The Good, The Bad and The Ugly

By J.M. Hamilton (10-23-11)

“Such ingratitude after all the times I have saved your life.” – Clint Eastwood (aka The Good)

Perhaps I’m dating myself, but I still think The Good, The Bad and The Ugly (GBU) is one of the greatest movies ever filmed.  Shot by Mr. Sergio Leone, GBU is the final act of the Dollars Trilogy, starring Clint Eastwood (as Blondie, the Good), Lee Van Cleef (as Angel Eyes or the Bad), and Eli Wallach (as Tuco, the Ugly).  Together these three seek their fortune in a Civil War landscape, with all the mayhem and moral ambiguity that often surrounds war.  For even “the Good” in this movie doesn’t exactly have a heart of gold.  Mr. Eastwood was no Gene Autry, or even Gary Cooper, and the story would be disfigured if he was.  The menace coming out of Mr. Eastwood’s eyes is only matched by pure evil pouring forth from Mr. Cleef’s fearsome visage; and Tuco, Mr. Wallach, looks throughout the movie like a rat that has been cornered and can’t decide to fight or flee but either way, you know better than to turn your back.  Tuco is always trying to figure out his next three moves.

This story of course is a love story, although the love interest is gold.

Without giving away the ending, the movie concludes at the center of Sad Hill Cemetery in what is referred to by some as a Mexican Standoff; that is a three-way  gunfighter face off, in which almost assuredly someone is going down.  Only one of the three knows in which grave a cache of gold is buried and a ticket to a much easier life.

Today’s global financial crisis is not dissimilar to a Mexican Standoff, with the three principle actors in our play being the public, the banks, and the politicians.   Politicians are being held accountable by the public, who are beginning to reassert themselves after a long period of bank bailouts, and wealth transfer from governments/public to the banks (whether it be through the inter-generational wealth larceny that is the Fed’s quantitative easing, or via an alphabet soup of government programs designed to give the banks billions at every turn, or through a stream of favorable court ruling that are pro-bank).  The American and European public has never really had say in any of these government programs, Fed policy or judicial rulings, and has not been the beneficiary of trillions in government largess.  No that degree of love and financial assistance appears only destined for the one percent, the banks.   And now, res publica, the 99%, is beginning to reassert itself with violence in the streets, protests, and the power of the ballot box (its weapons in our story).  

Of course, the banks too, perhaps presently best personified by Deutsche Bank’s Mr. Ackerman, play their part, literally holding a financial and economic gun to the heads of the politicians and the public as well.  And the bank’s preferred financial weapon of choice is a global web of credit default swaps and derivatives contracts with hundreds of trillions in notional value.   That and the banks, if they are made unhappy, just might go on a capital strike, the equivalent to a nuclear first strike upon the global economy.  The politicians caught in the middle realize the solutions to the sovereign debt crisis, which have been peddled to date, are no longer working: monetary easing, fiscal stimulus, and sovereign debt piled upon more sovereign debt.  In short the political game of Russian Roulette many pols have been playing has nearly run its course.

The politicians have increasingly found themselves corned, faced with choices and solutions that may cost them their careers, outright public revolt at election time, or cut off from future bank contributions to their re-election campaigns.  Clearly Greece and many sovereign nations need debt restructuring, and the banks – prolific holders of sovereign debt - don’t want to take the hit (i.e. “haircuts” and write downs).  Nor does bank management want their stock holdings and options watered down with public money and yet another government capital infusion (such a buzz-kill to any bank CEO’s stock portfolio).  

The public, and in particular within Europe, the German community , are tired of carrying the freight for the excesses of others. 

The “excesses” being:  nations and politicians, who have lived beyond their means, and who refuse to hold the banks accountable; and of course, banks, who thrive upon the incompetence and moral depravity of some elected officials, and insist upon (and obtain through regulatory and government capture) the continuance of an unregulated and an opaque CDS/Swaps market …. all the better to hold the public, world governments, and economies hostage, guarantee future bank bailouts, and insist upon fiscal austerity - born by the middle and lower classes - as the solution to the debt crisis.

Politicians and banks are staring back at the public, who has learned too to vote themselves largess, via social spending.  Ah the pitfalls of democracy.

I don’t’ have to tell you who the Good, the Bad or the Ugly is in our current picture… you can figure it out, but let’s just say that no one actor is entirely pure, but some of the players in this drama, clearly, are less evil.

Either way, this movie too, will have a denouement, and just like in The Good, The Bad and The Ugly, there will be winners and losers, and someone will ride away with the gold. 

Mexican standoffs are never pretty.

P.S.  For those who didn’t like last week’s editorial, Fear and Loathing – Globally, and its central message against free trade/arbitrage…. Please take a look at China with all its barriers to trade, and its tremendous economic success, and tell me once again why free trade is beneficial to America?