This is a tale of how 2 of the richest men in the world wound up bankrupt after a failed attempt to corner the silver markets driven by greed and a pathological hatred for government.
Nelson and William Hunt were, appropriately, born with silver spoons in their mouths. Two of the 15 children that oil baron H.L. Hunt fathered with 3 different wives, they were the archetypical Texas oilmen. By the 1960s, Nelson had a fortune worth $16 billion, making him one of the richest people in the world. The Ewings from the TV show Dallas were inspired in no small part by the Hunts. The pair’s heavy involvement in Republican politics, with Nelson at one point being a board member of the batsh*t far right John Birch Society, rounds out the picture. They were the Koch brothers of the day.
When H.L. died in 1974, he left an enormous fortune to his kids. Nelson and William decided to use the money for a little get richer quick scheme. Nelson’s hatred for the government led him to believe the dollar would collapse and that silver would be a safe haven. The two, and to a lesser extent their brother Lamar, decided to start piling their money into both physical silver bars and silver futures contracts. They used not only their own fortune, but borrowed heavily to make leveraged purchases.
The amount they accumulated defies parody. By the end of 1979, they controlled 42 million ounces of physical silver plus another 65 million in silver futures. They controlled 69% of the all the silver futures traded on the Commodities Mercantile Exchange of New York (COMEX) and 1/3 of all silver holdings not held by governments. As economic theory holds, prices rose as a result of this artificial drop in supply. They increased 700% during 1979. This was bad news for the many users of silver.
Things got so bad for Tiffany’s Jewelry that they ran ads attacking the Hunt Brothers for jacking up prices. The ad didn’t name any names for legal reasons, but pretty much everyone knew who they were talking about. Kodak, which depended on silver for camera film, was also squeezed hard. But again, economics came to the rescue. People decided to take advantage of the high prices. They had quarters and dimes melted to extract the precious silver. They pawned off their old jewelry and tea sets. The Hunt brothers simply did not have the cash to buy all the silver that was being thrown their way. Also, regulation came around. COMEX, on January 7, issued a rule limiting silver holdings to 3 million ounces. The Chicago Mercantile Exchange went further, halting all silver futures trading on January 21.
Prices started to fall. By the time Tiffany’s ran that ad in the New York Times, they were down by a thrid from January. By March, the jig was clearly up. The banks that lent tremendous money for the Hunts’ scheme wanted cash to cover their positions, cash that they did not have. On March 25, the Bache Group, the brokerage that had been a large financier of the scheme started unloading silver holdings to recoup their losses.
On March 27, it came the end. Known as “Silver Thursday”, prices fell by half, winding up almost exactly where they were in the beginning of 1979.
The brothers would spend the decade settling lawsuits and testifying before congress. In 1988, a New York Jury ordered them to pay $130 million to a Peruvian mining company that lost big from the crash and found that they had illegally tried to corner the market. That same year, they filed what was then the biggest personal bankruptcy in Texas history. Nelson had to give up his prized collection of 500 horses.
This story is a nice look at how a couple of extremely wealthy men got their asses handed to them for trying to manipulate the market. It’s also a good case study of how you can’t defy the laws of supply and demand forever.