Frank Partnoy's The Match King.

Reading between the lines.
April 27 2009 6:50 AM

Where's Our Scapegoat?

Meet Ivar Kreuger, greedy villain of the 1930s.

The Match King by Frank Partnoy.

We aren't eating shoe leather just yet, but in one way, people in the 1930s had it easier than we do today: They had a scapegoat. The stock market crash that began in October 1929—and continued for years, lest we forget—was the result of heady speculation on shaky assets, paid for with the Monopoly money that new, highly leveraged financial tools provided, all of it abetted by legal bribes to oversight agencies. Seems like yesterday. But unlike our predecessors, we lack a satisfying villain, despite the efforts of the press and President Obama to pillory unnamed "bankers" and metonymic "Wall Street greed." Forget our economic well-being for a minute; for our emotional health and happiness, we need someone to go down hard. We need Ivar Kreuger.

Who? As Frank Partnoy explains in his riveting biography, The Match King, the fact that no one remembers Kreuger in 2009 would have seemed more fantastical to people in the 1930s than being told we'd invented flying cars and time machines. Kreuger was Warren Buffett with the panache of Sir Richard Branson, the British playboy billionaire. Just as Buffett transformed Berkshire Hathaway from a textile mill into a behemoth investment company, Kreuger took a family match factory in his native Sweden and transformed it into one of the world's biggest financial firms and, certainly, its most dynamic.

Along the way, he discovered and publicly courted Greta Garbo and built a palace in Stockholm with a mural of a fire- and match-giving Prometheus. He dazzled New York society types on cruise ships with his elaborate manners and wowed managers in boardrooms with his encyclopedic memory. Every time he deigned to visit the United States, editors begged to run cover stories on his travels. He ended his days in a luxury suite in a Paris hotel in 1932—but he ended them by his own hand, with a pistol shot to the heart.

Don't worry that my mentioning Kreuger's downfall and suicide has already spoiled the book. This is a rare story that's actually better—more incredible, more suspenseful—when you know the comeuppance that awaits the hero. Like recent captains of finance, Kreuger built and lost his empire by selling a sure thing: matches. In an era of rampant cigarette smoking and wood-burning stoves, people went through matches like Kleenex. But instead of selling investors on the market for homely, sulfur-tipped sticks, Kreuger sold them an even more can't-miss market: monopolies.


Though Americans in the 1920s frowned on monopolies at home, they had no problem with investing in monopolies abroad. And after the chaos of World War I, European governments were desperate enough to sell Kreuger monopoly rights in exchange for upfront loans of stable American dollars. Kreuger was the ideal middleman, armed with the vision and connections to bring all the actors together: He persuaded investors that they would see immense profits because he would set the price—which he could do, because governments agreed to stifle competition or seize competitors' factories and sell them to Kreuger.

What made Kreuger special was the way he raised money to pay those governments. Before Kreuger, Americans could buy only plain-old stocks and bonds—which a growing bourgeoisie was eager to do, especially if their investments were in companies whose products they adored, like RCA and Ford. In the mid-1920s, Kreuger created new financial tools ex nihilo to meet more adventurous demands: convertible shares, stock options, preferred shares, nonvoting B shares, etc. He began offering economic amalgamations that could be converted into either safe bonds or risky but thrilling stocks. He also offered people shares that had no voting power, creating an entirely new concept of "investor"—those who didn't want to be bothered with the way companies were run as long as they got paid. With his Midas reputation, Kreuger raised millions in small bundles, took his cut, and was hailed for stabilizing Europe in the process. Not for nothing did John Maynard Keynes call Kreuger "perhaps the greatest constructive business intelligence of his age."

And it all worked! For a while. Kreuger's downfall wasn't crookedness. As The Match King explains—in one of about a billion parallels to today's markets—Kreuger's nimble innovations made it hard to judge what, if anything, he did was illegal. He was no Charles Ponzi or Bernie Madoff, looking for a quick score. It's more that Kreuger was hubristically confident and almost neurologically immune to the normal human fear of risk, ruin, and debt. To give himself maximum flexibility in his dealings, he set up dozens of shell corporations in various international tax havens and shuttled money around at will—more "innovation." No one but Kreuger and a few lackeys knew the dummy groups existed, and no one but Kreuger had anything like the full picture. (He often sketched out his web in his palace's "Silent Room"—a sanctum reserved solely for Kreuger.)



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