Changing the Rules -- It Can and Will Happen Again
In late 1979, the Hunt brothers controlled over 200 million oz of silver, half the world's supply. The Hunts had future contracts but they were always taking delivery. Major interests in the world had short positions, including many members of the CBOT. And when major interest get cornered and have a financial problem, they CHANGE THE RULES FOR HOW THE GAME IS PLAYED. And here's what happened.
1) The CBOT changed the rules and said no individual could hold more than 3 million oz of silver. Simultaneously, they raised the margin requirements.
2) The COMEX changed their rules and said no individual could hold more than 10 million oz of silver. The COMEX has always been a very suspicious exchange. The COMEX than susupeded silver trading. You could liquidate silver positions but you could not buy silver.
3) Lastly, the Federal Reserve stepped in and Volker raised interest rates. This means that the rates the Hunt Brothers paid for their siver went up dramatically.
The net result was that the Hunt brothers could not afford the margin costs of their positions. And they were forced to liquidate. In a period of several months, with all these rule changes, silver went from over 50/oz to under 10/oz. The Federal Reserve actually had to organized a billion dollar bailout of the Hunts to prevent a financial collapse.
Could it happen again? Of course, people who have money make the rules about money.
What's the next big rule change that will affect lots of people. I think I know, but I don't want to say here.
Comments
nice entry.
Posted by: mark | September 11, 2006 10:24 AM
I'm interested in what you think the next big rule change will be.
Posted by: Nathan | September 11, 2006 10:46 AM
4 wild guesses at possible next big rule changes:
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(1) we (the gov't) will pay every dollar that we promised every-one (isn't that great!) but we'll do it with dollars that are worth-less. So you may get $2,500 a month from social security but years from now in your retirement that won't even cover your electric bill.
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(2) taxes go way up to help pay for all the promises (and if you object then the pro-tax crowd labels you as "selfish greedy rich").
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(3) sorry but the $ in the Roth 401k that were growing tax-free and coming out tax-free? they need to be taxed, too. (don't object, see previous)
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(4) if things really get bad then back to the 30s! no personal gold - we'll help you open your safe deposit box to turn it in at a low-ball price that we set.
Posted by: steve | September 14, 2006 03:54 PM