Silver Thursday was an event that occurred in the
silver commodity markets on Thursday 27 March 1980. A steep fall in
silver prices led to panic on commodity and
futures exchanges.
Background
Nelson Bunker Hunt and Herbert Hunt, the sons of Texas oil billionaire
Haroldson Lafayette Hunt, Jr., had for some time been attempting to
corner the market in silver. In 1979 the
price of silver jumped from $6/oz to an record all-time of high of $48.70/oz. The brothers were estimated to hold one third of the entire world supply of silver (other than that held by governments). The situation for other prospective purchasers of silver was so dire that the jeweller
Tiffanys took out a full page ad in the New York Times, condemning the Hunt Brothers and stating
We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver.
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But in early 1980, the exchange rules regarding
leverage were changed, placing heavy restrictions on the purchase of commodities
on margin. The Hunt brothers had borrowed heavily to finance their purchases, and as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.
Silver Thursday
The Hunt brothers had invested heavily in futures contracts through the brokerage firm
Bache Halsey Stuart Shields, now
Prudential-Bache Securities. When the price of silver dropped below their minimum
margin requirement, they were issued a
margin call for $100 million. The Hunts were unable to meet the margin call, and facing a potential $1.7 billion loss, the ensuing panic was felt in the financial markets in general, as well as commodities and futures. Many Government officials feared that if the Hunts were unable to meet their debts, some large Wall Street brokerage firms and banks might collapse
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To save the situation, a consortium of US banks provided a $1.1 billion line of credit to the brothers which allowed them to pay Bache which, in turn, survived the ordeal. The
U.S. Securities and Exchange Commission (SEC) later launched an investigation into the Hunt brothers, who had failed to disclose that they in fact held a 6.5% stake in Bache.
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Aftermath
The Hunts lost over a billion dollars through this incident but the family fortunes survived. They pledged most of their assets, including their stake in
Placid Oil, as collateral for the rescue loan package they obtained. However the value of their assets (mainly holdings in oil, sugar and real estate) decline steadily during the 1980s, and their estimated net wealth declined from $5billion in 1980 to less than $1billion in 1988.
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In 1988 the brothers were found guilty on federal charges of conspiracy to corner the market in silver. They were ordered to pay $134million in compensation to a Peruvian mineral company that had lost money as a result of their actions. This forced the brothers to declare
bankruptcy, in one of the biggest such filings in Texas history.
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