ALTHOUGH women are making great strides in the business world, it's amazing how little they know about cornering the world's silver supply. I realized this when my wife asked me to explain to her the other evening why Herbert and Bunker Hunt got into so much trouble messing around in the silver market.
"It's quite simple," I told her. "The Hunts were worth over a billion dollars, but as Bunker said, 'A billion dollars isn't what it used to be.' So they decided to buy silver futures to protect their little nest egg."
"What's a silver future?"
"You agree to buy a contract for a certain amount of silver, which will be delivered to you in a certain period of time. Let's say you pay $10 an ounce for the silver. You're betting silver will go to $15 or $20 before the delivery date."
"What do you do with the silver when it's delivered?"
"You either put it in the bank hoping the price will go even higher, or you sell the contract to somebody else before the delivery date, and reap a profit."
"That sounds like a sure thing."
"It's a sure thing while the price of silver is going up. But it's a very bad thing when the price of silver is going down. You see, you can buy silver contracts on margin -- that is to say you only have to put up a small amount of cash, and the brokerage house trusts you for the rest. As long as the price goes up, the brokerage house thinks you're a wonderful person. But when the price starts slipping, they call you up and ask you for more cash; and if you don't come up with it, they start twitching. It it's really a big deal like the Hunts, the brokers have to be restrained form jumping out the window."
"But why did the price of silver go down?" my wife asked me.
"Because the Hunts kept driving up the price by buying it. When silver reached $50 an ounce, there were no other buyers, so they had to come up with the money to take delivery on it. They didn't have it, so they told the brokers to eat the silver. When the word got out that the Hunts could not afford to buy the silver, the price plummeted down to $10 an ounce. That's when everyone on Wall Street started boarding up their windows."
"The Hunts must have felt terrible," my wife said.
"You would think so, but they took it in their stride. They just went to the banks and said, "If you don't bail us out, there could be a panic in the stock market -- and it won't just be the silver brokers who will be jumping out of windows. You better come up with some hefty loans for us or you'll all be in the soup."
"What did the banks and brokerage houses say to that?"
"They apologized to the Hunts for any bad thoughts they had about them, and promised to find the money to get them out of trouble."
"Why don't you do the same thing the Huhts did?" she asked. "If silver goes up, you can make a lot of money -- and if it goes down, you can go to the brokers and tell them to fly a kite."
"It doesn't work that way for everybody. If the average person can't come up with the cash for his margin, the broker doesn't jump out the window -- he pushes the customer out of it. Only the Hunts can tell someone to take a leap from the Federal Reserve Bank Building, and the person will do it."
"I know this is silly," she said, "but every time I see the brothers on television, they look just like Laurel and Hardy. It seems so unfair for them to lose all their money just because the price of silver went down, when they thought it would go up."
I patted her on the head affectionately, "You always had a soft spot in your heart for the little guy."