11 ms·

The Portuguese Bank Note Crisis of 1925

200 points by MrBuddyCasino 7y ago

pjc50 7y ago
This is a tremendous story; I was first told of it many years ago and it's informed my thinking about authenticity ever since. I recently managed to find a copy of "The Man Who Stole Portugal" to read the whole definitive account with all its absurd details. The total obliviousness of the British printers was key to the whole thing; once they'd been convinced they were dealing with the Right Sort of Chap, who simply confirmed their prejudices that Portugal was corrupt and disorganised enough to have banknotes collected in person.
- Wellshit 7y ago
  Then as now, it seems... There's a typo in the book name, it should be "Men" (mostly)
- andrepd 7y ago
  Exactly. The whole scheme relied on everybody, even his accomplices, truly thinking that they were dealing with an official.
  - whatshisface 7y ago
    Like the Madoff case, the fact that the people around him benefited from the scheme in the short run (including the printers, who made a profit on printing) surely didn't hurt.
- EGreg 7y ago
  Here is what’s amazing to me: The monopoly right to issue money by a state bank. Using the credit and trust in the banknotes enabled great economic progress especially in areas in Angola that could swiftly benefit from the resources. A run on the bank just contracted the money supply and caused hardship “out of principle” that only the sanctioned bank could print these banknotes. On a societal level it says a lot, that official signatures and documents have the weight of arbitrary amounts of money, and that increasing the money supply could lead to a lot of good investment and prosperity but is restricted by banks and governments. I wonder what dynamics a UBI would unleash.
  - javert 7y ago
    Unleashing a lot of money is like a big dose of sugar for the economy. It causes a boom and then a bust. A UBI is just a constant redirection of resources from investment/production/research to consumption. There is no magic you can do with the money supply. It's like the law of conservation of energy. Maybe in the best case you can smooth out the natural business cycle by contracting the money supply when the economy is growing and expanding it when the economy is shrinking. That is what modern central banks try to do. But good luck making it work right. At this point particular point in history there is no more room to expand the money supply, yet the economy is heading towards recession.
    - EGreg 7y ago
      Although that may be standard thinking in some circles, in reality there are clearly areas where more money would lead to far more goods and services, making everyone in the area richer. Building up a community like Angola is one example. Any area where people are unemployed and could use their time more productively is another example. Even John Maynard Keynes famously said this. The trick is to find out where to invest for the next high-growth thing, and the government can make a big difference. Past examples included: Interstate Highway System Microwave Research + Silicon Valley GPS and Moonshots ARPAnet and other DARPA projects Now it's going to be solar, battery, seaweed for cows and other sustainable energy practices. Printing money and using it to build up infrastructure isn't necessarily bad. Another approach to looking at this is MMT, though I disagree with some of their conclusions.
      - javert 7y ago
        > Although that may be standard thinking in some circles, in reality there are clearly areas where more money would lead to far more goods and services, making everyone in the area richer. Finance exists to do this. If it's a good investment, compared to the alternatives, money will be routed to it (and away from alternatives). Your government spending examples are examples where the government made "good" decisions, but it's equivalent to cherry-picking. For example, the U.S. government spends more on healthcare per capita than any other country, yet our healthcare is worse than most countries, AND patients still get bankrupted. The U.S. government indirectly financed the higher education bubble that has allowed college administrators to make out like bandits, AND students are still in massive debt. Government spending is an inherently vicious process because it overrides individuals' own economic judgement about how to deploy their resources and replaces it with authoritarian central "planning." Also, most of your examples (maybe all) are defense projects. I think defense is a legitimate part of the government and the DoD can make pretty good judgement calls when they have a reasonable and limited amount of funding. But should they have gotten trillions to punish Iraq and Afghanistan for something done by the Saudis? No. We can see government spending in the U.S. becoming increasingly more catastrophic and wasteful over time because that is the nature of an inherently vicious process.
ttsda 7y ago
This is, interestingly, not very well known in Portugal. The whole story is fascinating and the fact that he almost got away with it is very impressive. Most people interested in national history know that the Estado Novo dictatorship was brought to power due to the increasing distrust in the first republic, but most don't know of this event, nor of the potentially very large role it had in eroding that trust.
- hobbes78 7y ago
  Not very well known? It was even the subject of a TV series some years ago! https://arquivos.rtp.pt/programas/alves-dos-reis/ https://arquivos.rtp.pt/programas/alves-dos-reis/
  - joaomacp 7y ago
    I'm portuguese and had never heard of it. That TV show is from 2001, so already a bit old. Otherwise it's not a very talked-about story.
    - pcardoso 7y ago
      I'm in my early 40s and I remember when it was aired, but younger people were probably watching kids TV at the time. There were some other similar stories that made it to the TV, like Dona Branca, Capitão Roby or Ballet Rose.
ovi256 7y ago
The way he escalated faked credentials (the forged contract) into better credentials is great and a topic of great interest for computer security today. Using current political climate as a driver for operational security is genius. The plan to gain control of the central bank in order to clean traces of the fraud was amazing too. How many other similar plans succeded ? Should we start looking into changes of control of similar institutions in other countries ?
- pjc50 7y ago
  > Should we start looking into changes of control of similar institutions in other countries ? Where can you think of where the President elected in an extremely close election with a questionably secure voting system tried to fire the senior law enforcement officials who were investigating him?
  - o09rdk 7y ago
    The logical steps between this and Yanukovych and current scenarios in certain countries are very small, even if it seems like a big stretch.
- Iv 7y ago
  I like to point that Mario Draghi, the head of the European Central Bank, with the notable task to deal with Greece's debt problem, used to be at the head of Goldman Sach's division responsible of the loans toward countries exactly at the time when Greece was cooking its books.
  - throwAway12343 7y ago
    Also worth pointing out Mario Draghis son was also a European Sovereign Credit/Interest Rates trader at Morgan Stanley before he left to join a hedge fund a few years back. No such thing as inside information outside of equity markets! https://www.bloomberg.com/news/articles/2017-02-08/giacomo-draghi-said-to-exit-morgan-stanley-for-hedge-fund-lmr https://www.bloomberg.com/news/articles/2017-02-08/giacomo-d...
ThePadawan 7y ago
Reminds me of the plot of one of the episodes of Firefly. The crew discovers (via underground connections) that a food production facility has very lax security. In this universe, the vacuum-sealed nutrient packs require authenticity much like bars of gold. Now, they could break in, steal a few pallets and sell it on the black market - but obviously, the theft would be noticed, and the serial numbers could be noted down as contraband etc.. What they actually do is convince the night shift that they are not needed, and convince the afternoon shift that the protagonists are actually the night crew. They then produce the nutrient packs themselves and simply walk out with them. Since the night crew never showed up, there is no mismatch with their records, since they obviously didn't produce anything.
- Svip 7y ago
  As someone who has watched Firefly quite a few times, I don't recall this episode. The only thing that comes close is "Ariel", where they steal medical supplies off a core world hospital, but that's straight up theft. I don't recall all the details of the film Serenity, but the plot described does not ring a bell. Are you sure it was Firefly you were thinking of? Note: I have not read the comics, if it is one of them the plot appears.
  - ThePadawan 7y ago
    Oh my god, I remember now that this wasn't actually canon. I'm so sorry. This was actually from a great crossover fanfiction, "Browncoat, Green Eyes" [0]. It was so vibrant in front of my mental eye, too. [0] https://www.fanfiction.net/s/2857962/13/Browncoat-Green-Eyes https://www.fanfiction.net/s/2857962/13/Browncoat-Green-Eyes
Balanceinfinity 7y ago
What amazes me is that at some point he didn't try and take his winnings off the table - convert to pounds or dollars - and head for the hills.
- pjc50 7y ago
  I wonder how convertible the Escudo was at the time? Some of his co-conspirators did successfully flee. The book epilogue interviewed them decades later.
  - ferzul 7y ago
    the article says, deep in a paragraph about how he got caught, that Forex was illegal but largely ignored. > The Angola & Metropole illegally bought foreign exchange from him at a premium (money exchange was illegal in Portugal at the time, but in fact widespread and tolerated). The ledgers of these transactions were then torn out and destroyed. Although neither the teller nor the officials at the Porto branch of the Bank of Portugal could find any evidence that the bills from the Angola & Metropole were counterfeit, the circumstances were suspicious enough that the allegation was reported to Lisbon. I think Reis would have done much better than Hennies if he had fled; after all, Reis was a mastermind and Hennies was duped twice. (I think it's fair to absolve someone of the claim of poor investments in the late 1920s.)
- andrepd 7y ago
  From tfa: "Reis then proceeded to launder the bills into gold-backed foreign currencies and smaller denominations of Portuguese currency." So sounds like he did launder the money successfully, but he stuck around for the final part of his plot: gain a controlling share in Banco de Portugal to retroactively make his fiction become true.
  - segmondy 7y ago
    I think your parent was talking about the fact that he knew he was going to be arrested and instead of fleeing like Hennies decided to fight it.
forinti 7y ago
I can't recommend The Man Who Stole Portugal by Murray Teigh Bloom enough. I loved this book. The most curious aspect about all this is that he seems to have had a positive influence on the Portuguese economy. It was a sort of QE. The subsequent regime locked the Portuguese economy back into its ossified ways.
- pierrebai 7y ago
  Reading the story, it seems to me that had he succeed in controling the central bank, he would be a celebrated successful businessman and Portugal would have been much better off. I also find it interesting that the people who caused his downfalls were acting legally but, in my view, were at least as morally corrupt as him. They were poweful, rich men using their power, political ties, their journals and journalist to vilify them and acting to protect their monopolies. It just reinforces the fact that law, right and wrong are not very well tied together. They're mostly there to keep the status quo for the elite.
- DavidAdams 7y ago
  I had the same thought about quantitative easing. Because he used the money to make so much investment, he was single-handedly modifying Portugal's monetary policy, which, had he succeeded, may have permanently stimulated the economy. When reading about what the authorities did in the wake of his discovery, I thought, "that's exactly the kind of action you'd take if you wanted to precipitate a recession." I wonder what would have happened if they'd confiscated his ill-gotten assets but still retroactively legitimized the injection of new money, and swept the whole thing under the rug?
andrepd 7y ago
The most terrifying part: >The final phase of Reis' scheme was to buy controlling interest in the Bank of Portugal, a step which would allow him to retroactively make his fiction about Bank approval true. With control of the bank, the entire counterfeiting could be swept under the rug, ensuring that there would never be any evidence of the fraud.
- MrBuddyCasino 7y ago
  To me the terrifying part is it nearly worked: "Eventually they controlled 10,000 of the 45,000 shares needed for controlling interest in the bank, but publicity led Bandeira to ease off the purchases even as he sent Reis ever more inflated false reports of the number of shares they had acquired."
- comboy 7y ago
  I recommend reading up on how FED got created.
  - ceejayoz 7y ago
    Is this something specific I'll find in https://en.wikipedia.org/wiki/History_of_the_Federal_Reserve_System https://en.wikipedia.org/wiki/History_of_the_Federal_Reserve..., or do I have to add "lizard people" to the search terms?
    - comboy 7y ago
      Wikipedia article is fine. All the facts are there, if you prefer more narration I like this one: https://www.youtube.com/watch?v=mQUhJTxK5mA https://www.youtube.com/watch?v=mQUhJTxK5mA
      - ceejayoz 7y ago
        Could you clarify a couple specific facts you're looking to point out, instead of asking us to watch a 21 minute video from some random YouTuber?
elhudy 7y ago
You can buy one of these "fake" bills for about $1300.
marzell 7y ago
Does anyone else feel it is an interesting coincidence that his name was Reis? Until 1911 that was also the name for common currency in Portugal, then replaced by Escudos at a rate of 1000:1. Is/was this a common name in Portugal?
- gdhbcc 7y ago
  It's a decently common surname
tomonocle 7y ago
Ridiculous History covered this recently: https://player.fm/series/series-2148552/the-portuguese-bank-note-crisis-how-one-lucky-forger-almost-destroyed-a-nations-economy https://player.fm/series/series-2148552/the-portuguese-bank-... Crazy how much he got away with, for so long, effectively just on confidence and skill.

200 points by MrBuddyCasino 7y ago

This is a tremendous story; I was first told of it many years ago and it's informed my thinking about authenticity ever since. I recently managed to find a copy of "The Man Who Stole Portugal" to read the whole definitive account with all its absurd details. The total obliviousness of the British printers was key to the whole thing; once they'd been convinced they were dealing with the Right Sort of Chap, who simply confirmed their prejudices that Portugal was corrupt and disorganised enough to have banknotes collected in person.

Wellshit 7y ago
Then as now, it seems... There's a typo in the book name, it should be "Men" (mostly)
andrepd 7y ago
Exactly. The whole scheme relied on everybody, even his accomplices, truly thinking that they were dealing with an official.
- whatshisface 7y ago
  Like the Madoff case, the fact that the people around him benefited from the scheme in the short run (including the printers, who made a profit on printing) surely didn't hurt.
EGreg 7y ago
Here is what’s amazing to me: The monopoly right to issue money by a state bank. Using the credit and trust in the banknotes enabled great economic progress especially in areas in Angola that could swiftly benefit from the resources. A run on the bank just contracted the money supply and caused hardship “out of principle” that only the sanctioned bank could print these banknotes. On a societal level it says a lot, that official signatures and documents have the weight of arbitrary amounts of money, and that increasing the money supply could lead to a lot of good investment and prosperity but is restricted by banks and governments. I wonder what dynamics a UBI would unleash.
- javert 7y ago
  Unleashing a lot of money is like a big dose of sugar for the economy. It causes a boom and then a bust. A UBI is just a constant redirection of resources from investment/production/research to consumption. There is no magic you can do with the money supply. It's like the law of conservation of energy. Maybe in the best case you can smooth out the natural business cycle by contracting the money supply when the economy is growing and expanding it when the economy is shrinking. That is what modern central banks try to do. But good luck making it work right. At this point particular point in history there is no more room to expand the money supply, yet the economy is heading towards recession.
  - EGreg 7y ago
    Although that may be standard thinking in some circles, in reality there are clearly areas where more money would lead to far more goods and services, making everyone in the area richer. Building up a community like Angola is one example. Any area where people are unemployed and could use their time more productively is another example. Even John Maynard Keynes famously said this. The trick is to find out where to invest for the next high-growth thing, and the government can make a big difference. Past examples included: Interstate Highway System Microwave Research + Silicon Valley GPS and Moonshots ARPAnet and other DARPA projects Now it's going to be solar, battery, seaweed for cows and other sustainable energy practices. Printing money and using it to build up infrastructure isn't necessarily bad. Another approach to looking at this is MMT, though I disagree with some of their conclusions.
    - javert 7y ago
      > Although that may be standard thinking in some circles, in reality there are clearly areas where more money would lead to far more goods and services, making everyone in the area richer. Finance exists to do this. If it's a good investment, compared to the alternatives, money will be routed to it (and away from alternatives). Your government spending examples are examples where the government made "good" decisions, but it's equivalent to cherry-picking. For example, the U.S. government spends more on healthcare per capita than any other country, yet our healthcare is worse than most countries, AND patients still get bankrupted. The U.S. government indirectly financed the higher education bubble that has allowed college administrators to make out like bandits, AND students are still in massive debt. Government spending is an inherently vicious process because it overrides individuals' own economic judgement about how to deploy their resources and replaces it with authoritarian central "planning." Also, most of your examples (maybe all) are defense projects. I think defense is a legitimate part of the government and the DoD can make pretty good judgement calls when they have a reasonable and limited amount of funding. But should they have gotten trillions to punish Iraq and Afghanistan for something done by the Saudis? No. We can see government spending in the U.S. becoming increasingly more catastrophic and wasteful over time because that is the nature of an inherently vicious process.

ttsda 7y ago

This is, interestingly, not very well known in Portugal. The whole story is fascinating and the fact that he almost got away with it is very impressive. Most people interested in national history know that the Estado Novo dictatorship was brought to power due to the increasing distrust in the first republic, but most don't know of this event, nor of the potentially very large role it had in eroding that trust.

hobbes78 7y ago
Not very well known? It was even the subject of a TV series some years ago! https://arquivos.rtp.pt/programas/alves-dos-reis/ https://arquivos.rtp.pt/programas/alves-dos-reis/
- joaomacp 7y ago
  I'm portuguese and had never heard of it. That TV show is from 2001, so already a bit old. Otherwise it's not a very talked-about story.
  - pcardoso 7y ago
    I'm in my early 40s and I remember when it was aired, but younger people were probably watching kids TV at the time. There were some other similar stories that made it to the TV, like Dona Branca, Capitão Roby or Ballet Rose.

ovi256 7y ago

The way he escalated faked credentials (the forged contract) into better credentials is great and a topic of great interest for computer security today. Using current political climate as a driver for operational security is genius. The plan to gain control of the central bank in order to clean traces of the fraud was amazing too. How many other similar plans succeded ? Should we start looking into changes of control of similar institutions in other countries ?

pjc50 7y ago
> Should we start looking into changes of control of similar institutions in other countries ? Where can you think of where the President elected in an extremely close election with a questionably secure voting system tried to fire the senior law enforcement officials who were investigating him?
- o09rdk 7y ago
  The logical steps between this and Yanukovych and current scenarios in certain countries are very small, even if it seems like a big stretch.
Iv 7y ago
I like to point that Mario Draghi, the head of the European Central Bank, with the notable task to deal with Greece's debt problem, used to be at the head of Goldman Sach's division responsible of the loans toward countries exactly at the time when Greece was cooking its books.
- throwAway12343 7y ago
  Also worth pointing out Mario Draghis son was also a European Sovereign Credit/Interest Rates trader at Morgan Stanley before he left to join a hedge fund a few years back. No such thing as inside information outside of equity markets! https://www.bloomberg.com/news/articles/2017-02-08/giacomo-draghi-said-to-exit-morgan-stanley-for-hedge-fund-lmr https://www.bloomberg.com/news/articles/2017-02-08/giacomo-d...

ThePadawan 7y ago

Reminds me of the plot of one of the episodes of Firefly. The crew discovers (via underground connections) that a food production facility has very lax security. In this universe, the vacuum-sealed nutrient packs require authenticity much like bars of gold. Now, they could break in, steal a few pallets and sell it on the black market - but obviously, the theft would be noticed, and the serial numbers could be noted down as contraband etc.. What they actually do is convince the night shift that they are not needed, and convince the afternoon shift that the protagonists are actually the night crew. They then produce the nutrient packs themselves and simply walk out with them. Since the night crew never showed up, there is no mismatch with their records, since they obviously didn't produce anything.

Svip 7y ago
As someone who has watched Firefly quite a few times, I don't recall this episode. The only thing that comes close is "Ariel", where they steal medical supplies off a core world hospital, but that's straight up theft. I don't recall all the details of the film Serenity, but the plot described does not ring a bell. Are you sure it was Firefly you were thinking of? Note: I have not read the comics, if it is one of them the plot appears.
- ThePadawan 7y ago
  Oh my god, I remember now that this wasn't actually canon. I'm so sorry. This was actually from a great crossover fanfiction, "Browncoat, Green Eyes" [0]. It was so vibrant in front of my mental eye, too. [0] https://www.fanfiction.net/s/2857962/13/Browncoat-Green-Eyes https://www.fanfiction.net/s/2857962/13/Browncoat-Green-Eyes

Balanceinfinity 7y ago

What amazes me is that at some point he didn't try and take his winnings off the table - convert to pounds or dollars - and head for the hills.

pjc50 7y ago
I wonder how convertible the Escudo was at the time? Some of his co-conspirators did successfully flee. The book epilogue interviewed them decades later.
- ferzul 7y ago
  the article says, deep in a paragraph about how he got caught, that Forex was illegal but largely ignored. > The Angola & Metropole illegally bought foreign exchange from him at a premium (money exchange was illegal in Portugal at the time, but in fact widespread and tolerated). The ledgers of these transactions were then torn out and destroyed. Although neither the teller nor the officials at the Porto branch of the Bank of Portugal could find any evidence that the bills from the Angola & Metropole were counterfeit, the circumstances were suspicious enough that the allegation was reported to Lisbon. I think Reis would have done much better than Hennies if he had fled; after all, Reis was a mastermind and Hennies was duped twice. (I think it's fair to absolve someone of the claim of poor investments in the late 1920s.)
andrepd 7y ago
From tfa: "Reis then proceeded to launder the bills into gold-backed foreign currencies and smaller denominations of Portuguese currency." So sounds like he did launder the money successfully, but he stuck around for the final part of his plot: gain a controlling share in Banco de Portugal to retroactively make his fiction become true.
- segmondy 7y ago
  I think your parent was talking about the fact that he knew he was going to be arrested and instead of fleeing like Hennies decided to fight it.

forinti 7y ago

I can't recommend The Man Who Stole Portugal by Murray Teigh Bloom enough. I loved this book. The most curious aspect about all this is that he seems to have had a positive influence on the Portuguese economy. It was a sort of QE. The subsequent regime locked the Portuguese economy back into its ossified ways.

pierrebai 7y ago
Reading the story, it seems to me that had he succeed in controling the central bank, he would be a celebrated successful businessman and Portugal would have been much better off. I also find it interesting that the people who caused his downfalls were acting legally but, in my view, were at least as morally corrupt as him. They were poweful, rich men using their power, political ties, their journals and journalist to vilify them and acting to protect their monopolies. It just reinforces the fact that law, right and wrong are not very well tied together. They're mostly there to keep the status quo for the elite.
DavidAdams 7y ago
I had the same thought about quantitative easing. Because he used the money to make so much investment, he was single-handedly modifying Portugal's monetary policy, which, had he succeeded, may have permanently stimulated the economy. When reading about what the authorities did in the wake of his discovery, I thought, "that's exactly the kind of action you'd take if you wanted to precipitate a recession." I wonder what would have happened if they'd confiscated his ill-gotten assets but still retroactively legitimized the injection of new money, and swept the whole thing under the rug?

andrepd 7y ago

The most terrifying part: >The final phase of Reis' scheme was to buy controlling interest in the Bank of Portugal, a step which would allow him to retroactively make his fiction about Bank approval true. With control of the bank, the entire counterfeiting could be swept under the rug, ensuring that there would never be any evidence of the fraud.

MrBuddyCasino 7y ago
To me the terrifying part is it nearly worked: "Eventually they controlled 10,000 of the 45,000 shares needed for controlling interest in the bank, but publicity led Bandeira to ease off the purchases even as he sent Reis ever more inflated false reports of the number of shares they had acquired."
comboy 7y ago
I recommend reading up on how FED got created.
- ceejayoz 7y ago
  Is this something specific I'll find in https://en.wikipedia.org/wiki/History_of_the_Federal_Reserve_System https://en.wikipedia.org/wiki/History_of_the_Federal_Reserve..., or do I have to add "lizard people" to the search terms?
  - comboy 7y ago
    Wikipedia article is fine. All the facts are there, if you prefer more narration I like this one: https://www.youtube.com/watch?v=mQUhJTxK5mA https://www.youtube.com/watch?v=mQUhJTxK5mA
    - ceejayoz 7y ago
      Could you clarify a couple specific facts you're looking to point out, instead of asking us to watch a 21 minute video from some random YouTuber?

elhudy 7y ago

You can buy one of these "fake" bills for about $1300.

marzell 7y ago

Does anyone else feel it is an interesting coincidence that his name was Reis? Until 1911 that was also the name for common currency in Portugal, then replaced by Escudos at a rate of 1000:1. Is/was this a common name in Portugal?

gdhbcc 7y ago
It's a decently common surname

tomonocle 7y ago

Ridiculous History covered this recently: https://player.fm/series/series-2148552/the-portuguese-bank-note-crisis-how-one-lucky-forger-almost-destroyed-a-nations-economy https://player.fm/series/series-2148552/the-portuguese-bank-... Crazy how much he got away with, for so long, effectively just on confidence and skill.