#72 The Cazique of Poyais: a Real Estate Illusion in the New World
Brief notes on economic and financial history: Episode IV
After fighting in the South American wars of independence, Gregor MacGregor returned home declaring himself Cazique (kind of a tribal prince) of an imaginary Central American country called "Poyais." His utopian paradise promised unparalleled wealth and opportunities, attracting hundreds of investors who, unfortunately, not only ended up losing their fortunes but also their lives.
Hindsight makes everything seem obvious, but we see daily reflections of this in the markets. More recently, the resurgence of the GameStop saga showed investors influenced by a tweet and the possibility of quick and easy gains.
An investor must look beyond bright promises and compelling narratives. This principle is as relevant today as it was in the 19th century. Patience, skepticism, and thorough analysis are essential to avoid falling into traps and schemes that promise more than they can deliver.
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Gregor MacGregor, known as the Prince of Poyais, Cazique, and His Serene Highness, was a Scottish soldier who became one of the most notorious conmen of his time. He was born on December 24, 1786, into the MacGregor Clan, a family with a strong military tradition. His father, Daniel MacGregor, was a captain in the East India Company, while his grandfather had served with distinction in the Black Watch, 3rd Battalion of the Royal Regiment of Scotland. Among his relatives was the infamous Rob Roy, sometimes referred to as the Scottish Robin Hood.
At sixteen, Gregor joined the British Army just as the Napoleonic Wars were breaking out. Serving in the 57th Foot Regiment, he quickly rose to the rank of lieutenant within a year.
In June 1805, at the age of nineteen, he married Maria Bowater, a wealthy and well-connected woman, the daughter of a Royal Navy admiral. This marriage secured his social position, and he bought the rank of captain, avoiding the traditional path of promotion that would have required seven years of hard work.
After several years in Gibraltar and Portugal, a disagreement with a senior officer led him to retire from the army in 1810. He returned to Britain with his wife, moving to Edinburgh and then to London, where he began to refer to himself as "Sir Gregor MacGregor." After his wife’s death, he faced financial difficulties, and his social aspirations crumbled. It was then that his interests turned to Latin America, inspired by the Venezuelan revolutionary general Francisco de Miranda.
Selling his property in Scotland, MacGregor sailed to Venezuela in 1812, presenting himself as "Sir Gregor" and offering his services to Miranda, who appointed him colonel and commander of a cavalry battalion. Despite some initial successes, his ambition drove him to rapidly ascend the ranks, achieving the position of General of Division in the armies of Venezuela and New Granada by the age of thirty.
At the height of his fame, he married Doña Josefa Antonia Andrea Aristeguieta y Lovera, a cousin of Simón Bolívar and heiress to an important family in Caracas. However, the ongoing conflicts between republicans and royalists, along with several defeats and evacuations, led MacGregor to seek new adventures.
Then in 1820, MacGregor came across the swampy, inhospitable coast of Nicaragua, known as the Mosquito Coast. Here he persuaded the leader of the indigenous people to give him land to create a colony. A dream of empire began to take shape.
The scam
The self-appointed Prince of Poyais reappeared in London in 1820. He was seeking investors and colonists looking for a new opportunity across the Atlantic in a new world full of possibilities.
At that time, the British were fascinated with Spanish America. In the first two decades of the 19th century, many countries had declared their independence. Coincidentally, rumors began to spread about fabulous underground riches (hidden assets not represented on balance sheets), especially gold, which had eventually allowed the Spanish to dig their own grave by financing wars in Europe and generating one of the modern age’s significant inflationary processes. The British would invest in the new Latin American countries with the consciousness of supporting their struggle for freedom while also making good business deals.
Gregor MacGregor capitalized on this sentiment to seek funds for the development of Poyais, in a style akin to a SPAC. He commissioned a book, illustrated with engravings, describing the country with “total” accuracy.
Taking advantage of his past as a British Army officer, he managed to gain the sympathy of high society. Nothing has ever been more important than good marketing and PR. The Crown recognized him as a foreign dignitary and, to foster relations between the two countries, honored him with the title of Sir (finally). At that time, just as it happens now, brokers didn’t care what kind of securities they sold as long as they made money from them. Thus, in 1822, Sir Gregor managed to place “Poyais State bonds for stabilization” worth £200,000. These bonds were traded alongside securities from other already recognized states, such as Colombia, which had gained its independence in 1810.
After this, MacGregor took it a step further. He opened offices throughout Great Britain that sold land to colonists who wanted to start a new life in Poyais.
It was said that the people of Poyais had a special aversion to the Spanish and would therefore welcome English colonists with open arms. This led to the belief that the natives would be willing to work for them in exchange for low wages; they were merely waiting for the Europeans to tell them what to do (human nature will always dictates that non-believers are idiots and we are the smartest ones).
Many were convinced. Hundreds of enthusiastic colonists spent their savings buying land in Poyais and the corresponding passage overseas. MacGregor even exchanged the pounds emigrants had saved for their expenses for Poyais currency, offering them a preferential rate exclusively for them. He even sold administrative posts to the wealthiest and most ambitious.
In 1822, the first emigrants arrived on the country’s shores in two ships. At the location where the capital should have been, described in detail in the book by the "Black River," there was nothing. The place the colonists had arrived at was known as the "Mosquito Coast." The natives themselves avoided that place due to its terrible climate. Who would have thought that the prime real estate they had bought from a swindler was nothing but pure smoke?
Nevertheless, typical of human psychology, the colonists’ discontent turned against the ship’s captain who had brought them, for it was he who was there. Somehow, he had made a mistake, disembarking them in that godforsaken place and immediately setting sail. No one thought to doubt Sir Gregor. The few natives there could not care for the colonists. Many fell ill and died.
The survivors returned to Great Britain in the autumn of 1823. Surprisingly, no scandal occurred. The emigrants continued to believe in the word of the Prince of Poyais. Once again, no man wants to admit they've been duped, just as no fintwit bro will ever acknowledge losses on a 'fantastic' cheap stock trading at PE 5, conveniently ignoring a declining business or a mountain of debt.
Despite everything, Gregor MacGregor moved to Paris for safety. From there, he still had the opportunity to place more state bonds, strip a new group of emigrants of their savings, and send them to the Mosquito Coast in 1825 and 1826. And let’s not think this happened because our poor ancestors didn’t have access to the internet and couldn’t see that this was a scam. In the 21st century, we still see scams repeated over and over again, simply leveraging human ambition to achieve extraordinary returns in a short time, doing little, just because we believe we are the smartest in the class.
Naturally, all those who invested their money in Poyais bonds lost it. However, it must be said that the returns on these bonds were in line with other investments made in Latin America during those years. On many occasions, the solvency of real states was no different from that of fictional countries like Poyais.
In 1839, when Sir Gregor was running out of money from selling land and bonds, he moved to Colombia, where he was granted a pension as a war veteran. Thus, he lived happily and carefree until the end of his days.
In times of economic boom and bull markets, investors can become overly optimistic and gullible, forgetting the lessons of the past. MacGregor took advantage of the euphoria of British investors for new opportunities in the new world to sell them non-existent lands and worthless bonds, all supported by falsified documents and maps that seemed authentic. This gullibility led many to invest their savings in a project that, in retrospect, showed clear signs of being too good to be true.
Similarly, the GameStop saga in 2021 (with the latest revival just last week) demonstrated how enthusiasm and speculation can artificially inflate a company's value, driven by the desire for quick gains. Investors, influenced by social media virality and the promise of getting rich quickly, bought shares at inflated prices without a critical analysis of the company's fundamentals. Although some made money, many others suffered significant losses when the stock price plummeted sharply.
For today's investors, these stories underscore the need to be skeptical and conduct thorough analysis before investing. Not everything that glitters is gold, and projects promising easy and quick riches often hide considerable risks. A good investor must question common beliefs, diligently research, and be prepared to recognize and avoid the traps lurking out there.
Skepticism is not synonymous with cynicism; it is a crucial tool for protecting our capital and making informed decisions. The story of Poyais reminds us that, although times and technologies change, human nature and market dynamics often remain constant.
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References
von Wallwitz, G. (2012) Odysseus und die Wiesel - Eine fröhliche Einführung in die Finanzmärkte. Berenberg.
Brain, J. Gregor. MacGregor, Prince of Poyais. Historic UK
https://www.historic-uk.com/HistoryUK/HistoryofScotland/Gregor-MacGregor-Prince-Of-Poyais/
Zubair, A.J. (2023) Poyais: The Hottest Real Estate Scam of the 19th Century.
https://medium.com/@aydin.j.zubair/poyais-the-hottest-real-estate-scam-of-the-19th-century-0e452c27012b
His whole life would make for a good movie. Could either be a comedy or a drama.
great take, thank you!