The Great Chicago Onion Ring
In 1980 Ronald Reagan famously said, “The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help.” In this day and age, when the government is talking about price controls and implementing taxes on unrealized capital gains, we should be wary of unintended consequences.
Let me tell you the story of Vince Kasuga. Vince Kasuga was an entrepreneur and trader who liked to carry a billy club and a 0.38 caliber pistol on him. He drove stock cars on the weekends and once crashed a plane over Oswego, NY after it ran out of gas. He ended up in a full-body cast.
But Kasuga is really known for his scheme to manipulate the onion futures market in the early 1950s.
Vince grew up on a 5000-acre black dirt farm and had an insider’s understanding of onions. He was also a successful futures trader in Chicago, primarily on the wheat desk. He once bribed a weather bureau to issue a frost warning in order to inflate the price of futures contracts. The warning went out, the price of the contracts went up, but the temperature never dipped below 50 degrees.
Vince saw potential in the onion futures market which was the largest contract traded at the time. Kasuga, along with his partners began buying up massive quantities of these contracts.
At the same time, they bought and hoarded massive amounts of onions and kept them off the market, adding to scarcity and driving up the price of onions. At one point the cabal owned 98% of the contracts and the price of onions hit $2.75 a bag.
It was just like the Eddie Murphy movie Trading Places but with onions instead of oranges.
The bottom fell out of the onion market in late 1955. The Chicago Mercantile Exchange, which handled the trading of onion futures, started to notice the unusual activity and investigated. They discovered that Kasuga and his associates had indeed cornered the market, leading to accusations of market manipulation.
The Exchange intervened, and the market for onion futures was abruptly halted. With the market manipulation exposed, prices of onions dropped to $0.10 a bag. At one point the onions were selling for less than the bag that held them.
Kasuga’s scheme fell apart as the inflated prices collapsed, and many traders who had invested heavily in the inflated market lost all their money. Farmers went into bankruptcy and the public demanded that “Something be done!”
The scandal had significant repercussions. The government got involved and tightened the screws with more regulations and reforms in the futures markets to prevent similar things from happening. The Commodity Exchange Act of 1936 was updated, and new rules were implemented to ensure greater transparency and fairness in trading.
But they went further and pushed a bill known as the Onion Futures Act, which banned futures trading on onions. The bill was unpopular among traders, some of whom argued that onion shortages were not a crucial issue since they were used more as a condiment rather than a staple food. But it passed anyway and was signed into law.
And that is why to this day you can buy futures on just about every commodity but not on onions in the United States. It is illegal.
You might think this is a good thing but futures serve a purpose. Farmers use futures to manage risk, ensure price stability, and create their budgets. It is hard to get a loan for new equipment if you can’t be reasonably sure you’ll make a consistent profit.
As for Vince Kasuga, nothing much happened to him with the exception of Congressional hearings where he was quoted as saying: “If it’s against the law to make money… then I’m guilty”.
He moved back to New York, opened an onion-themed restaurant next to his onion farm, and proceeded to give his money away. Over the years he became well respected for his philanthropy, and in 1987 was named Pine Island Citizen of the Year by the Pine Island Chamber of Commerce.
All the best,
Christian DeHaemer
OutsiderClub.com
https://www.outsiderclub.com/one-to-buy-now/
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