The new Portuguese government is the first since the Cravos (Carnation) Revolution of 1974 to include Communists in coalition with the more moderate left. Unfinished Portuguese business after the 2008 global economic crisis includes deciding what to do about the Espirito Santo banking clan whose bailed-out bank, renamed Novo Banco, is proving to be hard for the Lisbon government to sell at a high enough price to recoup its outlays.

BES bank before the crisis funneled cash raised with bond issues from small depositors to Espirito Santo family holdings (most incorporated in Luxembourg, the nearest Euro-zone tax haven). The bank was allowed to issue these bonds by the Portuguese central bank, which then had no alternative but to rescue the Portuguese bond-holders. Foreigners and institutions were left hanging out to dry. And the Espirito Santo family managed to cash out of non-financial holdings, in hotels, hospitals, Brazilian land, and Portugal Telecom, whose shares we recommended. The family won bankruptcy protection from a Luxembourg court and the looted assets were sold to investors from Brazil, Thailand, Luxembourg, and Mexico. The central bank and the shareholders of PT (mostly Portuguese, but there was also an ADR) got nothing, nada. The present family head. Ricardo Espirito Santo Salgado, which masterminded much of the fake bond issue, retained his posh seaside residence at Boca do Inferno, in a Lisbon suburb.

The Espirito Santo clan’s rescue reminded my husband of their earlier role, before and during the Second World War, during the reign of dictator Antonio Salazar, an economist. The then head of the bank, the English-speaking Ricardo Espirito Santo, did nothing without Salazar’s approval. He began by providing a haven for the recently deposed Duke of Windsor and Mrs. Simpson in Boca do Inferno (which goes with the job) and ferrying them around nightspots at his expense. When the war broke out, they were removed to Bermuda to stop Nazi plots to use him against his brother who had become king. Espirito Santo was an intermediary between Germany which needed Portuguese tungsten for its war machine, and its miners. He and the Portuguese central bank were paid with Nazi-imprinted gold bars, most stolen from conquered territories or dead Jews.

Portugal was formally neutral in World War II, allowing two of my German Jewish grandparents who fled Nazi Germany to embark for America from Lisbon. While the British and later the Americans did not need tungsten, they wanted something else from Portugal: to lease a port and later an airbase on its Azores islands in the mid-Atlantic. Again wealth flowed to Portugal with the Espirito Santo’s taking a cut.

Not too surprisingly, after Salazar’s death and the Cravos Revolution, the Espirito Santo family took refuge in Brazil before being welcomed back when the center won elections against the left. Family head Ricardo Espirito Santo Salgado got a stake in Portugal Telecom by organizing its privatization—and then wheedled his way into control of its finances.

I got PT very wrong. We wound up with only pennies from our ADRs. My mistake was assuming that shareholders in the troubled Portugal telco would be given the same level of protection as we had received earlier from Telefonica of Spain over its troubled sub, Telefonica de Argentina. I assumed shareholder protection in mother countries was as high as it was in former colonies.

Now the chickens have come home to roost. The CB, having funded Novo Banco with money it cannot extract from any likely buyer, is as embarrassed by letting the BES borrow as it would be if anyone looked closely at the markings of its gold bars. The stock exchange regulators are still facing claims from PT shareholders in Portugal. The center-right government which let all those family assets go has been defeated. And the Luxembourg prime minister who created the country’s haven laws is now head of the European Commission in Brussels. There will be more sequels in the EU and Lisbon.