Published by Mark

Remember Nelson Hunt’s “Silver Bankruptcy”? Not All Gold Glitters!

February 9, 2009 at 10:28 am

One of the most famous true bankruptcy stories is the one about Nelson Bunker Hunt, who went from being the world’s richest man to filing the biggest personal bankruptcy in history.  According to the book “They Went Broke”, Hunt didn’t overspend to support a lavish lifestyle – quite the opposite.  He wore ill-fitting suits, avoided swanky restaurants, drove aging Cadillacs, and flew coach.  Nelson Bunker Hunt became a billionaire by investing in silver in the l970’s, starting small and ultimately controlling one third of the world’s silver supply. In the one year of l972, silver prices went from $2 to $50 an ounce, and in the next year Hunt’s net worth of $1.5 billion had plunged to $200 million.

Why is it important for me, a bankruptcy attorney in Indiana, to remind my blog readers and bankruptcy clients of this sad but all-too-true tale? Well, when silver was rising dramatically in price, ordinary people rushed to melt down their family heirlooms, silver coins, jewelry, dishes, and even silver belt buckles to cash in on this “fabulous” investment opportunity.  As the supply poured it, demand weakened (you remember that from economics class in high school, don’t you?) and all those people lost money along with Nelson Bunker Hunt.

One more sign of the difficult economic times we’re experiencing are all the advertisements about gold we’re hearing so much of on the radio on TV, and especially on the Web. Many of these promotions ask you to collect gold jewelry, antiques, coins, anything you have with gold, and to put those things in a “special envelope”, so you can receive money within twenty four hours (Can you see why Nelson Bunker Hunt comes to mind??)

Now, I don’t mean to imply that gold can’t serve as a valid investment.  In fact, investors traditionally put a small percentage of their assets in gold as a “safe haven” against economic and political crisis, and as a hedge against inflation. Generally speaking, gold prices move in inverse direction from the stock market, so when stock prices are falling, gold prices tend to rise.

I’m worried about two things, though.  First, asIndiana Secretary of State Todd Rokita warns, before sending any of your valuables to any company that solicited you via the internet or by phone, you must be sure you’re not being victimized by a “boiler room” scam. When it comes to putting your gold jewelry in an envelope, the Securities Division of the Indiana Secretary of State’s office warns that con artists often use overnight courier services such as FedEx or Purolator to avoid mail fraud charges, or even offer to send couriers to pick up your gold.

Second, as the laws of economics continue to operate, we know that any time demand becomes unusually high, like pride in the old saying, it “cometh before a fall”. There are too many hardworking people who are being affected by the economy’s downturn – I hate to think of things getting worse the way they did in the 1970’s when silver prices came crashing down, not only on billionaire Nelson Hunt, but on all those small investors along with him.

The Indiana bankruptcy system is designed to serve as a safety net for people who, because of job layoffs, severe medical illness, divorce, or business failure, need help regaining control of their financial lives. The fact is, no government safety net can possibly stretch far broad enough to cover the many, many victims of scams.  Our parents and grandparents warned us: All that glitters is not gold.  And now, as a bankruptcy lawyer I want to add a new warning:  Every gold “investment opportunity” or “trade-gold-for much-needed cash opportunity” doesn’t glitter!

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