A top Treasury official said today that the Hunt brothers might be correct when they claim a "change in the rules" by the nation's commodities exchanges caused the Texans to lose hundreds of millions of dollars in the silver market.
John E. Schmidt, deputy assistant secretary for debt management, didn't comment any further on the Hunts' charges in an address to the Public Securities Association meeting here.
Schmidt told the nation's brokers and bond dealers, however, that the Treasury wants to know more about what might have happened had one or more brokerage firms failed in the silver debacle in late March and early April.
He also said that a joint government agency study of the forward market in Government National Mortgage Association securities likely will recommend imposition of controls that are similar to margin requirements in futures market trading.
In a forward market, an investor agrees to purchase a security at a specified price at some date in the future. The value of that security may fluctuate between the day the deal is made and the day purchase is required.
New GNMA rules require that once a month the securities to revalued (marked to market) and that more earnest money be put up by the investor if the current value of the security has changed from the agreed-upon purchase price.
But the GNMA has trouble policing the market. The margin requirements and mark-to-market rules likely to be proposed by the Treasury, Federal Reserve and Securities and Exchange Commission study would give the government a more active role in regulating the markets in government-backed securities.
In many cases, investors have lost heavily while dealing in the forward market in GNMA securities. For the most part, the big losers have been unsophisticated savings and loan associations and credit unions.
In the futures markets, investors must take their losses daily -- adding cash to their margin accounts if the price of the commodity they own contracts for moves adversely to the position they have taken.
It was just such adverse moves in the price of silver that forced Nelson Bunker and W. Herbert Hunt to come up with hundreds of millions of dollars to cover losses in their silver futures accounts at a number of brokerage houses.
When their cash resources finally were depleted, their inability to meet further margin calls threatened the financial survival of several firms, including the big Bache Group Inc., the Hunts' primary brokers.
The Hunts, who were betting that the price of silver would continue to rise, have charged that the nation's major silver futures exchanges -- the Chicago Board of Trade and New York Commodity Exchange -- took steps designed to lower the price of the metal.
Silver prices fell from nearly $50 an ounce in late January to $10.80 on March 27, the so-called Silver Thursday when the inability of the Hunts to meet their financial obligations became widely known.
Schmidt said there might be "some validity" to the Hunts' charges, but went no further.
He confirmed that the Senate Banking Committee has drafted a bill that would give the Federal Reserve Board authority to impose margin requirements in futures trading. Margins, which are the earnest money that commodities traders must put up, now are set by the various futures exchanges.
But Schmidt cautioned that Treasury officials have some reservations about the bill because they don't know whether margin requirements were a problem in the Hunts saga or if federal authority to set those margins would have made a difference.