The Match King Ivar Kreuger The Financial Genius Behind a Century of Wall Street Scandals

European History : The Match King Ivar Kreuger The Financial Genius Behind a Century of Wall Street Scandals

Fiasco: The Inside Story of a Wall Street Trader

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Manufacturer: PublicAffairs
Release Date: 2009-04-13
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ISBN13: 9781586487430
Condition: New
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Product Reviews:

Good book
The book arrived in excellent condition... exactly as promised.
In light of the Bernie Madoff and Ken Starr scandals, it is a book worth reading.

interesting random observations
I really liked this book for its weird details and observations, which other editors or authors would have left out. For example, the author does a little diversion about how U.S. cigarette production doubled in the 10 years before 1929 (and matches really were a growth industry). This led me to wonder if tobacco could just as easily have been a vehicle for investment schemes (involving state monopolies, etc.). That led me to think there probably was a lot more corruption going on in the 1920s (and other times) than has ever been written about. I wonder how many businesspeople (cronies) made quiet fortunes off of state tobacco and other monopolies. That led me to wonder how many big companies today are secretly granted special privileges by governments, and how much of this conspiracy still goes on. And that led me to think about Big Oil vs. state oil companies (and how much Big Oil was allowed to take out of countries when those countries could simply have set up their own oil companies earlier).

Another little detail: Herbert Hoover supposedly was infatuated with Kreuger.

"In seven states, nearly half of the banks doing business as of 1920 failed before 1929 [because of regional differences in the economy including farm profits falling long before 1929]."

I really liked details at the end about how Kreuger's shareholders really didn't do that bad at all compared with other companies from the 1920's (they had gotten good dividends and recovered maybe 1/3 in cash from the bankruptcy trustees)--a lot better than so many other investments that were totally wiped out.

Contrary to some reviews that say the book is well-written, I found it hard to read. It could have been edited a lot better. For example, there are many times the author will make a quick observation that is immediately understood. But then there is a second thought, like--"Do my readers understand what I just said? I better explain it." There is then a sentence explaining what the author meant--followed by yet a third sentence summing it up (a pithy little punch-line). All that could have been cut out.

Also, I wish writers would stop using "dozen" or "decade"--fudge words. And what's with this new trend to write out numbers--including dollar-amounts? We have to read over and over again things like "forty-year obligation," "fifty years old," and "showed 145.6 million dollars of assets, 56.7 million dollars of 'Inter-Company Accounts,' and 32.5 million dollars of 'Investment in Constituent Companies.'" Also, what's with the often-used typstyle that uses I's instead of 1's for "ones"?

Also, it would have been much better to include photos of the people instead of reading long, dramatic physical descriptions--like a VERY long account of how one guy looked exactly like Santa Claus. I bet if a photo was included, he wouldn't look anything like Santa--except maybe the beard (if that). The book starts by saying that photos of Kreuger at the time show him as "a man constantly in shadow, with a sharp nose and small eyes, deep-set and dark. His receding hair was closely cropped and combed back to expose a smooth, prominent forehead. If Ivar had been chomping a cigar [he might have been mistaken] for a slimmed-down Al Capone." But one can simply look at the Kreuger's picture on the cover and save all this dramatic descrption. And when I started reading about how Kreuger's eyes were piercing (and how he always seem to be looking right through people) I saw this is a tip-off that the book was going to be inaccurate dramtic fluff, and almost stopped reading right there. I kept reading, though, and am happy to have read the book. It does make me wonder how much has gone on since at least 1900 as far as secret dealings that were never made public (in other industries, etc.).

A Great Historical Story with Fascinating Contemporary Implications
The Match King is an amazing historical story of a larger than life but currently unknown Swedish business figure that reached greatness in the modern financial era of the 1920s. His lifelong rise to wealth and prominence was built on "modern" looking financial innovations like derivatives, exotic bond financing mechanisms and "creative" financial reporting that resembles the current mark to model and mark to inflated value scenarios in the US financial markets. He was an advisor and friend to US president as well as kings and prime ministers & financial ministers in North America, Europe and South America. His worldwide business empire was real, but it was smaller and worth far less than advertized. However, his willingness to consistently pay inflated and above market returns on his bonds and equities made everyone a "true"
believer. In this regard, he was much like Bernie Madoff. If the above market returns were consistent, then the sophisticated investors and the journalists believed that he just had to be real. Like Madoff, he was a master of building his image and reputation as a larger than life figure. Unfortunately and again like Madoff, he continually needed new money from investors to pay returns and keep his fraudulent empire cash flow positive. In the end, his empire was worth far less than the debt, as it had been from almost day one. When the game was up, he committed suicide instead of face the music of investigators and angry investors. As with the current worldwide financial meltdown, there were many enablers that helped keep this fraud alive. In the end, this tragic situation resulted in some much needed regulation of the securities markets that was enacted in the 1930s, which stayed in place until about 12 years ago! It was interesting in that even after this tragic event, many accounts and regulators were still calling for no new regulation, but keep promoting self regulation as the preferred avenue of markets.

Apparently we've learned nothing for the 1920/30s crash
It's scary how reading this book is like reading 2008/2009 newspapers about the current condition unethical, greedy people have left our economy in and how they once again have raped and pillaged.

It's clear the government can't legislate ethics. Only the people of Main Street can change things by supporting ethical businesses, business people and business practices.

Interesting -
Swedish emigre Ivar Kreuger made a fortune raising money from Americans in the 1920s and loaning it to mostly European governments in exchange for match-stick monopolies. At one point he controlled almost 75% of the world's match production, and his fortune was estimated to total about $100 billion in 2000 dollars, making him the third richest man at the time. In 1932, however, tight lending markets undid his financial empire involving a Byzantine network of some 200+ companies, and both the SEC and a number of securities laws resulted.

When Ivar came to America in 1922 he had already created a near monopoly of match production in Sweden, starting with the family business and then threatening competitors with below-cost sales and buying them up on the cheap. Monopolies were legal in most of Europe, but not in the U.S. Ivar decided that repeating his Swedish tactics throughout Europe would be too expensive - it was just too easy for others to start up a new match factory. Europe was just recovering from WWI, and money was hard to come by - even for governments wanting to rebuild or make reparation payments. Ivar decided to use eager American money - a majority said they could outsmart the market, and win money gambling, and their appetites were constantly whetted by widely publicized tales of successful trading schemes. This money would then be loaned to governments (aka today's IMF and World Bank) in exchange for creating favorable monopolies via decree. Investors found Kreuger's offerings particularly attractive due to the up to 25% dividends he originally paid, vs. none at all from some of the best known American high-flyers of the time (eg. RCA).

Kreuger initially raised $15 million in the U.S. through 20-year-bonds paying 6.5% interest, and then parked them as off-balance sheet liabilities in a holding company managed by Swedish Match (controlled by Ivar) that he created for that purpose. A second accounting innovation that Kreuger pioneered was the use of 'mark to market" valuation of assets - a tool that Enron would make much more use of decades later. His third accounting innovation was the later creation of "Class B" stock, with minuscule or no voting power for holders to bother him with. Kreuger later also made increasing use of preferred stock, with its low-strength claim on earnings, and a tax-shelter arrangement in Liechtenstein.

Portnoy tells us that about one-third of NYSE firms didn't publish any financial reports at the time, and reporting by Curb Exchange (Kreuger's 'International Match' - IM) firms was even less available. Kreuger took full advantage of the loose and non-existent requirements by cajoling, bluffing, and sometimes threatening his U.S. accountant to approve IM's dodgy and infrequent (but probably not illegal) reports. Kreuger's first government loan was to Poland ($25 million) in exchange for a monopoly on match sales within that country. Danzig, Greece, Ecuador, Yugoslavia, Hungary, Latvia, Romania, Lithuania, etc. followed. His undoing began after the 1929 market crash when it became more and more difficult to renew his financing and his just-made $125 million commitment to Germany. Eventually Kreuger resorted to forging some $20 million in Italian notes, then killed himself in despair. (Ivar's brother contends that Ivar was killed by agents acting for J.P. Morgan acting out of rage at Kreuger's success.)

Some contend that Kreuger was no different than Bernie Madoff, Charles Ponzi, and other famous fraudsters. Portnoy, however, points out that Kreuger had real companies with real products, as well as considerable holdings in Diamond Match (U.S.) and Ericsson telephone (Sweden). Part of the problem in fully reimbursing those affected was the fire-sale nature of Kreuger's assets - eg. two expensive speedboats that he had shown to Greta Garbo and others were sold for a mere $162 and $180.

Bottom Line: Portnoy's "The Match King" provides a fascinating look back to the post-WWI era, and an embarrassing reminder that we haven't learned much when it comes to regulating the financial markets. My one complaint is that too much of the book gets tied up in knotty details that lack significance.