MANY villains from the James Bond film franchise had madcap schemes for getting rich, like building solar power plants. Some, however, were far more pedestrian: drug lords, water monopolists, and corrupt Soviet generals. The most interesting of these (from an economist’s perspective, anyway) was Le Chiffre, 007’s antagonist in Casino Royale:

Le Chiffre’s business was similar to many other financial firms. He secured cheap funding by issuingdeposit-likeliabilities. This was pretty easy, since Le Chiffre promised his clients “no risk in the portfolio,” easy access to their savings, and “a reasonable rate of return.” In the days before Bernie Madoff, who wouldn’t want to bank with a man offering that deal? Besides, Le Chiffre’s clientele had few alternatives. Unlike Mr Madoff, however, Le Chiffre actually generated significant alpha for his investors thanks to insider trading, which is far from a unique strategy.

Le Chiffre’s mistake was using terrorism to improve his performance. This attracted the unwanted attention of James Bond—a black swan in black tie. Instead of earning a fortune from short-selling an aircraft manufacturer, Le Chiffre lost nearly $100m after 007 foiled his plan to destroy the firm’s prototype. Like many money managers who lose large sums of money, Le Chiffre concluded that he was not to blame for failing to anticipate a “freak” event. Despite being an Albanian math prodigy and an excellent poker player, Le Chiffre's risk-management skills left much to be desired. In fact, Le Chiffre confidently asserted that he could recoup his losses by winning a poker game against the same man who had cost him so dearly the first time around. His investors felt differently, with good reason. How many firms have gone under after mistakenly doubling down in response to losses?

Like many intermediaries during the financial crisis, Le Chiffre experienced a liquidity crunch once his creditors (rightly) suspected he was insolvent. Unlike Jon Corzine, who has so far avoided any serious consequences for misplacing client funds, Le Chiffre was assaulted by African warlords in his hotel suite when they found that they could no longer access their deposits. This was all part of MI6’s plan: Le Chiffre would be forced to seek protection from his creditors not through bankruptcy or limited liability, but by offering up secrets about his investors in exchange for asylum. While Le Chiffre's operation was relatively small, his knowledge about terrorists and warlords effectively made him “systemic”, which was why he was offered the deal. Unlike financial firms that actually got bail-outs during the crisis, however, Le Chiffre's creditors were forced to endure severe haircuts. Perhaps the Bond vigilantes can be thanked for that.