Corzine grilling is political fodder in fight over financial regulations

Jon Corzine’s recent run of appearances before a handful of congressional panels has allowed Republicans to give Democrats a taste of their own medicine.

Where in recent years Democrats have used the financial crisis and the bank bailouts to push for strong financial regulation, Republicans are using Corzine’s testimony of his time as the head of financial firm MF Global to criticize financial regulations they say don’t work and legislation that they want to repeal, like the Sarbanes-Oxley Act and Dodd-Frank reforms.

Over the last several days, members of both parties have grilled Corzine over what happened in the final days of his firm, including what happened to $1.2 billion in customer funds that disappeared.

{mosads}Legislators have said they are dissatisfied with Corzine’s, in the words of Rep. Michael Grimm (R-N.Y.), “evasive” answers to questions.

“I don’t think that a man with such an illustrious resume is in a position to claim ignorance,” Grimm said.

Rep. Randy Neugebauer (R-Texas), who chaired Thursday’s hearing on MF Global by a House Financial Services subcommittee, shared that frustration.

“It doesn’t appear from his recollection that he knew much about what was going on. I think most of us find this pretty hard to believe.”

Congressional Republicans have been quick to downplay any partisan motivation to the grillings, despite the fact that Corzine was once thought to be one of the most powerful Democrats in the country, serving as a top bundler for the Obama administration following stints as a senator and governor representing New Jersey.

And Democrats have shown little interest in protecting one of their own, as members on both sides have expressed outrage and frustration at Corzine and other MF Global executives for their roles in the collapse.

“This is not a Republican versus Democrat [issue],” said Rep. Francisco “Quico” Canseco (R-Texas). “The story of MF Global has nothing to do with partisanship.”

Still, Republican campaign organizations are eager to make hay out of Corzine’s fall from grace. A day after his Thursday hearing, the National Republican Senatorial Committee sent out a fundraising email highlighting a report that Sen. Debbie Stabenow (D-Mich.) had repeatedly asked for Corzine to donate to her reelection campaign. The committee has also called on Stabenow, who chairs the Senate Agriculture Committee that also demanded Corzine testify, to return $4,000 she received in campaign donations from Corzine and his family.

While GOP lawmakers say their motivation for pressing Corzine on MF Global has nothing to do with politics, his high-profile status isn’t unwelcome, given the attention it brings to their arguments.

“It certainly doesn’t hurt the investigation,” Grimm said. 

“Here you have a very high-profile man … who has been hailed as a genius from Wall Street,” said Canseco. “He’s a very high-profile guy, and the failures of these laws and regulations are shouted more loudly [with him getting attention] than Joe Doe and Mary Doe.”

The MF Global collapse, thanks largely to Corzine’s role in it, has flipped on its head the typical political response to a financial calamity. Oftentimes, a major financial collapse is followed shortly thereafter by a push to redo regulations and enhance oversight of the financial sector. The failures of Enron and Worldcom led to Sarbanes-Oxley, which established new accounting requirements for corporations. And the financial crisis that brought down so many firms in the fall of 2008 brought about Dodd-Frank, enacted to prevent a similar meltdown in the future.

“My fear is that Democrats will use this to say we need more regulation,” Grimm said.

But with Corzine in the spotlight, this collapse has given Republicans an opportunity to press their arguments. The hearings have allowed them to criticize financial regulators for failing to sniff out problems at the firm, as well as blast a beefed-up regulatory structure created by Dodd-Frank that still allowed a high-profile and messy collapse to occur.

“What this highlights is that right under the nose of Sarbanes-Oxley, that was passed as a reaction to Enron and Worldcom, and Dodd-Frank, that was passed as a reaction to September 2008, all this overregulation and this happens,” said Canseco, who questioned Corzine at the hearing. “OK guys, where was Dodd-Frank and Sarbanes-Oxley?”

Neugebauer also downplayed any partisan dynamic to the event, but said debate on the collapse does play a role in the continual partisan struggle over how much the financial sector should be regulated.

Rep. Barney Frank (D-Mass.), the ranking member of the full committee, opened the hearing by blasting Republicans for expressing indignation at the collapse while broadly opposing the Dodd-Frank financial reform bill he helped write, which has yet to fully take effect.

Neugebauer readily took the opposite end of the argument, as he contended that a high-profile bankruptcy should not justify a slew of new regulations.

“Let’s don’t just keep adding regulations because the regulators aren’t doing their job,” he said. “You can’t regulate behavior. If a trader like Mr. Corzine’s going to put a bunch of bad trades on, you can’t regulate that.”