Business: Bunker’s Busted Silver Bubble

The Hunts face Congress and bankers after their fall

Those bashful bullionaire brothers W. Herbert and Nelson Bunker Hunt showed up in public last week for the first time since their speculative bubble burst on “Silver Thursday,” March 27. The Hunts were testifying before two congressional subcommittees looking into their metal market machinations over the past year. As the brothers told the tale, they were just worrying, like most Americans, about the worsening economy. As Bunker Hunt has reportedly said, “A billion dollars is not what it used to be.” Inflation had destroyed their faith in the dollar, so early in 1979 they began putting even more of their wealth into a “harder” currency: silver. By late March they allegedly controlled almost two-thirds of the world’s privately held supply of the shiny metal, but “artificial factors,” like higher margin requirements and limits on the amount of silver futures contracts they could hold, spoiled all the fun. At least that was the story that Herbert Hunt, the younger brother, told the House Subcommittee on Commerce, Consumer and Monetary Affairs. “At no time,” said Herbert solemnly, “did I attempt to corner, squeeze or manipulate the silver market.”

But not everyone agrees with Herbert. The subcommittee has been conducting hearings into the Hunts’ silver-buying activities, which triggered the worst financial panic in nearly 20 years; silver that had cost more than $50 per oz. in January slumped to $10.20 per oz. in late March. The congressional investigators are trying to discover how the Hunts had corralled so much of the world’s silver and how deeply they went into debt during the silver crash. The brothers’ foggy memory on some of these points last Friday caused sharp exchanges with Subcommittee Chairman Benjamin Rosenthal. When asked about his total wealth, Bunker Hunt replied in a manner that recalled J.P. Morgan’s famous quote that people who have to ask the cost of the annual upkeep of yachts cannot afford them. Said he: “I don’t have the figures in my head. People who know how much they’re worth aren’t usually worth that much.”

Despite their fabled billions, the brothers Hunt in recent weeks have resembled penny poker players trying to rustle up some money to keep off the loan sharks. Their staggering losses in silver the past couple of months have forced them to go, stetson in hand, to bankers in the U.S. and abroad. The weekend after Silver Thursday, they showed up uninvited at the Reserve City Bankers Association convention in Boca Raton, Fla., to plead for help in meeting their debts. The brothers supposedly told leading bankers that they probably owed about $1.7 billion. Over cups of coffee and cold cheese sandwiches, the moneymen debated long into the night whether to give the Hunts a loan. Federal Reserve Chairman Paul Volcker made an appearance wearing a shirt over his pajama top and kept an eye on the proceedings. But finally the Hunts were told it was no go.

Though Volcker testified last week that he neither initiated nor guided the negotiations for any loans to the Hunts, his continual monitoring of the situation was interpreted by bankers to mean that the Federal Reserve, despite its credit restraint policy, favored some kind of bailout to keep the Hunts from going under.

Many Government officials feared that if the Hunts were unable to meet all their debts, some Wall Street brokerage firms and some large banks might collapse.

Million by million, though, the Hunts have put together a sizable care package for themselves. In January and February a ten-bank consortium loaned a subsidiary of the Bache Group, the brothers’ main broker, at least $233 million, which was backed by 17.5 million oz. of silver. By early April Placid Oil, the Dallas oil company owned jointly by Bunker, Herbert and the four Hunt children of their father’s first marriage, was negotiating a nine-year $1.1 billion loan.

Some of the sharpest criticism during last week’s hearings was directed not at the Hunts but at Chairman Volcker. What was the man who was supposedly stopping speculation doing in a rescue operation to save the Hunts? Rhode Island Congressman Fernand St Germain complained that the Federal Reserve’s role in the wings of the Hunts’ search for bailout loans showed that when big speculators lose millions, “telephone calls come to Paul Volcker for a quick fix.” This week St Germain and Senator William Proxmire plan to introduce new tough legislation that will change the rules for silver trading, which St Germain calls “the high-flying game of financial monopoly.”