Billy Ray Valentine Teaches the GOP About Budget Ceilings

No doubt the Republicans think that they have President Obama and The Democrats between a rock and a hard place regarding the upcoming budget ceiling showdown. I would suggest that the House Republican Caucus call an immediate meeting to watch the 1983 film Trading Places before counting their eggs prior to their hatching.TP

Aside from being a movie in which Al Franken-one of my favorite former comedians AND current U.S. Senators–plays a somewhat imbibed luggage handler with his old stand-up partner Tom Davis,  the movie Trading Places is about as good a representation of the 1980s commodities markets inner workings as any graduate thesis I’ve ever read.

It’s also a terrific representation of how the hapless House GOP thinks it has the Democrat’s Donkey by the balls.

Trading Places—A Primer in Commodities

In the 1983 movie, the Duke Brothers (played by the superb actors Ralph Bellamy and Don Ameche) are extremely wealthy good old boy commodities traders who plan to corner the market in orange juice futures…but are so greedy that they try to cheat in order to do so.

And just for good measure, they callously make a $1 bet that they can prove or disprove a trivial “nature vs nurture” argument between themselves, despite the fact that it will ruin their niece’s marriage to an upper-crust, Harvard-educated, up-and-comer in their investment firm (Dan Ackroyd as Louis Winthorpe) by taking a down-and-out, homeless, street hustler (Eddie Murphy as Billy Ray Valentine) and switching their respective positions in life.

The Set Up:

The Duke Brothers have bribed a shady thug to get an advance copy of a government report on the orange crop. This will give them inside information on what’s going to happen in the market for frozen, concentrated orange juice. But Winthorpe and Valentine find out what the Dukes are up to, and vowing revenge for screwing with their lives for their entertainment, they steal the crop report before the Duke Brothers get it and substitute their own fake report which discloses exactly the opposite results of the real one.

The real report says the orange crop is strong. When the rest of the world learns this, under the supply and demand theory, the price of OJ will fall. So Winthorpe and Valentine create a fake crop report that they put into the hands of the Duke Brothers. The fake crop report says the crop was bad and that there will be a shortage of oranges and, hence, frozen concentrated orange juice. The Duke Brothers see this, and believe the price of OJ will rise.

The setting of the big finale and the ultimate take-down of the Duke Brothers is the floor of the commodities exchange. The Duke Brothers have told their trader to buy orange juice futures, and to keep buying no matter how high the price goes.

The market opens, and the Duke Brothers’ trader starts buying. Everybody else notices this and assumes the Dukes know something they don’t so suddenly, everybody’s buying. The price goes up and up and up, and the Dukes as well as everyone else, keep buying.

Then comes the key line for the entire movie — a line that’s actually almost unintelligible. Standing on the floor of the exchange, Winthorpe (Dan Aykroyd) screams out:

Sell 30 April at 142!!!!


This is what that line meant in layman’s terms:

Even though Winthorpe actually doesn’t own a single orange contract, under the commodities exchange rules, as long as he owns the contracts when it’s time to fill the orders he’s sold, he’s allowed to sell contracts he doesn’t even own yet with the following desired results:

  1. Winthorpe wants to promise to sell orange juice in April for $1.42 per pound.
  2. The “30” in his line means he wants to start by selling 30 contracts. (One contract = many, many tons of frozen concentrated OJ.)
  3. All the other traders assume the price in April will be higher than $1.42.
  4. The traders mob Winthorpe and Valentine, agreeing to buy lots and lots of OJ from them at $1.42 a pound.


A minute later, everything on the trading floor goes quiet and everybody looks at the TV. On the TV, the secretary of agriculture walks to a podium and reads the orange crop report that tells the world that the orange crop is fine…there will be no shortage as the Dukes were led to believe by Winthorpe and Vallentine.


To the dismay of the other OJ traders (and especially the Dukes), this means that the price of OJ is not going to go through the roof after all. All those traders who, a minute ago, were buying all they could, now suddenly need to sell. So the price starts falling like The Hindenberg. When the price hits 29 cents a pound, Winthorpe and Valentine start agreeing to buy orange juice in April.

In other words, Winthorpe and Valentine have contracts allowing them to buy millions of pounds of orange juice in April for 29 cents a pound, and to sell it for $1.42 a pound. They sold high and bought low. They’re rich. The Dukes made the opposite bet and went broke.

The Dukes and the Republicans

In today’s budget debate, the obstinate congressional Republicans are the Duke Brothers. They think they have the president and congressional Democrats over a barrel; they assume that they will have to accept GOP demands to defund the Affordable Care Act, otherwise known as “Obamacare,” or they will refuse to either fund the government past the current fiscal year, which ends on Sept. 30th, or raise the debt limit, which will expire sometime in October.

Failure to fund the government will lead to a government shutdown and failure to raise the debt limit will cause the Treasury to default on the debt, which most economists–and anyone with an IQ that’s higher than their shoe size–believe will rattle financial markets and cause interest rates to go through the roof for the first time since the Bush Administration’s 2008 Financial Market crash.

Republicans have strategized that either prospect is too terrible for the White House or Democrats to allow. Therefore, they will be forced to agree to Republican demands.

But Obama and congressional Democrats have a different view of the situation. They think they are in the same position as Aykroyd and Murphy and are just waiting for the right moment to sell. That is why we have heard almost nothing from them about the ongoing budget negotiations, which at this point are taking place almost entirely within the House Republican conference, with sane pragmatists on one side and suicidal bomb throwers on the other—Senate Majority Leader Harry Reid calls them “anarchists.”

The pragmatists believe that the Obamacare train left the station a long time ago and it is simply futile to try and stop it from going into effect at this late date and that the bomb throwers, who have already voted 40 times to repeal it, are ideologues pandering to ignorant fools in the Tea Party.

The pragmatists are, by and large, the more senior members of the GOP and they remember too well how badly it went for them when they shut down the government in 1995 because Bill Clinton would not agree to slash Medicare spending.

Clinton won the shutdown fight hands down. Republicans took all the blame for the shutdown and were forced to retreat without getting anything in return. A new CNN/ORC poll shows that Republicans would again get the lion’s share of the blame.

Republican pragmatists also know that even threatening to default on the debt is like using nuclear weapons on yourself to get your enemy to surrender. In short, it’s completely nuts.

This is, of course, why Obama and congressional Democrats are just standing there like Murphy and Aykroyd in the orange juice trading pit of the New York Mercantile Exchange, seemingly oblivious to all the action going on within the Republican Party.

While they might appear to be passive dullards, in fact they are just waiting…waiting for the right moment to step in and save the GOP from its young, dangerous, ok, I’ll say it, stupid far right extremists. Sooner or later they expect House Speaker John Boehner to come to them begging for Democratic votes to pass some sort of budget to prevent a government shutdown and raise the debt limit.

Boehner probably has enough Republican votes to pass a budget and a debt limit increase together with the Democrats. But a majority of House Republicans will unquestionably vote “no.”

Even though, in principle, the eventual outcome is virtually preordained and can be implemented on relatively short notice, there are three troublesome complications.

  1. What price Democrats will demand for saving Republicans from the childish behavior of their Tea Party members? They may feel that simply embarrassing the Republicans is sufficient satisfaction, but some party liberals may demand a pound of flesh as well and threaten to vote with the Tea Party unless they get it. That would put those Democrats in the same shoe-sized IQ class as the GOP. Hopefully, the leadership will explain that splitting the GOP pragmatists from the crazies and creating a new bipartisan governing coalition is more important.
  2. The second problem is that Speaker Boehner may lose what little control he has over his members and be threatened with a palace coup. It’s certainly possible that the only way he can avoid being ousted will be to agree to retire at the end of this Congress, which has already been rumored.
  3. Third is what will happen to any GOP pragmatist voting with Democrats on the budget. Probably all have safe seats in the general election, but are nevertheless highly vulnerable to primary defeat by some Tea Party extremist, flush with right wing campaign money from the Koch Brothers, the Club for Growth and other groups that enforce rigid ideological discipline in the GOP. The pragmatists may be writing their own political obituaries if they do the right thing.

Of course, it is too soon to say how all this will play out. But there is a severe time limitation. And this ain’t the movies…it’s deadly serious business.

Harvey A. Gold