The Crown Prince of France - Chapter 178

Chapter 178: The Great Earthquake in Banking

“Haha, this is truly an amusing joke,” Charles laughed even louder.

Having run the Mediterranean route for over a decade, he was quite familiar with the conditions in the various North African nations. The Tunisian Pasha imprisoned in this jail was named Younes, but in truth, he was not a real Pasha.

A “Pasha” was the title given by the Ottoman Empire to the governor of Tunisia, effectively the King of Tunisia. Years ago, Younes, as a prince, led a rebellion and proclaimed himself Pasha, only to be suppressed by his father. Afterward, he fled to Algiers, where he was imprisoned.

How could someone so important have escaped so easily?

Ali sipped his soup and began the day’s storytelling. This had become a daily routine for him and Charles—sharing tales to pass the dull hours. After midday, the guards would patrol frequently, making it impossible to dig an escape tunnel.

“This is not something I should be sharing with others, but since you’re American, I suppose it’s fine,” Ali said after finishing his meal and wiping his mouth. “Don’t think of Lord Younes as just a prisoner. Back in Tunisia, he had many followers, including several generals. Moreover, he brought a great deal of wealth with him when he arrived in Algiers.

“When he was imprisoned by the Janissaries, it didn’t even take a year before someone helped him escape.

“Now, he lives on the western coast, wealthy and influential, even owning a beautiful castle. Many people in that area depend on him for their livelihoods.”

Charles sneered, “These legends always tend to exaggerate, like the ghost pirates of the Caribbean.”

Ali immediately retorted, “This is no legend, my friend. You know my line of work—my boss has met Lord Younes and even dined with him.”

Charles knew that Ali was a smuggler running a large operation. Every year, one-seventh of the goods smuggled from Britain to Algiers came from his boss. This was why, after being captured, Ali hadn’t been executed immediately—his boss might pay a ransom for his release.

Ali continued sharing stories about Younes, claiming that no smuggling business on Algiers' western coast could proceed without Younes’s approval. Sometimes, even the Algiers navy’s dealings involved his participation.

Charles spat on the ground in frustration; after all, it was the Algiers “navy” that had captured him.

As night fell, Ali resumed digging their tunnel, bringing their “story salon” to an end.

Two days later, when the guards came to deliver food, they discovered that Ali had escaped.

Charles watched as the Algiers soldiers cursed and surrounded the hole in the neighboring cell, and he was both shocked and filled with regret. If he had believed Ali earlier and dug a connecting tunnel, he could have escaped with him!

He sighed deeply, staring at the ceiling, recalling Ali’s frequent words, “My friend, once we get out of here, I’ll treat you to the finest fermented grape juice and introduce you to the most beautiful women. Oh, remember my address…”

…

That afternoon, a rumor spread rapidly among the nobles of Versailles: Her Majesty the Queen had decided to establish the “French Industrial Development Fund.”

No one could quite define what a “fund” was. They only knew that the government would pool a large sum of money to invest in French industry. Moreover, anyone could contribute money to the fund and share in the profits.

It sounded a bit like investing in a company but with seemingly lower risk. However, the rumored fund amount—possibly exceeding one hundred million livres—instantly became the center of attention.

The next morning, the “Necker Case Alliance” gathered at the gates of Versailles Palace, loudly protesting.

Their numbers had grown since the day before, reaching over four hundred.

In truth, thousands of nobles had investments in banks implicated in the Necker case, but many dared not cause trouble. However, once the leading few hundred opened the way, others would undoubtedly follow.

Viscount Prodome stood on the steps before the palace gates, shouting slogans before raising his arm and declaring, “Let’s appeal to Her Majesty the Queen!”

The so-called appeal was, in fact, a veiled attempt to pressure the government into ceasing loans.

As the crowd moved toward the Petit Trianon, two squads of royal guards in red uniforms arrived, standing at attention on either side at their officers’ commands.

The nobles were slightly startled, thinking the royal family might use the guards to disperse them. However, being seasoned inhabitants of Versailles, they were unfazed and prepared to confront the soldiers with even louder protests.

At this moment, Bishop Brienne emerged from the main gates of Versailles Palace, flanked by the Crown Prince and several officials from the Ministry of Finance.

The nobles of the “Necker Case Alliance” were momentarily stunned before directing their ire at the Minister of Finance.

“Bishop Brienne, we urge you to recommend to Her Majesty to halt the trial against Necker!”

“The charges against Necker and the implicated banks must be part of a cabinet conspiracy!”

“Bishop Brienne, please consider the financial implications and end the Necker case.”

“If not, we will stop purchasing government bonds!”

Brienne raised a hand with a smile, signaling the crowd to quiet down before speaking loudly, “Necker engaged in severe corruption during his tenure. The trial against him must continue.”

“And the implicated banks will face severe penalties,” Joseph added from his position beside Brienne, attending in his role as assistant to the Minister of Finance.

The nobles erupted in protest.

“You cannot do this!”

“What if those banks go bankrupt?”

“We’ll petition Her Majesty the Queen!”

“I have good news for everyone,” Brienne announced, instantly silencing the crowd. “The French Reserve Bank will acquire Béranger Bank and assume its previous debts.”

The majority of these debts were investments from the nobles.

The crowd erupted in cheers.

“An acquisition? That’s fantastic!”

“Long live His Majesty the King! Long live the French Reserve Bank!”

“This is our salvation!”

However, some astute nobles quickly spotted a problem. “Bishop Brienne, does the Reserve Bank have such vast funds?”

“Indeed! If more banks face trouble, will the Reserve Bank acquire them as well?”

Brienne nodded. “Yes. The government will invest in the Reserve Bank, and combined with the bank’s existing assets, there should be tens of millions in funds.”

Before the nobles could object, Joseph stepped forward and added, “While these funds are insufficient to cover all your investments in the banks, unlawful institutions must still be punished! Therefore, Her Majesty the Queen, in her wisdom and compassion, has decided to establish the French Industrial Development Fund.”

He then explained the concept of the fund and concluded, “All investment certificates from banks acquired by the Reserve Bank can be used to invest in the Industrial Development Fund.”

Joseph’s explanation reminded the nobles of the painful memories of the Mississippi Company scheme. Back then, John Law had encouraged the exchange of government bonds for shares in the Mississippi Company, which ultimately left investors with nothing.

The nobles broke out into intense protests. Once they quieted down, Joseph held up a document and waved it for all to see. “The Industrial Development Fund is jointly guaranteed by the Reserve Bank and the French Ministry of Finance.”

He outlined the fund’s safeguards: transparency in budgeting, semiannual financial disclosures, independent audits of recipient companies, and a committee to oversee fund operations, free from government interference.

Such transparent policies were groundbreaking for the 18th century. Even Britain’s East India Company, known for its management, could not match these standards.

Hearing this, the nobles began to murmur among themselves. Joseph’s carefully placed agents in the crowd chimed in at just the right moments:

“If we can check the accounts at any time, it feels secure.”

“With the Reserve Bank and government backing, I don’t see any issues.”

“This is an investment in domestic industry, not some far-off American ‘gold mine.’ We can monitor its operations anytime.”

Their remarks swayed many, and the nobles began to nod in agreement.

Viscount Prodom and his allies, sensing the shift in momentum, raised their voices. “What guarantee is there that the fund will be well-managed? Ending Necker’s trial remains the safest option!”

Joseph sneered. “Bishop Brienne has already stated that the case must be investigated thoroughly.”

“Then we will have no choice but to stop lending money to the government…”

As soon as Viscount Prodom finished speaking, Joseph’s agents began whispering among the crowd:

“Do you think everyone will actually stop lending to the government?”

“Why not? Remember when refusing taxes worked?”

“Haha, that was about not giving money. Of course, everyone was willing to go along. But this is lending money and earning interest.”

“Exactly. In the end, everyone will just pretend to refuse while secretly lending as before.”

“Lending to the government is still the safest option. Just look at what happened to our bank investments!”

Within ten minutes, the idea of refusing loans to the government had lost all traction. The nobles had initially raised the threat to pressure the royal family, but with the Industrial Development Fund as an alternative, who would forgo interest?

At that moment, a messenger arrived, dismounted, and hurried over to Brienne with a letter.

Brienne scanned the letter quickly and announced, “Just now, evidence of three illegal transactions by Necker and Klarsen Bank has been confirmed. Eleven bank executives have been arrested, and an investigation into the bank’s accounts is underway.”

Panic rippled through the crowd, especially among those with investments in Klarsen Bank. Memories of Béranger Bank’s swift collapse were still fresh, and they feared their money would vanish.

In truth, these banks might have survived under normal circumstances by raising funds to pay fines and recover over time. However, the Duke of Orléans had engineered the rapid collapse of Béranger Bank to pressure French finances, terrifying investors and causing a run on other banks.

Necker’s case exacerbated the situation. The banks now had no way to survive, leaving bankruptcy as their only option.

Of course, the timing of the announcement about Klarsen Bank was another calculated move by Joseph.

Faced with rising fear, especially among those invested in Klarsen Bank, the nobles began shouting:

“I’m willing to transfer my bank investments into the Industrial Development Fund!”

“Me too! Please give me an agreement!”

“I also want one!”

“And I…”

Joseph stepped forward, motioning for calm. “One thing to note: if you transfer your bank investments into the Industrial Development Fund, you won’t be able to withdraw your principal in full for five years.”

This was the essence of the “debt-to-fund” strategy: to ease panic and prevent bank investors from triggering further runs. In truth, if the fund proved profitable, the investors might never withdraw their money. After all, who doesn’t want to make more money?

Hearing about the five-year withdrawal restriction, some nobles hesitated.

Brienne, following the script, 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, it will immediately refund all investments in full. If the fund lacks sufficient resources, the French Ministry of Finance will cover the shortfall.”

The nobles’ eyes lit up.

If the fund made money, they could simply collect the profits. If it lost money, the government would reimburse their investments.

What was there to fear?

Even if risks remained, circumstances left them little choice. Transferring money to the fund was far better than losing it all to a bank collapse.

An official from the Ministry of Finance stepped forward to inform the crowd that they could collect “debt-to-fund” agreements at the Finance Minister’s office.

In an instant, the gates of Versailles emptied. Viscount Prodom, unable to stop the tide, hesitated for a moment before quietly heading upstairs himself.

At noon, the King and Queen held a ceremony to officially launch the “French Industrial Development Fund,” lending royal endorsement to the initiative.

Word spread quickly, and nobles with bank investments flooded the Finance Minister’s office, soon overwhelming it.

By the next day, under immense pressure, Necker finally broke down. With promises of leniency for full disclosure, he confessed everything about his illicit transactions with the banks.

Two more banks collapsed as a result.

For Calonne, this was a relief. He had prioritized the cases with the most evidence and highest success probability, enabling rapid progress. Had Necker continued to resist, the process would have slowed significantly, with nearly half of the transactions beyond Calonne’s reach.

Necker’s surrender triggered a seismic shift in France’s banking sector.

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