Cornering the market

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In business, cornering the market is an illegal attempt to buy up enough of a particular commodity to allow the price to be manipulated. It is also possible to make even more money by buying low cost futures contracts on the commodity, and selling them at a profit after inflating the price.

Cornering the market has a long and checkered history. Although there have been many attempts to corner markets in everything from tin to cattle, to date very few of these attempts have ever succeeded. This is also due to market forces; when others realize that someone is buying up the futures, it quickly becomes clear what is going on and they all rush in, thereby driving up the prices and making the profits negligible.

One of the most infamous attempts from the early 1960s later became known as the Great Salad Oil Swindle, in which Tino De Angelis not only attempted to corner the market on soybean oil, but sold contracts in the oil and used the money to buy futures as well. In fact it turned out he had no oil, just tanks filled with water, and when the scheme was eventually discovered $175 million evaporated overnight. It does appear that De Angelis fully intended to make the scheme work, however, using the profits on the futures to pay off the loans.

A more recent example occurred in 1980 when brothers Nelson Bunker Hunt and Herbert Hunt attempted to corner the silver markets. Bunker and Herbert started investing in silver as a hedge against inflation, and by 1980 it was estimated that they held one-third of the world's supply of the metal. However when this became clear the price of silver actually fell, and the Hunt brothers failed to meet huge margin calls on their futures contracts. This sparked a panic on commodity and futures exchanges, although a consortium of US banks provided a $1.1 billion line of credit to enable the brothers to pay their debts, which were backed by H. L. Hunt's petroleum empire. When the oil market collapsed in the mid-'80s, the entire Hunt oil company was nearly wiped out, although the brothers still have personal trust funds with hundreds of millions each.

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