The Swindled Scots Again

A previous post concerned the Darien Scheme. Not many Scots however know of Gregor Macgregor, Prince of Poyais, Poyais being not far up the Central American coast from Darien. Gregor MacGregor was born in Glengyle in Stirlingshire and claimed direct descent from Rob Roy. He was a soldier and mercenary who fought in the South American wars of independence. 

Upon his return in 1820 to Britain, he claimed to be cacique ["prince"] of Poyais, a Central American country that MacGregor promoted to investors and colonists. Poyais, was an independent nation on the Bay of Honduras. He claimed that a native chief King George Frederic Augustus the First had given him the territory of Poyais, 12,500 sq. mile of fertile land with untapped resources. Gregor presented himself as His Serene Highness Gregor I, Prince of Poyais and his beautiful wife as the Princess of Poyais. No-one questioned their bona fides; instead they were welcomed into the ranks of the elite and were the toast of society. MacGregor published a 350-page guidebook entitled Sketch of the Mosquito Shore, including the Territory of Poyais. It described Poyais in glowing terms and concentrated on how much profit could be made from the country's ample resources. Poyais was said to possess an already existing infrastructure with civil service, army and democratic government , gold and silver mines and large amounts of fertile soil ready to be settled. The capital, St Joseph, even boasted an opera house. The region was even free of tropical diseases. But now he needed settlers and investment and had come back to the United Kingdom to give people the opportunity. At the time, British merchants were all too eager to enter the South American market that Spain had denied to them. The Lord Mayor of London organised an official reception in London Guildhall. MacGregor was also introduced to Major William John Richardson and he made Richardson Legate of Poyais. He also moved to Oak Hall, Richardson's estate in Essex, as befit his station as a prince. An office for the Legation of the Territory of Poyais was opened in the City of London and MacGregor enhanced his popularity with elaborate banquets and invited dignitaries like foreign ambassadors and government ministers.

MacGregor also claimed that one of his ancestors was a rare survivor of the Darien Scheme, the failed Scottish attempt of colonisation in Panama in 1690s. In order to compensate for this, he said, he had decided to draw most of the settlers from Scotland. For this purpose, he established offices in Edinburgh Glasgow and Stirling. In Scotland, MacGregor began to sell land rights for 3 shillings and 3 pence per acre. The average worker's weekly wage at the time was about £1, which meant that the price was very generous. The price steadily rose to 4 shillings. Many people hoping to make a new start in the new country signed on with their families. MacGregor successfully raised a £200,000 loan on behalf of the Poyais government, in the form of 2,000 bearer bonds worth £100 each.

The Legation of Poyais chartered a ship called the Honduras Packet. Its cargo also included a chest full of Poyais Dollars, the Poyaisian currency MacGregor had printed in Scotland. Colonists were assured the only legal currency in their new home would be the Poyaisian dollar and so, before departing, they exchanged their old Scottish and English pounds for this new currency. What did they care for old money from the old country anyway? A wonderful new world of plenty awaited them. On 10 September 1822 the Honduras Packet departed from the Port of London with 70 would-be-settlers aboard. They included doctors, lawyers and a banker who had been promised appropriate positions in the Poyais civil service. Some had also purchased officer commissions in the Poyaisian army. A Scottish shoemaker was equally entranced at the thought that he was to be the Official Shoemaker to the Princess of Poyais. On 22 January 1823 another ship, the Kennersley Castle, left Leith for Poyais with 200 would-be-settlers. It arrived in the appropriate place 20 March and spent two days looking for a port. Eventually the newcomers found the settlers who had sailed on the Honduras Packet.

The bond issues, land sales, and currency of the Territory of Poyais were all part of a scam. Poyais was an imaginary country. What the settlers found was jungle. "St Joseph" consisted of only a couple of ruins of a previous attempt at settlement abandoned in the previous century. There was no settlement of any kind. Standing where the towering buildings, opera house and banks of the shining capital of St Joseph were supposed to be were instead four rundown shacks. There was no Poyaisian army, no royal family, no civil service, not even one solid building. The great, prosperous nation of Poyais had all been an elaborate illusion, a heartless fraud committed on men and women from hard-working backgrounds who had dared to hope for a better life in the Americas. The monumental fraud had enlisted the credulity not only of adventurers but also of earnest bankers, profit-hungry land agents, and an old-boy network of aristocrats. A bull market had raged and the banking houses were abuzz with the news that Sir Gregor MacGregor was offering acreage in the New World at bargain prices. So convincing was MacGregor that he had duped them all. 180 of the 270 would-be settlers perished during the ordeal. Fewer than 50 came back alive to Britain. MacGregor himself, however, had already left for France where he had plans to send French emigrants to Poyais.

MacGregor published a new constitution of Poyais and changed it into a republic with himself as the head of state. In August 1825 he issued a £300.000 loan with 2.5% interest through the London bank of Thomas Jenkins & Company and the trading organization "Compagnie de la Nouvelle Neustrie" was commissioned to further the affairs of Poyais. Recruited settlers were required to buy 100 francs worth of the company shares. When French officials noticed that a number of people had obtained passports in order to voyage to a country they had never heard of, they seized the la Nouvelle Neustrie ship. Some of the would-be-emigrants realised that something was not right and demanded investigation of the affair. MacGregor was arrested with others but was acquitted at his trial and released.

MacGregor returned to London. This time he claimed that he had been elected as the head of state, the "Cacique of the Republic of Poyais", and opened a new office in Threadneedle Street in the City, without any diplomatic trappings and in much a smaller scale than before. He issued a loan worth £800.000 as 20-year bonds again with Thomas Jenkins & Company as brokers. In 1828 MacGregor tried to sell land from Poyais at the price of 5 shillings per acre. In 1831 MacGregor promoted a "Poyaisian New Three per cent Consolidated Stock" as "the President of the Poyaisian Republic". In 1834 he was living in Scotland and had to issue a new series of land certificates as payment for unredeemed securities. In 1836 he wrote a new constitution for the Poyaisian Republic. The last record of any Poyais scheme is in 1837, when he tried to sell some land certificates.

 Such a scam could never happen again in Scotland, could it?

 The Bank of Scotland and the Royal Bank of Scotland effectively went bust during the recession. At best, there were appalling management failures with an obsession with growth taking precedence over prudent banking practice. At worst, the banks were out-of-control and riddled with fraud and criminality, having been primed by its management teams to deliver maximum short-term profit growth with maximum reward for executives, irrespective of whether the banks had a chance of surviving long term — or whether its customers were harmed. The Financial Services Authority turned a blind eye to the blatant wrongdoing and recklessness, accused by many of acting as a cheerleader for the big banks, if not an accomplice.

The executives who ran HBOS and RBS were supposed to be the best and the brightest. They were selected from the finest schools and the top universities, well qualified in business and accountancy. How exactly do the people running these operations invest? Do they watch everyone else and then do the exact same thing, following instinct of the herd? Do they figure that they have some form of immunity and get away with what others can't? Surely, they understand the business cycle. Surely, they understand what a bubble is. Surely they could see what was going on, when it was going on, and where it was leading before it went there? If they didn't, how come others did? The financial world was full of information about the coming crash before it happened. Most in the money community knew the market was bound to come tumbling down. But, just what are the chances of those with their snouts deep in the trough ever questioning the system? Little to none. Not in a million years will they ever question the fundamentals of the system, even though it blows up in their faces every decade or so. Despite all the sophisticated best-practices and the cleverest financial technology capitalism is fatally flawed. The system will eventually rebound from the present recession. The bankers with their spread sheets, their risk analysis, their clever accounting methods will once again seek out their "opportunities" in the next bubble. And then express their surprise when that too bursts.

At some point, the system has to be questioned. The idea that people can trust in more and more regulatory authority to foil the "few" bad pennies and rotten apples is sheer wishful thinking. What must come out of this mess is not a restructured financial and regulatory environment but a fundamental questioning of the whole concept of capitalism. It is no exaggeration to say that the global financial sector tolerates and even encourages systematic fraud. The behaviour that caused the sub-prime mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of a criminalised pattern, rather than some kind of economic accident. There have been very few prosecutions and even less criminal convictions of senior executives. Similar to MacGregor, the bankers have walked Scot-free from the legal process.

The economist, Nouriel Roubini, in Crisis Economics recalls Gregor MacGregor and reminds us of the recurring nature of economic crises. He wrote "...the panic of 1825 reverberated around the world. It began in Britain and had all the hallmarks of a classic crisis: easy money (courtesy of the Bank of England), an asset bubble (stocks and bonds linked to investments in the emerging market of Peru), and even widespread fraud (feverish selling of the bonds of a fictitious nation called the Republic of Poyais to credulous investors)."

Just like many another capitalist swindler, Gregor MacGregor got away with his crimes and found a friendly foreign country to retire to. His name can still be seen on a  monument to honour Venezuela’s heroes of independence. His legacy in his Scotland is very different. The fraud cost more than just the livelihoods of those he fooled, it cost them their lives.