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Understanding a Dump and Pump Scheme
What is a Dump and Pump Scheme?
As it's important for any educated investor to understand what is a pump and dump scheme, equally important is understanding it's close cousin, the dump and pump. While both utilize the very same fundamentals, the dump and pump can spring about in circumstances vastly different than that of a pump and dump. If you're not aware of the signs of a impeding dump and pump, you can potentially be caught off guard. The best defense against a dump and pump is to follow the advice of an ancient Chinese proverb, "never give into fear. . ."
So what is a dump and pump? Simply put a dump and pump occurs when a large group of people urgently start selling off a particular asset based off irrational and uneducated fear. The person, or organization, who originally delivered the fear mongering message, then subsequently picks up all the inventory of the said asset at bargain low prices. When it's finally revealed that the sellers overreacted or were misled, they find themselves on the outside looking in. They then have no choice but to buy the assets from the same person/organization at a much higher price, because the operator who created the dump and pump has effectively put a monopoly on the market. In fact, dump and pumps are how monopolies are created.
Politics are often the most effective weapon at delivering a dump and pump. Unlike pump and dumps, only very large organizations, such as the government or a mega-corporation, can realistically conceive a dump and pump. That's because, even at bargain low prices, it would still require a vast sum of resources to buy up all the materials of an asset in order to corner the market. So while you may not have to worry about any fifteen year old Jonathan Lebed's creating a dump and pump any time soon, you should remain extremely vigilant. The organizations that have managed to fool populations into a dump and pump have historically managed to destroy entire countries. So not falling pray into a dump and pump doesn't only serve you well, it helps serve your own country.
The Dominion of the House of Rothschild: The Infamous Example of a Dump and Pump Scheme. . .
The Rothschild family (known as The House of Rothschild or more simply as the Rothschild’s) is a European family that established centralized European banking and finance houses from the late eighteenth century to this day.
The Rothschild’s are subject to much controversy. It's believed that over time they have established finance houses throughout the world, including the Federal Reserve in the United States, which has allowed them to control all of the world's monetary policy and international banking.
One of the most infamous stunts pulled off by the Rothschild crest was a dump and pump during the Napoleonic wars (1803-1815). Nathan Mayer Rothschild was instrumental in almost single-handedly financing the British war effort, financing the shipment of bullion to the Duke of Wellington's armies across Europe, as well as arranging the payment of British financial subsidies to their Continental allies. In 1815 alone, the Rothschild provided £9.8 million (£634m in 2008 value) in subsidy loans to Britain's continental allies.
The Rothschild brothers helped co-ordinate a web of activities across the continent, and the family developed a network of agents, shippers and couriers to transport gold across war-torn Europe. This allowed the Rothschild’s to gain insight intelligence on the war efforts unheard of during the time period. This network provided Nathan Rothschild time and again with political and financial information ahead of his peers, giving him an advantage in the markets, while simultaneously gaining the trust of the British government due to the reliability and expediency of his intelligence network during the war.
On June 18th, 1815, in a key and decisive battle during the war called the battle of Waterloo, the Rothschild’s came across the opportunity to finally deliver their long awaited dump and pump scheme. In the battle of Waterloo, Napoleon suffered his final defeat and Wellington was victorious. The outcome was uncertain; indeed many scholars believe that had Napoleon attacked Waterloo a few hours earlier, he would have won. Nathan Rothschild stationed a trusted agent, a man named "Roth Worth" on the north side of the battlefield, closer to the English Channel. Once the battle had been decided, already having a head start over Wellington's couriers, Roth Worth took off for the channel. On the other hand, Wellington's couriers, who were war torn and fatigued from the tough battle, lingered forward to deliver the news. As a result, Roth Worth delivered the news of Wellington's victory at the Battle of Waterloo to Nathan Rothschild a full day ahead compared to Wellington's couriers.
Upon deliverance of this news, Rothschild told the general public that Napoleon, rather than Wellington, had won the battle. If this were indeed true, this would prove devastating to British finance as Britain would be only a few days away from contemplating complete invasion at the hands of the French. Britain was well aware that Rothschild’s courier service was second to none, but naturally the public and the government wouldn't completely take his word for it until Wellington's couriers arrived. Nathan Rothschild then went on to explain that Wellington's couriers most likely perished in the battle, but this wasn't enough, he had to upper the ante in order for the scheme to materialize.
Rothschild then began to immediately sell off all of his government bonds in plain sight of the consul market. To the eyes of the beholder this was the confirmation needed to back the claims that Rothschild indeed had insider information that Napoleon had won the battle. This caused immediate panic in the markets. The news of Napoleon’s victory caused a massive sell off and prices began to expediently plummet. In the mean time, Nathan Rothschild was buying back all of the government bonds at a fraction of the price through his smaller firms and agencies.
When news came twenty four hours later of Wellington's victory, hand delivered by Wellington's own couriers, one can only imagine the jaw dropping moment in history that must have been for all the people who now found themselves on the outside and looking in. At this point Nathan Rothschild owned all of the government's bonds. The prices naturally returned to their previous value, and then some, upon the news of Britain's military victory. This effectively meant Rothschild now had complete dominion over Britain's monetary system. He eventually surrendered some of the bonds back into the hands at the people, but at a heavy price, Britain had to essentially sell off their national bank to Nathan Rothschild. This led to the world's first privatized centralized bank; and opened the door to much of the economic mess we're in today.
Had those British investors back in 1815 not given into fear, had they patiently waited just another 25 hours, the world would be much different than today; and arguably much better off. Instead, they ran with their emotions and fell pray to a dump and pump scheme. Indeed, the best defense a person can have against the dump and pump scheme is to tie their hands behind their back and wait it out. Never sell off impulsively based upon the words of a doom and gloom prophet. If what he or she says is true, you'll find out soon enough. You'll still be ahead of the pack to minimize the damage or better yet, take advantage.
-Donovan D. Westhaver