The Sucker King

There’s always another sucker. It’s a truth that was just as real back in the Great Depression as it is today in the post-Bernie Madoff present. Frank Partnoy’s The Match King — which should be required reading for every financial whiz or businessman who claims to be performing due diligence on a too-good-to-be-true investment opportunity — is not just a proof of that truism but a painfully captivating account of just how easily those suckers are found and fleeced by the Madoffs of the world.

The Roaring Twenties Madoff whom Partnoy profiles here is Ivar Kreuger. Although his contemporary scammer, Charles Ponzi, would lend his name to history, the comparatively forgotten Kreuger had an audacity and vulpine cunning that made Ponzi look like a piker. The so-called “Match King” was a charming and erudite Swede who had parlayed his father’s small match factory into a formidable international presence (by 1929 his factories made two-thirds of the world’s matches). Before the Great Crash, Kreuger had made himself into a kind of Wall Street Renaissance man, dazzling the society pages and investors with his wit and acumen. That his success in the markets was based on a tissue-thin skein of dodges, bogus reporting, and shell companies, would all come out later, after the crash.

Kreuger paid the kind of high and steady dividends (25 percent, regular as clockwork) that made investors salivate, as did his rapier smarts and Byzantine investment schemes. Much like those who clamored for entry into Madoff’s magical mystery funds, or threw their pension dollars at baffling derivative instruments hawked by too-big-to-fail banks (some of which have now, of course, failed), Kreuger’s suckers seemed actually reassured by how little they understood of what their fairy financier was doing.

Partnoy, a wise student of human weakness, writes about the reactions to one of Kreuger’s more inscrutable fiscal concoctions:

The convertible debenture derivative looked too good to be true, and that was exactly what investors wanted…. Americans gobbled up these new instruments, whether they understood the details or not.”

Eventually, Kreuger would fall, as they all do. Unlike Madoff, whose legacy will be counted mostly in countless (and frequently nameless) ruined lives, Kreuger would put his own stamp on history, even if his name didn’t quite survive. According to Partnoy, the securities regulations put into action by a chastened government during the 1930s were created almost entirely as a result of the Match King’s sleight-of-hand. “Simply put, without Ivar Kreuger, modern securities regulation and litigation would not exist.”

Of course, those regulations couldn’t stop the current crisis. Nothing apparently can stand between a sucker and a guy offering them easy money whose only condition is not asking any questions.