Wednesday, March 25, 2009

The Match King and the fading of fraud

Frank Partnoy's The Match King - a biography of Ivar Krueger, by some accounts the greatest financial swindler who ever lived - has the appearance of a book born under a lucky star. The author's previous works include Infectious Greed, a warning about the dangers of modern Wall Street complexities. So this feels like his moment. My friend Robert Colvile has said so in print. There was even time, before publication, to put a reference to Bernard Madoff into the introduction.

It isn't that simple, I'm afraid. Despite that mention of Madoff, The Match King is not prepared to give its subject the treatment that the times might now demand. In its conclusion, he is praised for his "financial innovation". He was, we are told, the first man to evade tax and scrutiny using Lichtenstein; the inventor of many brilliant schemes for handing investors apparent ownership stakes in a company without surrendering any control. Many of his ideas are still in corporate use today! I'm sure all this seemed less equivocally good a few months ago. Partnoy reserves judgment on just how much of Krueger's fall was panic and the effects of the depression - he was Time's cover boy for October 28, 1929, and seemed at first to be surviving, but ran out of credit-lines in a now rather familiar way - and how much was an unravelling swindle. Perhaps judgment has to be reserved, although it makes for an unsatisfying book. Let me summarise.

Ivar Krueger was "the Match King" because he built a match monopoly in Sweden, and came to America in the early 1920s asking for investment on the prospectus that he would use it to buy match monopolies in other countries. Tobacco was everywhere; the Bic lighter was 50 years away; matches were a big deal. Krueger paid dividends upwards of 20 per cent over a sustained period, and Partnoy is careful to establish that he didn't just do this out of subsequent investors' money - the match factories and their profits were real, and he did succeed in buying several monopolies.

On the other hand, Partnoy lays out several sets of alarming facts without quite drawing conclusions. Krueger apparently had a habit, whenever a deal was signed, of commissioning a rubber stamp of the other party's signature. We get nothing about any practical use he may have made of these souvenirs. He died - a suicide or a suspicious death - with his empire under great strain, and his reputation was destroyed when his associates tried to rescue the business using a document they found in his office safe. It was a monopoly agreement with Mussolini's Italy; and, as they subsequently discovered, it was a crude forgery. But Krueger doesn't appear to have told anyone about it - he merely hinted that something big was in the offing - or tried to use it himself. What gives? Then there is his preference for entrusting his most essential business to underqualified people he could control completely, rather than to anyone who might challenge him; and the way that the most important details of his empire remained inside his head.

It is the reason given for his vagueness that seems most suspicious to me. The case was that he couldn't give details on what he was doing with investors' money, because the details of his negotiations with foreign governments could bring those governments down. This is a confidence-trickster pitch: you elicit trust by admitting that you are trying to get one over on somebody - somebody else. It also plays to American assumptions about the venality of all other countries. "You sound like a conman" is far from a conclusive case, however, and if Partnoy is right we lack the detail to ever know exactly what Krueger was up to.

JK Galbraith thought Kreuger's story could function as an immunising memory - a reminder that this is a kind of person to be cautious of, fully crooked or otherwise, with sincerity possibly more dangerous than cynicism. That clearly isn't working. His top Google results, which are probably what passes these days for the verdict of history, include several defences and celebrations, and a get-rich-quick site with his name as the brand. Will today's fraudsters slip into a similar soft focus? They are probably better documented - but that may merely mean we have too much, rather than too little, information to be certain.

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