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Jon Corzine Bets MF Global Bond Buyers $3 Million He Won't Be Treasury Secretary

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Seriously, he's taking bets.

Is Jon S. Corzine on the short list to replace Timothy F. Geithner as Treasury secretary?

A preliminary prospectus filed on Tuesday by MF Global, where Mr. Corzine, the former Democratic governor and senator from New Jersey is now chief executive, suggests that just may be a possibility.

MF Global is planning to sell five-year notes on Tuesday with an unusual twist: the notes will pay an extra 1 percent in the interest rate “upon the departure of Mr. Corzine as our full time chief executive officer due to his appointment to a federal position by the President of the United States and confirmation of that appointment by the United States Senate prior to July 1, 2013,” according to the offering. The higher possible rate reflects how important investors consider Mr. Corzine to be to MF’s prospects and pays them taking the risk that he might leave.

Also it reflects information asymmetry! If Corzine were seriously planning to go to Washington wouldn’t MF not offer to pay an extra 100bps on its debt when he leaves?

A bigger puzzle: Corzine has been getting rave reviews from the press and research analysts for transforming MF Global into a more full-service investment bank. But Corzine’s new approach involves taking more risk with MF’s own balance sheet, which equity investors like but which ought to make bondholders nervous. S&P thought so, anyway, when it downgraded MF to BBB- in November:

While we believe that over the longer term this should result in more diversified and better profitability, we also believe that over the near to medium term the implementation of this plan will incrementally increase the firm's risk profile, may disrupt the firm's producers, and will delay its return to profitability and credit metrics more supportive of the 'BBB' rating.

So maybe MF should pay investors more if Corzine stays?