Book Reviews

The Match King

The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals
by Frank Partnoy

Though his name isn’t a common synonym for fraud, Ivar Kreuger was in many ways a far greater swindler than Charles Ponzi.

Like Ponzi, Kreuger was a European immigrant who sailed to America with little more than a few bucks and a penchant for self-invention. He surpassed Ponzi’s modest trick, building a worldwide financial empire shrouded in such trickery and obscurity as to outwit the brightest bankers of the 1920s and early 30s. And the whole enterprise was, as Frank Partnoy puts it in his intricate, rollicking biography, “alegal” rather than illegal.

But where Kreuger differs from Ponzi is in his success at creating real wealth and paying real dividends for decades, making him a more complicated financial player and a more interesting figure to study today, when the urge to vilify financiers and their misleadingly packaged assets is so irresistible. Partnoy, author of Infectious Greed and a one-time investment banker, gained unprecedented access to Kreuger’s copious papers. Using the new sources, Partnoy reveals the machinations of the man he says was the singular influence for the drafting of Great Depression-era securities regulation, and, as a highly intuitive, psychologically aware investor, managed to master the ever-befuddling markets.

Kreuger had a fairly modest upbringing, and launched his career by taking control of a few match factories. Kreuger rode out a Swedish financial panic, bought up and consolidated his competitors, kept tight control over his company, revitalized and streamlined operations, and built a monopoly, Swedish Match, with the grand idea to grab up monopolies across Europe by granting loans to governments.

With investments from a top American bank, Lee Higginson, Kreuger built International Match, promising his partners a chance to unseat J.P. Morgan as the financier of Europe. Kreuger invented his first of many new financial devices, the “convertible gold debenture” – a bond that could be paid in gold or dollars, and switched into shares at the investor’s request. The initial price offering was, as Partnoy quotes, “like touching a match to a bucket of gasoline.” (But the debenture was not Kreuger’s most renowned invention. That title likely goes to what he termed B shares, which confers minuscule voting power to its holders, letting companies to raise capital without diluting control.)

After this began Kreuger’s decades-long juggling act – maintaining strict and secretive control of his companies, while issuing shares or bonds and making monopolies to get funds to pay his promised sky-high dividends. His biggest deal – with France, built around another new financial invention, the convertible debenture derivative – won him a monopoly in everything but name in that country. And American investors paid more for his derivatives than he had to pay to France in loan. Kreuger cut a profit of $2.5 million, which, Partnoy writes, “is one of the largest fees for any financial transaction in history.” To the press, Kreuger was on par with the Medicis as a private lender to governments, and he cultivated his image with theatrical flair. He built himself a mansion-”the Match Palace”-and hung around with movie stars (including fellow Swede Greta Garbo, whom he cultivated when she was merely Greta Gustafson).

Kreuger capitalized on the sort of optimism and collective delusion that fuels any boom, including our most recent one. Low interest rates, easygoing financial regulation, a laissez-faire government and the rise of an eager American investor class made Kreuger a very wealthy and very famous man. Those dealing with Kreuger either quelled their misgivings about Kreuger’s obviously incomplete and sometimes nonsensical financials, including clearly manipulated earnings statements, or had them eased by Kreuger’s willingly deceptive auditor.

Kreuger’s end was, like Ponzi’s, ignominious, but also more of a spectacle. His final act was a gamble – signing a huge deal with Germany on the cusp of the depression, counting on a market rebound that never came. Kreuger shot himself in March of 1932. His companies collapsed and his reputation plummeted. Still, Kreuger’s businesses were ultimately found to have some solid grounding. Swedish Match survived and maintained a good share of the match market (it still exists today). The German monopoly kept going for another 50 years. And, as Partnoy chronicles but discounts, many imagined Kreuger to have been murdered, or to have faked his death and moved to Sumatra, where some mysterious resident had ordered a huge, pricey order of Kreuger’s favorite and rare Cuban cigars. However far-fetched, it’s an image that still allures and frustrates today when, we imagine, the masterminds of our recent boom and bust sit with tarnished reputations but only slightly diminished finances in vacation homes, taking long drags on expensive smokes.

Excerpt: Ivar did much of his real work elsewhere in the Match Palace, but he liked to greet guests from behind a desk. Next to the desk was a table with three telephones. The phone on the right connected directly to [Krueger's associate] Karin Bokman. The one on the left was one of the world’s first speakerphones, known as a ‘chief’s telephone,’ built by L.M. Ericsson.
The middle phone was a dummy…a non-working phone that Ivar could cause to ring by stepping on a button under the desk. The button was a way to speed the exit of talkative visitors who were staying too long. Ivar also used the middle phone to impress his supporters. When Percy Rockefeller, a director of International Match, visited the Match Palace, Ivar pretended to receive calls from various European government officials, including Mussolini and Stalin. That evening, Ivar threw a lavish party and introduced Rockefeller to numerous ‘ambassadors’ from various countries, who actually were movie extras he had hired for the night. Rockefeller returned from Stockholm with a glowing report, telling his fellow directors, ‘That man is the salt of the earth….’

Further Reading: FIASCO: Blood in the Water on Wall Street and Lords of Finance: The Bankers Who Broke the World