Bryan Burrough (63 page)

It was over. The next day Herbert informed Bache the Hunts could no longer satisfy any further margin calls. To raise the needed cash, Bache informed the Hunts it would be necessary to begin selling their bullion. The next day, Wednesday, March 26, it began doing just that, unloading silver valued at one hundred million dollars, at a loss. At the same time, Bache notified the CFTC that the Hunts would likely lose eighty-six million dollars in the next day’s trading—money the Hunts didn’t have. Neither did Bache.

Suddenly there arose the specter that a major Wall Street investment bank might founder. This was the kind of news that could easily lead to a wider meltdown of world financial markets. In Washington, Paul Volcker and officials from the SEC and Treasury Department rushed into an emergency meeting. As they did, Bunker boarded a flight home from Paris. Before leaving, he had a letter dropped off at the Associated Press office. It contained a two-paragraph press release stating that the Hunts and their partners held more than two hundred million ounces of silver and that a “substantial portion” of it was to be sold in the form of silver-backed bonds. When the news crossed the wires, silver traders immediately viewed it for what it was, a pipe dream born of Bunker’s desperation. Silver had closed at $20.20 that day. Wednesday saw a massive sell-off. At the close of business the price of silver had fallen to $15.80.

Bache’s chairman, Harry Jacobs, was staring at disaster; every dollar he had lent the Hunts he had borrowed from someone else, and Bache, too, was running out of cash. He pleaded with Comex officials to shut the silver market. They refused. He telephoned Volcker and the CFTC. If silver fell to $9.85, Jacobs warned, Bache’s credit agreements allowed its banks to call its loans. Bache would go under. Wall Street would panic. The entire financial system was in jeopardy. Volcker chaired emergency meetings all that day and into the night, but at two A.M. he finally threw up his hands. The markets would open on time. They had no choice. The government’s regulatory structure simply wasn’t designed to handle a financial crisis on this scale. There were too many chefs, and no recipe for a rescue. Worse, they didn’t have enough information about what Bunker had been up to. All they had was hope.

The next day, Thursday, March 27, 1980, would go down in Wall Street lore as “Silver Thursday.” At eight A.M., ninety minutes before the market opened, Herbert stepped to a pay phone in New York and called a staff gathering at the CFTC. He said market conditions had grown so bad that the Hunts would no longer pay their debts by selling silver; he urged the CFTC to close the market and take the unprecedented step of forcing holders of all silver contracts to settle at Wednesday’s closing price, $15.80. Herbert’s idea would allow the Hunts to sell their silver for $2.5 billion; after paying their debts, they might yet see a profit of $1 billion. If the market opened on schedule, Herbert warned, the consequences would be dire. “All the Hunt family will be washed out,” he said. “We will go broke.”

CFTC commissioners convened an emergency meeting at 9:30, nine people on nine phone lines with nine sets of opinions. It was impossible to tell what was actually happening, whether the Hunts actually faced a financial implosion or not. Maybe this was some sort of convoluted Hunt scheme to corner the market. No one knew. No one knew what would happen if the Hunts really were out of money.

“What about oil wells as collateral?” one commissioner asked.

“The Hunts say they have collaterized everything,” a staffer answered.

“We just don’t know,” said another commissioner.

When trading commenced, every kind of rumor swept Wall Street trading floors. The Hunts had a one-billion-dollar margin call. Bache had a one-billion-dollar margin call. Merrill Lynch and the Hunts’ other lenders, including First National of Chicago, might go under. Traders could agree on only one thing: sell. By noon an orgy of panic selling drove the price of silver down to $10.80. The stock market, staring at a worldwide meltdown, dropped like a stone, hitting its lowest level in five years, then, on the strength of rumors that the Hunts would somehow survive, rallied, ending the day almost even. And to everyone’s surprise, the price of silver held through the day, closing at $10.80.

It was, all the papers agreed the next day, the wildest single day of trading since the 1929 stock market crash. Wall Street had survived. Bache survived. Somehow, to the CFTC’s amazement, the Hunts survived. All around the world, in Washington, in Paris, in the Persian Gulf, traders held their breaths: Was it over? No one knew. The wary silence extended into the Friday trading day. To the relief of everyone, the markets calmed. Silver closed at $12. At the Federal Reserve, Volcker and his staff were just beginning to think the worst was over when, out of the blue, came ominous news. The Hunts, it turned out, owed Englehard $665 million for nineteen million ounces of silver, all due that Monday. If Englehard sued, the Hunts would have no option but bankruptcy. Worse, the Hunts faced another $900 million of silver-related debts in the coming weeks. If the Hunts defaulted, silver would collapse. The panic of Silver Thursday would resume—and spread.

For the moment, everything depended on Englehard and the Hunts. That Saturday Englehard executives flew to Dallas, where they met with Herbert and Lamar, who had quietly purchased a good deal of silver himself; Bunker was off traveling again. The Englehard men, led by CEO Milton Rosenthal, were polite but straightforward: pay on Monday, or be forced into bankruptcy. Herbert walked Rosenthal through a list of every asset the Hunts owned, from oil fields and ranches to all of Bunker’s racehorses. All of it, Herbert emphasized, was already collateralized to someone else. There was no free cash. None. The Hunts, he said, were “under water.” Bunker appeared the next day, hopelessly jet-lagged. At one point, he heaved a sigh and uttered probably the most famous words to ever escape a Texas oilman’s mouth: “A billion dollars,” he said, “isn’t what it used to be.”

The only possible solution, everyone could see, was a loan, a big one, maybe a billion dollars or more. In one small way, they were in luck. That same weekend every major banker in the United States, including all the Hunts’ principal lenders, were gathered at the Federal Reserve City Bankers Association annual conference in Boca Raton, Florida. Paul Volcker himself was there, as a scheduled speaker, and he gave his tentative approval for some kind of bailout package. On Sunday both the Englehard and Hunt teams boarded private jets and arrived in Florida in time for meetings to begin that night at 10:00. Before heading to bed, Volcker told the bankers to keep him informed. As talks stretched past midnight, Volcker, clad in a wrinkled pajama top over his suit trousers, stuck his head into the talks a time or two.

By sunrise the outlines of a deal had begun to emerge. The Hunts agreed to give Englehard 8.5 million ounces of silver, plus a 20 percent interest in oil properties they owned in the Beaufort Sea off the northwest coast of Canada. Once Englehard was made whole, the question became what to do about the Hunts’ remaining debts. No one involved was eager to make new loans, but without them, Bache and other major Hunt lenders were at risk of collapse. At Volcker’s gentle urgings, a bailout package slowly took shape. For the Hunts, it came at a steep price. In return for $1.1 billion to repay their silver debts, the Hunts agreed to mortgage almost all of Placid Oil’s assets, including 114 producing properties in North America, its best fields in Louisiana, and all its best tracts in the North Sea. At the time, it was the largest bailout of its kind in U.S. history.

In return, Bunker’s older sister, Margaret Hunt Hill, demanded he and Herbert mortgage almost all
their
personal assets to Placid—all the racehorses, all the ranches, all the ancient coins, plus four million acres of oil and gas leases in Bunker’s name, seventy thousand head of cattle, just about every last thing he and Herbert owned, down to CB radios, lawn mowers, and a water cooler. It was humiliating. But Bunker had no choice. The press coverage, predictably, was withering. Cartoonists depicted the porcine Bunker as a pig wallowing in silver.
Newsweek
put him on its cover. It and every other magazine leaped to compare him to J. R. Ewing, a comparison Bunker loathed.

Somehow, the Hunts had survived. Thank goodness, everyone agreed, the price of oil had kept rising, keeping the family’s far-flung energy businesses healthy despite all the new debt piled on their balance sheets. As long as oil prices kept rising, Bunker and Herbert saw, everything would be okay. As long as oil prices kept rising.

—JOKE MAKING THE ROUNDS IN MID-1980S DALLAS

B
y 1982 Texas Oil had luxuriated in a solid ten years of record-high oil prices. Life was good—very, very good. The state’s economic boom, however, couldn’t last. The problems, as usual, began far outside Texas. A decade of skyrocketing oil prices had forced the world’s utilities to scramble for cheaper sources of energy, leading to a wholesale recovery of the coal industry and especially the nuclear power industry, both of which by 1980 emerged as prime competitors to oil; oil’s share of worldwide energy use began to fall, from 53 percent in 1978 to 43 percent in 1985. Oil demand shrank even further as Western countries begged their consumers to conserve energy—turning off unused lights and the like—while 1975 legislation mandating a doubling of automobile fuel efficiency cut American oil consumption by two million barrels of oil every day. The killer, though, was the 1979-82 recession. Out-of-control inflation forced the Federal Reserve to implement unprecedented restrictions in monetary policy, which drove interest rates to new highs, which in turn choked off government and corporate spending, which plunged the United States and much of Europe into the worst recession in fifty years.

All these factors—competition from other fuels, conservation, a deteriorating world economy—cut deeply into oil demand, which by early 1983 was forcing the world’s oil-producing nations to ponder what had once been unthinkable: cutting prices. That February Britain reduced the price of North Sea oil three dollars, to thirty dollars a barrel. The government of Nigeria threatened to reply in kind. A month later OPEC oil ministers, meeting in London, announced the first price cut in their history, cutting prices by 15 percent, to twenty-nine dollars a barrel.

In Texas, drill bits began whirring to a halt. Across the state, wildcatters who had borrowed heavily to drill expensive deep wells saw the value of their collateral fall. Banks began calling in loans; many of the new wildcatters born during the 1970s began to go bankrupt or, like George W. Bush’s renamed Bush Exploration Company, limped into shotgun mergers. As oilmen failed, Texas banks weakened. In October 1983, just eight months after the OPEC price reduction, the state’s largest independent bank, First National of Midland, collapsed. In the next decade nine of the ten largest Texas banks would follow suit.

Texas Oil, the engine of the state’s economy, coughed, then sputtered, then began, with a series of violent backfires, to die.

Two weeks after John Murchison’s death in June 1979, his thirty-one-year-old son, John Dabney Jr., moved into his corner office at Murchison Brothers. To those on the twenty-third floor, it was a show of stunning audacity, but John Jr. was just getting started. One of his first acts was sending a memo to his uncle Clint. “I want Murchison Brothers dissolved quickly,” it read, “and I want the trusts delivered.”

Clint just smirked, then crumpled the memo and lobbed it into a waste-basket. “We’ll just call that the Dabney file,” he mused.
¹

If John’s death was a shock to the Murchison family system, its aftermath was worse. Within days of his funeral, John Jr., as coexecutor of the estate with his mother, Lupe, had taken control of his father’s affairs. In the process he ripped away the veil of civility that for years had lain across the family’s festering disagreements. As a businessman John Jr. was a rank novice, but he knew enough to realize that, left unchecked, Clint’s investments could bankrupt them all. He wanted his family’s fortune free from his uncle’s speculations, but most of all he wanted his inheritance, and he wanted it yesterday.

Unable or unwilling to confront Clint directly, John Jr. racked his brain for a way to gain leverage. He found it in the steady stream of paperwork that now crossed his desk. Every investment, every loan—just about every significant piece of paper that went out under the Murchison Brothers letterhead—required two signatures, and in the summer of 1979 John Jr. simply stopped signing. In a matter of weeks the surging engine that was Murchison Brothers began to sputter. What John Jr. signed were memos, memo after memo after memo, all marked to his uncle’s attention and all demanding that the trusts be released. Clint, it appears, threw every last one into the Dabney file.

To himself, John Jr. suspected Clint would never relinquish the trusts without a fight; too much of their stock was already pledged for Murchison Brothers collateral, and Clint needed every available asset to surmount his continuing cash-flow problems. In John Jr.’s mind, there was only one thing to do. As summer turned to fall, he began canvassing the best attorneys in Dallas, looking for a lawyer brave enough to sue Clint Murchison. To his dismay, he couldn’t find a single one. It wasn’t just that half the Dallas bar had done work for Murchison Brothers. For anyone planning a career in Dallas, suing the owner of the Cowboys was suicide. After months of frustrated interviewing, John Jr. ended up hiring an obscure country lawyer based in Georgetown, north of Austin, to begin planning his legal assault.

By autumn the atmosphere on the twenty-third floor had turned glacial. Clint and John Jr. had stopped speaking. Just about everyone at Murchison Brothers, from the secretaries to the garrulous Lou Farris, who had emerged as Clint’s right-hand man, sided with Clint. To be seen speaking with John Jr., much less entering his office, was viewed as a ticket to the unemployment line. As his nephew’s obstructionist campaign continued, Clint, growing angrier by the day, turned to the one person who might be able to control him: his mother, Lupe.