SMOKE AND MIRRORS

 

I miss the old smoke filled rooms – sometimes - when there were no passionate amateurs willing to bring on doomsday, just to shake things up. The process was dispassionate, calculated and handled by people who saw politics as a job, aided, of course, by political writers who supplied the passion in print. From such combinations, legends were born.

On April Fools Day, 1920, bland faced Ohio political manager Harry Daugherty (above) was hastily packing his bags in his room at the old Waldorf Astoria hotel on Fifth Avenue in Manhattan. Into the room sauntered two reporters seeking a quote. 

They taunted Daugherty on his boastful support for the turgid and mediocre Ohio Senator, Warren G. Harding (above) for President.  Nobody else thought Harding stood a chance. The reporters wanted to know just who were these senators that Daugherty claimed would support Harding at the Republican Convention, come June? 

When Daugherty refused to take the bait, the reporters suggested he must be expecting Harding to win the nomination in some hotel back room with a small group of political managers, “reduced to pulp by the inevitable vigil and travail” of a deadlocked convention. 

Daugherty said nothing, so a reporter suggested further that Daugherty must be expecting the managers to collapse about 2:00 A.M. in a smoke filled room. Weary of the dialog, Daugherty responded off handedly, “Make it 2:11,” grabbed his bags and rushed out to catch the train back to Ohio.

The reporter turned that conversation into this quote, which he stuck into Daugherty’s mouth; “I don't expect Senator Harding to be nominated on the first, second or third ballot, but I think we can well afford to take chances that about eleven minutes after 2 o'clock on Friday morning at the convention, when fifteen or twenty men, somewhat weary, are sitting around a table, some one of them will say, "Who will we nominate?" At that decisive time the friends of Senator Harding can suggest him, and can afford to abide by the result.”

And amazingly, that is almost exactly how it really happened. Except that the back room was a suite of meeting rooms in Chicago’s Blackstone Hotel (above) at the corner of Michigan Avenue and Balboa, room numbers 408 through 410, with Room 404 set aside as the reception room.

The suite had been rented by Will Hays (above), the big-eared big-talking “mighty little ear of corn” from Indiana.  He was the Republican National Chairman, and had hopes of being President himself in 1920. And maybe the greatest compliment you can pay the professional politicians of that era is that they did not let Will Hays become President.

The Republican Convention that June was officially taking place 9 blocks south of the Blackstone hotel, in the old Chicago Coliseum (above) on South Wabash Avenue. This cavern had been home to every Republican Convention since 1904. It is worth noting that the building had originally been constructed to house a prison, Richmond’s Libby prison, bought lock, stock, and barrel by a Chicago candy millionaire and shipped north to form the centerpiece of a Civil War Museum. The museum went bust in 1899, and the owner “re-imagined” the space as a public meeting center.

It was into this den of iniquity that some 2,000 delegates and their alternates marched on Tuesday 8 June  1920, sixty years after Republicans had first met in Chicago to nominate William Seward for President, but instead chose Abraham Lincoln. It was an ominous bit of history to consider if you were General Leonard Wood or Illinois Governor Frank Lowden, as they were considered the front runners for the 1920 Republican nomination.

The dour faced Lowden (above) wanted to be president so badly that when both houses of the Illinois state legislature voted to abolish the death penalty, he had vetoed the bill, proving again that politicians are even willing to kill to win a few votes.

In contrast, Leonard Wood (above) had few political skills. He was a Medal of Honor winner who had then graduated medical school and then risen to Army Chief of Staff, and had even won the New Hampshire primary. And while little Will Hays had not entered any of the twenty primaries held that year, he still had hopes that Wood and Lowden would deadlock, and the convention would turn to the little Hoosier to break the tie.

The convention (above) finally got down to the balloting on Friday evening, 11 June , and immediately things started looking up for Hays. On the first ballot Wood led with 285 votes, Lowden showed 211, Senator Hiram Johnson, of California, a Teddy Roosevelt progressive, was third with 133 votes. Far behind was Governor William Spool of Pennsylvania with 84 votes, followed by New York’s Nicholas Butler with 69 votes and Ohio’s favorite son, Senator Warren G. Harding, who had lost in the Indiana primary and could muster just 65 votes. Six other candidates held the remaining 132 delegates.

On the second ballot Wood gained just ten votes, while Governor Lowden’s total grew by 40. But still nobody was close to the 439 votes needed to nominate. General Wood reached his peak on the fourth ballot with 314 votes, then his support started to slip, and Governor Lowden beat him with 311 votes on the fifth ballot. Still, no one seemed to be gathering enough support to win it all. And the longer this went on, the less confidence actual voters would have in the eventual choice. So the professionals stepped in and the convention adjourned for the night. The negotiations shifted to the infamous fourth floor rooms at the Blackstone hotel.

Actually political junkies were meeting all over Chicago that night, but Hays’ rooms at the Blackstone got all the publicity because that was where Associated Press reporter Kirke Simpson was working. He was there to cover Harry Daugherty, because, as you have seen, Harry was always good for a quote, even if you had to spoon feed it to him.

Also present was George Harvey, who ran Harper publishing, and Republican Senators Wadsworth, Calder, Watson, McCormick and Lodge, Utah Senator Reed Smoot, political fixer Joe Grundy, and Lawyer Charles Hillers, counsel to the R.N.C., as well as his client, R.N.C. Chief, Will Hays. Their problem was that none of them could agree upon who the party should rally around, either.

It was, by general agreement, the original “Smoke filled room”, and the 130 pound Hays was the host. Even though he neither smoked nor drank himself, Hays kept the cigars lit and the booze flowing “Neighbor”, he and once said to Herbert Hoover, “I want to be helpful.”  It was his natural instinct.

Harry Daugherty’s (left) natural instinct, on the other hand, was his drive for his man. He said of Harding (right), “I found him sunning himself, like a turtle on a log, and I pushed him into the water. “

Since the top three vote getters were not willing to compromise with each other, the Senators were now looking for “The best of the second raters.”, and Daugherty suggested that Harding was their man. There is no indication that anybody even mention Will Hays - not even Will Hays.

They dispatched a small delegation to Hardings’ room up stairs, and asked the stunned man in his pajamas if there were any embarrassing episodes in his past. Harding swallowed and said, “No”. He was lying, but that would not come out until Harding was long dead.

It wasn't as if the party managers issued orders and the party regulars fell in line. It would take five more ballots before the crowd at the colosseum would give up and hand the nomination to Harding. But as of 2:15 A.M., the decision has been made, just as Daugherty had predicted in the writer's imagination; if nobody seems to be winning, we will rally around Harding and make do.  What a way to pick a president! And it worked.

At 5 A.M. on Saturday 12 June, 1920, Kirke Simpston filed a story that included the following phrase, “Harding of Ohio was chosen by a group of men in a smoke-filled room early today.” And that is how the phrase "smoke filled room" entered the vernacular. The connotation became negative because after Warren G. Harding won in a landslide, he and his “Ohio Gang” - his buddies, including Harry Daugherty - moved to Washington D.C.  There, many of them ended up in jail, or disgraced, or at least spending a lot of the graft they had collected on lawyers.

Harding appointed Harry Daugherty (above) as his Attorney General. And after three heady years, Harry was forced to resign when his chief aide, Jess Smith, was caught taking kickbacks from bootleggers. Harry was taking kickbacks too, but the professional politicians decided not to prosecute him, the important thing was that he had retreated from public view.

Will Hays served as Hardings’ Postmaster General. But after only one year he smelled the impending scandals and got out.  In 1922 Hays took another job, running the Hays Production Code office, which set standards for on- screen morality in the Hollywood film industry. 

It was the Hays Commission which gave us forty years of married couples sleeping only in twin beds, no acknowledgement of drug use, no adultery in marriage without retribution, and endless stories with saccharin sweet "Hollywood" endings.  It was the Hays' Commission that turned Rhett Butler’s exit line as he walked out on Scarlet O’Hara into a major social crises, even though the line already appeared in one of the most widely read books in America, "Gone With the Wind".  

It seemed that Mr. Hays had built his entire career selling smoke and mirrors, and he was not going to get out of that business just because he had gotten out of politics.  But can you imagine what a disaster he would have been as President? 

                                    - 30 - 

THE GREAT SILVER HUNT

  

I think billionaire Nelson Bunker Hunt (above) would prefer to be remembered as a man who did not smoke, drink or gamble, even though he was the son of a flagrant womanizer, who had openly produced two completely separate families, and a third in secret - fifteen children in total by three simultaneous wives, In response to his father's sins, Nelson was a major financial supporter of Fundamentalist Christian political groups.

Nelson was friends with and a financial supporter of white supremacists Senators Jesse Helms, of North Carolina and Strom Thurmond, of South Carolina. He was also a major financial supporter of the right wing John Birch Society.  And he was famous for searching his couch cushions looking to recover lost change, his own and visitors.

Said a family member; “Sometimes he’s brilliant. The rest of the time you wonder whether he’s really there with you or not.” Said a business partner; “He doesn’t just want some of it. He wants it all.”

Said his father, legendary oil man and bigamist Haroldson Lafayette Hunt Jr. (above); “I could find more oil with a road map, than Nelson could with a platoon of fancy geologists”. Said Nelson himself; “Worrying is for people with strong intellect or weak character.”

But maybe the key to his personality was that Nelson Baker Hunt was born a second son. Nelson’s eldest brother - his father’s “run away favorite” - Hassie Hunt (above, left), was an oil wildcatter and “a millionaire in his own right by the age of 21.” And then this older, smarter brother developed schizophrenia and his desperate father decided to treat him with a lobotomy. Since that "Hail Mary Pass" of treatment failed, Hassie spent the rest of his life under 24 hour nursing care.

Thus Nelson (above) became the replacement son. But he was never his father’s favorite. And that may explain why one dark night in 1974 Nelson and his staff descended upon New York City in three charted 707 jets,. When the jets took off again, they flew 40 million ounces of silver to leased vaults in Switzerland.

Now, silver is a commodity, like wheat or oil or steel. You can buy a commodity, and you can even sign a contract pledging to buy it at a set price some time in the future. These futures are a bet as to what the price of that commodity will be. The vast majority of futures traders never intend upon taking delivery of the actual commodity. They merely bet on the market, providing producers and buyers a hedge against price fluctuations of the actual commodity. People who buy gold on TV ought to remember that.

In most cases, these bets stabilize the market, which is good for everybody. And to encourage trading in futures, buyers have to put down only a small percentage of the total price they are betting on, called a “margin”. But Nelson was willing to suffer the expense of transportation, storage and insurance, by actually taking delivery on his silver, because he believed in a doomsday fundamentalist theology, that sooner or later the world’s financial markets were going to collapse. Paper money would become worthless. And if all that happened, a commodity like silver would still have intrinsic value.  Not like, food, you know. Just intrinsic, some how. 

In 1974 the world wide production of new silver was 245 million ounces, while annual consumption was 450 million ounces. The imbalance (67%) was made up through recovery of “scrap silver”, everything from recycling industrial applications to melting down family heirlooms.

But that imbalance also meant the control of a tiny percentage of the world’s silver could swing the price. This meant that every ounce of silver that Nelson bought and now stored in his Swiss vaults was another ounce removed from the market. And that drove the price of the remaining silver up. As the price went up, the silver in Nelson’s vaults increased in value.  Thus, on paper, he was getting richer by the day.

Nelson Bunker Hunt (above) cashed in on that increase by using it as collateral for loans, which he used to buy more silver and more silver futures. Which took even more silver off the market. Which made Hunt's silver even more valuable. He was gambling that the price would always go up, and he seemed to have enough control of the game, called leverage, to insure that it did.

The price rose from $6.22 per ounce in November of 1971 to $11.00 per ounce by the end of 1979. Nelson now controlled 1/3 of all the silver in the world not sitting in various government vaults, or being used to make electronics.

But Nelson’s manipulations had not gone unnoticed. Tiffany and Company made money selling silver art (above) to consumers. They took out a full page ad in the New York Times naming Nelson Hunt as the villain , and stating, “We think it is unconscionable for anyone to hoard several billion, yes billions, of dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver.”  What the retailer meant, of course, was Tiffany was having to pay more, which meant they could sell less.

By the end of December 1979 the price of silver had risen to over $50 an ounce. Five years after that first late night silver flight, Nelson (above, right) and his younger brother (above, left) had earned between two and four billion dollars in paper profit from the (by then) 100 million ounces of silver they had in their Swiss vaults, And they had future contracts to buy much more at even higher prices.

But while Nelson had been buying silver futures “long”, betting that the price would go up, he was also squeezing the manufacturers - like Tiffany's - who needed silver today. They would have to pass their price increases to the millions of customers who used their products...

....such the silver used in the millions of catalytic converters required to reduce air pollution from all automobiles by the new Environmental Protection Agency .  Compared to the universal health benefits of cleaner air, the only  beneficiaries of Nelson Baker Hunt's silver hoarding scheme were the Hunt family and friends. In addition, unchecked, Nelson's speculations held the potential to bring about at least the economic doomsday part of the evangelical prophecy.

On 7 January, 1980, the five year old United States Commodity Trading Commission, which had oversight of all futures markets, issued “Silver Rule Seven" which increased the margin required for silver futures.  Just four days later the price of silver had fallen back to $25 an ounce.

As the value of Nelson’s collateral began to plummet, the brokerage houses and banks which had made him loans to buy silver futures, now issued a $100 million "margin call" on those loans. In effect, Nelson would either have to cough up that $100 million, or fulfill the contracts, and take delivery on and pay for $1.7 billion in additional silver he did not already own.

Early on the morning of Thursday 26 March, 1980, before the commodity markets opened, Nelson’s younger brother and partner, Herbert Hunt (above), placed a telephone call to the chairman of the Futures Commodity Trading Commission and asked him not to open the silver market. The reason given for that extraordinary request was that the Hunt brothers would not be meeting their margin calls that morning – “would not”, Hunt had said, not “could not.”

As John Bloom noted in an article he wrote for the magazine “Texas Monthly” “Here was one of the leading spokesman for unbridled free enterprise in America, asking a federal regulator to close a market. If the federal government would not do that, then he simply wouldn’t pay up.”

That day, the silver markets did open. And they immediately collapsed. The price of silver futures fell from $25 an ounce to $10.20 an ounce. The day passed into history as “Silver Thursday”.

As the Federal government attempted a postmortem, they discovered that Nelson Hunt had assets of $1.5 billion, and debts of $2.43 billion. In short he was bankrupt. In addition he owned 6.5% of one of the brokerage houses which had loaned him money on the Silver Futures, a fact never revealed to the Security Exchanges Commission, which was supposed to regulate those houses. That cross control had been illegal since the Great Depression, which it helped cause.

The feds also discovered that Federal Reserve Chairman Paul Volcker (above) had met with Nelson several times in an attempt to find funding to save him from bankruptcy. all while allowing him to continue to unbalance the silver market.

As Time Magazine noted, Volcker’s “continual monitoring of the situation was interpreted by bankers to mean that the Federal Reserve…favored some kind of bailout to keep the Hunts from going under…(which) showed that when big speculators lose millions, “telephone calls come to Paul Volcker for a quick fix.” Those banks put together a one billion dollar line of credit to save, not the Hunt brothers, but the brokerage house he had defaulted. Yes, it has all happened before. Several times, in fact.

The aftermath to Bunker Hunt’s silver manipulation is also informative. The banks went after the Hunt’s fortune, seeking return of another billion dollars lost in their game. Like all good defendants, Nelson countersued, accusing the banks of lending him money which they knew he couldn’t possibly pay it back. It was an absurd argument, but it allowed Hunt’s fifteen lawyers to negotiate a reduction of the repayment. Yes, the rich really do live in a different world than average people.

In 1998 a federal jury found Herbert Hunt (above, left), Lamar Hunt (above, center) and Nelson Baker Hunt (above, right) guilty of fraud and conspiracy to monopolize the world's silver market. Nelson was banned for life from ever trading in futures again. And finally Nelson Bunker Hunt was personally forced into Chapter 11 bankruptcy.

Nelson was certainly not reduced to poverty. The extended family remained wealthy and politically well connected. A reporter for the Dallas Morning News found in March of 2009 the 83 year old was  living “in relative modesty in a North Dallas house with his wife of 57 years”. The key word there is "relative".  Nelson insisted he had no regrets.

In better times, Nelson Baker Hunt said, “People who know how much they're worth, aren't usually worth that much.” Stephen Susman, one of Nelson’s lawyers, said, “These people are gamblers. If you’re a gambler, you take your shot.” Except, of course, when these rich folks win their gambles, it's their money. When they lose, it's ours. And that has always been true.

                                                   - 30 -