The Story of Silver

by William L. Silber

  In their annual review of the silver market, Handy & Harman added that the price of silver “has climbed to record high levels in the face of very large physical supplies. There is no shortage of silver for industrial uses.”48 The review estimated that speculators had accumulated “200 million ounces … as a hedge against devaluation of the dollar.”49 U.S. inflation dimmed the outlook for the U.S. currency in the foreign exchange market, suggesting the dollar might go the way of the British pound, which was devalued on November 18, 1967.50 In an article entitled “How Sound Is Your Dollar?” the Chicago Tribune quoted European bankers saying they “no longer believe budget estimates announced by the United States government,” and big budget deficits forced the Federal Reserve to expand credit and inflate, undermining the currency both domestically and internationally.51

  The overheated price of the white metal sounded a warning like Senator Peter Dominick’s whistling pressure cooker: monetary accommodation of U.S. budget deficits threatened American finance. The crescendo intensified in March 1968, when declining gold reserves forced the United States to abandon support of the $35 price, allowing the yellow metal to trade freely among speculators and limiting the official price to government transactions with foreign central banks.52 The new policy created two markets for gold, just like for silver in May 1967, but Americans citizens were still unable to buy the yellow metal and stayed with silver for protection. The spillover from the disruption in gold pushed silver prices even higher so that when the redemption period for Treasury certificates ended on June 24, 1968, the white metal reached $2.47. The price of gold in the London bullion market had also increased to $41.05, leaving the ratio at Bryan’s 16 to 1 when Henry Jarecki and Mocatta ended their arbitrage.53

  Mocatta & Goldsmid had committed more than $100 million to the joint venture, and Henry’s share of the profit was well above the million dollars he had promised Gloria, but he had neglected his medical practice. In addition to teaching at Yale, he was the director of Psychiatric Associates, a walk-in clinic serving the New Haven community that he founded with his friend and partner Gene Eliasoph, a gifted psychotherapist. In one memorable incident, Henry was supposed to lead a discussion among representatives of five welfare agencies concerning a fifteen-year-old girl whose family members were all in trouble.54 Henry arrived late and apologized to the group: “I’m awfully sorry but as some of you know I have some outside interests.” Gene was not happy and reprimanded his partner as everyone stared: “Yes, Henry, we know you have outside interests. This practice for one.”

  It was time for Henry to repair the damage. He flew to London, thanked Keith Smith for having faith in a psychiatrist with a split personality, and they parted ways.

  But not for long.

  CHAPTER 14

  * * *

  BATTLE LINES

  THE U.S. SECRET SERVICE ARRESTED TWO MEN ON TUESDAY NIGHT, December 3, 1968, for running a makeshift coin smelting plant in the basement of 63 Dekalb Avenue in the heart of downtown Brooklyn, where they illegally turned pre-1965 dimes and quarters into bullion bars.1 Nathaniel Robinson and Arthur O’Leary melted the coins in crucibles over gas flames and then poured the mercury-like molten silver into ingots. Investigators found partially melted dimes at the bottom of a steel sink that held the molds. The two men were caught after trying to sell 50 one-thousand-ounce bars to Engelhard Minerals & Chemicals Corporation, the big refinery located in Newark, New Jersey. They had explained to the company that the ingots, which had no engraved certifying marks, came from melting sterling silver scraps. Engelhard workers tested the bars, which failed to pass the 92.5% sterling standard, and reported their suspicions to the Secret Service. The Secret Service has been enforcing the currency laws since it was established in 1865 as a unit of the Treasury Department, and investigators thought this was “the biggest case of illegal coin melting ever uncovered in the U.S.”2 The Service did not start to protect the president and other government officials, its most famous job, until after William McKinley’s assassination in 1901.

  The U.S. Treasury banned melting the high-silver-content coins on May 18, 1967, and violations carried a penalty of up to five years in prison and a $10,000 fine. Perhaps that is why Robinson and O’Leary could buy the coins for only a 10% premium above face value even though silver sold for $2 an ounce in December 1968, a premium of almost 50% above the silver content of the coins.3 The threat of incarceration restrained the competition, giving Robinson and O’ Leary a hefty profit if they had remained out of jail, which would have been easier had they remembered that U.S. coins were only 90% silver and not up to the sterling standard.

  Everything changed less than six months later, on Monday, May 12, 1969, when the Treasury lifted the ban on melting the pre-1965 coins. Richard Nixon had become president on January 20, 1969, and a Republican philosophy had taken hold. The new Treasury secretary, David Kennedy, a white-haired former commercial banker, recommended at the first meeting of the Joint Coinage Commission after he had taken office “that the current administrative ban on the melting and export of silver coins be discontinued.”4 He explained, “In contrast to the situation in the past, the melting ban no longer either keeps silver coins in circulation or contributes to the Treasury’s supply of silver coins.” At the previous meeting of the commission, on December 5, 1968, when the Democrats still ran the country, outgoing Treasury Secretary Fowler recommended that “the Congress enact legislation to make the current administrative ban on the melting of silver coins permanent.”5 He explained that “any profits resulting from the sale of silver in U.S. coins should be realized by the public as a whole through their Government rather than to individual hoarders of these coins.” Laissez-faire had prevailed instead.

  Henry Jarecki approved of deregulation, despite his youthful flirtation with the leftist Young Progressives of America, and was tempted by the more than $2.6 billion pre-1965 silver coins waiting to be plucked.6 The coins contained almost two billion ounces of silver, more than four times the amount in silver certificates when Henry went into the arbitrage business with Mocatta’s Keith Smith.7 He hesitated because another prolonged distraction from his medical practice could be fatal. Susan Silverman, his former office manager at Federal Coin & Currency, who was now working at an advertising agency, had no doubt. She left him a note saying: “I read about the lifting of the melt ban this morning. I have given notice at my job and I’ll be in on Monday.”8

  Henry watched the price of old coins rise immediately after the ban was lifted. On Tuesday May 13, 1969, the day after the announcement, New York coin wholesaler Joel Coen offered to pay a 12.5% premium for large quantities to coin dealers throughout the country. William Crowl, proprietor of a coin shop in Arlington, Virginia, commented, “I may melt them in the back of the shop.”9 It was an idle threat for much of his inventory, however, because coins with numismatic value would remain with collectors. No one knew how many of the $2.6 billion coins outstanding had been thrown into piggy banks ready to be raided versus those with aristocratic lineage, like the uncirculated 1879CC cartwheel, guarded like the family jewels in velvet-lined boxes.

  Susan was right, of course. Henry knew that the logistics for the coin arbitrage “were sure to be harder than they were with silver certificates,” and the harder it was for everyone else the better it was for him.10 He recalls: “I was sure there would be a great need for the gathering, payment, and hedging system I had developed for silver certificates.” He called Keith Smith, who agreed to support establishing a joint venture in the United States between Hambros Bank, owner of Mocatta & Goldsmid, and Jarecki. The first task would be to execute the arbitrage between coins and bullion and then to expand the business and become a dealer in precious metals in America. Jocelyn Hambros, chairman of the Bank, laid down one condition: Henry would have to leave medicine and run the company full time.

  It was not an easy decision. He was in the middle of a ten-year book project on psychopharmacology, Modern Psychiatric Treatment, with his Yal
e friend and colleague, Tom Detre, and he wanted to finish.11 When he mentioned his dilemma to his father, Max, the old man looked as though he had just swallowed arsenic and said, “You are thinking of giving up a profession to go into business?”12 But the attraction of a joint venture with Mocatta & Goldsmid, a company with a storied history, proved irresistible. The firm was organized in 1684 by Moses Mocatta, ten years before the Bank of England was chartered, and became bullion broker to the bank in 1720.13 In 1937 the Wall Street Journal referred to Mocatta as a “leading London firm of bullion dealers.”14 In 1954, when the London gold market reopened after being closed for fifteen years, Mocatta & Goldsmid was one of five bullion-dealing firms invited to participate in establishing the daily reference price for gold, known as the “gold fixing.”15 And in January 1961 the New York Times reported the company’s prediction that “the continued demand for silver would lead to a shortage” and “that the United States Treasury … might stop selling silver to American industry.”16 Two centuries of experience had polished Mocatta & Goldsmid’s crystal ball to perfection.

  Henry could not resist becoming chairman of Mocatta Metals Corporation, a partnership with Hambros Bank that conferred a sense of history and provided access to the deep pockets of the London money center bank. He was also fortunate to meet the bank’s controller, Pat Brennan, a tall and austere man, who asked a somewhat embarrassing question early on: “Tell me do you have any practical business experience?”17 The answer, of course, was no. A successful arbitrageur does not necessarily know how to meet a payroll. Brennan gave Henry a crash course in management to complement the Hambros money and the Mocatta & Goldsmid heritage. He would need it all to confront Nelson Bunker Hunt, the Texan who had given a celebrity-filled party at London’s famed Claridge Hotel the week before America lifted the melting ban in May 1969.18 The five hundred guests were witness to Bunker’s arrival on the international scene—and that was just his opening act.

  CHAPTER 15

  * * *

  NELSON BUNKER HUNT

  THE WALL STREET JOURNAL HEADLINE ON APRIL 25, 1966, “BIG Oil Well Discovery Is Completed in Libya by British Petroleum … Dallas Man Has 49% Interest,” was not Nelson Bunker Hunt’s first taste of publicity.1 Two years earlier he had been implicated by the Washington Post as one of “three wealthy Dallas businessmen” responsible for financing the hostile “Welcome Mr. Kennedy” advertisement in the local press on the day of the president’s assassination.2 Both stories brought an unwelcome glare to the ultraconservative Texan, a member of the right-wing John Birch Society, who was the wealthiest man on the planet at age forty after the Sarir oil field discovery. No one knew exactly how much oil lay beneath the sand, but Britain’s Daily Telegraph trumpeted “The Biggest Pipeline” in describing the 320-mile, 34-inch-diameter pipe “laid jointly by British Petroleum and by Nelson Bunker Hunt” to transport oil from the desert to Tobruk, site of a decisive World War II battle and now a Libyan seaport on the Mediterranean.3

  None of the uncertainty muffled fascination with the size of Bunker’s wealth. His older sister Margaret said, “He owned billions of barrels of reserves, making him richer than Daddy,” which meant a lot since family patriarch H.L. Hunt was the richest man in the world according to J. Paul Getty, who had been given that title by Life magazine.4 Surpassing Haroldson Lafayette Hunt, called H.L. by everyone, meant that Bunker now had the evidence to disprove his father’s taunt, “Stupid boy … I can’t believe you’ve got my genes in you,” one of many put-downs H.L hurled at his least-favorite son.5 Subsequent estimates put a contemporary value of between $6 and $8 billion on Bunker’s share of the Libyan discovery at a time when the number of billionaires in the world could be counted on one hand.6 Bunker enjoyed the uncertainty over his fortune and would respond years later to a related question during one of many congressional investigations into his alleged manipulation of the silver market: “People who know how much they are worth, generally aren’t worth much.”7

  The party in May 1969 at the Claridge Hotel, site of Senator Key Pittman’s bowie-knife rampage for silver thirty-five years earlier, resembled an international debutante ball. The gossip columnists chirped, “American and oil-rich, Mr. Hunt and his wife Caroline, just gave a ball for 500 … with three bands, including Woody Herman’s crew, which they flew over from the United States.”8 The extravaganza turned a giant spotlight on the 250-pound Bunker, whose large oval glasses matched his pie-shaped face, illuminating every stain and blemish. He continued to wear rumpled brown suits, fly coach on commercial airlines, and drive an old Cadillac DeVille that had left its hubcaps on the highway, but his passions became obsessions, especially his purchases of Australian farmland, silver, and racehorses.

  Bunker already owned over two hundred thoroughbreds in 1969, and most were housed in Europe, which explains the London venue of his coming-out party, but he was far from finished. At eight o’clock on Thursday night, December 4, 1969, Bunker bought Decies, a two-year-old Irish colt, for what the London Times described as “the second highest price ever to have been paid at Tattersalls’ sales ring at Newmarket.”9 The Times reported additional Hunt purchases, which it called “a spending spree.” The newspaper then cautioned, “Whether or not Mr. Bunker Hunt has secured a bargain is another question,” an observation that would also apply to his silver buying frenzy that began in 1973. Bunker was a risk-taker, like his father, always trying to prove he was a Hunt.

  Nelson Bunker Hunt was born on February 22, 1926, to H.L. and Lyda Bunker Hunt in El Dorado, Arkansas, an appropriate hometown for a future tycoon. He broke the scales at birth and arrived four weeks late, leading his sister Margaret to say when he was older: “Poor Bunker, he really can’t help being overweight because he came into this world a month old and weighing twelve pounds.”10

  Bunker’s father, H.L., was a successful gambler who used his winnings at the poker table to finance oil exploration. He had an uncanny ability to drill gushers and in 1938, after accumulating a small fortune and six children, moved his family to a fourteen-room mansion in Northeast Dallas called Mount Vernon because it resembled George Washington’s Virginia home. H.L. and Lyda took adjoining bedrooms on the second floor so Bunker and his younger brothers, Herbert and Lamar, shared the large master bedroom and often played games using the laundry chute as a slide (it was a tight squeeze for Bunker).11 There were six safes in the house that remained empty except one Lyda used for canned goods and another where Lamar stored his footballs and baseballs. Bunker had a soft spot for Lamar’s sports obsession and helped him learn to shoot a basketball both left-handed and right-handed. Later on, after Lamar barely made the football team at Southern Methodist University, Bunker drove his mother to the stadium an hour early on game days to watch Lamar warm up on the field with the rest of the team before he took a permanent seat on the bench during the game.12

  H.L.’s oldest son, Haroldson Lafayette III, called Hassie by everyone, was five years older than Bunker and had already joined his father’s oil exploration business when they moved to Dallas. He and H.L. shared a rugged look, broad shouldered with bright blue eyes, and had won the father-son look-alike contest at Hassie’s high school.13 The youngster could also smell the best oil drilling sites like his father, and when Bunker joined the business he suffered in comparison. Not only did Bunker resemble his mother more than his father, he sounded slow and plodding when he spoke, enjoyed taking midafternoon naps, but, most disagreeably from H.L.’s standpoint, he drilled one dry hole after another and could barely find an oil slick at the local gas station. H.L. let everyone at the office know his feelings, screaming, “The boy’s an idiot. I can find more oil with a road map than he can with a whole platoon of geologists. His brother Hassie’s a towering genius compared to him.”14

  But Hassie had a problem. He was mentally unstable, perhaps schizophrenic, and would behave erratically, sometimes leaving the car during a stop in an oil field to roll around in the mud pits.15 He received a medical discharge from the army
during World War II, and H.L. tried every therapy known at the time to cure him, including a prefrontal lobotomy, but nothing helped.16 The failure nearly destroyed H.L. but did nothing to help Bunker, who heard a new refrain from his father: “Get out of my sight, you dimwit. Your younger brothers have more sense in their feet than you have in your whole body. Herbert and Lamar are my true sons. You’re not fit to be my heir.”17 H.L. was right about one thing: Herbert and Lamar bore no outward resemblance to Bunker; they both were as rectangular and neat as Bunker was round and relaxed.

  FIGuRE 14. Herbert, Lamar, and Bunker Hunt.

  H.L. had already established irrevocable trusts for his six children, so Bunker remained a beneficiary despite his father’s rejection. And none of the insults dimmed Bunker’s reverence for the old man, who he considered “much smarter than my brothers and me because he’d been out in the school of hard knocks. He was street smart.”18 Bunker felt that his father “had courage” and was “an unusually honest man,” who would never, for example, contribute to both sides in an election.19 H.L. considered communism public enemy number one, dating the danger, according to his daughter Margaret, from Roosevelt’s and Churchill’s concessions to Stalin at the Yalta Conference during World War II.20 A Hunt employee thought that the boss believed America’s flirtation with the evil empire started much earlier: “H.L. thinks that communism began in this country when the government took over the distribution of the mails.”21