Chapter 178: The Banking Earthquake
"Haha, that's truly a funny joke," Charles guffawed.
He had been sailing the Mediterranean route for over a decade and had some understanding of the North African nations. The Tunisian Pasha imprisoned here was named Younis, though he wasn't exactly a true Pasha.
The title "Pasha" referred to the Governor of Tunisia, appointed by the Ottoman Empire, essentially making him the King of Tunisia. Younis, as a prince, had led a rebellion and declared himself Pasha, only to be suppressed by his father. He then fled to Algiers, where he was imprisoned.
'How could such an important figure escape so easily?'
Ali took a sip of soup and began his story for the day. This was a daily ritual for him and Charles, sharing their experiences to pass the boring hours—after noon, the guards would make sporadic appearances, making it impossible to dig a tunnel.
'Truth be told, I shouldn't mention this to anyone else, but since you're American, there's no harm in telling you.'
Ali finished his food, wiped his mouth, and said, "Don't assume Lord Younis is merely a prisoner. Back in Tunisia, he had many followers, including several generals. And when he arrived in Algiers, he brought a significant fortune with him."
'He was imprisoned here by the Royal Guard, but someone helped him escape in less than a year.'
'Now he lives on the west coast, rich and powerful, even owning a beautiful castle. Many people there depend on him for their livelihood.'
Ali immediately retorted, "This is no legend, my friend. You know what I do; my boss has met Lord Younis and even dined with him."
Charles knew Ali was a major smuggler; his boss's operations accounted for one-seventh of all goods smuggled from Britain to Algiers annually. This was also why Ali hadn't been immediately hanged after his capture—his boss might be willing to pay a ransom for him.
Ali continued to speak of Younis, claiming that no smuggling business on Algiers' west coast could succeed without Younis's approval.
He even held a stake in some of the Algiers navy's dealings.
Charles spat on the ground in annoyance—he had been captured and brought here by the Algiers "navy" himself.
Only when dusk fell and Ali resumed his digging did their "story salon" finally come to an end.řα) Ν0βÉ$
Two days later, when the guard arrived with their meal, he discovered that Ali had escaped.
Charles watched the Algiers soldiers curse loudly around the hole in the opposite cell, deeply shocked and filled with profound regret—'If only I had believed Ali then, and dug a tunnel to the neighboring cell, I could have escaped with him!'
He sighed heavily, gazing at the ceiling, recalling Ali's repeated words, "My friend, once we get out of here, I'll treat you to the finest fermented grape juice and the prettiest girls. Oh, and remember where I live..."
That afternoon, news began to circulate among the nobles of Versailles: Her Majesty the Queen had decided to establish the French Industrial Development Fund.
No one could clearly explain what a "fund" was, only that the government would pool a large sum of money to invest in French industries. Simultaneously, anyone could invest in the fund and receive a share of the profits once the investments yielded returns.
It sounded somewhat like buying shares in a company, but with seemingly much lower risk. However, because rumors suggested the fund's total capital could reach as high as 100 million Livre, it immediately became a topic of widespread interest.
Early the next morning, the "Necker Case Alliance" gathered in front of the main gate of Versailles Palace, beginning their loud protests.
Their numbers had grown since yesterday, now exceeding four hundred.
In reality, thousands of nobles had invested in the banks implicated in the Necker case, but many were hesitant to cause trouble.
However, once these hundreds of leaders broke the ground, the others would inevitably follow suit.
Viscount Prudhomme stood on the steps before the main gate. After shouting a string of slogans, he waved his arm and declared, "Everyone, come with me to plead with Her Majesty the Queen!"
While he called it pleading, it was, in fact, an attempt to pressure the Crown by threatening to withhold government loans.
As the crowd was about to turn towards the Petit Trianon, two detachments of Palace Guards in red uniforms suddenly came running, swiftly taking up positions around them at the officer's command.
The nobles were slightly startled, assuming the Royal Family intended to use the guards to disperse them. However, having long resided in Versailles, they were accustomed to such scenes and showed no fear, instead preparing to confront the soldiers with even more fervent protests.
Just then, Archbishop Brienne emerged from the main gate of Versailles, accompanied by the Crown Prince and a host of officials from the treasury.
The nobles of the "Necker Case Alliance" paused, then immediately turned their attention to the Minister of Finance. "Archbishop Brienne, please advise Her Majesty the Queen to cease Necker's interrogation!"
'Using Necker to incriminate those banks must be a cabinet conspiracy!'
'Archbishop Brienne, please seriously consider the financial implications and bring an end to the Necker case.'
'Indeed, otherwise, we will have no choice but to stop purchasing any national debt bonds!'
Archbishop Brienne smiled, raised a hand to signal for quiet, then declared in a loud voice, "Necker committed severe embezzlement during his tenure, and his interrogation absolutely cannot be halted."
"Moreover, the banks involved will certainly face heavy penalties," Joseph added from the side. He was present in his capacity as Assistant to the Minister of Finance, primarily there to provide support.
The nobles below immediately grew agitated. "You cannot do this!"
'What will happen if all those banks go bankrupt?'
'We will petition Her Majesty the Queen!'
"I have good news to share with everyone." Archbishop Brienne's voice quieted the crowd. "The French Reserve Bank will acquire Beranger Bank and simultaneously assume its previous debts."
The bulk of the bank's debts consisted of the nobles' investments.
The nobles of the "Necker Case Alliance" immediately let out a cheer. "Acquisition? That's wonderful!"
'Long live His Majesty the King! Long live the French Reserve Bank!'
'We're saved!'
However, some quick-witted nobles immediately spotted a problem and loudly asked, "Archbishop Brienne, does the French Reserve Bank possess such vast funds?"
'Exactly! Many more banks might face issues down the line; will the French Reserve Bank acquire those too?'
Archbishop Brienne nodded. "Yes. The government will acquire shares in the French Reserve Bank. Combined with the bank's existing assets, there should be tens of millions in funds."
Before the nobles could voice any objections, Joseph stepped forward and declared, "That's correct, these funds are by no means sufficient to cover all of your bank investments. However, the unlawful banks must also be punished!
'Therefore, Her Gracious Majesty the Queen, to protect everyone's money from loss, has decided to establish the French Industrial Development Fund.'
He then explained the meaning of the fund, concluding:
'All investment certificates from banks acquired by the French Reserve Bank can be used to invest in the Industrial Development Fund.'
His words immediately triggered painful memories of the "Mississippi Company scam"—John Law had famously allowed people to exchange national debt bonds for shares in the Mississippi Company, ultimately leaving them with nothing.
A storm of fierce protests erupted among the nobles. Joseph waited patiently until they quieted down, then produced a document and waved it. "The Industrial Development Fund is guaranteed by the French Reserve Bank and the French Treasury.
'Firstly, the fund's accounts are fully transparent; any client who has invested 500,000 Livre or more can audit the accounts at any time.
'The fund will publish its budget at the beginning of each year. Financial statements, detailing revenue and expenditure, will also be released every six months.
'Secondly, we will require all companies receiving investments to likewise disclose their operational status and submit to the fund's financial audits.
'Finally, all matters pertaining to the fund will be decided by the fund committee, and the government shall not interfere.'
Public transparency—these financial policies, which seem utterly commonplace today, were highly advanced in the 18th century. Even the most transparent companies of the time, such as the British East India Company, were far from achieving such standards.
Upon hearing this, the nobles below began to whisper amongst themselves. More than a dozen "plants" whom Joseph had arranged beforehand now sprang into action:
'If we can audit the accounts at any time, that offers a great deal of security.'
'Crucially, it's guaranteed by the French Reserve Bank and the government treasury, so I don't see any issues.'
'Besides, this is an investment in domestic industries, not some distant American "gold mine" like before. We can see its operational status at any time.'
They swayed more people, and soon the nobles began nodding in agreement.
Viscount Prudhomme and others, seeing the tide turn, hurriedly declared loudly, "What fund? Who knows how it will perform in the future? Ending Necker's interrogation is still the safest option!"
Joseph sneered, "Archbishop Brienne just said the investigation must be pursued to the very end!"
'Then we'll simply have to consider no longer lending money to the government...'
No sooner had Viscount Prudhomme finished speaking than Joseph's "plants" began murmuring to those beside them. 'I don't think everyone refusing to lend money to the government is actually feasible.'
'Why not? Didn't it succeed that time we refused to pay taxes?'
'Heh, that was about giving money out; if you said no, everyone would happily cooperate. But this is about lending money to the government, which earns interest.'
'I bet in the end, everyone will say they won't lend, but secretly, they'll do it just like before.'
'Exactly, they'll trick us into not lending to the government, and then when the national debt interest rises, they'll secretly invest.'
'Right now, lending to the government is the most secure option. Look at all the trouble that came from investing in banks.'
In just over ten minutes, the nobles no longer wished to mention "refusing to lend money to the government"—they had brought it up earlier to threaten the Royal Family, but now, with the Industrial Development Fund as a solution, who would want to forgo the interest?
Just then, a messenger reined in his horse nearby, then hurried over and handed a letter to Archbishop Brienne.
The Archbishop tore open the letter, quickly scanned it, and announced loudly, "Just now, three illegal transactions between Necker and Classen Bank were confirmed. Eleven bank managers have been arrested, and their accounts are currently under thorough investigation."
The nobles present immediately panicked, especially those who had invested in Classen Bank, who were now sweating profusely with anxiety.
Judging by what had happened with Beranger Bank, any bank under investigation would quickly go bankrupt. Their money would be utterly lost!
In reality, if these banks had followed standard procedures, even if illegal issues came to light, they could have raised funds to pay the fines and recovered within a few years.
However, the Duke of Orleans, in an effort to pressure the French Treasury, had caused Beranger Bank to go bankrupt at lightning speed, terrifying the investing nobles. This led other nobles to withdraw their money from various banks, severely tightening the banks' liquidity.
With Necker's case now piled on top, the banks had no means to circulate funds and were left with only one path: bankruptcy.
Naturally, the timing of the announcement regarding Classen Bank's troubles had also been pre-arranged by Joseph.
The nobles present immediately lost their composure, especially those who had invested in Classen Bank, shouting loudly, "I'm willing to transfer my bank funds to the Industrial Development Fund!"
'I'll invest too; please give me an agreement!'
'I want one too!'
'And me...'
Joseph stepped forward at the opportune moment, signaling for quiet. "One point needs to be clarified in advance: if you transfer existing bank investments into the Industrial Development Fund, your principal cannot be fully withdrawn until after five years."
This was the core of the "debt-to-fund conversion"—to cushion panic and prevent a run on the banks by the investing nobles. In truth, if the fund performed well, they wouldn't withdraw their capital even after five years. Who would pass up the opportunity to earn money?
Hearing "cannot be withdrawn until after five years," people hesitated again.
Archbishop Brienne, following the script, quickly delivered the final blow: "To ensure the safety of everyone's investments, the Industrial Development Fund guarantees that if it incurs losses for six consecutive months, all investments will be refunded in full immediately. If the fund's capital is insufficient, the French Treasury will take over the repayment!"
The eyes of the nobles present immediately lit up once more.
If the fund was making money, they would simply enjoy the returns. If it lost money, the government guarantee ensured they would get their investment back.
'What more was there to worry about?'
Even if there were risks, they couldn't afford to worry about them now. Transferring their money to the Industrial Development Fund was far better than watching it vanish with a bank's collapse.
The officials beside Archbishop Brienne immediately signaled to the crowd that they could proceed to the Minister of Finance's office to collect the "debt-to-fund conversion" agreement documents.
In an instant, the crowd in front of Versailles' main gate vanished without a trace. Viscount Prudhomme, realizing he couldn't stop them, frowned and hesitated for a few seconds before quietly heading upstairs himself.
Around noon, the King and Queen personally inaugurated the French Industrial Development Fund, effectively endorsing it once again in their royal capacity.
As the news spread, all nobles involved in bank investments flocked to the Minister of Finance's office, quickly dislodging the office door from its hinges due to the sheer press of people.
Another day passed, and Necker finally crumbled under Calonne's intense pressure—all of his dealings with the banks had been meticulously reconstructed by the latter, leading to the collapse of two banks.
After receiving a promise of leniency for his confession, Necker spilled everything, like beans pouring from a bamboo tube, revealing all his illegal transactions with the banks.
Calonne, on his end, also breathed a sigh of relief.
He had strategically prioritized the cases with clearer leads and higher chances of success, which allowed for such swift interrogation.
Had Necker remained tight-lipped, his progress would have steadily slowed, and he might not have been able to uncover nearly half of the transactions.
However, Necker had surrendered. A massive earthquake was about to shake the entire French banking industry!
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