Broke broker

THE euro-zone crisis had already brought Dexia, a Franco-Belgian lender, low. This week it claimed its first American scalp. On October 31st, in the biggest collapse of a financial firm since that of Lehman Brothers in 2008, MF Global went bankrupt. Courts in more than half a dozen jurisdictions will be pressed to sort out billions of dollars in claims. Investigators are reportedly searching for hundreds of millions of dollars in missing client funds.

MF's demise comes less than two years after it was intentionally transformed from a dull institutional broker to an ambitious investment bank by its new chief executive, Jon Corzine. A veteran of Goldman Sachs, which he left in 1999 after a palace coup, Mr Corzine turned to politics, winning campaigns to be first a Democratic senator and then governor of New Jersey before being dumped for failing to get to grips with the state's dire finances.

After Mr Corzine took charge of MF Global, its star initially burned bright. In February the New York Federal Reserve Bank admitted the firm into a select club of “primary dealers” in government debt. The risks that it was taking with its own balance-sheet were seen as offsetting a slowdown in its traditional businesses of helping clients make trades.

Mr Corzine's stock rose, too. His position as a conduit between Wall Street and Washington, DC made the prospect of his becoming treasury secretary likely enough—and painful enough—that a special provision was included in MF's August bond issues providing a higher payout if Mr Corzine left for that office.

It is too soon for a definitive autopsy on MF, but excessive leverage and proprietary bets were clearly to blame. The largest of these was a leveraged punt on the bonds of peripheral euro-zone governments, notably Spain and Italy, exceeding $6 billion. In theory, these bets promised large profits at little risk: MF Global revealed the basic components of its European bet in May, prompting no evident concern in markets.

The first serious cracks emerged in September when America's Financial Industry Regulatory Authority, a now-autonomous agency once tied to the major exchanges, told MF to put up more capital. On October 24th Moody's, a ratings agency, downgraded the firm, citing its capital and operating environment. The next day MF disclosed a quarterly loss.

A rout ensued. By the end of the week banks and exchanges had stopped doing business directly with MF. There was little doubt but that an agreement to sell or shore up the firm had to be reached over the weekend. Prospects of a deal, however, disappeared when more than $700m of customer funds could not be found.

Numerous lessons will be drawn from MF's collapse. In its bankruptcy filing, it revealed that it had less than $1 billion in equity supporting more than $40 billion in assets, a staggering level of leverage in an era when financial firms were meant to be ratcheting down risk. That a primary dealer could be so leveraged may well prompt questions about the New York Fed's scrutiny of firms it routinely deals with.

Sorting out creditors' claims will not be easy. Firms listed on the bankruptcy-petition say numbers are either misleading or wrong. In its frantic final days, MF drew down its credit lines, leaving many banks exposed. They, at least, should be first in line among the pre-bankruptcy creditors to be paid. Also among the creditors are several of the most prominent New York law firms. Competitors have been hired to work through the mess.

Whether any part of MF survives is questionable. Good employees will be poached. The protection from creditors afforded by the court means there needn't be an outright dump of assets but very few securities firms ever rebound from bankruptcy. Some, such as Lehman, have had operating segments bought. Others, such as Drexel Burnham, were liquidated. MF is too small to be a test of the government's ability to handle the failure of a financial titan. But a quick death would set a pleasing post-Lehman precedent.