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

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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.

Rare it is that a thousand page book is beguilingly compressed into a quarter of that length when the common practice is just the reverse. The book is a delight - from encountering a thirteen year old Greta Garbo; through the marvelously depicted co-optation of an independent accountant (through his wife); the seduction of the ambitious young man who wants to be partners with the grandees of Wall Street; the description of beautiful living and working spaces; the realities of finance and personality in inter war Europe; and - above all else - the absolute insistence of the buying public to be allowed to participate in getting rich. Whether it is the slot machines or Bernie Madoff's guaranteed 8%, the packaging of oversees properties or the perfection of the tulip bulb, the dot com bubble or the limitless rise in residential real estate values, the ages have probably never produced as coherent, well organized and effective a promoter as Frank Partnoy's Ivar Krueger.

The book is a masterpiece. When you read, you will marvel at the persistence and ingenuity of the research that lies behind the words. Possibly, the finest single thread is description of the way in which Krueger enlisted the loyalty of people essential to him. Yes, some he bought, but most - he beguiled. He gave people a sense of participating in something that gave them an excuse to have an expanded view of themselves. This is not a costless process and Krueger spent much solitary, and - one suspects - depressed time, time re energizing this capacity to give others a sense of being greater than they otherwise might have been. This is a story of great coherence, of childhood friends embarking together into the great world, of young professionals becoming industry models, of businesses growing and conglomerations being assembled [ Certainly, I would have liked at least another 100 pages about this!}, of finance ministers and prime ministers trying to finance public obligations.

In brief, it is a great story - in light of its tragic conclusion, we need ask ourselves who is the hero and who is the thief. Partnoy recites step by step how Ivar Krueger went to a printer in Stockholm and had Italian Debt Instruments printed which he proceeded rather carelessly to sign. So. There is no suspense. And yet, there is so much else, there were real companies, real values. People lost more money in uncontroversial holdings. During the last ten years in America, we have witnessed the great industrial conglomerates being assembled - the assembler was adjudged a criminal and is in jail; we have witnessed the great financial conglomerates being assembled - the assembler is perhaps less of a hero than he once was, but the public is coughing up tens of billions of dollars to staunch the pollution; we have daily smiling reminders of the purposeful defrauding of thousands of individuals at a cost of $50 billion. Surely, we - citizens and customers - should have learned something. Partnoy's tale is perhaps the most skilful tale of the romance and the corruption of an able energy in attempting to be on top of the world.

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.

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.

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.

Sweden has given many interesting personalities. Ivar Kreuger has been
notorious, widely and unfavorably known over many decades.

Now a book has been written by Frank Partnoy that is definitive in its
scope and very readable, expressing a clarity of the facts with an
intuitive understanding of this extraordinary story of a man.

Kreuger was seen as a business titan of the period from 1922 to 1932.

This book is of a time all too familiar now!

This book is exactly the kind of financial history that the country is longing for right now. Partnoy does a masterful job telling the story of Ivar Kreuger, and while he does not spend much time connecting Kreuger's story to today's financial crisis, he does not need to. The story speaks for itself.

"Indeed, the light of the wicked goes out,
And the flame of his fire gives no light."
-- Job 18:5

Ivar Kreuger and his enterprises are often mentioned in passing by books and articles about the Great Depression, securities, regulation, and fraudulent leadership. Each such reference seemingly assumes that the reader knows all about the subject. Well, I didn't and I suspect you don't either.

Before the mortgage-backed securities meltdown, manipulations of the junk bond market occurred, American Express didn't have any oil in its tanks, and bad accounting made residential real estate developers look profitable when they were on the edge of bankruptcy, Ivar Kreuger used financial innovation after financial innovation to build a huge enterprise and become one of the leading lenders in the world to nations. In this book, you'll read about how those innovations began and how they ended up for the investors.

For much of his career, Mr. Kreuger kept people from realizing that his persona was a carefully calculated and staged one. No one seemed to care as long as it appeared that he was making people rich.

But his inability to understand what he could afford to pay for money caused him to overpay. Eventually, his house of matchsticks collapsed amid the market meltdown during the first few years of the Great Depression.

As an investor, it would be profitable to read this story. It will make you more skeptical of those who pay a lot for their capital. That would be a good lesson to learn.

As someone who wants to understand the financial innovations, I fear that the writing won't get the points across unless you are already pretty financially sophisticated. The book would have benefited from some detailed examples developed in tables within the text.

If you want to understand the lessons for corporate leadership, the book is also on the frail side beyond suggesting that it's a good idea to fully and accurately disclose your situation on a timely basis. At bottom, Mr. Krueger had some very interesting ideas about new business models, a point that isn't fully developed in the book.

If you want to resolve all the mysteries about his death, the book will flesh out some different theories . . . but probably won't leave you satisfied that you know the answer.

On the regulatory front, the book doesn't provide enough perspective on what current practices are to indicate the full extent that the 1920s and early 1930s practices were different. In a number of cases, I'm not sure that current due diligence is necessary much better.

As a story teller, Mr. Partnoy seems compelled to provide as much detail as possible where it's available from first-person accounts and correspondence . . . but not to fill in from other sources and perspectives. As a result, this book gives you more than even a CPA would want to know about his interactions with his accountants and auditors.

Fortunately, it's a pretty short book and Ivar Kreuger is pretty interesting. That combination makes this book a convenient way to fill in the gaps in your knowledge about this "famous" financier.

It's pretty hard to make a book about finance come alive but Partnoy's done just that. Ivar Kruger is a fascinating character who seems almost fictional. His extraordinary exploits kept me amazed through the entire book. The man was a real genius. The book also helps understand the '20s financial times and how the "crash" played out. Partnoy's analysis of Kruger is completely balanced and non judgmental. But that doesn't take away from his fascination of Ivar's character. The book reads like a who-done-it. Great read.

From the very first pages,when swedish"match king" Ivar Kreuger sails to america and while on-board the ship cons the rich and the influential with stuff and nonsense designed to get them to part with thier money we know that this is a bad man,and not-repeat-not a"financial genius"..Even so author Frank Partnoy,"george Barret professor of law and finance at the university of San Diego" wants us to believe that Kreuger's legacy should not be lumped together with suchlike as Bernie Madoff...In defense of this dubious notion Partnoy remids us that Kreuger's various businesses had value,and that Kreuger himself was a"troubled soul"...
So what?
In the end ,after Kreuger had apparently shot himself and his many shenanigans became public investors got back only pennies on the dollar,if that..and some of the"genius" schemes that Kreuger came up with in order to make his double-dealings possible have since been used by other equally crooked manipulators,and have resulted in similiarly bad endings,especially for those who invested in these schemes and were bilked...
The notion that because Kreuger's businesses retained some value,even after he was both dead as a suicide and exposed as a crook somehow excuses what he'd done is bogus..One is either honest or one isn't..Being partly honest does not cut the mustard but,apparently,from author Partnoy's point of view history should not judge Kreuger on his swindles alone..Hey! I understand that Hitler was good to his dog,and he loved his mother..Maybe we should just consider that instead of all of the horrors the man was responsible for?Trying to gloss over criminality by citing the criminal's good points does not in any way negate the criminal acts nor does it make up for the loss suffered by the criminal's victims..
Reading about Ivar Kreuger in this book reminds me of the many other"titans" of business and industry of that period,cut-throats who didn't care particularly whom they hurt as long as thier whims and desires were met...men who owned much,treated thier workers badly,often ruthlessly but are today celebrated for the monies they left to found libraries in thier names,with the monies they with-held from thier workers..I'm sorry,but while Partnoy's book reads well his effort to excuse Kreuger does not.