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The Match King by Frank Partnoy

The Rabbit Hole is written by Blas Moros. To support, sign up for the newsletter, become a patron, and/or join The Latticework. Original Design by Thilo Konzok.

Key Takeaways

  1. What the passengers aboard Berengaria did not know was that Ivar spent hours every day just preparing to talk. When Ivar knew he would be meeting a new group of people, he planned the first impression he hoped to make in advance: whom to meet first, which nuggets of information to drop, and where to move next.
  2. While the factories of Europe worked overnight to produce war materials, Ivar quietly purchased match factories throughout Sweden. He was a pioneer of vertical integration, buying timber tracts and chemical factories to secure the raw materials needed to make matches. Finally, he merged the leading Swedish competitors to form Swedish Match, a single dominant business with initial capital of about $10 million. Ivar owned half of Swedish Match, held all of the senior executive positions, and controlled the company’s board. Ivar was attracted to the match business, not for what it was, but for what it might become. In 1922 the industry was highly competitive. Profit margins were narrow. Swedish Match manufactured 20 billion boxes of matches per year, but its profits per box ranged from just a few cents down to a fraction of a penny. Ivar’s plan was to limit competition and increase profits by securing a monopoly on match sales throughout the world, mimicking the nineteenth-century oil, sugar, and steel trusts. Then, Swedish Match could raise prices without losing sales. According to Ivar’s plan, now that the world war was over, he would make a fortune from the peace.
  3. Before 1922, Ivar had raised most of his capital in Europe, particularly from Swedish banks. As Ivar watched the Americans enter a period of buying mania, he saw a new source of funds. Ivar had studied financial history and was aware of infamous periods of mania and later panic, such as the South Sea Bubble of 1720 and the infamous rise and collapse of Dutch tulip bulb trading in 1637.20 In those cases, men became rich as they rode the wave of investors speculating on risky ventures. Ivar knew the timing was crucial; American optimism would not persist forever. When investors were manic, they would purchase just about anything. But during the panic that inevitably followed mania, the opposite was true: no one would buy.
  4. Ivar’s grand idea was to do just what Harley had done, except with matches instead of South Seas trade. Ivar would lend money to the governments of Europe in exchange for a monopoly concession for the production and sale of matches within their territories. It was a brilliant concept. There was one immediate problem, though: Ivar didn’t have enough money to lend millions of dollars to foreign governments. Ivar was wealthy, but not that wealthy.
  5. Ivar had attended a Stockholm engineering school whose name they could not even pronounce. He hadn’t gotten anywhere near Harvard or Yale. Ivar knew he should not press too hard during this speech. He should not appear to be a salesman or suitor, but rather a wealthy businessman these prudent men should court. Ivar needed the partners to see him as worldly and independent, so in addition to discussing his ambitious plans and perspectives, he planned to weave in stories about his past. He wanted to show them a picture of his character. After the food was set, and brief introductions made, Lee Higg’s partners sat and Ivar stood calmly in front of them. Ivar was about to use the two important oratorical lessons he had absorbed from giving hundreds of speeches to investors in Europe: speak from memory, and use lengthy pauses. First, he rubbed his hands together – a long-standing habit – to show he did not plan to use any notes. Second, he paused. And then he paused some more. And then some more. Ivar had learned the power of silence. He liked to make eye contact with everyone in the audience, one by one, and he did so slowly, before he uttered a word.
  6. As Ivar explained, the desires of the three parties were clear: American investors wanted high returns, European governments wanted US dollars, and the match industry wanted monopoly power. The resources also were clear: American investors had dollars, European governments had the power to grant monopolies within their territories, and the match industry had the potential for high returns. What was missing was a middleman, a statesman capable of bringing together these three disparate groups. Ivar was that middleman, a capitalist with European sensibilities and a strong grip on the match industry. He could link the three groups by raising dollars from American investors, lending those dollars to European governments in exchange for match monopolies, and then using those monopolies to generate high returns.
  7. Construction firms had not been willing to take on the risk associated with delays; instead, they put that risk on their clients. But Ivar understood a fundamental proposition about the allocation of risk: both parties to a deal can gain when the party in the best position to bear a risk takes on that risk. Construction firms, not clients, were in the best position to reduce delays. Therefore, as Ivar realized, the best way to minimize construction delays was to shift the risk of loss that arose from such delays to him and Paul Toll. Then, Kreuger & Toll would have the incentive – and, crucially, the ability – to speed up a project. And here was the punchline: clients would pay more if they knew the job would be done on time. Kreuger & Toll became the first firm in Europe to commit to finish projects by a fixed date.
  8. He took over potash and phosphorus manufacturing and choked off his competitors’ supplies.
  9. The monopoly-for-loan idea certainly was ingenious.
  10. By 1922, Ivar secretly had hired a handful of men with no previous connection to him or his companies. These men trusted Ivar for all the wrong reasons: because he had saved them from prison or bribed them or paid them five times what they deserved. Ivar could ask these men to do things he would never ask of friends. Sometimes Ivar needed a person he could trust for reasons more dependable than human love or respect, someone he could rely on as a master relies on a well-trained attack dog. Then, if one of Ivar’s schemes unraveled, he could lay the blame on an out-of-control animal.
  11. Ivar devised a more elegant solution to this problem. It was an ingenious piece of financial engineering that would survive the test of time. Ivar decided to introduce a new type of security, which he called a “B Share.” Ivar began with Swedish Match. He divided its common shares into two classes. Each class would have the same claim to dividends and profits, but the B Share would carry only 1/1000 of a vote, compared to one vote for each A Share. It was a simple, but profound, insight. B Shares could be sold to investors without affecting control.20 Ivar could double the size of his capital, while diluting his control by just a fraction of a percent.
  12. Although Ivar had staff, he didn’t like being waited on. He still carried his own luggage, answered the telephone, greeted visitors, and opened his copious letters and cables. Ivar preferred to spend most of his time in Stockholm by himself, in silence. He had not lost the extraordinary memory skills he had as a child, and he spent much of his time devouring information about his companies, politics, and the global economy, all of which became permanently lodged in his mind.
  13. He was superstitious in other ways, too – or at least he liked people to think he was. Ivar was credited with spreading the story that using one match to light two cigarettes was fine, but a third was bad luck. Whatever the source, that idea caught on and boosted match sales.
  14. Jack Morgan might have the minds of other American bankers, but Ivar had the hearts of American investors, and those investors now had the power. Ivar didn’t need to lend his own money to France. Instead, he could act as an intermediary, raising money from the Americans and lending their money.
  15. Berning’s nervous breakdown finally brought Ivar out of hiding. Ivar was no stranger to mental illness. Both his mother and her father had problems. More recently, Ivar himself had been battling his own bouts of mania and depression while locked in his Silence Room. So he probably could relate to the breakdown.
  16. It seems to me that Mr Kreuger’s policy is to carefully select the man for each post and then to give him complete responsibility for the duties therein involved. I was considerably impressed with the complete harmony with which the organizations function and the extreme confidence that each one has in the other. There seems to be throughout the entire organization a splendid spirit of loyalty and an unselfish devotion to duty. No doubt a considerable part of
  17. He also mentioned Ivar’s response to a question about what three things accounted most for his success. The answer, which became emblazoned in the public’s memory, was: “One is silence; the second is more silence; while the third is still more silence.”
  18. Throughout this time, Ivar appeared entirely without concern. Although he sensed the increasing panic, along with everyone else, he didn’t want anyone in New York to see him falter, particularly given the market’s decline. He knew markets reflected emotions and perception. In finance, there was no such thing as reality. There was only, as Pierpont Morgan had intimated, what traders thought of a man’s character. If everyone saw Ivar as a shining beacon of confidence, his securities would maintain their value, even if the rest of the market crashed.
  19. Occasionally Ivar would ask a question about IT&T and one of the men from the other side would leave the room for an hour to get an answer. But when someone from IT&T asked a question, Ivar always stayed put and answered from memory.
  20. Ivar’s performance during these talks was enormously impressive, and he held forth on a tapestry of topics. According to one source, every night Ivar would stuff his memory with details about some obscure matter, such as Hungarian financial statistics, and the next day he would ensure that the topic came up and then would recite every memorized detail. Someone from IT&T would check the facts, in the hope they could confront Ivar the next day with an exaggeration, but everything Ivar said was correct, to the penny. Later, when Ivar cited precise income figures for one of his companies from memory, it seemed more certain that the men from IT&T were hearing the truth.
  21. Ivar had always been a charming guest, and he put on an urbane show for the Marcossons. But anyone who knew him well would have seen a new person. One of Ivar’s most consistent traits since childhood had been that he rarely laughed. Yet now he was suddenly a comedian, relaying humorous anecdotes throughout the day and cackling after the punch lines. When the Marcossons invited Nigel Bruce, the English actor, to one of the lunches, Ivar and Bruce traded jokes for hours.
  22. According to Ivar, by 1932 he had 225 subsidiaries. He had operations in every civilized country except Russia, and he manufactured three-quarters of the world’s matches. Ivar had secured match monopolies in twenty-four countries. During seven years, he had loaned almost 300 million dollars to European governments. Ivar’s loans had helped borrower governments repair their countries. The Romanian government stabilized its currency after the world war. The Latvian government purchased food and essentials, including seed grain. The Estonian government built railroads. The Greek government repatriated thousands of refugees. The French government moored its currency to a fixed exchange rate, to prevent a repeat of the cycle of depreciation and hyperinflation that had hit Germany a few years earlier. Although Ivar insisted he was no Stinnes, his organization extended well beyond matches. Marcosson was convinced that Ivar had a unique vision, a flair for organization, and an uncanny sense of salesmanship in many new businesses. Ivar’s phone company, Ericsson, had factories in a dozen countries and monopoly concessions in five. Ivar’s mining company, Boliden, controlled the Swedish output of precious metals and ore. Ivar also owned a fifth of the Grängesberg iron mines in central Sweden. His sulphite company, Swedish Pulp, was the largest producer of that compound. Ivar also owned banks in Paris, Warsaw, Berlin, and Amsterdam, as well as newspapers, office buildings, apartment houses, and film companies throughout the world. Ivar insisted he had no ambition to become the richest man in the world. Indeed, Marcosson said Ivar expressed the utmost contempt for personal wealth and told him, “Money, as such, means nothing to me. I cannot tell you how much I am worth – I don’t care.”
  23. Simply put, without Ivar Kreuger, modern securities regulation and litigation would not exist.  The lesson of Ivar Kreuger is not that his businesses were illegal. It is that they were alegal.

What I got out of it

  1. An amazing story about a man I had never heard of before reading this book. His determination, focus, hunger for success was fascinating to read about and the dark side in his case was exceptionally clear