In defense of the former CEO of MF Global, he did just what he said he would do: turn MF Global into Goldman Sachs.

Goldman Sachs has operated like a hedge fund for decades. Wrong-way bets on bonds almost destroyed the firm back in 90’s (when it was still a partnership) and right-way bets on the US housing market made it spectacularly profitable in the run-up to the credit crisis. Back in those heady days before Lehman Brothers’ collapse, senior Goldman executives happily took credit for the savvy gambles that made their firm the infallible envy of Wall Street.

What wasn’t widely known at the time, of course, is that Goldman had used the apparatus of its investment bank to manufacture the ability to make these bets; i.e. it had to create mechanisms for suckers to take the other side, suckers like AIG, who also had to be convinced of the wisdom of their own investment.

When those trades went horribly wrong for AIG the natural course of markets would have been bankruptcy and default, and Goldman would have been left holding the bag it had sold. That the bag was full of lead made Goldman’s position (standing on water) untenable, too.  The US government’s decision to honor AIG’s debts to Goldman, 100 cents on the dollar, will go down forever as one of the most remarkable acts of the bailout.

If the government had not intervened, most people agree, Goldman would have collapsed. Just like MF Global. That’s where Corzine’s imitation fell short: nobody bailed out MF.

So, why thank Jon Corzine? Because we all got to see a controlled experiment: MF Global disappeared and, unless you were an employee or a stockholder (or a customer whose money hasn’t been found), it just didn’t matter at all. A nearly billion dollar company with two thousand employees and it just didn’t matter. The whole enterprise existed, really, just for itself.

Poof! It’s gone, and the world goes on. Clients find someone else to trade with, some other firm with interchangeable staff and the same capabilities and expertise and access to markets. There’s so much overcapacity in the industry that the only way for banks to make money is by being hedge funds, too. But when you’re a hedge fund and an investment bank, the temptations are surely too great for society to tolerate without a functional framework for accountability.

Let’s face it: an acceptable business model in modern banking has been to book $5 billion in profits and settle fraud charges 3 years later for $1 billion with the usual proviso, of course, that they “neither admit nor deny guilt.” By then, all the people involved have retired, with their bonuses and without recourse.

Forests have been felled so that banks would comply with Sarbanes-Oxley, but what did that regulatory framework do to protect the financial system? Zip. Have there been any meaningful prosecutions or convictions? We’re all still waiting for a financial system that features accountability, with clawbacks and criminal convictions.

Thank you, Jon Corzine, for highlighting the inherent imbalances that persist, where modern banks are inherently conflicted and their reprobate staff go unpunished for exploiting privileged positions.

(On Monday I’ll be writing about necessary political and regulatory reform.)