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Chapter 177: The Great Shock in the Banking Industry
🕑 Added 2025-01-05 22:08:20 +0000 UTCChapter 177: The Great Shock in the Banking Industry
"Haha, what a funny joke," Charles laughed even louder.
Having sailed the Mediterranean route for over a decade, he was quite familiar with the situation in North African countries. The so-called Bey of Tunis imprisoned in this jail was named Yunus, but he wasn't actually a true Bey.
The "Bey" was the title given by the Ottoman Empire to the governor of Tunis, effectively making him the King of Tunis. Yunus had once led a rebellion as a prince and declared himself Bey, only to be crushed by his father. Afterward, he fled to Algiers and was imprisoned here.
How could someone so important have escaped so easily?
Ali took a sip of his soup and began today's story. This had become their daily ritual—taking turns sharing stories to pass the time in this boring place. After noon, the guards would occasionally patrol, making it impossible for Ali to continue digging his tunnel.
"This isn't something I should tell just anyone, but since you're an American, it doesn't hurt," Ali said, wiping his mouth after finishing his meal.
"Don't think of Lord Yunus as just a prisoner. Back in Tunis, he had many followers, including several generals. Plus, he brought a fortune with him when he came to Algiers.
"When the Janissaries first imprisoned him here, it wasn't even a year before someone helped him escape. Now, he lives on the western coast, wealthy and powerful, even owning a beautiful castle. A lot of people over there depend on him for their livelihood."
Charles smirked. "These stories always get exaggerated, like the ghost pirates of the Caribbean."
Ali quickly countered, "This isn't a myth, my friend. You know what I do for a living—my boss has met Lord Yunus and even shared a meal with him."
Charles knew that Ali was a smuggler, and quite a successful one at that. His boss was responsible for about one-seventh of all goods smuggled from Britain to Algiers each year. This was likely the only reason Ali hadn't been executed after being captured—his boss might still be willing to pay his ransom.
Ali continued with more stories about Yunus, explaining how no smuggling operation on the western coast of Algiers could proceed without Yunus's approval. Sometimes, even the Algiers navy would cut him in on their deals.
Charles spat on the ground, irritated—after all, it was the "Algiers navy" that had captured him and brought him to this place.
As night fell and Ali resumed digging, their "storytime" finally came to an end.
Two days later, the guards noticed that Ali had escaped when they came to deliver his meal.
Charles watched in shock as Algiers soldiers surrounded the tunnel entrance in Ali's cell, cursing loudly. He was filled with regret—if only he had believed Ali and dug a tunnel to the neighboring cell, he might have escaped with him!
He sighed heavily, staring at the ceiling and recalling Ali's frequent promises, "My friend, once we're out of here, I'll treat you to the finest fermented grape juice and introduce you to the prettiest girls. Oh, remember where I live…"
That afternoon, a rumor began spreading among the nobles at Versailles—Queen Marie Antoinette had decided to establish the "French Industrial Development Fund."
No one seemed to fully understand what a "fund" was, but they gathered that the government would pool a large sum of money to invest in French industries. Anyone could contribute to the fund and, if the investments were profitable, they would receive a share of the profits.
It sounded somewhat like buying shares in a company, but with seemingly less risk. However, since the rumored total amount of the fund was said to be as high as a billion livres, it quickly became a hot topic of discussion.
The next morning, the "Necker Case Alliance" gathered at the main gate of Versailles and began protesting loudly.
Their numbers had grown since the previous day, reaching over 400 people.
In reality, thousands of nobles had investments in the banks involved in the Necker case, but many were too afraid to protest openly. However, as this core group of a few hundred began to break the ice, others would undoubtedly follow.
Viscount Prudhomme stood on the steps in front of the gate, shouted a few slogans, and then waved his arm: "Let's go plead with the Queen!"
Though they called it pleading, they were actually planning to pressure the court by threatening to stop lending money to the government.
As the crowd was about to turn toward the Petit Trianon, two squads of palace guards in red uniforms came running up, standing at attention on either side as commanded by their officers.
The nobles were slightly taken aback, thinking the royal family was going to use the guards to disperse them. But being long accustomed to such displays in Versailles, they showed no fear and were ready to respond with even louder protests.
At that moment, Brienne emerged from the main entrance of Versailles, accompanied by the Prince and several finance officials.
The nobles of the "Necker Case Alliance" were momentarily stunned before they quickly turned their attention to the Finance Minister. "Archbishop Brienne, please advise the Queen to stop Necker's trial!"
"Using Necker to accuse those banks is clearly a conspiracy by the cabinet!"
"Archbishop Brienne, you must seriously consider the financial implications and end the Necker case."
"Otherwise, we will have no choice but to stop purchasing any more government bonds!"
Brienne raised his hand with a smile, signaling for silence before speaking loudly, "Necker's serious embezzlement during his time in office cannot be ignored. His trial will continue."
"And the banks involved will be heavily fined," Joseph added from beside him, appearing in his role as Assistant Finance Minister to provide support.
The nobles immediately grew agitated. "You can't do this!"
"What will happen if those banks go bankrupt?"
"We'll go petition the Queen!"
"I have good news for everyone," Brienne announced, bringing the crowd to a hush. "The French Reserve Bank will be acquiring Béranger Bank and taking on its debts."
The bank's debts were primarily the investments made by the nobles.
The nobles of the "Necker Case Alliance" burst into cheers. "An acquisition? That's fantastic!"
"Long live the King! Long live the French Reserve Bank!"
"We're saved!"
However, some of the sharper nobles quickly noticed a potential issue and shouted, "Archbishop Brienne, does the Reserve Bank have enough funds for this?"
"Right! If more banks fail, will the Reserve Bank acquire them too?"
Brienne nodded. "Yes. The government will invest in the Reserve Bank, and combined with the banks' existing assets, there should be several million livres available."
Before the nobles could raise further objections, Joseph stepped forward and said, "That's correct. This amount is indeed not enough to cover all your investments in these banks, but the guilty banks must be punished!
"Therefore, our benevolent Queen has decided to establish the French Industrial Development Fund to protect your money from losses."
He then explained the concept of the fund and concluded by saying, "All investment certificates from the banks acquired by the Reserve Bank can be used to invest in the Industrial Development Fund."
His words immediately brought back painful memories of the "Mississippi Company Scam"—when John Law convinced people to exchange their government bonds for shares in the Mississippi Company, only for them to lose everything.
The nobles erupted in loud protests. Joseph waited patiently for them to calm down before producing a document and holding it up for all to see. "The Industrial Development Fund will be guaranteed by the Reserve Bank and the French Treasury.
"First, the fund's accounts will be fully transparent, and any investor contributing over 500,000 livres can inspect the books at any time.
"The fund will announce its budget at the beginning of each year. Every six months, it will publish financial statements detailing its revenues.
"Additionally, we will require all companies receiving investments from the fund to also disclose their business operations and undergo financial audits.
"Finally, all decisions regarding the fund will be made by a Fund Committee, with no interference from the government."
These financial policies, which seemed standard in modern times, were revolutionary in the 18th century. Even the most transparent companies of the era, like the British East India Company, couldn't match this level of openness.
The nobles began whispering among themselves, and the dozen or so "plants" Joseph had strategically placed in the crowd began their work:
"If we can check the books at any time, it's pretty secure."
"Plus, with the Reserve Bank and the government backing it, I don't see any issues."
"And the money's being invested in domestic industries, not some far-off American 'gold mines,' so we can monitor its performance closely."
Their chatter influenced more of the crowd, and soon the nobles were nodding in agreement.
Seeing the tide turning, Viscount Prudhomme and his allies raised their voices in protest: "What's this fund? Who knows how well it will perform? Halting Necker's trial is still the safest bet!"
Joseph sneered. "As Archbishop Brienne just stated, the case must be fully investigated!"
"Then we might have to consider not lending any more money to the government…"
Viscount Prudhomme hadn't even finished speaking when Joseph's plants began murmuring to those around them:
"I don't think everyone refusing to lend to the government is feasible."
"Why not? Didn't we succeed in refusing to pay taxes last time?"
"Haha, that was about not paying money out. Of course, everyone was happy to go along with that. But this is about lending money to the government and earning interest."
"I bet, in the end, everyone will say they won't lend, but secretly they'll continue as usual."
"Yeah, lending to the government is the safest bet. Look at what a mess investing in the banks has caused."
Within minutes, the nobles had stopped mentioning the idea of "refusing to lend to the government"—after all, it had been a tactic to pressure the royal family, and now that the Industrial Development Fund offered a solution, who wanted to turn down interest payments?
At that moment, a messenger arrived on horseback, quickly dismounting and handing a letter to Brienne.
Brienne read it quickly and then announced loudly, "Just now, three illegal transactions between Necker and Cléron Bank were confirmed. Eleven bank officials have been arrested, and the bank's accounts are being thoroughly investigated."
The nobles were thrown into a panic, especially those with investments in Cléron Bank, who began sweating profusely.
Based on what had happened with Béranger Bank, they knew Cléron Bank would soon go bankrupt, and their money would be lost forever!
In reality, if these banks had followed standard procedures, even if illegal activities were uncovered, they could have raised funds to pay the fines and recovered within a few years.
However, the Duke of Orléans, seeking to pressure the French Treasury, had orchestrated the rapid collapse of Béranger Bank, terrifying the investors. This had prompted other nobles to withdraw their money from other banks, severely tightening the banks' liquidity.
Now, with Necker's case looming, the banks were left with no options but bankruptcy.
Of course, the timing of Cléron Bank's collapse was part of Joseph's carefully orchestrated plan.
The nobles couldn't hold out any longer, especially those with investments in Cléron Bank, who began shouting, "I'm willing to transfer my bank funds to the Industrial Development Fund!"
"I want to invest! Please give me a contract!"
"Me too!"
"And me…"
Joseph stepped forward at just the right moment, signaling for silence. "One thing to note: if you transfer your bank investments into the Industrial Development Fund, you must wait five years before withdrawing your principal in full."
This was the key to the "debt-to-fund" strategy—to cushion the panic and prevent the nobles from causing a run on the banks. In reality, if the fund performed well, they wouldn't want to withdraw their money after five years. After all, who doesn't like making money?
Hearing "five years before withdrawal," some hesitated again.
Brienne, following the script, delivered the final blow: "To ensure the safety of your investments, the Industrial Development Fund guarantees that if it incurs losses for six consecutive months, it will immediately refund your investments in full. If the fund's resources are insufficient, the French Treasury will step in to cover the payments!"
The nobles' eyes lit up once more.
If the fund made money, they could sit back and enjoy the profits. If it lost money, the government would guarantee they got their investments back.
What was there to worry about?
Even if there were risks, they had no other choice. Transferring their money to the Industrial Development Fund was far better than seeing it disappear with a bank's collapse.
Brienne's officials signaled to the crowd that they could collect their "debt-to-fund" contracts from the Finance Minister's office.
In an instant, the crowd outside the gates of Versailles vanished. Viscount Prudhomme, realizing he couldn't stop the tide, hesitated for a few seconds before quietly heading upstairs himself.
By midday, the King and Queen personally hosted the ceremony to establish the "French Industrial Development Fund," further legitimizing the fund with the royal family's endorsement.
The news spread quickly, and nobles with investments in the implicated banks flocked to the Finance Minister's office, quickly overwhelming it.
The following day, under the immense pressure exerted by Calonne, Necker finally broke down—his illicit dealings with the banks had already led to the downfall of two of them.
After being promised a lighter sentence for his cooperation, Necker spilled everything, confessing to all the illegal transactions he had conducted with the banks.
Calonne, too, breathed a sigh of relief.
He had started with the cases that had the most evidence and that he was confident about, which allowed him to move quickly.
If Necker had held out, the pace would have slowed down, and Calonne wasn't sure he could uncover nearly half of the remaining transactions.
But Necker had surrendered. A massive earthquake was about to hit the entire French banking industry!
(End of Chapter)
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