounds, could not be cashed in China.
Shortly thereafter, Dr. Arnold said, Walter Reed scientists found wormwood growing on the banks of the Potomac and extracted artemisinin. Nonetheless, the drug languished. The W.H.O. did not endorse it until 2000, and it was not widely available until 2006.
The reasons for that delay are disputed. China was in political disarray. Different labs in and outside China were working on derivatives. Patent law had vanished under communism, and China never took out Western patents, so there was no way a major drug company could get a monopoly and make big profits. Malaria was a disease of the poor, and today’s big donor funds did not exist.
Aid agencies could not buy drugs that were not W.H.O.-approved. For years, Dr. Arnold said, he tried to get permission for his Chinese collaborators to do clinical trials in Thailand and Vietnam, but the W.H.O. stalled. (As a United Nations agency, it is rarely bold, but the 1990s were a decade of particularly low morale and constant infighting.)
As nearly one million African children a year died, Dr. Arnold denounced its indecisiveness as “genocidal.”
The American military stuck with mefloquine, despite its expense. As late as 2002, as Doctors Without Borders clamored for artemisinin, an adviser to the United States Agency for International Development dismissed it in an interview with The New York Times as “not ready for prime time” and defended chloroquine and other old, cheap drugs even though resistance to them was widespread.
A Swiss company, Novartis, finally broke the logjam. It bought a new Chinese patent on a mix of artemether, an artemisinin derivative, and lumefantrine, another Chinese drug, and took out Western patents, planning to sell it under the name Riamet at high prices to tourists and militaries; in 2001, it agreed to sell it nearly at cost to the W.H.O. under the name Coartem.
The money to buy the drug on a large scale became available with the creation of the Global Fund to Fight AIDS, Tuberculosis and Malaria in 2002 and the Bush administration’s introduction of the President’s Malaria Initiative in 2005. Now, about 150 million doses of several combinations are bought for poor countries each year.
With that victory, surviving Project 523 scientists and some outsiders began vying for credit. In 1996, a Hong Kong science foundation recognized 10 team leaders. In 2009, Zhou Yiqing got the European Patent Office’s “Inventors of the Year” award for Coartem.
In September, the $250,000 Lasker Award for clinical medical research was given to Dr. Tu Youyou, former chief of the Institute of Chinese Materia Medica in Beijing. The Lasker committee named her “the discoverer of artemisinin.”
Some Chinese and Western malariologists were outraged.
Dr. Nicholas J. White, a prominent Oxford malaria researcher, said it was “not fair to credit this discovery to one individual”; he named others he considered equally deserving, including the clinical trial leader, Dr. Li, and a chemist, Li Ying.
Dr. Arnold, whose work with Dr. Li was mentioned in the Lasker citation, agreed. Richard K. Haynes, a malaria researcher and historian at the University of Science and Technology in Hong Kong, called naming one inventor “a travesty.”
The Lasker Foundation declined to comment, other than to note that Dr. Tu’s citation mentioned that Project 523 was a large collaborative effort.
In an interview before the ceremony, Dr. Tu, 81, argued that she deserved it because her team had been the first to isolate qinghao’s active ingredient while other teams worked on the wrong plants.
Also, after rereading a manuscript by Ge Hong, a fourth-century healer, prescribing qinghao steeped in cold water for fever, she realized that boiling, the typical extraction method, was destroying the active ingredient. She switched to ether, and qinghao became the first plant extract 100 percent effective at killing malaria in mice.
And before human testing began, Dr. Tu said, she and two colleagues took it themselves to make sure it was not toxic.
Before the West even heard of the drug, she said, she was one of the four anonymous authors of the initial 1977 paper, and in 1978, she was chosen to accept the Chinese government’s overall award to Project 523.
However difficult winnowing the field would prove, the Nobel Prize committee would be forced to do it anyway. The Nobel rules specify no more than three winners. And no posthumous prizes, either — meaning Mao would be out of the question.
Source: NY Times By ANDREW E. KRAMER
Editor's note: Felipe Fernandez-Armesto is William P. Reynolds Professor of History at the University of Notre Dame and the author of many books, including "1492: The Year the World Began" and "The World: A History."
(CNN) -- Until 2011, we were in a Rip Van Winkle-world. Events unfolded so fast that every morning, we seemed to wake up in circumstances unrecognizably transformed from those of the previous night. Yet this year has broken the mold. Nothing happened: certainly, nothing worthy of record by an historian like me.
You can imagine the almanac-writers' dilemma as they prepare copy for New Year's Eve, struggling to make the year seem memorable. They'll headline Osama bin Laden's death, but he was a has-been who had ceased to influence history and whose death can make no difference to our world except by adding one more item to anti-Americans' already tedious list of grievances.
Newspapers will parade pictures of the Arab Spring, which dethroned Tweedle-dum in favor of Tweedle-dee. Recycled photo montages will revive the embarrassment of an expensive wedding in London, in which a prince of feeble attainments played a bit part in a show dominated by trash celebrities. The death of Kim Jong Il will get little coverage -- partly because few good pictures will be available, partly because it really doesn't matter. The Durban talks on climate change hardly merit a mention: They confirmed not only that environmental change is now out of human control but also that no one is prepared to make real, urgent effort to try to do anything about it.
Felipe Fernandez-Armesto
The U.S. "drawdown" from Iraq may get some deserved applause, but it has come too late to make much difference to the long-term misfortunes of a war that was worse than a crime, because it was also a mistake. Pundits will reissue dire pronouncements about the European debt crisis, but it already looks as if I was right, when the crisis broke, to predict in British and Spanish media that the euro will emerge barely scathed, with the EU, if anything, marginally strengthened.
Politicians have supplied some real-life comic opera to enliven the generally cheerless, pointless record. Silvio Berlusconi added "bumpa-bumpa" to the world's lexicon. Nicolas Sarkozy entertained us with his impersonation of the gait and patience of a Gallic cockerel. Jacques Chirac devised amusing excuses to escape jail.
Politicians' posturings reached new heights of self-ridicule when Hugo Chávez, a noisy mountebank, whose gestures always seem to have the impact of a feebly flung custard pie, called President Obama a clown. The U.S. congressional impasse did only modest harm to America but made the country a world-wide laughing-stock.
The inane antics of Republican presidential candidates brought smiles to the faces of U.S. recession victims. Rick Perry couldn't remember which departments he wanted to abolish. Herman Cain revealed unexpected depths in the sex life of a pizza guy. Even Ron Paul and Newt Gingrich became funny in a desperate sort of way when Republican voters turned to the unelectable twins in revulsion from all the other options. But the candidates' parade seemed mainly to show the poverty of democracy and the shallowness of voters' morals. Members of the debate audiences bayed for the blood of death-row inmates and uninsured hospital patients. State legislatures courted the votes of the hateful and resentful by victimizing poor immigrants and their innocent children.
2011 ought to have been a great year. Legislation could have unlocked the bank vaults and reversed recession. But nothing much happened. Punishment could have made an example of the guilty men of the global economic crisis, but the fat cats have gone on gorging.
Action could have gutted corruption out of the U.S. political system -- but the 2012 election will be like all the others, bought by millions of dollars, abandoned by millions of voters. Iran could have rejoined civilization, but, instead, the irrational alienation of Iranians has continued. Imaginative initiatives could have helped to reverse the clash of civilizations, but inter-communal violence has gone on accumulating. I relish unmemorable years: They make it easier for me to update my textbook on the history of the world. They absolve me from further work. But, on the scale of those of 2011, missed opportunities are bad for all of us.
The year's non-events have, at least, taught us two truths. First, the global political system is sclerotic. The inertia of the U.S. government, with decision-making deadlocked and almost every program frozen -- the promising and menacing alike -- seems representative of a world baffled into pusillanimity by the scale of its problems, while the feebleness of the EU's response to the financial crisis has shown the same sort of freeze-framing, in a system too clogged with complexity to function.
Second, 2011, like other unremarkable years, has confirmed the already dominant features of the history of our day: intractable economic stagnation, moral and intellectual torpor, tacky culture, environmental degradation. We can congratulate ourselves, as we head into 2012, only on escaping the infamous old Chinese curse: We do not live in interesting times.
Soon after taking the reins of MF Global in 2010, Jon S. Corzine visited the Wall Street firm’s Chicago offices for the first time, greeting the brokers, analysts and sales staff there
One broker, Cy Monley, caught Mr. Corzine’s eye. Unknown to MF Global’s top management in New York, the employee, whose job was to match buyers and sellers in energy derivatives, was also trading a small account on the side, using the firm’s capital.
“How are you making money on side bets? What else are you guys doing to make money here?” Mr. Corzine asked enthusiastically, his eyes widening, the broker recalled. The new chief executive grabbed a seat and spent an hour questioning Mr. Monley as other top executives from New York hovered impatiently nearby.
Although Mr. Corzine had been a United States senator, governor of New Jersey, co-head of
Goldman Sachs and a confidant of leaders in Washington and Wall Street, he was at heart a trader, willing to gamble for a rich payoff.
Dozens of interviews reveal that Mr. Corzine played a much larger, hands-on role in the firm’s high-stakes risk-taking than has previously been known.
An examination of company documents and interviews with regulators, former employees and others close to MF Global portray a chief executive convinced that he could quickly turn the money-losing firm into a miniature Goldman Sachs.
His obsession with trading was apparent to MF Global insiders over his 19-month tenure. Mr. Corzine compulsively traded for the firm on his BlackBerry during meetings, sometimes dashing out to check on the markets. And unusually for a chief executive, he became a core member of the group that traded using the firm’s money. His profits and losses appeared on a separate line in documents with his initials: JSC.
After joining MF Global, Jon S. Corzine invested heavily in the debt of troubled European countries.
Yet few appeared willing to check Mr. Corzine’s trading ambitions.
The review of his tenure also sheds new light on the lack of controls at the firm and the failure of its watchdogs to curb outsize risk-taking. The board, according to former employees, signed off on the European bet multiple times. And for the first time it is now clear that ratings agencies knew the risks for months but, as they did with subprime mortgages, looked the other way until it was too late, underscoring how three years after the financial crisis, little has changed on Wall Street.
MF Global filed for bankruptcy on Oct. 31. As the firm spun out of control, it improperly transferred some customer money on Oct. 21 — days sooner than previously thought, said people briefed on the matter. And investigators are now examining whether MF Global was getting away with such illicit transfers as early as August, one person said, a revelation that would point to wrongdoing even before the firm was struggling to survive.
The consequences of the firm’s collapse have been severe: Some $1 billion in customer money remains missing and thousands of clients, including small farmers in Kansas or hedge funds in Connecticut, still do not have nearly a third of their funds.
Some of that money may never be recovered if, as some regulators now fear, MF Global used it to cover trading losses and replenish overdrawn bank accounts.
The bet on European sovereign debt is not thought to be directly connected to the missing money. But the fears about the firm’s exposure to Europe tipped an anxious market, causing a run on MF Global that regulators suspect led the firm to fight for its life using customer money.
Mr. Corzine has not been accused of any wrongdoing. Through a spokesman, he declined to comment for this article.
While Mr. Corzine apologized for the firm’s collapse when he appeared before the House Agriculture Committee on Thursday, he has continued to defend the European trade, calling it “prudent” at the time.
The European trade was initiated by Mr. Corzine late in the summer of 2010. The new chief executive explained the bet to a small group of top traders, arguing that Europe would not let its brethren default. In just a few months, the trade swelled to $6.3 billion, from $1.5 billion.
Europe’s debt crisis, meanwhile, continued to flare, raising questions about whether some of the Continent’s bigger economies, Spain and Italy, might be ensnared in the maelstrom.
In August, some directors questioned the chief executive, asking him to reduce the size of the position. Mr. Corzine calmly assured them they had little to fear.
“If you want a smaller or different position, maybe you don’t have the right guy here,” he told them, according to a person familiar with the matter. He also told one senior board member that he would “be willing to step down” if they “had lost confidence in me,” Mr. Corzine told Congress on Thursday, although he said he had not intended to make a threat.
The board relented.
A Curious Career Move
Few would have guessed that Mr. Corzine, having led Goldman Sachs before serving in the Senate and as a governor of New Jersey, would wind up the chief executive of a little-known brokerage house.
At Goldman, which he joined in 1975, the young bond trader quickly gained a reputation as someone able to take big risks and generate big profits. Even after ascending to the top of the firm, he kept his own trading account to make bets with the firm’s capital. In 1999, Mr. Corzine was ousted from Goldman amid a power struggle.
By 2010, having suffered a stinging defeat in his bid for re-election as the Democratic governor of New Jersey, Mr. Corzine hoped to resume his career on Wall Street.
A friend, J. Christopher Flowers, one of MF Global’s largest investors, helped him get there. Mr. Corzine and Mr. Flowers worked at Goldman decades ago, and at one point, Mr. Flowers helped manage Mr. Corzine’s vast wealth while he was a senator, according to Congressional records.
Mr. Corzine’s arrival was a coup. MF Global had hired an executive search firm, Westwood Partners, to hunt for a new leader. But some members of the board, including David I. Schamis, who worked for Mr. Flowers, were recruiting Mr. Corzine.
He was a popular manager, former employees say. An avuncular presence with a beard and sweater vest, he had a knack for remembering names. Even in the firm’s final hours, they recall that Mr. Corzine never lost his temper. His work ethic also impressed colleagues. He often started his day with a five-mile run, landing in the office by 6 a.m. and was regularly the last person to leave the office.
His intense routine was on par with his ambitions for the firm. With 15 top executives in the firm’s boardroom on his first day, March 23, 2010, he said, “I think this firm has tremendous potential and I can’t wait to get started,” one person who attended said.
Mr. Corzine faced a steep challenge.
For years, MF Global aligned buyers and sellers of futures contracts for commodities like wheat or metals, and took a small commission along the way. But over the last decade, that business had become endangered. By the time Mr. Corzine arrived, near zero-percent interest rates and paper-thin commissions had led to five consecutive quarters of losses.
Soon after taking the helm, Mr. Corzine oversaw a wave of job cuts and overhauled compensation, moving from steady commissions to salary and discretionary bonuses like the rest of Wall Street.
At the same time, Mr. Corzine filled the ranks with employees from Goldman Sachs and hedge funds like the Soros Fund Management. He recruited Bradley Abelow, a fellow Goldman alumnus and a top aide when he was governor, to be chief operating officer.
Mr. Corzine arrived just as Washington was pressing the big banks to curb their lucrative yet risky businesses. Spotting an opening, he fashioned new trading desks, including one just for mortgage securities and a separate unit to trade using the firm’s own capital, a business known as proprietary trading.
Not to be outdone, Mr. Corzine was the most profitable trader in that team, known as the Principal Strategies Group, according to a person briefed on the matter. Mr. Corzine traded oil, Treasury securities and currencies and earned in excess of $10 million for the firm in 2011, the person said.
Some inside MF Global worried that the expansion of the profitable trading business in New York came at the expense of its futures clearing operation, which was centered in Chicago. To drum up sales, Chicago brokers were pushed to introduce longtime clients to their counterparts in New York, a move that raised tensions.
At times, Mr. Corzine seemed unfamiliar with some aspects of the futures division. In June, speaking at the Sandler O’Neill Financial Services Conference at the St. Regis Hotel in Manhattan, Mr. Corzine stumbled. “Right now, if you thought about MF Global’s retail business, you probably could only think of — ,” he said, then paused to recall the name of the division at MF Global that catered to individual investors.
He leaned over to an aide, who told him it was Lind-Waldock.
‘Chief Risk Officer’
“I consider one of my most important jobs to be chief risk officer of our firm,” Mr. Corzine told that conference.
Yet soon after joining MF Global, Mr. Corzine torpedoed an effort to build a new risk system, a much-needed overhaul, according to former employees. (A person familiar with Mr. Corzine’s thinking said that he saw the need to upgrade, but that the system being proposed was “unduly expensive” and was focused in part on things the firm didn’t trade.)
While risk at the firm had been sharply increased with the bet on European sovereign debt, there was a compelling argument for Mr. Corzine’s strategy.
MF Global had obtained loans to buy debt of Italy, Ireland and other troubled European nations, while simultaneously pledging the bonds as collateral to support the loans. The loans would come due when the bonds matured, which would happen no later than the end of 2012. MF Global, Mr. Corzine reckoned, would profit on the spread between the interest paid on the loans and the coupons earned from the bonds.
But the size of the European position was making the firm’s top risk officers, Michael Roseman and Talha Chaudhry, increasingly uncomfortable by late 2010, according to people familiar with the situation. They pushed Mr. Corzine to seek approval from the board if he wanted to expand it.
Mr. Roseman then gave a PowerPoint presentation for board members, explaining the sovereign debt trade as Mr. Corzine sat a few feet away. The presentation made clear the risks, which hinged on the nations not defaulting or the bonds losing so much value they caused a cash squeeze. The directors approved the increase. Mr. Roseman eventually left the firm.
Within MF Global, Mr. Corzine welcomed discussion about his bet and his reasons for it, though some senior managers said they feared confronting such a prominent figure. Those who did challenge him recall making little progress. One senior trader said that each time he addressed his concerns, the chief executive would nod with understanding but do nothing.
These concerns were only internal at first because, while MF Global had disclosed the existence of the transactions in at least one filing in 2010, it never mentioned the extent to which they were used to finance the purchase of European debt.
The firm bought its European sovereign bonds making use of an arcane transaction known as repurchase-to-maturity. Repo-to-maturity allowed the company to classify the purchase of the bonds as a sale, rather than a risky bet subject to the whims of the market. That called to mind an earlier era of trading when firms used repo-to-maturity to finance the purchase of risk-free assets like United States Treasury securities, Mr. Corzine’s specialty at Goldman many years earlier.
“It’s like a bond trader from 15 years ago went to sleep and suddenly awoke to make these trades,” one regulator who later reviewed the transactions remarked to a colleague.
Eventually, MF Global’s auditor, PricewaterhouseCoopers, asked Mr. Corzine to report the European debt exposure to his investors. He personally met with the accounting firm in December 2010, two people said, and it was agreed that the transactions would be mentioned in a footnote in the firm’s annual report, which was filed on May 20, 2011.
Earlier, one of MF Global’s many regulators noticed something curious. The Financial Industry Regulatory Authority, which helped watch over MF Global’s securities business, noticed a sharp swing in profits in a monthly report the firm filed to regulators. Finra asked MF Global executives about the volatile accounting line but did not get a satisfactory answer, say people familiar with the matter, until the annual report came out weeks later.
When Finra realized what MF Global was doing, it grew concerned. The Wall Street self-regulator told MF Global to set aside enough money in case the trades went bad. But Finra didn’t have the authority to force the firm to do so — that power was in the hands of the Securities and Exchange Commission, whose rule Finra was citing.
Mr. Corzine then personally took the firm’s case to the S.E.C. in mid-August, taking the Delta Shuttle to Washington for a meeting with a top agency official.
The S.E.C. indicated it would side with Finra, but needed a few weeks to make a final determination. In the meantime, MF Global and Finra haggled over the size of the capital cushion: the regulator wanted $200 million set aside, while the firm pushed for a figure closer to $50 million. In late August, Finra won out.
It would be the beginning of the end for MF Global.
The Unwinding
MF Global’s investors may not have been fully informed about the European bet, but the firm’s executives had been explaining the strategy to the ratings agencies for months, according to two people with direct knowledge of the conversations. Indeed, Moody’s Investors Service and Standard & Poor’s had applauded Mr. Corzine’s effort to overhaul the firm, a move that included ratcheting up risk.
“We consider the most recent strategic plan of the new C.E.O. Jon Corzine to be sound,” S.& P. said in 2010, while acknowledging the plan “will incrementally increase the firm’s risk profile.”
But the move by Finra to force the extra capital cushion appeared to only unnerve the ratings agencies when news reports about it emerged in October. A week later, Moody’s cut its rating on MF Global to a notch above junk, pointing to the European debt holdings.
The reversal angered some executives at MF Global, who felt it was disingenuous for the agency to change its mind so suddenly. A spokesman for the ratings agency said, “Moody’s does not refrain from taking rating action when its opinion on the credit risk of an issuer has changed.”
The downgrade sent MF Global into free fall on Oct. 25. Its stock price plunged and trading partners and lenders demanded more capital to continue doing business with the company. At day’s end, rattled employees dialed into a conference call with Mr. Corzine, who tried to be encouraging.
“The sun will come out tomorrow,” he told them, according to one employee.
In truth, the company had just two options: sell itself or unload assets. Mr. Corzine organized two teams. Mr. Abelow, his deputy, began hunting for a buyer and decamped to the 40th floor of the firm’s Midtown Manhattan headquarters. On the 39th floor, where his office was next to the trading floor, Mr. Corzine took charge of selling the assets.
On Friday evening, Oct. 28, regulators and top executives trooped into Mr. Corzine’s office, joining a phone conference with Mary L. Schapiro, chairwoman of the S.E.C. Pictures of Mr. Corzine with Presidents Barack Obama and Bill Clinton sat on shelves near his desk. Towering stacks of paper lined the walls and windowsills of his modest office, partly obscuring the window view.
Dressed in his trademark sweater vest, Mr. Corzine expressed confidence a deal would be reached with one of the potential buyers, which included Interactive Brokers, JPMorgan Chase, the Jefferies Group and the Macquarie Group, according to people briefed on the call.
A deal became crucial as trading partners and lenders circled the firm. LCH.Clearnet, the firm responsible for clearing the vast majority of MF Global’s European sovereign debt trades, was also demanding $200 million to maintain the positions, atop $100 million it had claimed from MF Global earlier in the week, one person briefed on the situation said.
Other people close to the investigation, led by the Commodity Futures Trading Commission’s enforcement division, have said that as the firm rushed to pay off creditors, MF Global dipped again and again into customer funds to meet the demands.
The bidders dropped out one by one, leaving just Interactive Brokers on Sunday, Oct. 30. Mr. Corzine and his team briefed regulators at 2 p.m. saying a sale looked likely to go through. About nine hours later, he got word that more than $950 million in customer funds was missing, making a merger impossible. The day after the bankruptcy, Mr. Corzine sifted through transactions in the hope of locating the missing money, one person said.
Ultimately, the bets Corzine placed wound up better than the firm itself. The European debt trades were profitable, though too late for MF Global.
Before Congress on Thursday, Mr. Corzine continued to emphasize how well his trades held up. “As of today, none of the foreign debt securities that MF Global used,” he said, “has defaulted or been restructured.”
“There actually were no losses.”
Kevin Roose and Lisa Schwartz contributed reporting.
Source: NY Times By JOHN M. BRODER
