Sunday, December 12, 2010

The Match King

Last week I read The Match King, a book by Frank Portnoy with an eye-catching cover that I first saw in an airport bookshop last year, but had to wait an age for it to appear in paperback. It's the story of Ivar Kreuger, a Swedish match tycoon whose company failed spectacularly in the 1930s, following the Wall Street Crash.

Kreuger was more than just a man who produced matches; he pioneered the use of complex derivatives and of different kinds of company stock, in his race to take money from willing American investors. This gave him huge amounts of money, which he would lend to the broken economies of 1920s Europe in return for match monopolies. For a long time, everyone believed you could make a 25% yearly dividend from matches, so Kreuger's shares kept rising in price, which meant he could raise more money from new share issues, loan more money out, and so on.

Some of the transactions Kreuger did would make your head spin: he was a master of off-balance sheet transactions, funnelling money from US investors to a bank in Lichtenstein, paying other money back to Sweden to make dividends, cash sloshing back and forth. But given his annual reports seem to have consisted of two lines "Cost" and "Income" with no further detail, perhaps it would be fair to say he mastered the art of no-balance sheet transactions.

It seems incredible that anyone would invest in that sort of thing, but again and again the credulousness/greed/hope of investors drives them into things that perhaps were not what they seemed. Reading The Match King there are plenty of parallels with events of the past ten years.

The only thing I was interested to see that wasn't touched on was the social cost of the match monopolies. Just as Enron wasn't just a financial disaster area, but often translated into higher costs of electricity for people in the US, because of the ways energy trading could increase prices, so match monopolies imply more expensive matches. Although matches were cheap to begin with, there was clearly a lot of money there because of the volume sold. Did many people lose their businesses when a government declared Kreuger had a monopoly? Was there cross-border match smuggling?

Perhaps this was a good thing for the nation as it brought more money in; I do wonder how much of that paid for public works, and how much was stuffed into the pockets of those in government. But perhaps I'm getting too cynical.


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