I want to start this video by telling you a story. This story happened during a massive market crash called the Panic of 1825 (almost 200 years ago). This was a market crash in England that was so devastating that six London banks and sixty country banks closed. WATCH NOW!
Want to chat with me live? I have daily live streams on my gaming YouTube channel. I stream every day at 8:00pm MST except on Saturday which is at 10:30am MST. https://www.youtube.com/channel/UCyA6hunVgBiE3QEDn9GpQtw
VIDEO SUMMARY
One of the things you have to understand is that this was the period in time when the financial industry was just starting to be developed. In 1770, only five company stocks were available to purchase on the London Exchange. But 50 years later, by 1824, investors could choose from 624 joint-stock companies. So this was a period when all these new exciting financial instruments started to be traded among the public, and prices were going up. This was all brand new, and most people did not know how these financial instruments worked. But they did know that a lot of people were getting rich, and putting their life savings into these new markets.
The problem is that some of these were not good investments. The most famous of these bad investments was in a fake country that someone made up.
This story starts with General Gregor MacGregor (yes that is his real name). I am going to put up a painting of him. He looks like a very nice guy. He was in the British Army, involved in conflicts in Central America for 18 years. This was a period of time when a lot of the European countries were fighting over land in Central America, Florida, and nearby islands. He returns to Britain in 1821 to find an environment where everyone is enthusiastic about buying company stock and these new financial instruments.
So what did MacGregor do? MacGregor decides to join in with the investment frenzy. This is a guy who is an expert on Central America. He has been there for 18 years. He is the best person to say whether there are any investment opportunities in Central America. So MacGregor makes up an imaginary country. He called it Poyais. I am not exactly sure how to pronounce this, but I think there’s a silent s. Now MacGregor did have some land in Central America. While MacGregor was there, he met a regional king, called the Mosquito king. The Mosquito king did some trading with MacGregor and gave him a land certificate for 12,500 square miles of land. There was nothing on this land, and it wasn’t useful for anything which is why the Mosquito king traded it.
So MacGregor goes back to England with this certificate and makes up a fantastic story about this kingdom he runs on this land. He prints up documents full of fictitious stories about the paradise community in his kingdom. He then sells land certificates for this country to hundreds of people. He goes to his fellow Scotsman and says “Here is your opportunity to buy cheap land in paradise.” He them points to all the excited emigrants as proof of his growing economy, and sells government bonds for his fake country.
[images in the video] Let me give you a taste of what he was selling. Here is the fake flag he created for this country. Yes, those are unicorns on the flag. Here is an image he printed up to put in the newspapers. The town in this image did not exist.
250 people leave Britain in boats to go settle this fake country. They arrive in Central America to find nothing. They were shocked. This was completely different from what they were told. The Mosquito King shows up and says “What are all you people doing here? There is no Poyais. I am the king. I did not give MacGregor permission to do this. Oh, and by the way, I’m tearing up MacGregor’s land certificate. You guys all got screwed.” Over half of those people died. Eventually, 50 people made it back to Britain two years later.
Now I should note that MacGregor went to trial and was acquitted on all charges. He had a really good lawyer. However, history does not view MacGregor as favorably, and he has become known as the father of securities fraud.
So this is an interesting story from 200 years ago, but I am telling you all this because I want to talk about the point of accountants. Why do you go into work every day? What is the point? Your job as an accountant is to watch the money. Where were the accountants in this story? Who was watching the money? It turns out, there was no money. As our economy gets bigger and more complex, we need more accountants. As a society, we need that for our economy to function. Or what you end up with is fraud. And the stakes in this example were literally life and death. People died. People’s lives were ruined. And it could have been avoided if there was an accountant watching the money.
Now we have gotten a lot better since the crash of 1825. We have learned a lot. We now have regulations and government oversight around the sale of financial instruments. But this story is still relevant today. Accountants get a certification called a CPA, or Certified Public Accountant. You are certified by the public because you have a duty to society to watch the money. My hope is that if you are an accountant out there watching this, is that you just realize how important your job is in making the whole economy work.
Leave a comment down below letting me know what you think!
If you find these videos helpful, please subscribe to my YouTube channel.
Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.