Who else wants the secret of Rothschild?

In case you're wondering about the title, I've combined two of the suggestions from a site dedicated to showing bloggers 'formulas' for blog headlines. Admittedly the site is aimed at online marketers, and I have nothing to market apart from a few poorly constructed posts and armchair social observations. Nevertheless I've combined two of them ('who else wants..' and 'the secret of..') so the formula should be twice as powerful! (That’s how it works right?) I have also decided, in the wake of the flooding of articles relating to the financial crisis, to stop writing about the financial crisis (and the minutiae that accompanies it). After this post.

All this financial tumult has provided plenty of watercooler chatter, and everyone’s throwing around buzzwords of the day. These include (but are not limited to) the following: Recapitalisation, mark-to-market, credit default swap and negative equity. Recently we've also seen the re-emergence of a fancier term for 'pyramid scheme', the Ponzi scheme - which when thrown into watercooler chat also allows one to use the names Bernie Madoff and Charles Ponzi, the mail fraud maven whom the term is named after.

Additionally, those interested in sounding interesting seem to have suddenly become interested in the history of finance, similar to when they suddenly took an interest in previous presidential speeches during the Obama campaign (followed by e.g. 'That was Kennedy right?'). That's not to say that keeping in tune with topical conversation is a bad thing, but the speed at which false historical accounts spreads through word of mouth (office or elsewhere) is alarming - perhaps there should be a section on the email/internet hoax site snopes.com for word-of-mouth hoaxes and misinformation. The most recent one going around has inspired me to get history straight so that at least the 10 or so people that might read this will be able to spread the correction. Namely, the story going around involves that 'Napoleon of finance' Nathan M. Rothschild. Of course the Rothschild’s were a wealthy family by the time Nathan entered the family business, but it was he who took them from moderately wealthy to stratospheric heights of wealth not seen till perhaps the Rockefeller dynasty.

So this week I heard the same story twice, on opposite ends of the city, that Nathan Rothschild created his family's banking powerhouse by being able to receive news of Napoleons loss at Waterloo before everyone else (he had extremely fast couriers, which is true), at a time when Napoleon was surging through territories voraciously enough that many thought the British would also suffer defeat. In this version of the story, Rothschild, having early knowledge of Wellington's victory, buys up British sovereign bonds at a low price (the price being low because of speculation of a Napoleon victory) and sells them a year later for a massive return after British victory and financial stability returns - government borrowing reduces after the war is over, sending bond prices up and the Rothschild fortune in the same direction. This version of the story, heard across two areas of the city (not in the exact same words naturally) was enough to make me go back and check its validity. Now some may say this is not a representative enough sample - but if those two people tell another two people and so forth, you can see how this inaccuracy can be a problem - it's like when everyone at the White House thought there were nuclear weapons in Iraq, that’s how that started. This is actually far from the real story, and neglects a few key details. Now it's time to launch into history mode, SMRM style.

Nathan Rothschild was, according to the 4th Lord Rothschild (his great-great-great grandson, which makes him very great indeed) 'short, fat, obsessive, extremely clever and wholly focused....’ Meyer Rothschild had ran a moderately successful antique dealing and bill-brokering business, and in efforts to expand he expatriated his sons across Europe with Amschel (Frankfurt), Salomon (Vienna), Calmann (Naples) and James (Paris) spread across mainland Europe, and Nathan sent to London to conduct business. After arriving in 1799, making most of his business purchasing textiles and sending them back to Germany, Nathan entered the banking business in 1811 not through his own directive, but being fatefully approached by the British Government themselves. Napoleon was at this time conducting his efforts in earnest, setting up a blockade imposing trade from Europe to England. The British Government approached Nathan as he had acquired valuable experience smuggling gold to the Continent, often in breach of these blockades. Britain’s Commissary-in-Chief, John Herries, was authorised to employ Rothschild to (confidentially of course) collect the largest quantity he possibly could of French silver and gold from Germany, France and Holland within 2 months.

Nathan and his brothers stretched their trade channels and executed the commission well enough that by May 1814, he had advanced £1.2 million to the Government (almost twice the expected target) and collected hefty commissions for himself in the process. The Rothschilds, being spread out across Europe, were now in a great position to exploit price and exchange rate differences between markets (arbitrage). Rothschilds also handled 12.6 million francs of subsidies to be paid to Continental allies, as such Nathan was 'a very useful friend' according to the Prime Minister Lord Liverpool. When Napoleon famously left his exile in Elba, deciding to revive his Empire (March 1, 1815) Nathan Rothschild responded by buying up all the gold and coins him and his family could get their hands on - totalling almost £9.8 million. In this purchase, they had assumed the war would be a long one, the gold necessary for its funding. This proved to be an almost fatal miscalculation, as the belated arrival of the Prussian army dismantled Napoleons chances at Waterloo, to the exaltation of Wellington (he of the boots) and co.

Thanks to the speed of his couriers, Rothschild received the news 48 hours earlier than the official dispatch sent to the Cabinet. However, unlike the urban legend suggests, this news was hardly positive from Nathan's standpoint. Now the family was 'sitting on top of a pile of cash that nobody needed - to pay for a war that was over' (Ferguson, 2008). With the coalition dissolved, and the armies disbanded, there were no more soldiers’ wages ant no need for subsidies to Britain's wartime allies. During the war when Government borrowing and demand were high, gold prices soared, but now they were bound to have a post-war fall. Rothschild was faced with heavy and growing losses.

It was under this predicament that Nathan made one of the most audacious trades in financial history. Using much of the gold Rothschilds acquired, Nathan made an enormously risky bet on the bond market, buying up great purchases of 'stock' (as reported in the Courier 20th July, 1815, meaning Government bonds). The idea was that a reduction in government borrowing following victory at Waterloo, would soon escalate the price of British bonds (upwards escalator, not the one going downwards that is more stressful on the knees and which old people claim is more difficult to get on). Nathan bought, and as the price of consols began to rise, bought some more. I think N*Sync's 'Buy, Buy, Buy' is about shopping, right? - think of this song as the soundtrack for this part of the event. Despite his brothers' desperate calls to suppress the gamble and realise faster profits, Nathan held his nerve for another year, eventually selling his stock in late 1817 when bond prices were up 40%. As historian Niall Ferguson notes 'Allowing for the effects on the purchasing power of sterling of inflation and economic growth, his profits were worth around £600 million today'. Now that’s alot of breadsticks.

Why? Why have I derided a site dedicated to interest and mockery of small oddities and anomalies of our activities, and suddenly turned history professor? Because now when you hear the inaccurate version of the story, you can be that annoying woman/man who uses one finger to correct her/his glasses (from the middle), then raises her/his finger slowly and begins with 'Actually...what happened was...' and proceed to regale them with some enlightenment. This is for all of the correctors, and if someone started a sentence with 'Actually...' in the White House 8 years ago, who knows where we'd be, a better place I'd like to think. And after you're done correcting them with the Rothschild story of wealthy to swealthy (that’s stinking-wealthy), no doubt you'll find yourself with a captive audience around you, and so you can ask 'Who else wants the secret of Rothschild?'

Doom and Gloom, clouds in the boardroom

Unlike many other popular expressions in the English language, 'Doom and Gloom' which has likely featured somewhere in every form of media since September 2008, is not derived from the King James Bible or that colossus of adage and maxim, William Shakespeare. The phrase has its humble beginnings in the 19th Century Newspapers in the U.S. - take for example this ominous titbit from The Statesville Landmark (1875) "Slowly, and with a tone of doom and gloom, the ponderous clock began striking." Moreover, the phrase was predominantly used in economic and political pieces. However, with nationwide literacy rates still relatively low in the mid 1870's (approximately 50% illiteracy in the U.S.) it's unlikely that Jeb from the anvil factory was going to pick it up and pass the ball till word spread of 'doom and gloom' and the devils earpiece invented by Alexander Graham Bell.

The modern proliferation of the expression can be attributed to that steadfast bastion of the American golden years, the Broadway musical. Specifically, it was the 1947 musical Finian's Rainbow (also popularised for later audiences through revivals and a film adaptation) which spouted a classic line from the pessimistic leprechaun Og "Doom and gloom... D-o-o-m and gl-o-o-m... I told you that gold could only bring you doom and gloom, gloom and doom.” Nowadays you may find "doom and gloom" employed as phrase of the crisis in all media forms. Googling "doom and gloom" proves its popularity also runs across industries - with articles on doom and gloom in finance, I.T., fashion and even fruit juice companies (economic Boost anyone?, Stimulus Jamba Juice?). Although the locution has its origins in Broadway, it is precisely that staple of popular culture that has been thriving despite the global gloom and doom. Broadway ticket sales are surging, even improving during the early part of 2009 on previous earnings from February 2008. True that some of this effect can be attributed to the potential 'ticket tax' that may be passed by New York state, adding an extra $10 to theatregoers bills, however the irony brings a wry smile to the faces of those who are jobless and have time to dig for it (this blogger falls into said category). How can the financial services industry, which has so long eschewed the values of honesty, integrity and basic competence we learnt from musicals such as Chicago (crooks become celebrity) and Westside story (ethical gangster show) suddenly owe so much to the not so humble song and dance narrative..right? Surely a musical about the falling giants of Wall St - complete with Bull symbolism, choreography in the shape of plummeting stock prices, a hedge fund that actually deals in hedges (those of the garden variety) to save itself and numbers like ‘Lehmann Brothers to the gutters’ - is in tall order (and I would say, timely). Also if produced before the NY ticket tax, it may even be profitable – thus becoming the only thing related to financial services that is so.

Doom and Gloom, like a team of parasitic bit-players (think the evil twins in Cinderella, Rosencrantz and Guildenstern in Hamlet) have filtered their way through the media, via a hopelessly deregulated U.S. market, to all of us to the point where we aren’t even buying underwear. Is there more of a basic human right to be denied? A society in recession and without underwear is a worry indeed. So the recession is real, Pacific Brands has canned 1,850 jobs in Australia, Macquarie Bank had a period prior to Christmas where almost 50 heads were rolling each week, and countless others in financial and other industries are afraid that any second the boss is going to lean over their desk and ask them to come in 'for a chat' or to simply leave with only their personal belongings. As if the layoffs weren’t enough bad PR for these large conglomerates, Pacific Brands, one of the great underwear suppliers (I have some) and now much maligned employers, are paying the Cato Counsel PR firm up to $50,000 per month to revive their public image. Somehow I think that strategy in itself will work against them. Perhaps there should be a PR firm to revive the PR of the PR firm hired to revive the PR of a brand with failed PR. The firm could be called Doom and Gloom PR, their mascot Og from Finian’s Rainbow, assuring us that despite the volatility of financial markets, not even ‘stable’ investments such as gold can escape a global recession “I told you that gold could only bring you doom and gloom, gloom and doom." An optimist might say that the bit players always lose out in the end (see Cinderella, etc), a realist might say this is just the beginning of the play and they will still make us scrub the dirty floors for a while.

One man’s recession is another man’s boom, as they say (I don’t know if anybody has actually said that, but surely someone has). Federal departments have too long been bogged down by mediocre staff, unable to offer top guns the salaries they receive in the private sectors. Now, with big name firms falling faster than a man without a parachute, Governments wait eagerly with napkins on laps, holding out the trampoline below. They are preparing for a net grab, to get the best hired guns who worked for the very companies that strove to find loopholes in federal law to maximise profits. Yes, the silver lining has come in 2009 and it’s called The Year of the Regulator.