Silver Thursday
Categories: Banking
Much better than Aluminum Wednesday.
On March 27, 1980, (a Thursday, if you hadn't already guessed), an attempt to corner the silver market was broken, sparking a reaction that shook the general financial markets. It became known as "Silver Thursday."
The Hunt brothers, Nelson (known as Bunker), Lamar, and William (usually called Herbert), were born into a Texas oil fortune. Scared by the inflation of the 1970s, they put a substantial portion of their enormous wealth into silver. The brothers were each a bit eccentric...the kind of people who would react to an inflation scare by trying to buy all the world's silver, for example.
The buying began in 1973, but picked up toward the end of the decade. By 1980, they controlled more than two-thirds of the privately-held silver in the world. Enough to create a man-made (or at least Hunt-made) shortage. The price of silver skyrocketed, rising from around $6 an ounce in 1979 to just under $50 an ounce in early 1980. As a result of the Hunts' hoarding, there wasn't enough silver for everyday business. Companies as diverse as Kodak and Tiffany & Co. felt the pinch, and pushed for regulatory help. Eventually, authorities stepped in.
In early January, the COMEX announced a limit on the amount of exposure anyone could have in the silver futures market. The Hunts (well above the limit) would have until the following month to cut their holdings. That decision was followed a couple weeks later by a similar act by the Chicago Board of Trade, stopping the issuance of new silver futures on that exchange.
The moves popped the silver bubble. But...there was another problem. The Hunts hadn't just spent their own money on the attempt to hoard silver. They had borrowed most of the funds they used from banks and other financial institutions.
Silver dropped back into the $30 range, prompting a crisis within the Hunt camp. A major lender to the brothers, a firm called the Bache Group, called in its loan. Unable to pay, the Hunts had to watch as their financiers began selling the silver.
And thus, Silver Thursday took place. It saw the price of silver futures plummet...from the $30 range to just south of $11 in a single day. The impact of the collapse caused major problems for many of the Hunts' lenders. This situation, in turn, prompted ripples across the financial system. Eventually, a private bailout was arranged, staving off any disastrous bankruptcies.
