Warning "it is only a matter of time" before another commodity-market bubble bursts as it did in the silver market last year, the former chairman of the Commodity Futures Trading Commission yesterday issued his own version of what went wrong in the silver market and what ought to be done about it.
CFTC member James Stone endorsed a series of silver-inspired reforms pending before the federal commodity agency and added two prescriptions of his own.
He called for forcing big speculators to disclose their commodity purchases and giving the federal government control over the margins, or down payments, on commodity futures contracts.
Stone was chairman of the CFTC last year when Congress ordered that agency to head a massive silver study in conjunction with the Securities and Exchange Commission, Federal Reserve Board and Treasury Department.
The multi-agency study came out two weeks ago and was promptly disavowed by the SEC. The security regulators said their investigations, which are still under way, tended to conflict with the CFTC-drafted version.
Stone prefaced his own report by saying, "this is not a dissent," then offered 51 pages of comment on the study produced by the agency he headed until last week when attorney Philip Johnson took over as the Reagan administration's CFTC chief.
The lengthy document appeared to set an agenda and a strategy for Stone as an active dissenter on the five-member commission that regulates the nation's commodity markets. While chairman, Stone rarely was able to marshal a majority on the commission but as its chief was in an awkward position to offer minority views.
The former CFTC chairman chided his agency for downplaying the seriousness of the silver-market situation, understating its impact on innocent bystanders and underestimating the likelihood that what happened in silver will recur in other commodity markets.
Some 6,000 workers in the silverware and jewelry business lost their jobs when the price of the metal soared from $5 an ounce to $50 before it collapsed, Stone noted.
He charged that "irrational speculative expectations took over" the silver market for part of 1979 and 1980, creating what he called "a speculative bubble."
"For some reasons, there has been an antipathy on the part of industry spokesmen, and even my fellow commissioners, to the use of the word 'bubble,'" Stone noted. "The staff has carefully avoided using the word."
The multiagency task force report said the events that inflated the silver bubble "could be repeated," but Stone said he "would go a step further.
"With no change in regulation, I believe that the formation of another bubble some day in some commodity can be predicted with near certainty," he said."It is only a matter of time."
Stone urged adoption of several regulatory changes now before the CFTC, including limits on the holdings of large speculators, changes in financial rules for commodity brokers and new rules governing foreign traders.