How the Hunt Brothers Cornered the Silver Market and Then Lost it All

August 25, 2016 7:10 PM

From a spot price of around $6 per ounce in early 1979, the price of silver shot up to $50.42 in January of 1980. In the same week, silver futures contracts were trading at $46.80. Film companies like Kodak saw costs go through the roof, while the British film producer, Ilford, was forced to lay off workers. Traditional bullion dealers, caught in a squeeze, cried foul to the commodity exchanges, and the New York jewelry house Tiffany & Co. took out a full page ad in the New York Times slamming the “unconscionable” Hunt brothers. They were right to single out the Hunts; in mid-January, they controlled 69% of all the silver futures contracts on the Commodity Exchange (COMEX) in New York.
posted by Chrysostom (23 comments total)

The changed the rules on the Hunt Brothers in the middle of the game... and it's been rigged in favor of paper silver (silver contracts not backed by actual metal) ever since.
posted by MikeWarot at 7:35 PM on August 25, 2016 [1 favorite]

69%

nice
posted by Potomac Avenue at 7:41 PM on August 25, 2016 [5 favorites]

I remember cashing in on this. I sold a pretty sizable hand full of old silver dollars for way more than their face value, right at the peak. One of the few astute market moves I ever made. I had no idea why the price was spiking, though. Interesting bit of history.
posted by Devils Rancher at 7:42 PM on August 25, 2016 [2 favorites]

I heard that the Hunt brothers also did this.
posted by indubitable at 7:51 PM on August 25, 2016 [1 favorite]

" changed the rules on the Hunt Brothers in the middle of the game"

Yeah, it's weird how the bodies charged with the task of making sure markets work will often try to prevent people from breaking markets.
posted by midmarch snowman at 7:53 PM on August 25, 2016 [19 favorites]

Would you look at that "S-car-go"!
posted by benzenedream at 8:17 PM on August 25, 2016 [2 favorites]

14 years old and miy best friend worked for a guy who traveled the coin show circuit. Both our moms were treasurers in different PTOs and we turned all the dimes, quarters, and half dollars sideways and culled, replacing them with modern coins. We barely understood what was happening but we made bank.

The dealer bought a grinder and people were coming in with candle sticks a
nd true silverware and we were making ingots, the dealer was giddy and none of us could believe the ease of making money when things were generally moribund here in the states.

The thieves started pouring in. Sets of 17th century monogrammed utensils were worth more for metal than history and we were ripping the sand or lead out of knife handles or lamps and just melting it all and people started breaking into houses and only taking things people wouldn't miss for a while and bringing to the "coin" shows. All the evidence destroyed right in front of you. Whee!

We kinda got a clue about what was really going on as the beauty of what came in increased. I could not grind a pair of dueling pistols that came with a bunch of French letters, my friend had a thing for statues and the dealer liked tobacco stuff and our private collections grew.

It was so odd for all of us to find out that two guys in Texas had done this to all of us. We thought we were riding something wild, pots of silver at the ends of rainbows, endless wealth. We were buying exotic meat and taking cabs everywhere before the whole thing collapsed.
posted by Mr. Yuck at 8:29 PM on August 25, 2016 [37 favorites]

I love Mr. Yuck's stories, because I imagined a movie made of this--maybe with Jeff and Beau Bridges as a couple of the Hunt brothers--and a scene where they're puffing the cigars and predicting that they'd finish cornering the market any... day... now, and Bunker goes out for more cigars and stops in at a tobacco store that's right next door to a coin store... and notes all these old ladies lined up going outside the store and halfway down the block, chattering like magpies.

They're all carrying the family silver.

Bunker goes home, forgetting the cigars. "Uh, Bubba... we may be in a bit of trouble."
posted by Halloween Jack at 9:21 PM on August 25, 2016 [6 favorites]

Paper silver !!!!
posted by JPD at 9:22 PM on August 25, 2016

"Yeah, it's weird how the bodies charged with the task of making sure markets work will often try to prevent people from breaking markets."

What broke exactly? lots of silver used for low value uses was recycled, silver was rationed more appropriately for industrial use, and it caused companies to spend R&D on finding substitutes to better face commodity swings in the future. Finally, long term the price returned to equilibrium which according to my understanding of the consensus of economists would have happened anyway although not as quickly.
posted by forgettable at 9:40 PM on August 25, 2016 [2 favorites]

"By the end of the year, Bunker and Herbert owned 21 million ounces of physical silver each. They had even larger positions in the silver futures market: Bunker was long on 45 million ounces, while Herbert held contracts for 20 million."

Meh.

Y-12 is the World War II code name for the electromagnetic isotope separation plant producing enriched uranium at the Clinton Engineer Works in Oak Ridge, Tennessee, as part of the Manhattan Project. Construction began in February 1943 under the management of Stone and Webster. Because of a wartime shortage of copper, the massive electromagnetic coils were made with 14,700 tons of coinage silver from U.S. government vaults at West Point. Colonel Kenneth D. Nichols met with the Under Secretary of the Treasury, Daniel W. Bell, and requested between five and ten thousand tons of silver. Bell's stunned reply was, "Colonel, in the Treasury we do not speak of tons of silver; our unit is the troy ounce." Thus the Manhattan Engineer District requested and was loaned 395 million troy ounces of silver (13,540 short tons, 12,300 tonnes) from the West Point Depository for the duration of the Manhattan Project.

posted by ctmf at 9:51 PM on August 25, 2016 [13 favorites]

Cornering a market allows an agent to exercise near-monopoly power which means price and supply are subject more to the whims of the individual who has cornered the market and less to market forces. A lot of people define a healthy market as one where no single agent has monopoly power whether or not there is a true monopoly.

Also one could argue that a 400% swing in price in both directions that has nothing to do with production is a de facto evidence of a broken (or at least extremely inefficient) market.
posted by midmarch snowman at 9:57 PM on August 25, 2016 [8 favorites]

I was recently looking up some things about the Watergate affair on Wikipedia relating to E.H. Hunt (no relation, actually). As mentioned, the story behind their father, oil tycoon H.L. Hunt and their family is really strange and fascinating as well..
posted by ovvl at 9:59 PM on August 25, 2016

Why isn't the onus on the institutions or individuals shorting the stock? they were the ones who were shorting knowing the hunts had been stock piling years earlier? Porsche/Volkwagen is a similar case study. It seems to be that shorter's in both cases were knowingly playing a questionable hand hoping the dealer (government) bails them out if things go south. If true, they win in either case but it creates a perverse incentive for risk taking, which you'd think is counter to regulators interest.

So which is better ultimately? Seems like the aftermath of the Hunts took a lot longer to unwind (but maybe it was a much bigger trade in real terms?) and we saw how giving wall street a freeroll on systemic risk played out in the housing bubble collapse.
posted by forgettable at 10:20 PM on August 25, 2016 [2 favorites]

Wow. Two of my brothers worked at Towle Silver in Newburyport, Massachusetts. One of them was in charge of making silverware, filling it with sand, etc. and the other one worked on the loading dock. We always got gifts from them at the holidays, from the gift shop. I'd never heard about this at all, it's fascinating. Thanks for the post!
posted by Marie Mon Dieu at 10:23 PM on August 25, 2016

What? No love for Eddie Murphy, Dan Ackroyd and Jamie Lee Curtis?
posted by srboisvert at 10:38 PM on August 25, 2016 [6 favorites]

I imagined a movie made of this

The one I'm imagining involves werewolves running amuck, with a moralizing plot where their greedy and avaricious victims get what they deserve because they sold off silver down to the last priceless antique, their French grandfather's werewolf-hunting pistols and silver ammunition.

(There would be a foreshadowing scene where the characters talk themselves into selling the family heirlooms, muttering something about superstitions. Also definitely a scene where another character, attending to warnings passed down generation after generation, runs into a room and tears open the doors of a dusty and cobwebbed cabinet, and in horror at seeing it empty cries "What have you done? What have you done?")
posted by XMLicious at 11:24 PM on August 25, 2016 [10 favorites]

Funny the Hunts didn't know that in the 1970's a large percentage of America had a secret pastime of hoarding those leftover silver coins in circulation. When the price soared, they sold the entire coffee can and went to Disneyland. (At least one family I knew growing up did this.)
posted by Brian B. at 11:33 PM on August 25, 2016

Culling silver coins from circulation is still a thing. I made some good money doing it a few years back when the price as hovering around $30/ozt. At the current price of about $18/ozt it's not even close to worth doing on anything more than a passive scale.
posted by clorox at 11:57 PM on August 25, 2016

If you liked this, here's a post from almost exactly a year ago about another attempt to corner a commodity market. This one has more layers, and may bring a tear to your eye.
posted by penguinicity at 4:27 AM on August 26, 2016 [5 favorites]

If you liked this, here's a post from almost exactly a year ago about another attempt to corner a commodity market. This one has more layers, and may bring a tear to your eye.

*rimshot*

I love that we got a direct view into the evil shit that commodities futures traders will do given half a chance, thirty years before the silver market manipulation shenaniganry happened, and that Congress actually knew what to do about it (ban futures trading of items deemed vital to national interests), and... they just banned trading onion futures. Not wheat, or soybeans, or corn, or silver, or any of the hundred other things that would cause complete chaos if their prices shifted quickly, just onions. Because why would we want to let government get in the way of free enterprise?
posted by Mayor West at 6:38 AM on August 26, 2016 [1 favorite]

flew to Switzerland in specifically designed airplanes

I guess it's technically true in that all airplanes are specifically designed. But they just chartered 3 707's.

I only bring it up because of the elephant.

The jets flew by night, landing in Chicago and New York “where the cowboys stood, rifles at the ready, as lines of armored cars drove up with 40 million ounces of silver ingots from the Chicago and New York exchanges.”

As soon as the planes were loaded, they took off for Switzerland. But cowboys weren’t the only passengers onboard. As the story goes, a circus elephant was also being flown to Europe on one of the planes.

“Over the mid-Atlantic, the plane began to lurch out of control, at which point it was discovered the elephant had looped its trunk around the wires that controlled the aircraft’s flaps,” Burrough writes.

“Third brother Lamar Hunt, who was on the plane, opened the elephant’s cage and threw in a rubber tire” for him to play with instead.

posted by zinon at 7:49 AM on August 26, 2016 [4 favorites]

We thought we were riding something wild, pots of silver at the ends of rainbows, endless wealth.

So did my dad, when he followed the neighbors' lead and bet my college fund on precious metals in 1979. I found out a year later he'd lost it all in silver and gold speculation when I told him I'd gotten into Johns Hopkins and he just laughed.

Got a good education at Miami of Ohio, for sure, but of all the shit he pulled that one still bugs me the most decades later.
posted by mediareport at 5:31 AM on August 27, 2016