When it comes to shining a light on the cozy relationships between Wall Street and Washington, and how the rich and powerful get access to things the rest of us don’t, there can never be too many juicy examples.

Last month, thanks to Bloomberg Markets magazine, we were treated to the excellent story about how former Treasury Secretary Henry Paulson met with a bunch of bankers and hedge fund managers in New York during the summer of 2008 and shared with them some of his early thinking on the futures of the mortgage behemoths Fannie Mae and Freddie Mac.

Then, last week, Jon Corzine, the former chief executive officer of the defunct MF Global Inc. with a gold-plated resume ― he was also a senior partner of Goldman Sachs Group Inc. and a U.S. senator and governor of New Jersey ― testified before the House Agriculture Committee about his often-successful campaign to thwart the efforts of Washington regulators to enact rules that he and MF Global didn’t like.

The proposed rules that Corzine helped quash would have made the capital markets a safer place for everyone, to say nothing of MF Global’s customers ― who are still wondering what the firm did with $1.2 billion of their money. Bending regulators around Wall Street’s fingers, while not illegal, should make all Americans’ blood boil.

In late 2010, the Commodity Futures Trading Commission ― one of MF Global’s regulators ― proposed changing one of its regulations, known as rule 1.25, to limit the kinds of investments that firms like MF Global could make using their customers’ idle funds, including risky debt of sovereign nations. The rule change would also have prevented MF Global from engaging in so-called repo transactions ― short-term secured financings with institutional investors ― with other Wall Street firms.

Corzine, and other futures brokers, didn’t like the proposed rule changes because they would reduce potential profit. Investing customer money in high-yielding, risky securities such as Spain’s sovereign debt was more profitable than investing in safer U.S. Treasury securities.

Not only did MF Global’s general counsel, Laurie Ferber, write a letter to the CFTC opposing changes to rule 1.25, Corzine also took his case to the commissioners themselves.

On July 20, 2011, Corzine said, he “took part” in a conference call with CFTC Chairman Gary Gensler in which MF Global executives made clear their opposition to any changes in rule 1.25. On the call, Corzine said, he argued that the repo transactions with other broker-dealers should be permitted “because such transactions could be beneficial to” firms like MF Global.

Later that same afternoon, he and Ferber called a CFTC commissioner, Bart Chilton, and reiterated their view that rule 1.25 should be left alone. Corzine met with Gensler in May 2010 and again in December 2010. Gensler gave a guest lecture to Corzine’s class at Princeton University on Nov. 22, 2010. (Disclosure: At Corzine’s request, I spoke to his Princeton class a few weeks before Gensler.) Lo and behold, the CFTC decided not to change rule 1.25.

Until earlier this month, that is ― five weeks after MF Global filed for bankruptcy. The changes enacted to rule 1.25 ― largely barring investments of customer money in the sovereign debt of foreign nations ― is known as the “MF Global Rule.”

Thanks to last week’s hearings, we also know now that Corzine used his Washington connections to try to thwart regulators’ efforts to get MF Global to increase its capital after Corzine’s big bet on European sovereign debt became known. At the beginning of August 2011, Corzine said, he “became aware” that the Financial Industry Regulatory Authority, the securities industry’s self-regulating body, wanted MF Global to increase its capital because of Corzine’s sovereign-debt bet.

On Aug. 15, Corzine went to a meeting at the Securities and Exchange Commission in Washington, where he tried to get the SEC to make Finra back off the idea of forcing MF Global to raise more capital. “We met with Michael Macchiaroli, the associate director in the Division of Trading and Markets, and others from the SEC, and presented our argument that the capital treatment of [MF Global’s bet] involving European sovereign debt securities should not be changed in the way that Finra proposed,” Corzine testified.

But this time the lobbying didn’t work. Finra refused to change its position about MF Global’s need to raise new capital. Corzine, though, kept trying to get the SEC to thwart Finra. “I thereafter made a telephone call to Mr. Macchiaroli who told me, in substance, that there was no further appeal and that MF Global had to comply with Finra’s direction,” Corzine testified.

“He noted, however, that other companies in similar positions had sent letters of objection to the SEC, although he was clear that such a letter would make no difference to Finra’s or the SEC’s position,” Corzine said.

Despite this setback, no one was questioning Corzine’s pull in Washington. In April 2011, he held a fundraiser for President Barack Obama at his Manhattan apartment and he is one of Obama’s biggest bundlers, having cobbled together more than $500,000 from his Wall Street friends.

Such was Corzine’s standing in the capital that when rumors surfaced last summer that Treasury Secretary Timothy Geithner might resign and return to New York to be with his family, Corzine’s name was at or close to the top of the list as a possible replacement. Indeed, as hard as it is to believe now, on Aug. 2, when MF Global issued publicly $325 million in five-year senior notes, it had to promise investors that the interest rate paid on their bonds would be increased by 100 basis points should Corzine leave the firm and take a job with the administration.

You can’t make this stuff up. 

By William D. Cohan 

William D. Cohan, a former investment banker and the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. The opinions expressed are his own. ― Ed.

(Bloomberg)