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Rothschild's Pigeons, Or How to Spread a Rumor

 


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Napoleon got defeated by the British in the battle of Waterloo. The real hero however of this operation was not a marshal, but a banker: Nathan Rothschild; “he didn't fire a gun; he wasn't even near the fight. " But he was in the possession of carrier-pigeons. These brought him the news to London. Rothschild was the first to know that the French were defeated, but in London he released the rumor of a fulminating French victory. In this way he misled the market by selling bonds and assets. The market would follow him as “he always knew what he was doing. " Later he bought the shares back for dump prices. England won the war, but lost on the stock exchange.

Eduardo Galeano wrote this anecdote in his book “mirrors. "

Rumors are now also part of the financial business. They cause great uncertainty in an already manic-depressed (with emphasis on depressed) market. Today banks are the target of rumors.

I wonder where these come from. In recent events it appears that banks that got nationalized have faced heavy attacks from rumors. A sort of modern-Spam and virus that is spread to cause the highest amount of damage. That could be the case here. Damage a bank in this climate by issuing a rumor. And than to target the company with a possible take-over later on? In war everything is allowed, they say, and these times seem scarier than wartime.

What is the role of traders? They are used by investors to inform them about the market movements. This information may be bi-directional. Think about a patient in the hospital. It comes to get cured, but sometimes it enters an infection that contaminates the whole hospital.

The whole financial world - banks, brokers, investment houses, etc -offers the fundament for the real economy and is part of the real economy. Knowledge is what is the key driver in this (financial) world. And fore-knowledge is power, like Rothschild's’ anecdote shows.

It is therefore possible that the rumors - today this bank, tomorrow another - are being spread by people who want to damage financial institutes. Knowing that these have performed well over the years. A sort of “Me-too" effect? It remains all but a hypotheses, but imaginable. Banks exist because of trust. And this role offering trust is what is problematic today. And in light of (not only recent) history this partly due to their behavior.

H. J. B.

© 2008 Hans Bool

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