Silver prices stopped falling yesterday, then climbed back a bit, preventing the turmoil in the silver market from escalating into a broader economic crisis.
Until the market stabilized yesterday morning, the multibillion-dollar losses of silver speculators were threatening to bring down several Wall Street firms, including The Bache Group, the nation's fifth-largest broker.
After plunging $5 an ounce Thursday to $10.85 -- the lowest since last summer -- silver rebounded to $13.25 an ounce in trading on the New York Commodity Exchange.
The upswing enabled Bache to sell all the silver investments it held for the billionaire Hunt brothers of Texas, who the day before had said even they could no longer afford losses that were approaching $100 million a day.
After meeting in the afternoon with bankers who offered to loan the firm $24 million, Bache said it would not need the money because it had been able to liquidate the Hunts' holdings without loss.
Losses of $14 million were reported, however, by two other brokers, Paine Webber Inc. and A. G. Edwards & Sons.
Bache's position was so precarious Thursday night that it asked the Commodity Futures Trading Commission to shut down the silver market and to prop up prices.
The commission, which regulates the commodity markets, refused, and chairman James Stone reemphasized yesterday that "no price will be artifically administered by this agency."
Stone said government regulators would let a big broker like Bache go bankrupt rather than bail out silver speculators. "Our job is to protect the small investors in the commodity market, not the profits of speculators or the shareholders of the firms that handle their business."
Shareholders of investment firms that fail are protected by the Securities Protection Corp., a federally chartered agency, similar to the Federal Deposit Insurance Corp.
Stone said, however, that he favors new federal controls to prevent a recurrence of the silver collapse, which triggered a 25-point slide in the Dow Jones industrial average at one point Thursday.
Stone and Harold Williams, chairman of the Securities and Exchange Commission, have been called to Capitol Hill for hearings Monday before a subcommittee headed by Rep. Benjamin Rosenthal (D-N.Y.).
Stone said he favors limiting the amount of any commodity that speculators can buy. He also acknowledged that his agency and the commodity exchanges might have acted months ago to head off trouble in silver.
The silver collapse was caused by an attempt by Nelson Bunker Hunt and his brother, W. Herbert Hunt, to buy as much silver as they could. The two sons of the late H. L. Hunt were joined in their buying campaign by silver speculators from the Middle East and Latin America.
With big money buying, silver prices climbed from $6 an ounce last summer to $50 an ounce in January, then started to fall when the Commodity Exchange began to take steps to curb runaway speculation.
Only the Hunts know how much silver they bought. Reports run into the hundreds of millions of ounces. Neither does anyone except the Hunts know how much they invested in their silver venture, some of it bought as far back as 1973, when silver was selling for $3 an ounce.
Other silver traders claim that, on paper, the value of the Hunts' holdings has dropped $4 billion since the January high.
The day of reckoning came last Wednesday, when Bache told the Hunts they had to put up an additional $100 million to cover losses on silver investments bought with borrowed money.
For reasons that are still not clear, the Hunts said they could not pay, and Bache began selling not only the Hunts' silver futures contracts, but also their silver bullion and stocks pledged against the silver loans.
Bache officials said all of the Hunts' holdings controlled by Bache were liquidated by the end of the day yesterday.
Had the price continued to fall, Bache would have been responsible for the Hunts' losses. A couple more days of $100 million losses would have wiped out Bache, a firm worth an estimated $175 million.
Trouble for a broker as big as Bache could shake investor confidence and send shock waves through the other markets, as Thursday's nose dive by the Dow Jones average demonstrated.
Bache officials said, however, that the company had avoided losses and had enough capital to meet the requirements of both federal regulators and the stock and commodity exchanges.
The crisis was averted, silver traders said, because the price of the metal finally dropped so low that investors began buying it again. European investors reportedly made heavy purchases yesterday.
"We've just seen an example of the market taking care of itself," said Dr. Henry Jarecki, chairman of Mocatta Metals Corp., a major dealer.
Where this left the Hunts is unclear. They apparently still own massive amounts of silver.
In Switzerland, an Arab business partner of the Hunts said a group of silver investors was going ahead with plans to issue bonds backed by 200 million ounces of silver the group owns. The money will be used to buy still more silver, he said, and the lower prices "are playing right into our hands."