Tuesday, August 11, 2009

Book Review: The Match King

The Match King is a short summary of the life of Ivar Krueger (aka "The Match King") and what was the largest financial scandal of the 1920s and 1930s. In inflation adjusted terms, the rise and fall of Krueger and his main companies (International Match, Swedish Match and Krueger & Toll) is comparable with the likes of the current era's Enron, World Com and Madoff scandals. Krueger's activities were a significant contributor to the introduction of the Securities Act.

Krueger either built or purchased many businesses in his lifetime. Of these, he is best known for the match businesses he purchased in many countries. Where possible he preferred monopolies. His standard deal was to offer countries large loans on favourable terms (usually below market interest rates) in exchange for a monopoly on the manufacture and distribution of matches. Such monopolies were illegal in relatively few countries at the time and Krueger succeeded in obtaining the monopolies he sought in many countries, including his native Sweden, Germany, France and Poland.

The catch was that Krueger did not actually have the ability to fund the loans from his own resources so he raised it by issuing securities to American investors (initially on the curb market and later on the New York Stock Exchange). By offering what were some of the more innovative structures available at the time, Krueger was able to raise the funds needed for the government loans. The problem was that he had promised investors higher rates of return than he was getting from his loans and the profits on the match monopolies and other businesses were not enough to bridge the gap. With extensive shuffling of assets between companies, Krueger managed to keep his empire afloat until 1932 when the effects of the great depression eventually caught up with him.

By today's standards, Krueger was undoubtedly dishonest. By the standards of the era in which he lived many of the things he did in the advancement of his business interests were common practice. What made Krueger different was not only the scale of his operations and his international reach, but also the sophistication of his business dealings.

It would be simplistic to simply describe Krueger as a (very much) larger version of Charles Ponzi. Krueger left behind him many valuable and profitable businesses, well constructed buildings and an impressive art collection. There was no evidence that he siphoned off money - he would avoid both his creditors and investigators by taking his own life. It is also worth noting that even at depression era fire sale prices, the assets of his companies realised enough to return investors something like a third or more of of their investment - which was a lot more than many supposedly legitimate businesses which raised capital during the 1920s boom.

Frank Partnoy provides a well written book, but one that left me wishing for a bit more depth on the individuals involved. Some pictures would have made a good addition to the book.

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