As far as bankruptcies go, MF Global could be worse.

That’s because it’s only the seventh largest in U.S. corporate history at $400 million. That’s chump change compared to trillion-dollar deficits run up by Uncle Sam every year. No wonder MF Global is already fading from the headlines!

Like other funds of failures past, MF Global pumped up leverage to acquire sovereign debt from Portugal, Ireland, Italy, Spain, and Belgium.

But the biggest failure wasn’t the decision to bet the farm on sovereign debt. The biggest failure of this saga is that government regulators didn’t do their duty. The Commodity Futures Trading Commission (CFTC) had regulatory oversight, and passed the buck to CME Group.

Why? Because MF Global was one of the ultimate insiders in the financial world. For instance, the CFTC is headed by Gary Gensler, who previously worked at Goldman Sachs… with MF Global head Jon Corzine. It’s easy to see why they passed the buck.

That’s not all. MF Global was a “primary dealer” with the New York Fed. That means it was given the opportunity to fulfill Fed orders to buy and sell bonds. Only 22 financial institutions bear that distinction.

This kind of situation fails to pass the basic smell test. The government won’t regulate it, the top folks at the company and too cozy with the government and substantial leverage is involved. When you smell huge conflicts of interest like that, it’s best to run, not walk, to the exit.

MF Global’s high leverage and bankruptcy could spark a “Lehman moment” where credit starts to freeze up and the market starts to fall. While MF Global reeks of Lehman, however, Corzine reeks of someone else.

Much like Bernie Madoff, Jon Corzine was a two-faced wheeler-dealer in the world of high finance. At least Madoff apologized. Then again, Madoff wasn’t the ultimate insider like Corzine.

As the former head of Goldman Sachs and a former senator and governor of New Jersey, Corzine had the political connections needed to make substantially leveraged bets.

All this has happened before. Corzine was forced out of Goldman Sachs because of his close involvement with an investment in Long Term Capital Management, the poster child for overly-leveraged hedge funds. That fund managed to lose over $6.4 billion in less than four months in 1998. The bailout of LTCM was a prototype for the Lehman bailout 10 years later.

History, they say, repeats itself, because people don’t (or won’t) learn the lessons that they need to. Corzine is just beginning to learn the ill-effects of abusing other people’s money.

Investors, meanwhile, can learn a lot from Corzine.

Use leverage responsibly.

Beware companies that have a cozy relationship with regulators.

Finally, learn the lessons of history.