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Monday, March 2, 2009

Silver turmoil

Here's my latest from Research magazine, about "The Silver Crisis" of 1980. Excerpt:

This is a story of speculative excess and backlash. It involves commodity prices surging and then plunging, risks spreading through interconnected markets, and financial institutions taking on unexpected exposures and scrambling into mergers to survive.

So it is that the silver crisis of 1980 echoes into the troubled financial present with historical parallels and precedents. The crisis stemmed from an effort by the billionaire Hunt brothers of Texas and collaborators to dominate the world silver market. This effort encountered resistance from public and private players alike, and when it failed it largely wiped out some Texas-sized fortunes.

Moreover, the crisis put at risk a major investment firm, Bache, impelling its acquisition by Prudential and setting off a wave of consolidations in the financial sector. The era of the “financial supermarket,” to which Citigroup’s recent travails arguably signal an approaching end, took shape in significant part as a consequence of silver’s wild swings nearly three decades ago.

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