The Corners Of Wall And Broad

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Silver, unlike gold, has numerous industrial applications, so there is a strong demand for the metal even apart from its monetary uses. But because silver was used as money, the U.S. government had long fixed the price at around $1.25 an ounce. By the mid-sixties the government found it could no longer maintain this policy because demand for silver was growing swiftly, while world production lagged. The United States, in effect, was forced off the silver standard. The Treasury recalled the old one-dollar silver certificates and reduced or eliminated the silver content of coins.

In the early 1970s Bunker Hunt thought he saw opportunity in silver, just as Frederick Philipse had seen it in wampum. Inflation was rising, which meant that the prices of gold and silver were likely to rise as the dollar sank.

At that time it was illegal for Americans to own gold, so Hunt set out to acquire silver. Being one of the richest men in the world, he bought silver on a massive scale and almost singlehandedly doubled the price in 1974 from $3.27 to $6.70 an ounce. And unlike nearly all modern commodity traders, he took delivery, removing the silver from the marketplace. Again, he was doing exactly what Frederick Philipse had done with wampum three hundred years earlier.

By 1979 the Hunt brothers had accumulated as much as 200 million ounces in bullion and futures, just about the amount of silver that was thought to be in the floating supply. With the silver available for trading rapidly dwindling, the price ratcheted up all through 1979. Tiffany’s was even forced to close its silver department at one point in order to reprice everything sharply upward. In early January 1980 the price of silver reached $50.05 an ounce. The Hunts’ hoard was worth, on paper, $10 billion. The first great Wall Street corner in nearly sixty years seemed to be at hand.

But the problems that have plagued all would-be cornerers plagued the Hunts as well. They had borrowed hundreds of millions to buy the silver on margin, using the metal they held as collateral. With the prime rate at over 19 percent, the interest expense, even for the Hunts, was awesome.

The Hunts’ silver hoard grew to be worth $10 billion; the first great Wall Street corner in sixty years seemed to be at hand.

And as with the gold corner of a hundred years earlier, the U.S. Treasury could always break the Hunts’ corner at will. The government held massive quantities of silver.

With the price of the metal more than ten times what it had been a decade earlier, mines that had been closed for years because they could not be worked profitably could now be worked very profitably indeed and reopened. Equally, huge amounts of silver began coming out of attics and basements. No one knows how many tons of Victorian tableware were melted down and joined the floating supply. The metal content of the old silver coins was now worth more than the face value or even the numismatic value, and people sold them while the selling was good.

With the amount of silver in the market increasing, and the Hunts virtually the only buyers, the price crumbled. They were forced to borrow more and more money to prop it up, straining even their resources to the limit. The nation’s leading banks and brokerage houses were strained as well, for they had lent the Hunts more than $800 million, equal to about 10 percent of all the bank lending in the country in the previous two months.

By March the price of silver was below $40 an ounce and falling fast. Then, on March 27, the corner collapsed after the Hunts were unable to meet a margin call. Their brokers, in deep jeopardy themselves, began to sell them out, and panic reigned on Wall Street. The stock market plunged while the price of silver lost half its value in a single day, closing at $10.80. By the time “Silver Thursday” was over, the Hunts had taken a billion-dollar bath.

Fast action by the major banks and the Federal Reserve prevented the panic from turning into a disaster for the entire financial system of the country. The next day Wall Street rallied sharply, and the markets quickly returned to normal. But for the Hunt brothers things never returned to normal. The bankers and brokers rescheduled their debts, allowing them to pay them off over ten years. It was all predicated, however, on the price of silver at least remaining stable. And in the 1980s demand stagnated while production soared. The price declined steadily, and the Hunts’ financial situation followed right behind. In 1987 they were forced to file for protection from their creditors.

Frederick Philipse came to Wall Street as a simple carpenter, guessed right, and died the richest man in New York. The Hunt brothers came possessed of the mightiest fortune in Texas, guessed wrong, and are now bankrupt.

Meanwhile, Wall Street’s free market just keeps rollin’ along.