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Corzine testimony: Once a trader, always a trader

Former MF Global Holdings Ltd. Chairman and Chief Executive Officer Jon Corzine testifies on Capitol Hill in Washington, on Dec. 15, 2011, before the House Financial Services Committee.
AP Photo/Susan Walsh

COMMENTARY Full disclosure: I'm the daughter of a retired stock and options trader; my first job on Wall Street was as a commodity futures and options trader; and my brother in-law, who I set up on a blind date with my sister 22 years ago, was a trader for 25 years. In other words, I understand the psyche of a trader. That's why the MF Global meltdown is so utterly believable - because some traders confuse good luck with skill.

Good traders know that there is often an element of luck that plays into their successes. They also learn to be brutally honest with themselves when they are unlucky. The worst traders I know are those that believe that they know better and can "outsmart" everyone else. I would put Corzine in the bad trader category.

As I write this, the House Committee on Financial Services is conducting the latest round of Corzine grilling, attempting to figure out where hundreds of millions of dollars in MF Global customer money has gone. Does anyone really think lawmakers are going to figure this one out? Surprisingly, the much-loathed regulators are making progress, according to the Commodity Futures Trading Commission's Jill Sommers. She said that they "are far enough along the trail," but now need to find out which "transactions are legitimate and which ones of them are illegitimate."

I know that everyone is focusing on the missing customer funds, which is admittedly awful - as one trader-friend noted, "This has been a very painful and costly lesson in what SIPC covers (hint: not futures)." But I am more entranced by the actions of the trader-in-chief. While Corzine may not know where the customer money is, he is fully aware of the bet he made.

In fact, Corzine walked back into the casino, where he had beaten the house about 20 years ago for Goldman Sachs, and decided that he could do it once again. Somehow he convinced himself that his previous success was due to his great talent, versus being in the right place at the right time. This is the dirty secret of the trading world: The amazing success of the 20 years leading up to 2007 can be attributed more to lucky timing, not phenomenal skill. After all, aren't all the same smart guys and gals in the game now? Why are they having such a hard time making money in today's environment?

When you think that you possess great trading prowess, you make lots of bad decisions. In Corzine's case, that meant that he borrowed money from the casino and decided to play roulette. I know - he didn't even play a game with better odds! Corzine made the bet, lost his shirt and unfortunately, everyone else's in the process.

I spoke to the wonderful Charles Osgood about Corzine--take a listen!

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    Jill Schlesinger, CFP®, is the Emmy-nominated, Business Analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and Chief Investment Officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.