Nathan's Next Investment Moves

May 25, 2011Marketsby David Smith

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The World's Richest Family - You Didn't Know About
The World's Richest Family - You Didn't Know About (Part 1)

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“The Prussian loan set a new trend in foreign loans,” said Ireland. “For the first time dividends were payable in London rather then abroad, and in sterling rather than a foreign currency subject to exchange rate fluctuations. The loan was a great success, and in 1822, by issuing further loans for Prussia, Russia and the Bourbon government of Naples, Nathan became the leading contractor in the foreign loan market.”

Even more significant than these massive loans, was Nathan’s use of the government bond, which created the world of banking as we know it today. “Nathan operated principally as an underwriter and speculator in the early 19th-century bond market,” said Ireland. “He and his brothers invented, or at any rate popularised, the government bond, which allowed investors to buy bits of the debts of sovereign states by purchasing fixed-interest bearer bonds. Governments liked this because they could use them to raise colossal sums of money. Investors liked them because they could be traded - at prices that fluctuated in relation to the performance of the issuing government - and shrewd investors could make big sums.”

Nathan Rothschild became so important that in 1825 he rescued the Bank of England after a run on gold caused the collapse of 145 banks. But he remained – as has always been the Rothschilds’ way – discreet, avoiding ostentatious behaviour.

“He did not flaunt his money. He was not interested in the trappings of wealth. His only real interest, apart from his family, was his business. His contemporaries remarked on the fact that the richest an in the world should be content to live from 1819 in a pretty villa at Stamford Hill,” said Ireland.

The Rothschilds gradually extended their reach throughout the 19th century. They invested in the Spanish Almaden mercury mines, and the Rio Tinto copper mines, as well as in gold, diamonds and rubies. And in 1886, they bought into the oil trade, forming the Caspian and Black Sea Petrolium Company.

In the 20th century, they remained immensely powerful, but there relative wealth declined. The Great Depression of the 1930s lost them a lot of money, as did the rise of Nazism. But a number of strategic blunders also cost them dearly. According to Professor Niall Ferguson, the author of two books on the rise of the Rothschilds, their biggest blunder was the failure to establish the bank in America. By World War I, J. P. Morgan had eclipsed the Rothschilds as the linchpin of war finance and after the war the Rockefellers dominated.

Meanwhile, new rivals - joint stock banks that drew on the savings of small investors -- were stealing the march on the Rothschilds in Europe. 

In France after their bank was nationalised by the Socialist president Francois Mitterrand they slowly built a new business which, under Baron David de Rothschild, rose to the top ranks of the merger and acquisition league tables. Then, in 2003, following the retirement of Sir Evelyn Robert de Rothschild as head of N M Rothschild & Sons of London, the English and French firms merged to become one umbrella entity called “Group Rothschild.” Ownership was shared equally between the French and English branches of the family under the leadership of David de Rothschild. In 2007, the English branch sold their share to the French branch and the French branch now fully own N M Rothschild & Sons.

The mythology of the Rothschilds family lives on. A cursory glance at google’s search engine results for the Rothschilds finds them accused of everything from assassinating presidents, to controlling the world’s banks, to running a global cabalistic conspiracy. 

In part two, we look at these accusations and examine whether there is any truth in them.

David Smith

EconomyWatch.com

Read The World's Richest Family - You Didn't Know About (Part 2)