The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals
By admin • Jul 2nd, 2009 • Category: Finance
The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals
by: Frank Partnoy
The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals
By Frank Partnoy
Publisher: PublicAffairs
Number Of Pages: 288
Publication Date: 2009-04-13
ISBN-10 / ASIN: 1586487434
ISBN-13 / EAN: 9781586487430
Product Description:
At the height of the roaring ’20s, Swedish émigré Ivar Kreuger made a fortune raising money in America and loaning it to Europe in exchange for matchstick monopolies. His enterprise was a rare success story throughout the Great Depression.
Yet after Kreuger’s suicide in 1932, the true nature of his empire emerged. Driven by success to adopt ever-more perilous practices, Kreuger had turned to shell companies in tax havens, fudged accounting figures, off-balance-sheet accounting, even forgery. He created a raft of innovative financial products— many of them precursors to instruments wreaking havoc in today’s markets. When his Wall Street empire collapsed, millions went bankrupt.
Frank Partnoy, a frequent commentator on financial disaster for the Financial Times, New York Times, NPR, and CBS’s “60 Minutes,” recasts the life story of a remarkable yet forgotten genius in ways that force us to re-think our ideas about the wisdom of crowds, the invisible hand, and the free and unfettered market.
Summary: Sadly disappointing
Rating: 2
I was very much looking forward to this work after the enticing allusion to it in The Economist several months back. While I noticed another reviewer allude to the author’s ability to streamline so much material into 200 or so pages, I found the opposite to be true. While reading, it seemed a fragile and incomplete tale was stretched to fit between the covers of this volume and released to meet a timely demand for works on financial scandal. A shame. The true story, it seems, is so much more.
Summary: Timely
Rating: 3
Though this is a very well written book, one gets the feeling it was slapped together to take advantage of the current financial crisis. It looks back to an almost forgotten man and his singular financial exploits, but it provides little new information and insight than previous studies.
If you don’t know anything at all about Ivar Kreuger this is an excellent introduction. If otherwise, it leaves a sense of wanting a lot more detail after finishing it.
Summary: Extremely interesting book but with limited scope
Rating: 5
Early in this book there is a breathtaking paragraph. It is not breathtaking due to wording or emotion. Rather it is breathtaking because it starts with Ivar Kreuger (1880-1932) in high school and ends with him twenty five years later owning worldwide match, construction and film empires. All in one paragraph.
Clearly this book is not a biography in any sense of the word but is properly classified as a business history. The author, Frank Partnoy, is focused on the last decade of Krueger’s life when Kreuger was striking deals to lend money to governments in return for monopolies in producing and selling matches. This strategy put him in conflict with traditional bankers, such as the J.P. Morgan company, and required Kreuger to raise huge amounts of money in Wall Street.
The vast bulk of the book is concerned with these transactions and how Kreuger achieved them. Unfortunately there was a large element of fraud associated with the transactions. Kreuger’s financial statements were manipulated to show profits and assets which weren’t there. However the main interest in the book is how Kreuger also manipulated the auditors, investment bankers, commercial bankers and directors to facilitate his frauds. Kreuger used his intelligence, charm and networking to cater to their greed, ego and ignorance.
The author tries to position Kreuger as the pioneer in Wall Street fraud and attempts to show that his "innovations" come down to the current day. Having read to book I would say that case was "not proven". Financial fraud has existed for eternity and without a sweeping review of its history, which this book is not, it is impossible to say who was first in any innovations. The fact that the author references Bernie Madoff or uses trendy terms (i.e. "derivatives" instead of the centuries old "puts", "special purpose" companies instead of the centuries old "non-consolidated" subsidiaries) may prove recurring patterns of fraud but not that Kreuger invented them. Clearly the co-opting of those "independent" professionls responsible for monitoring or controlling companies is a recurring theme of many frauds. So is Kreuger’s ultimate downfall and suicide as a faltering economy lays bare his need for cash despite the reported profits.
The book is well written and organized. The author clearly benefits from the extensive documentation arising from the major investigations which followed Kreuger’s failure. However, to reiterate, this all relates to the last decade of Kreuger’s business life. Images of the man himself are fairly clear in the book but how he got that way is largely a mystery since the book doesn’t address whole decades of his early business life. Some commentators have highlighted incidents, such as his involvement in Greta Garbo’s early film career, but frankly those are just minor asides and anyone buying the book on that basis are likely to be disappointed.
Summary: An amazing true-life saga of the 1920’s & 30’s equivalent of Bernie Madoff
Rating: 5
The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals is the true-life biography of Swedish emigre and 1920’s financier Ivar Kreuger, who amassed an immense amount of money raising capital from American investors and loaning it to European governments in exchange for matchstick monopolies – in an era when matches were a common household staple. Even after the 1930s collapse of Wall Street, Ivar continued to make money. But in 1932 the house-of-cards nature of Kreuger’s empire came to light. The unrealistically high dividends that he paid to investors had led him to adopt more convoluted an fraudulent practices, from shell companies in tax havens to "creative" accounting figures to even forgery. At last his empire could no longer sustain itself; shares of his company became worthless in a matter of hours. The "Kreuger crash" that followed provoked the bankruptcy of millions, and prompted landmark securities regulations that still protect our marketplace today. An amazing true-life saga of the 1920’s & 30’s equivalent of Bernie Madoff, The Match King is highly recommended to scholars and lay readers alike, especially any studying the history of financial fraud.
Summary: Ivar Kreuger Was a Crook, But He Created Value
Rating: 5
BOOK REVIEW: ‘The Match King’ Revives an Almost Forgotten Financial Figure Who Outdid Ponzi, Madoff, Stanford
By David M. Kinchen
Everything in life is founded on confidence — Ivar Kreuger
History is merely a list of surprises. It can only prepare us to be surprised yet again. — Kurt Vonnegut
History repeats itself, first as tragedy, second as farce. — Karl Marx
* * *
Charles Ponzi, Bernard Madoff, R. Allen Stanford, Ivar Kreuger.
Kreuger? Who’s he?
Frank Partnoy tells us about the Swedish financier who outdid Ponzi, Madoff and the Texan Standford in an elegantly written biography "The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals" (PublicAffairs, 304 pages, $26.95).
Ponzi’s scheme was penny ante compared with Kreuger’s machinations, which resulted in a grand illusion that lasted more than a decade and saw Kreuger lending money to European governments and creating financial instruments that are still in use today. The New York Times Co., for instance, uses "B" shares, which have only a fraction of the voting power of "A" shares. This concept was created by Kreuger, as were privately customized, over-the-counter derivatives, now a multi-trillion dollar market, Partnoy says.
Complex foreign exchange options were another Kreuger invention, now widely used today in transactions totaling trillions of dollars. Hybrid debentures? Kreuger invented these and they’re widely used by many financial institutions and companies such as Avon.
Kreuger (1880-1932) was a civil engineer by training and a financier, entrepreneur and industrialist by instinct. In 1908 he co-founded a construction company called Kreuger & Toll. In a world where wooden safety matches were a basic necessity, he built a global empire based on his Swedish Match Company. He negotiated match monopolies with European, Central American and South American governments and used these monopolies as platforms for his financial empire.
Like Madoff, Ponzi and Standford, he promised and delivered — for a relatively long time — larger than usual dividends to his investors. Like the others, he appealed to the greed which seems to be embedded in the geneitic makeup of just about everybody.
Even the Great Depression didn’t slow down Kreuger; from 1929 on until his suicide in Paris in 1932, he was a rare success story, or so it seemed, at a time when the financial world was disintegrating. He was a man of great personal charm, Partnoy says. He could charm the birds out of the trees — and money out of the wallets of his investors.
Kreuger was a celebrity who dated his countrywoman Greta Garbo, built a magnificent mansion in Sweden, traveled first class on the best ocean liners and had apartments in New York and Paris. Newspapers and magazines vied for interviews and his success engendered jealousy among financial competitors, especially Jack Morgan of J.P. Morgan & Co.
Biographers are always intrigued with their subjects — even falling falling in love with them — and from my reading of "The Match King," I detect more than a little admiration for Kreuger from Partnoy, especially in his "Coda" at the end of the book.
The conventional wisdom was that Kreuger was a common crook, just like Ponzi. This explanation, Partnoy says, is "too simple. It ignored the real wealth Ivar created throughout his career, and the real businesses he established, not only in matches, but in telecommunications, mining, commodities, and film. It ignored Ivar’s financial innovations, and the crucial fact that his companies paid double-digit dividends for more than two decades before they collapsed. In contrast, Charles Ponzi’s scheme lasted just a few months."
The key to Kreuger’s success in U.S. financial markets was establishing a relationship with a prominent investment bank and Ivar charmed his way to the top, gaining the confidence of Donald Durant, a partner of Lee Higginson & Co. in New York. In the early 1920s, Lee Higginson was one of the most prestigious banks in the world, just behind J.P. Morgan and ahead of Goldman Sachs and Lehman Brothers, Partnoy writes.
"Lee Higg," as it was called, had its roots in Boston and was widely respected. Once he established himself with the firm, Kreuger set out to find himself a compliant accountant. His search ended when he befriended A.D. Berning, a C.P.A. and junior functionary at Ernst & Ernst and had them do the books in the U.S. for his International Match Co. Ivar paid for European trips for Berning and his wife, further cementing the relationship.
Since many of Kreuger’s financial entities were registered as off-shore subsidiaries in the tax havens of the time — another one of the Swede’s innovations — the work Berning performed was little more than signing off on his financial statement, prepared by an equally accommodating Swedish accounting firm.
Bernie Madoff must have studied Kreuger’s life thoroughly, since he used an obscure and accommodating accounting firm in New York City.
Partnoy’s biography is worth reading if only because much of what he describes, including the collapse of Lee Higginson and the creation of the Securities Exchange Commission a few years after Ivar’s suicide are cautionary tales for today. Of course, as Vonnegut so aptly phrased it, we’ll probably be surprised again by yet another incarnation of the original Ivar Kreuger.
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