Jon Corzine 1 After nearly three decades with the investment firm Goldman Sachs, where he served as co- chair and co-CEO, Jon Corzine was elected to the U.S. Senate for New Jersey in November 2000. The former Wall Street chief executive offers a firsthand account of the 1998 collapse of giant Long-Term Capital Management; speaks to the need for international institutions on political, financial, and humanitarian grounds; and appraises the upside and downside of global interconnectedness. Interview conducted in 2002 Changing Perspectives, from Wall Street to Washington INTERVIEWER: What's the big change in perspective that you've noticed finding yourself in Washington after being on Wall Street, particularly as it relates to global economic issues? JON CORZINE: Well, you have a very domestic focus as a politician, as a senator—not that you don't consider global concerns, but my constituency is the 8.5 million people in New Jersey as a representation of the needs of the country. The specific concerns are making sure that the interests of New Jersey are represented well, so you tend to narrow down and work on specific issues. Yesterday we passed Brownfields Legislation in the Senate, [legislation focused on the revitalization of brownfields, distressed or neglected parcels of land in American cities]. The arguments one put together there wouldn't encompass how it might impact a global economy, but it has a lot to do with what it will do in [New Jersey cities] Camden and Newark for urban revitalization and what impact it might have in Hunterdon County, which is one of our western counties where there's still some open space, and how we are going to manage sprawl issues in our state. So you tend to narrow your perspective down to how it works at the local level, at a very personal level, to our voters and constituents. INTERVIEWER: What had attracted you to Wall Street originally? JON CORZINE: Well, it's more happenstance, serendipitous, than it was a plan. When I came out of the military, I started a family, and I needed a job. I had always enjoyed studying economics. I went to night school at the University of Chicago. The core curriculum was Jon Corzine 2 heavily finance-oriented, and I grew to like what I was doing, and I thought that being a bond trader, if you will, would bring together all those things that I was learning in school, but also my interest in current events and how things fit in the cloth of a society. And it actually was true: You were constantly looking for the marginal issue that was going to move markets as a bond trader. It tended to be more macroeconomic, and I liked it. I got a job at Goldman Sachs, got lucky, did pretty well, and it kept me focused on things that I liked. You know, you're just as interested in staying up on what was going on in the world in this position, being a bond trader, as you are in almost anything I can imagine. Whether interest rates are going up or down, and what's driving them, gets at core economic issues; gets at what the Federal Reserve is doing; gets at what's going on in other parts of the world—the globalization issue again. And I lived in a part of history when we went from having a U.S. financial market that was very isolated and internally focused to truly globalized and integrated. You know, we started those processes by getting up in the middle of the night with phone calls and then staying up all night, and pretty soon you were starting to open offices in all parts of the world, and you had trading desks that were no longer just in New York, but they were everywhere. So you had to have a perspective on the world, everywhere, and it was an extraordinary time, particularly in the '80s, as the U.S. Treasury searched for places to finance its debt. And again, that was where I built my career, and it was an extraordinary time to be involved in Wall Street. INTERVIEWER: What was driving that expansion? JON CORZINE: Oh, it was the deficit funding in the U.S. There was no question about it. We went from $20 billion deficits in the '70s, which everybody thought was crisis, to $300 billion deficits at different times. ... So [the expansion came out of] both the heavy push of deficit funding, financing by the federal government here in the United States, and this whole interconnectedness that was coming about, which is the globalization issue. There's transfer of information, the application of things that worked in one part of the world to other parts of the world, telecommunications, the application of technology, which really just brought all this stuff together. Jon Corzine 3 The Lure of Emerging Markets INTERVIEWER: In the early days, "emerging markets" was this great buzz phrase. What was going on there? What was the attraction? JON CORZINE: Well, I think this is just the application of the techniques that worked in one part of finance and in one part of the world being spread to other areas so that you could search for profits, but also search for new places for both distribution and accumulation of assets. This was the entrepreneurial march that I think was a good thing for the most part—not always, because the absolute free flow of capital can sometimes lead to some problems, but it also was raising the standard of living. There was a demand for the ability to raise capital on the parts of the emerging and developing countries; there was a desire on the part of the entrepreneurs to participate in that process if there was a profit opportunity that was seen. Those things came together through the application of financial techniques to those worlds, and that's how you've ended up at least with the marketplace for emerging markets, and on balance, I'm a believer that it's good, although there were fits and starts in the adjustment process from one thing to another that were sometimes pretty harsh. INTERVIEWER: What are some of those fits and starts? JON CORZINE: Well, you know, capital comes in, and then it decides it doesn't want to be there, and you get on a train of building up an infrastructure, having people commit their lives to certain activities, and all of a sudden the tide goes out, and you're standing there, or the countries are standing there, without the ability to utilize it, and one wonders whether the economic investment was good. Now that's describing [the fits and starts] in the most stark terms, when, in fact, I think not everything does leave. When capital flows, currency crises occur. I think what happens is that probably [you end up] a little bit better off on infrastructure and development of [better ways to] allocate capital in those countries than would otherwise have been the case, but what we need to do is have some ability to have, not restrictions, but a little more responsibility for the adjustment process than sometimes is the case when traders decide they want to take their capital home all at once. Jon Corzine 4 Financial Crisis and Contagion in Asia INTERVIEWER: You heard a lot of talk in the early '90s about the Pacific century and the promise of Asia and the Asian tigers. Did you buy into that excitement? What was going on? JON CORZINE: Well, when I last left Goldman Sachs, I'd made well over 100 trips to Asia in the decade of 1988 to 1998, and it was an enormously invigorating environment. It's one that I think really does hold great promise for our globe. There are truly rising standards of living going on in China and India and other places, [though they still have a] long, long way to go. People want instant gratification on this, but the difference between traveling to Beijing in the mid-80s and today is a pretty remarkable transition. It's the same for lots of those places around Asia, and I think that there has been real wealth created. I think there has been real uplift of the general population, because you've taken what's good in other parts of the world and applied it there. A whole host of fields, from telecommunications to energy to financial services, really lifted up those societies, and I think we're on track to see them continue to grow. The educational level's rising; skill sets for people [are] going up a lot. It doesn't mean ... that everything is perfect. There are still people that are not participating. Public policy needs to address those issues in those countries. I think we need to be sympathetic. The whole debate about debt forgiveness and issues like that I think are legitimate issues for concern and support from the developed world, but things are better today than they were certainly when I started traveling to Asia. INTERVIEWER: Let's talk a bit about contagion of crisis, starting with Thailand. What was your first sense of a problem there? JON CORZINE: It was generally some guy calling me up at midnight saying, "You know, things aren't going so well here, and we've got this problem, and we think this company is going under, and we're not sure if somebody's going to fulfill their obligations on a currency contract." When that starts happening three or four times a week, you get the idea that maybe there's a real problem.