October 26, 2009

Jack Covert Selects: Jack Covert Selects - The Match King

By: 800-CEO-READ @ 3:00 PM – Filed under: Management & Workplace Culture

The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals by Frank Partnoy, PublicAffairs, 272 Pages, $26.95, Hardcover, April 2009, ISBN 9781586487430 When reading The Smartest Guys in the Room, the outstanding book by Bethany McLean that looks into the Enron debacle, you will learn about an accounting term called “mark to market.” Not being an accountant, my simplified understanding of the concept is that when you purchase a product for $100 and you believe you can sell the product for $200 in five years, you put the sale price on your books at the expected selling price instead of the actual purchase price. Enron didn’t create this approach to record keeping. In the roaring ‘20s, a gentleman named Ivar Kreuger used it, made tons of money, and ultimately bankrupted millions around the globe. The Match King is his story. Kreuger became known as the “The Match King” because, in his native Sweden, he had cornered the market on matches—monopolies were allowed then. He moved and acquired companies that made the machines used in his factories; ultimately he got involved in the forestry industry. During the reconstruction after WWI, his company loaned the equal of billions of dollars to European countries. Using esoteric financial instruments like debentures and more common instruments like shares—which were much easier to sell in the days before the federal regulations brought on by the crash—Kreuger was able to fund his global acquisitions. His numbers were sketchy, but the banks valued him as a client too much to look too closely at his books. Then, October 1929 happened, and his pipeline of cash started to dry up. He was able to last longer than most business people who were nothing but glorified “snake oil” salesmen, but in 1932 the banks started to want their money back. Kreuger returned to Europe to face his European bankers and committed suicide the night before the meeting. In The Match King, Frank Partnoy brings this fascinating person and exciting (though terrifying) time to life. So brilliant is Partnoy’s portrayal that I wanted to keep reading the book even as I walked to my car from the office at night. A great story, told well—there is nothing better.