#348 The Financial Genius Behind A Century of Wall Street Scandals: Ivar Kreuger

0:00 The man whose life forms the basis of this book. Was a master of investor psychology. The match king had perpetrated the greatest financial fraud in history. The world now saw an epic betrayal. A villain, not a hero.

0:13 A schemer. Not a planner. A destroyer. Not a builder. Evar became the Judas of the financial markets.

0:21 Evar's company suffered a similar fate to his body. Panicked selling reduced them to dust. Less than two weeks after the public learned of Evar's death, investigators from Price Waterhouse declared that his companies were insolvent. The Swedish committee investigating

0:37 His construction firm concluded that its nineteen thirty balance sheet grossly misrepresented the true financial position of the company. Investigators estimated the loss at two billion. More than Sweden's national debt. The accountant said Evar had treated his public companies as personal assets.

0:57 He had wired millions of dollars among secret subsidiaries and arranged for dubious Intercompany transactions. The details. У комплек. To unravel.

1:08 At first it was difficult for some people to accept Eivar as a fraud. He had helped Europe avert a financial crisis. He was a friend and advisor to government leaders, including the American president Herbert. At the height of the Roaring Twenties Evar Kroger.

1:23 was one of the richest men in the world. Through an ingenious plan to sell stakes in foreign matchstick monopolies to American investors. He built up a tremendous enterprise. Paying impressive dividends to his investors. His company was one of the few to survive.

1:38 The crash of N29. But shortly after his death in nineteen thirty two, it became clear that the great financier was not all that he had seen. Driven by success. To adopt ever more perilous practices. Kroger had turned to shell companies.

1:52 Tax havens. Off balance sheet accounting. Fudged income statements and even forgery. And the Kroger crash that followed. Bankrupted millions.

2:03 That was an excerpt from the book that I'm gonna talk to you about today, which is The Match King, Evar Kruger. The financial genius behind a century of Wall Street scandals and is written by Frank Partnort. So there is a pretty amazing story. How I came to know about this book. and read it this week.

2:19 And last week Um I actually got to have this incredible almost four hour dinner. With Daniel Eck. The founder of Spotify. The dinner was me, Daniel

2:30 And my friend Patrick from Invest Like the Best. I've been a fan of what Daniel's been able to build. I think his Life story I've heard him on a bunch of other podcasts is the life story is absolutely incredible. And one of the coolest things that happened to me over the last few years is

2:42 Daniel's constantly like tweeting about the fact that he likes this podcast. He goes on other podcasts and mentions Founders podcast. And so during the dinner. When Daniel asked, like, Can I give you a recommendation for a book to cover on the podcast? I was like, Of course. And it is this book that contains one of the most unique stories. I cannot think I went back through the list.

3:00 And I cannot think of another example. Of somebody that had a life Like Eivar Kroger. Had. This book reads like a thriller. It's almost like he's some kind of

3:11 Evil genius. secret agent. So before I jump into it, and keep in mind this is not a typical biography. We're gonna heavily focus on the last ten years of his life. He shoots himself. Or at least that's the rumor. Some people believe he was murdered. Uh he shoots himself at the age of fifty two.

3:27 But before I jump into the book and try to start explaining how he was able to do what he did. I need to differentiate because Any time that you hear his name, and a lot of people don't know who he is. In his day he was one of the wealthiest And

3:40 most famous businessman on the entire planet. And any time you read about'em or you search about'em He's always compared to The adventure of the Ponzi scheme, or the the person that the Ponzi scheme is named after Charles Ponzi. I need to read this one paragraph from Evar's Wikipedia page that

3:56 Explains why that comparison is not Hundred percent accurate. It says Kroger's financial empire has been described by one biographer as a Ponzi scheme. However, in a Ponzi scheme, Early investors are paid dividends From their own money or from that of subsequent investors.

4:11 Although Kroger did this to some extent, he also controlled Many legitimate And often very profitable businesses. He owned banks, real estate, a gold mine. Pulp and industrial companies.

4:24 In addition to his many match companies, many of these companies have survived to this day. He owned or controlled over four hundred. Companies. And so his main company, probably his most profitable company, was this Swedish Match Monopoly company. It's called Swedish Match. It was founded in nineteen fifteen.

4:42 But it existed up until a few years ago when Philip Morris The gigantic tobacco company launched a takeover bid for Swedish match and they actually took it private. They took it they delisted it from The Swedish stock market that just happened a few years ago. And so when the book starts, Evar is forty two years old and he's going to America to try to pitch American investors.

5:02 on this European monopoly. Something that'll become very apparent is He's got World class charisma. And

5:10 selling skills. I would say a main part Of his early success was based on this charisma and selling ability that he had. But one of the most surprising things about this guy is just how simply how methodical he is. His charisma was not natural. He practiced lines. He practiced what he was gonna say. For hours, just like great actors do.

5:29 And when I say practice, I don't mean just if he's gonna do a presentation in front of a bunch of in front of an investment bank or something like that. I mean If he's going to a party, if he's going to a meeting, he is practicing what he's going to say. And the end result is a bunch of descriptions of Ever in the book, such as he spokely constructed

5:46 Paragraphs. When Evor began weaving a story, a listener had no choice but to follow him to the end. He dominated every conversation. Those around him wanted him to say more, not less. Whatever the topic, he always returned to business.

6:01 There was an air of greatness about him. He could get people to do anything. They fell for him. They couldn't resist his peculiar charm and magnetism. And you're gonna see world class communication skills because we see how His his first pitch. to investors is simple.

6:17 easy to understand and this is the important part. It is completely legitimate what he's doing at this point. And so as I was reading this part of the book, it's talking about he's on a boat. He's Failing. From Europe going to America. And he's like, Well, why is he going to America? He says, For one simple reason. That's where the money was. In nineteen twenty two, America was a wash in cash. Now

6:37 This is remarkable. It's amazing to me how many times the same principles you and I talk about. are applicable to multiple different fields. And this is a theme that you and I are going to talk about a lot today when you analyze the career of Evar Kroger. And so Ivor's on this boat, he's like, Listen, I have a product.

6:53 To sell, I need to go to where the money is. A few weeks ago I did this episode on this guy named Joseph Duvine. This is episode three thirty nine. Joseph Devine was the art dealer to the Robber Barons. And in that episode there's a line that says Duvine noticed that Europe had plenty of art. And America had plenty of money.

7:12 And his entire astonishing карі Was the product of that simple observation. Eivor did the exact same thing. Instead of bringing European art to America, he's bringing European match monopolies. He's giving American investors a chance. To invest. In European match monopolies.

7:28 And that may sound funny today, like when's the last time you bought some matches, but at this point in history, matches were a basic and essential product that everyone used. And so we need to go back to this idea that his first pitch, these are excellent communicators, right? It's simple, easy to understand, and legitimate. And so it says he wasn't trying to sell anything complex, at least not at first. His pitch involved a basic and essential product that everyone used and could understand the match. At the time, matches were a staple. People use matches to light kerosene lamps.

7:54 Gas heaters, stoves, and tobacco. Everyone carried, everyone used them, and everyone bought them. So his pitch is simple. American investors could earn profits from a monopoly abroad. And what is fascinating is how he came to build This Swedish Match Monopoly.

8:11 He uses a lot of ideas. In fact he studied in in in detail. Johnny Rockefeller, Andrew Carnegie. And he essentially did what you and I do in this podcast. Like we study the principles behind, right? We're not trying to copy the what, we're trying to copy the how. He copied The how how did Rockefeller Build monopoly on oil.

8:27 How did Carnegie Build monopoly in steel. And he's like, Oh, okay, I can take those exact same principles and I'll apply it, right? I'm not building the American oil monopoly, the American steel monopoly, but I can take those principles, export them and actually use them to build a Swedish match monopoly, and it works. And so before he starts building this monopoly in the match industry He's actually has a relativ really successful career. building this construction firm and construction partnership.

8:53 And as he makes more money, he gets more interested instead of building bridges and and buildings. He gets more interested in constructing constructing companies. And so he starts branching out into other industries. He's trying to build film companies and real estate and telecommunications. He's already a millionaire by this point in his life. And then he sees that his family's match business in Sweden was struggling. And he identifies we really smart. This guy's a Likely a legit genius.

9:18 And so what he notices is there's a lot of characteristics in the Swedish match industry that's very similar similar to the early American oil industries. Especially if you wanted to oil open an oil refinery in Rockefeller's Day. There was Almost no barrier to entry. And so in Rockefeller's opinion, that industry is only going to survive if it's under the complete control of one formidable individual.

9:39 Evar runs this exact same playbook. in the match industry. So it says he quietly purchased match factories throughout Sweden. He was a pioneer of vertical integration. He'd buy timber tracks and chemical factories to secure the raw materials needed to make matches. This is exactly what Rockefeller did. He merged the leading competitors to form Sweetish Match. It was a single dominant business.

9:59 His 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. Swedish match corporation was just one part of his empire. He controlled 10 other businesses through his public holding company. He controlled the holding company with a tight grip.

10:19 Annual meetings were perfunctory. At this point that he's coming to America, his two largest and most profitable businesses is Swedish match. And then his construction firm Kruger and Toll. He's going to use the track record of these two successful companies in raising a ton of money.

10:34 He run raises hundreds of millions of dollars from American investors. And a main theme of his life, his career is that too much finance ruined the legit business. His two companies are making a profit. That wasn't enough for him. He wanted to be richer, he wanted to operate on a bigger scale. He wanted to have hundreds and hundreds of different companies. And so what they would do is he would say, Hey, we pay a twenty five percent dividend. And even though his financial statements contained almost no information, it didn't matter. When investors learned that

10:59 Kruger and Toll had been paying. Twive percent. dividends each year, they simply went mad. And this is an important point. He understood human psychology. He was studying the history.

11:10 Of finance now, I would say he studied. The history of finance. It's not clear to me, in fact. I would argue I always say that learning is not Memorizing information, learning is changing behavior. So he studied this, but it never affected his behavior. So he I to me he never really learned.

11:24 It said. That he had studied financial history and was aware of the infamous periods of mania and later panic. such as the South Sea bubble of 1720 and the infamous rise and collapse of the Dutch tulip bubble in sixteen thirty seven. In those cases, men became rich as they rode the wave of Of investors speculating. He knew that timing was crucial, that American optimism would not persist forever.

11:48 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. And so even at this point in the book, we know how his story ends. He loses millions of dollars for a ton of people. Some are just normal investors. Then he also loses a ton of money for very wealthy people.

12:10 He kills himself and then he dies in disgrace. And so I'm reading this. I'm only a few pages into the book. And I immediately think of What Charlie Munger said that I feel is true over and over and over again. And he said The problem isn't getting rich.

12:23 The problem is staying sane. The problem isn't getting rich, the problem is staying sane. Evar was not able to stay sane. And so when he gets to America, Ivar starts to target several different investment banks. And what he does is really smart. He does he knows hey, JP Morgan

12:41 They're not gonna give me any money. Goldman Sachs is not gonna give me any money. And so he targets this bank called Lee Higginson. It was one of the most prestigious and profitable banks in the world. But it was a step behind. JP Morgan, Goldman Sachs, and Lehman Brothers.

12:54 before they get involved with Evar, it's a seven decade old it's a seventy year old company. By the time they're done, they are bankrupt and the partners are impoverished. And this is the first example that I referenced earlier of this You've already had this this fundamental understanding of human psychology, this genius level, this evil genius level way to manipulate people. And so there is a partner

13:16 At Lee Higginson, this guy named Donald Durant, who's going to be his main banker throughout this entire thing. And so as he's on his way to America, he starts seeding this. They're they're covering what he's doing in newspapers. He's having rumors spread within the finance industry about how profitable Kruger and Toll is and how successful Sweetish Match is. He is watering the ground before he ever meets him. So Durant is devouring all the details of His of Ivar's trip to America. All these people around him were telling him, Hey, Kruger and Toll and Sweetest Match are the two hottest companies outside the United States.

13:48 The colleagues, there's a branch of Higginson and Company in London. His colleagues in London reported That Eivor already had made them a fortune on a highly unusual and complex Swap transaction. And the end of this sentence is really important that even the sharpest investment bankers could not understand.

14:03 That is another main theme that he got away with that made this this scheme of his successful. He intentionally muddied the waters to make them appear deep. Turns out in the end he didn't even understand what he had built. But we're still half a decade at least from there. So in addition to this, Evar pays a Swedish stockbroker, this guy Name Lagercrantz to set an appointment with Durant.

14:25 to inquire about syndicating some investments for some of his sweetest clients. That was the stated goal. This is what I meant. This guy's like a like an international man of mystery. Nothing that uh like appears Nothing is as it appears with Evar Kroger, so He sends L Lagercrantz before he gets there. He says, Hey, go I'm gonna pay he actually pays him to do this. Go and have this meeting with Durant. Under this false pretense.

14:47 And then happen to mention Me and what I'm up to. And the fascinating thing is this appeared as just, you know, an aside, just something that c that casually came up In conversation, Durant never imagined. that Evo had arranged it all the entire time.

15:02 And so by this point, news about Eivar and how great his companies are and the fact that he's coming to New York, he's got these great opportunities. Durant's heard about it from three or four different sources. He so he contacts Eivar. And he's like, Let's please have a meeting. Now, this is what I meant that Evar understood human psychology. If something is limited and hard to get that increases desire. This works for both products. Like Ferrari. And for people.

15:23 Like celebrities. At this point, Evar made himself a business celebrity. And so even though he wanted to meet Durant the whole time, when Durant asked to meet him, Evo is like no, I I'll try to fit it in. Let's see what I can do. You know, I read three or four books on Enzo Ferrari. There's a a great story that I've never forgotten where In the early days of Ferrari, you know, I think he's making probably a hundred cars a year by this point.

15:46 These all these rich Americans are coming to Italy. They uh Enzo Ferrari gives them a tour of the entire factory. And he's like com uh you know, please, Enzo, let me buy a car. And he's like, Oh no, of course, like I'll see what I can do, but you have to know, like You know, it's gonna be at least a few months, maybe a year, whatever the case is. And the uh the American

16:03 Leaves and and those. uh employee walks up to him is like I don't understand. Like why did you tell that him behind the factory we have A parking lot full of unsold Ferraris and Enzo said, Yeah, but Ferrari has to be desired. it can't be something that you can it that's readily available. He understood that at the very beginning. In the very early days.

16:20 Of Uh the history of Ferrari. That fundamental understanding of human psychology, that like genius level understanding of human psychology that Ferrari had, you see that Evar Kroger had as well. And so it says.

16:32 When Durant requests a meeting, Ewar responded that he was busy with other business. But he would try to arrange a time. He had learned That playing hard to get was a promising strategy with America's elite. He waited a few more days to ensure that the publicity about him had saturated.

16:48 Lee Higginson, which is the bank that Durant works for the bank that Evar is going to take down. And finally He arranged to have a meeting with Durant. And there's a great line in the book a few pages later, this meeting ultimately would lead to the destruction of their firm.

17:04 And so this is the pitch. to Durant. This is a great description of Evar's plan. Listen, this plan would and did work. It was only the lying, the falsify falsifying of his financial statements. and being over extended that caused his downfall fall. That that's why I said it's like it's not a clear Ponzi scheme. It it was working. He just took he for some reason

17:24 He risked what he had to pursue what he didn't have and didn't need. There's a great line in One of Warren Buffett's Shareholder letter letters is about this. And when I was reading this section and what Evar winds up doing to this, you know, taking a a good plan and destroying it. Reminded me of

17:40 Something that Warren wrote about on the importance of using debt sparingly and to making sure that you're putting survival ahead of every single thing else. I'm gonna read you this excerpt. It comes from the the book, The Essays of Warren Buffett. If you have a subscription to Founders Notes, highly recommend. After this, going back, I have sixty five highlights and notes from this book. Spend the ten minutes it takes to to reread those highlights. It's excellent.

18:02 And on the note the note I left myself on this. It says all that matters is to survive, the rest is just words. That is a quote from Charles DeGaulle. And this is what Warren Buffett says in his shareholder letters. We use debt sparingly, we will reject interesting opportunities. Rather than over leverage our balance sheet. As one of the Indianapolis five hundred winners said, to finish first, you must first finish.

18:23 The financial calculus that Charlie and I employ would never permit our trading a good night's sleep. For a shot at a few extra percentage points of return, I've never believed. This is What Warren is about to tell us, what Warren Buffett's about to tell us that he never believed in. Is exactly what Evar Kruger, the mistake that he made. This is what I mean. Learning is not just memorizing behavior. Learn learning is not just memorizing information, learning is changing your behavior.

18:45 Evar knew this and he could not change his behavior. This is like my worst nightmare. I'm like sweaty, I've a sweat above my lip right now thinking about this. I've never believed go back to Warren Buffett. I've never believed in risking what my family and friends have and need. In order to pursue what they don't have and don't need. And so with that in mind, this is the plan. This is the new idea.

19:09 The prospect of Americans investing in foreign monopolies. You can't monopolize in America. This is after, you know, they've they'd broken up trusts like standard oil and steel and everything else. Uh anti trust laws prohibited a match monopoly in United States, but nothing prevented American investors from buying into monopolies abroad. And the smart thing that Ivar does, again, he's a student of history. He's like, Oh, this idea worked, I'll just I can adapt it to my circumstances, my industry and my environment now. So

19:33 He knew that There was this extraordinary scheme that was orchestrated during the seventeenth century by this guy named Robert Harley. He's the one that formed the South Sea Company. Now the history behind this fast fasting. So he forms the South Sea Company to assume England's national debt.

19:47 The scheme had become known as the South Sea bubble, but For the sharp increase in the price of South Sea company shares. But the original idea is the same idea that Evor is gonna use in exchange. For the South Sea company assuming the debt of England of the British government. The British government gave

20:03 The company a monopoly on trade to the South Seas, these government granted monopolies. are very, very common in Europe. That is another important idea. Nothing that Evar was doing was new. He just applied it to a different industry. It was an audacious deal, but a simple idea. And the idea could be replicated. It was not limited to England and the South Seas or to a time two hundred years earlier. In theory,

20:24 If a government needed money and a company wanted a monopoly, both sides could benefit from a similar compact. Any time. Anywhere. With any product. Evar's idea was to do just what Harley had done, except with matches instead of South Sea trade.

20:39 Evor would lend money to the government of Europe. In exchange for a monopoly concession For the production and sale of matches within their territory. There was one problem, though. Eivor didn't have enough money to lend millions of dollars to foreign governments. Evar needed the backing of a major bank. You see where he's going here. It's very easy to follow what he's trying to do. I'm coming to you because I need the money. I'm going to take the money raised from American investors.

21:03 I'm going to help out European governments that are in debt. in return for lending them money, they have to give me a monop uh a monopoly in their country. on match production ma and selling matches. And so this is the summary. It's very similar to what I just said. A single thread runs throughout. Americans would lend money to

21:20 through Evar to foreign governments and in return everyone would make unimaginable profits. from match monopolies. He hooked Durant. With his simple, brilliant idea. Government loans in exchange for match monopolies. That's seven words. And you understand exactly what you're buying into.

21:38 Government loans. In exchange for match monopolies. And so I wanna give a little background because I wanna go back to this just insane idea to me. The fact that you risked a successful legitimate business to speculate. And he's not alone. There's a million examples in the book, there's a million examples through history.

21:54 And that's why it's I think so important to spend time talking about Most of this book is just about, you know, the the last decade of his life. But there are a few examples from earlier that I think are important to go over because He wasn't just a financier and an entrepreneur, he was also a civil engineer. And before he made a bunch of innovations in finance, which we'll get to, he also made innovations in building.

22:12 And so this is fascinating. This is the self confidence Of a twenty eight year old. Eivor. At the time he's working On the construction of the archbold

22:21 Stadium at Syracuse University. And I thought this paragraph was f was fascinating. He regarded his bosses there as inferiors. Men who lack the in intellect and ambition of the stadium's namesake. John Deed Archbold. The great capitalist, oil refiner, and philanthropist.

22:38 Evar wrote to his parents I cannot believe That I am intended to spend my life making money for second rate people. I shall bring American methods back home to Sweden. I shall bring American methods back home. Wait and see I shall do great things. I am bursting with ideas.

22:55 I'm only wondering Wh which to carry out first. So as he's working on the construction of the stadium He meets this other guy named Julius Kahn. Julius Kahn is the inventor of this method. For making iron called con iron. Khan introduces

23:10 Evar to another Swedish engineer named Paul Toll. And that is when Evar leaves America, goes back and founds him and Paul Toll together form this this company that's very legitimate and winds up being very profitable. Construction company. Called

23:24 Kroger and Toll. And what he does next is rather genius because It's not like construction. Humans have been building things forever. It's like one of the most ancient industries. And yet the way that

23:36 Evar, young Evar figures out to gain entry and a foothold in an existing industry. Is fascinating. It is by realigning incentives. And Insane.

23:46 If there is a The main character of this story is Evar Kroger, right? The supporting charac character is the pa the superpower of incentives. I almost started the podcast. with this long speech that Charlie Munger gives on incentives, which I'll read to in a little bit. It is so obvious in the story the power of incentives.

24:04 Like the role that it plays. And so Not only d do they make innovation in actually the the method of constructing buildings, right? But Maybe even more important than that. He's able to take customers from other existing

24:18 Businesses. by realigning their incentives. And so it says he he came up with novel Contract features. This is a really surprising way to get customers, a really surprising way to increase your distribution. So Eivar's willing to change the standard terms of construction contact contracts.

24:36 to reallocate the risks to him. If I want to build a building and I hire a construction firm Anybody that's built anything knows that You know, these timetables. Most times they're late. They're like almost like they just pick dates out of thin air and just completely make it up.

24:50 And so Up until this point, construction firms had not been willing to take on the risk associated with delays because That's c every day my c the construction firm that has not built my building is late. That costs me money. And yet I don't have any control over when they complete the the creation of the building.

25:05 And so the ability to speed up the project lies with the construction company, but the risk of them failing to do so lies with the client. Evar understood this misalignment of a sentence, and all he did is just realigned it. And he's like, I'm gonna take on that risk. Construction firms, not clients, were in the best position To reduce delays. Evar realized that the best way to minimize construction delays was to shift the risk of loss that arose from such delays.

25:28 To him, meaning to his firm. Then Kroger and Toll Would have the incentive and 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. This is really, really smart.

25:43 Kroger and Toll became the first firm in Europe to commit to finish projects by a fixed date. Step one. I guarantee that your building is done by this date. Step two. If

25:54 I do not Follow through on that commitment. I have to pay you the client. twelve hundred dollars for each day I'm late. That is step two. Step three. If I finish

26:06 Early. You pay me for every day that I beat. That Agreed upon fixed date. Again, this guy is a genius at aligning incentives, understanding human psychology, and then making it very easy to understand what he's trying to explain to you.

26:22 You customer hate. construction delays. So therefore I will guarantee you that your building will be dip Done by the state. Any day I go over I pay you more money. Any day I save you, you pay me more.

26:34 The end result. He repeated this formula and earned completion bonuses for every single project. Builders were happy. To pay extra to know a high quality project. Kruger. And Toll was regarded as the best building company in Sweden a few years later as one of the top firms in Europe.

26:52 That is really smart. It also leads us to the next part of the story. Why is this important? Because he's gonna use his construction firm as collateral to enter and then consolidate the match industry. And so now he goes to banks in Sweden and says, Look at this successful construction firm. I'm gonna I wanna run this playbook that they use in America on the Swedish match industry, and I'm gonna use this very successful company they have as collateral. Uh he saw that the match industry was in the same economic position oil, sugar, and steel had been a few decades earlier. There's too many owners of too many factories.

27:23 Competition was driving prices down. This is when he starts doing and he does it on borrowed money, just like Rockefeller did. At the beginning of his career, you and I have gone over Rockefeller in detail. I will do probably fifteen more episodes. I read every single book. on Rockefeller could find. Why? Because Charlie Munger believes that Rockefeller built the greatest company of all time. And you see in this book, this is fascinating. Evor is using Rockefeller s domination tactics. I think the

27:51 The the the last time I talked about this was on uh episode three twenty four, where Rockefeller's writing all those letters to his son. If you really want to go about domination and like his conquering mindset, so this is what he's doing the next over the next eight years. Ivor parlayed a few family match factories into a conglomerate. He modernized factories and expanded overseas sales. Uh he doubled production and pro and tripled profits. He reduced costs by purchasing the companies that made his machines. As well as companies that supplied the chemicals.

28:16 That he needed to make the matches. At the beginning everybody said Ebar's decision to enter the match business seemed foolish. They said the exact same thing about Rockefeller. Evar were continually to vertically integrate. He now he's taking over all the factories because you need all like phosphorus, you need all these other uh chemicals to make matches. So he would take over the suppliers and then he would choke off his competitors So they can no longer buy the supplies they need to manufacture the matches that they're trying to manufacture.

28:39 He would destroy anyone who refused to sell with ruthless tactics. He took over supply contracts. interfere with customers and temporarily lowered prices below cost. Rockefeller did all of those. As a result, Swedish Match was one of the few European businesses that remained profitable throughout the war, that is World War One that they are referencing. And why are they profitable? Because they are a Monopoly.

29:01 And so that is all important backstory because now we're back in America in nineteen twenty two. He has control of these two companies, the Swedish match monopoly. He has Kruger and Toll. He's got a bunch of these other companies too, but those are the two main ones. And so now his banker. The one that he's going to destroy. Durant makes this makes Durant's pitch to American investors very easy.

29:18 Because investors like all people, they like easy to understand stories. And his whole point is like this guy's got a great track record. He's got a thriving business that is paying very high dividends. And so that same person with a great track record Thriving businesses.

29:34 high paying dividends now has a new idea that's easy to understand, which is Loans to governments. For more match monopolies, do you want to invest? Oh, by the way. One of his companies has been paying twenty five percent dividends every year. And so this is when he starts

29:48 What he's gonna call international match corporation. This is the company that American investors are going to invest in. And so he purposely sets up his board. He wants people that are distracted. And so he's selecting these directors that are supposed to quote unquote oversee international matches business. And one of them is the nephew of John D. Rockefeller, which Evar thought that was incredibly because he idolized Rockefeller since he was a young man. But Why is he this guy's name is Percy Rockefeller. Why is he picking Percy Rockefeller? Evor saw that Rockefeller was s currently serving

30:20 on more than sixty other boards. He was an ideal director because he was well connected. and far too busy to care about any details. This guy's an evil genius. Ivor had idolized Rockefeller since he was a boy.

30:36 And now a member of that family would serve on his board. There's a great line. Describing his corporate structure. It was like a corporate family tree from hell, and it extended into obscurity. And so this is his main mistake. This is when he's constantly having to raise more money. Raise new funds to pay

30:54 Down past debts and past promises. There's an excellent line I went and searched. all my nights notes and highlights because I remember he'd said something so I just put in the type the word survive. And it comes right up. And it says victory in our industry is spelled survival. That is Steve Jobs. Donald Durant.

31:10 And his partners had no idea this is a investment bankers that helped Evar raise money from America investors, okay? They had no idea how desperately Evar needed the money. Although his businesses seemed to be thriving, he had promised too much to his early investors. He had borrowed tens of millions of dollars from Sweden, Sweden's leading banks. And both Kroger and Toll and Swedish Mash were paying double digit dividends every year. The company's profits alone did not always cover these obligations. This is when we get into this like Ponzi esque. scheme that he had going on.

31:36 In order for his businesses to continue to s to succeed They had to continue to grow. That's fine. This is nineteen twenty two. They're gonna grow. Nineteen twenty nine, you cannot tap the markets anymore, and that's what causes him to go bankrupt. If they stopped growing, Ivar would not be able to repay his earlier debts or continue to pay high dividends.

31:52 It wasn't rocket science. To pay a twenty five percent dividend every year, you either had to earn twenty five percent from your business or else raise more money. This is crazy. A large portion of the dividends recently paid by Sweetest Match and Kruger Kroger and Toll. Came from cash raised by international match in America. In other words, the dividends paid to old investors.

32:15 raised from new ones. That is Ponzi. This is crazy that he did this. Because unlike Charles Ponze Evar's profits were real. Swedish match made and sold billions of boxes of matches every year.

32:27 Kruger and Toll build landmark buildings throughout Europe. Evar believe. That if he kept raising cash to pay earlier debts, his business would grow fast enough to survive. What are you doing? Why are you so smart and talented and why would you put yourself in a position like that? Victory in our industry and every industry is spelled

32:47 Survival. Even the very best ideas fail if a company runs out of money. There's a great line about this by the founder of Sequoia, Don Valentine. He says all companies that go out of business do so for the same reason. They run out of money. The minute Evar's businesses stop growing fast enough

33:04 And the minute he cannot raise more money, he goes out of business. He destroys Everything that he spent. twenty five years building. For what? Why?

33:16 And it goes back to what Charlie Moyer said the problem is not getting rich, it's staying sane. He was unable. To stay Sane. And so Right before he raises money.

33:27 From American investors for the first time. There's a public account in Sweden that had found That Sweetest Match's finances were so complicated that he could not unravel them. And what he said at the time was that the Swedish match consortium of companies Should be called the greatest speculation venture in Sweden.

33:44 And so you have Swedish regulators that are coming down, and again, there's like no laws. There's a a lot of the stuff that he did now would be illegal. But even then the regulators start talking to Evar's main banker in Sweden, this guy named Rydbeck. Ryback is extremely influential. And so he's able to calm down the regulators. He says, Listen, it's it's in our it's our interest to survive. We don't need like costly new rules, we don't need extra regulation. And so this report that's put out about the dangers that's happening with the sweet smash company is

34:13 It's phrased as advice from regulators and not it didn't require any action. And so you're like I don't understand. Like why are why Would the bank want to do that if their main customer is potentially Taking risks that could make them

34:27 Lose money. And the answer is incentives. The banks were not only lending money to Evar, they were his biggest shareholders. So when the bankers Help get the regulators off of Evar.

34:39 There in turn. Getting regulators off themselves. And why? Because they like those fat dividends that are coming in, and when you give people fat, effortless money, they don't question things. When Swedish match Paid.

34:53 hefty dividends, much of that money went to the bank. Again. Straight out of Rockefeller's playbook. For different reasons, Rockefeller went around in the early days. He did something very similar in his uh early days of his career. The banks that he was borrowing money from to build the early days of standard oil, he also gave them stock. And he gave them stock. So his competitors.

35:13 Right, his other Oil refining competitors would code that same bank. Hey, give me a loan. I need to be in business. And the bank's like, Why would I do that? You're a competitor of mine now,'cause I'm not just the banker. I'm the partner.

35:24 It's incentives, it's a misalignment incentives all the way down throughout this entire story. It is the supporting character of the story. And again There's some banks that two of the leading uh two other banks that he'd raise money from the past. The they made him settle their loans and return their money.

35:41 And they said, Hey, you gotta raise funds somewhere else. And so he did just what Duvine did. He says, Okay, well where's the money? America? Okay, cool. I'll hop on the boat and go over there. And so then we go back to Evar being this evil genius, of course You he's he's selling securities in America. Lee Higginson is this big bank. They're like, hey, we need to have an auditor. So they hire a young auditor at Ernst and Ernst. And

36:03 This entire story. This guy is just completely mismatched against Evar, and Evar manipulates him every time. But again, every single time somebody looks at his books like this doesn't make any sense. This guy name is Burning. A D Burning. Burning was baffled by this arrangement. He couldn't decipher the financial statements Ebor sent. Were the measures of international matches profits accurate?

36:24 Did the company's balance sheet entries include the assets and liabilities of Swedish Smatches subsidiaries? There was no way to tell. He had to rely entirely on Evar's numbers, which changed more frequently then a careful accountant would hope or expect. Everything he did was based solely on information provided by Evar.

36:43 And yet he never says anything. Why doesn't he say anything? Again, it goes back to incense, which we'll get to in a minute. At the time there's no federal member there's no federal securities regulation. So everything at this time in America was handled by the states. You know what's hilarious? I just goes back to this idea that anyone who bothers to look closely is confused and suspicious. And so there's like he he's able to shake or like get away from almost every other regulator except this one random regulator and Wisc securities in Wisconsin. And so they keep sending burning because he's his audit he's Evar's auditor over and over again. It's like what's going on with this? We need more information. Every time they get more information, like this isn't good enough.

37:17 And then this is where Burning should have known. Burning knows that Ivor's a liar. And it's not even that sophisticated. It's sloppy and obvious. He sends he's like, Hey, Wisconsin needs all this information. I need more about international matches books. And so he sends

37:32 Evo sends burning. These financial statements. Listen to this. It was obvious that the statements had been hastily and not very carefully prepared. Why?

37:42 Evo send balance sheets. For international match for nineteen twenty one and nineteen twenty two. Showing that the company had Um one million shares outstanding.

37:53 But international match had not even existed during those years. And look at the numbers, right? He's just completely making everything up. The g the company doesn't exist, okay? But he said nineteen twenty one? We made one point nine million dollars in profits. Nineteen twenty two.

38:09 Two million dollars in profits. nineteen twenty three, two point one million dollars in profits and goes on and on. Every year we knew what he does. He literally just increases the Amount of profits by a hundred thousand dollars.

38:20 So I made one point nine, then the next year it's two, and then two point one, then two point two, then two point three. That's not a joke. That is literally what he submitted to these regulators. And the first sign that Evar could control burning is he's like, Oh, you obviously made a mistake, don't worry, I will reconcile He fixes them.

38:37 to the best of his ability on the li very limited knowledge that he has and then resubmits them. to the Wisconsin regulator, but the message was very clear. His auditor would easily change Numbers for him.

38:50 And why he does this makes will make perfect sense later on. Again, I need to paint this picture here because it sounds Absolutely. In the world that you and I live in, remember which is Heavily formed by by the financial swindle that Eivor is per perpetuating in the book.

39:03 It sounds ridiculous. Like who how is this possible? And it's but it was par for the course. Not all I mean He this guy took it to extreme. But this lack of information, this lack of regulation, it was just par for the course of the time.

39:16 And so it says few people seem to care that the information was incomplete. Indeed. International matches, cursory financial statements were typical of corporate disclosures at the time. Even companies with securities listed on the New York Stock Exchange at the time. Would give scant detail. Fewer than one third

39:31 Of stock exchange companies even published even bothered. To publish quarterly reports. А на стопил. And so it's this constant mix of legitimate business outright lies.

39:47 This ex excessively complicated company tree structure. But again, this idea was not new. For centuries European governments had granted monopolies of all kinds. Of production and trade. These were not gifts, the governments required payment in return, in the form of cash, interest, or a share of the profits. These monopolies were an alternative to state control.

40:05 Industry remained in private hands, but But government received a steady stream of revenue. So past examples before Evar did this on with matches. Early monopolies included cigarettes, gunpowder, liquor. Petrol.

40:18 Playing cards, salt, and tobacco. Even the idea of a match monopoly was not new because we're in the nineteen twenties, right? The first match monopoly in Europe was created back in France in eighteen seventy two. He's just taking an old idea and bringing it back to to his modern day. And so the first deal they do, which is a legitimate deal, this is international's first deal, it's with Poland. They say, Okay, if you l we'll lend you a bunch of money in exchange for this monopoly. This is just after the war, so Poland needs

40:45 Yeah, he says it has a a bunch of humanitarian fiscal needs. And the deal was structured like this, international match would pay a royalty. From its match sales in Poland to the Polish state. And the proceeds of the royalty would secure the loan. to the government.

41:01 As a result, all existing match factories were nationalized, combined, and then leased. to international match for the next twenty years. That is a legitimate deal. That is real. And then of course he does something that He al he's always combining the the the legal with the illegal. When he received a copy of the signed documents, he did something rather unusual.

41:20 He thought it might be useful to be able to replicate Doctor Glaquaki's signature in the future. That is the senior finance ministry So he gets the documents. What does he do? He Makes a copy of the signature. What are you doing?

41:36 So he took a sign copy of the contract to a stamp shop and ordered a rubber stamp that would produce A Exact replica. He would obtain rubber stamps of official signatures for nearly all of his match deals. I'm telling you, if you read this book, this guy's gonna just blow your mind over and over again on the very next page.

41:54 He has a problem. I need more cash from investors, but I don't want to give up control. So what could I possibly do? This guy literally invented The B share this dual class share system that's still used to this day. He devised an elegant solution to his problem. It was an ingenious piece of financial engineering that would survive the test of time.

42:12 He introduced a new type of security, which he called a B share. He divided its common shares into two classes. Each class would have the same claim to dividends of profits. But the B share would only carry one one thousandth of a vote compared to one vote each for an A share. B shares could be sold to investors without affecting control. And go back to incentives. There's so many times where

42:33 Evor is kinda like he's just sloppy with his record keeping, he's kinda caught in a lie. And Durant, the main guy that's going out into the American community and saying, Hey, buy these securities. Sometimes it pops up and he's like, Man, this is kinda weird. So then he goes and he talks to Berning and Ernst and Ernst. You're supposed to be the auditor. Like, are you okay with these numbers? Like, what's going on here? But then what happened? It's incentives. It says he Durant was conflicted because Evar's financial statements were sloppy and incomplete, yet

42:57 Investors nevertheless clamored to buy securities of international match. So any kind of Oh, I feel a little uneasy about this. As soon as that money floods in the door, Durant's concerns are eliminated. And so when Tr Durant tries to balance his suspicions with what's actually happening, he just like, Oh, well, the money coming in. He says everything worked just as

43:17 Eivor said it would. International match began receiving quarterly interest payments. Of about a million dollars each quarter, just as the agreement Poland said. As more cash flowed in. The director's questions went away. And I think that sentence, so I double underlined that sentence is more cash flowed in.

43:34 The director's questions went away. I think that double underline sentence is why these Ponzi S deals last a long time. Uh time rather. I remember Ed Thorf's autobiography, one of my favorite books that I've ever read. It's episode two twenty two. It's called A Man for All Markets. I could you should read the book. I've read it I think two or three times by now. Ed Thorpe has r just lived a a remarkable life. Listen to episode two twenty two if you haven't listened. It's just remarkable. Like this guy's like the financial history force gump.

44:01 started the first quantitative hedge fund, created the world's first wearable computer with Claude Shannon, figure out the accounting card system to how to be blackjack and wrote a book about it, sold millions of copies, was the first LP at Citadel. Had dinner with the 38 year old Warren Buffett, goes on the car, tells his ma or tells his wife, hey, that guy one day's gonna be the richest person in America. He's just remarkable, but in addition to that. Back in nineteen ninety one, Ed Thorpe was doing research for a friend of his and he discovered he was the one of the first people to discover the Bernie Madoff Ponzi scheme. And he warned his friend and client, I think at the time, Hey, get your money out of here, which he did. One of the guys in the the reason I bring this up

44:36 is because it's like okay, well why Why would Durant Durant knows something's going on. But he's not acting on it. So one of the guys is at this at this meeting where Ed Dor presents, he's like, No, this guy's clearly a fraud, this is clearly a Ponzi scheme. You know, this is twenty year almost twenty years before Bernie Madoff actually gets caught.

44:52 And he finds out when Uh after the uh w when all the stuff came out. that the client on the client list is one of these guys that was sitting at the table listening to Ed Thorpe in nineteen ninety one, so he knew and refused to take his money out. And it says in the book, one of the reasons he did it because he made hundreds of millions of dollars.

45:11 And so if you're making hundreds of millions of dollars over two or three or four decades with Bernie Madoff, You don't want to believe. That it's a fraud or that it there's a Ponzi scheme. And there's a handful of things that clearly point that Evar knew what he was doing. So he's setting up all these subsidiaries. He's got these secret companies, he's got these Swiss companies, he's got You know, it's like uh the the Russian dolls like one inside of another.

45:32 And so he sets up a new secret company that he doesn't tell anybody about. He needs a new auditor. For that company. And the auditor that he selects for the new secret company was fired, was previously fired from a bank

45:45 For giving himself a secret loan. And Evar knew that. Because Evar was a director of the bank. And so we know and think about this. This is Driving me crazy.

45:56 So he knowingly has Yeah. Bad people around him. And then you realize like why is he doing that? He wants people that are just under complete control. And so th this new secret company's called Garanta.

46:07 Listen to this. The men quickly got to the business of Garanta's audit. Uh Evar showed Lang a balance sheet For Garanta listing millions of dollars of assets and liabilities and abruptly asked him to sign, attesting that the figures were correct. That was it, then he could go.

46:21 But then he told Eivor, he's like, Well, I need to look over the balance sheet. As huge sums are involved. According to one account, Evar stared at him stone faced in response. When Lang mumbled that it would be nice to know where all the money was going, Evar said it was being spent secretly in Poland. And he sh and this should not be mentioned. Evar then told Lang if you don't believe me, you can go to Poland and see for yourself. Lang nodded and then signed.

46:43 And then we get to the part where I've already been exposed to Evar and all the The machinacious that this guy does. And this is the first time That I mentioned something I've mentioned to you over and over again. I go, Oh, this guy's an evil genius. And so it's not like he just taps the the American investors once. He keeps going back and forth.

46:59 Uh back and back uh nine back and forth. Back again and again. And what he does is like He'll raise money, take the money, sign one legitimate deal, then go back. Exaggerate everything else.

47:09 to raise another money. It's like almost like using the every little milestone. It's like Yeah, he has these little milestones that he then exaggerates or or in some cases lies about completely. Then he uses that data to keep going back to the markets. And so now this has been going on for a while. Where His main auditor of international match company, that guy Burning. is asking questions and still not getting the right responses, but he's not like drawing this out or refusing to do

47:34 the audit or sign in the documents. And so there was an important fundraise happening. And so what he does, he's like, Oh Burning. Why don't you come you and your wife come to Europe on an all expense paid vacation. And you should go at this specific time, and this is why. And this is when I read this paragraph, I'm like, Oh my God, this guy is an evil genius.

47:54 The money Evar had spent on the Burnings vacation was well worth it, as the details of the new preferred issue were being finalized. Evar's auditor. The one man who might have asked penetrating questions about the accounting details of the deal. had been just where Evar wanted him, strolling the streets of London and Paris with his wife. The size and scale of what this guy did in the nineteen twenties is incredible.

48:18 From nineteen twenty three to nineteen twenty nine, Evar tripled his funds raised from American investors, persuaded the New York Stock Exchange to list his securities. Pulled even with JP Morgan as a leading lender to Europe by securing match monopolies in several countries. built an a hundred and twenty five room match palace in Stockholm. And in general got really, really rich. And by nineteen twenty nine he has four hundred companies.

48:42 And so now I want to get into this idea of these this terrible incentives all the way down that kind of produces these predictable human behaviors. And so the next time The the last time he tapped American investors. He's got his audit or his auditor burning.

48:55 Walking around Paris, right? The next year he has to sell another four hundred and fifty thousand shares. And so Burning is in New York when this is happening. He's obviously very important on this deal. And he's noticing some odd things that he says nothing about. Let's get into it. While Burning was updating international matches reports to reflect this new share issue, he discovered a reference to

49:17 This thing called Garanta. This Dutch Hidden company. Burning was surprised to see that Garanta owned inter that owed International match 17 million dollars. He asked Evar for some assurances about Grotto. What was it? Did this company make any profits or have any assets?

49:33 Why hadn't he told him about this existence? Evar reassured burning the Garantis income during nineteen twenty five. was forty six million. and that Garanta made enough money in one year to repay its entire debt. There was no reason for concern.

49:49 There's no evidence. I need to be clear. There's no evidence of what I bar is saying. He's just saying, No, this is uh I can write it down on a piece of paper, but this is what it is, it's in my head. Now you're like, This is ridiculous. Like w why isn't burning doing anything? And the author asked the same question. What was Burning supposed to do? Should he be suspicious of Eivar? Should burning accuse. His most important client of hiding crucial information.

50:10 Would this accusation then destroy Burning's relationship with Evar? And the destruction of that relationship would that ruin Burning's chances of making partner? Evar paid all of his bills on time, his fees to Ernst and Ernst were rising. The match monopoly in Poland was real. Evor had a reputation that was unassailable.

50:29 Every day in the newspaper. There's stories about Ivar negotiating potential match monopolies in Ecuador, Estonia, Greece, Hungary, Peru, Portugal. Those negotiations were undeniably real. Evar met regularly with government leaders. Given these facts.

50:45 Burning told himself Garanta wasn't important. It couldn't be. In other words, burning is incentivized to believe Evar because if he's not if he's wrong, if he's lying. All the overtime. All the extra money and I forgot Evar's also paying'em for consulting fees and paying'em on the side and everything else, paying for trips to his wi uh for his wife. All of that, the the trips, the extra money, the prestige, all of that goes away.

51:11 And so it's at this point in the book where I think about one of my favorite passages from Poor Charlie's almanac. I'm gonna pull up my highlights now. It really the the summary of what Charlie's about to tell us. Number one, we all underestimate the power of incentives. Number two, never ever think about anything else before the power of incentives. And number three, the most important rule.

51:29 in management get the incentives right. As usual, Charlie Mugger describes it in a beautiful way. Almost everyone thinks fully recognizes how important incentives are in changing behavior, but this is not often so. I think I've been in the top five percent of my age cohort almost all my adult life in understanding the power of incentives. Yet have always underestimated that power.

51:48 Never a year passes. That I don't get some surprise that pushes a little further my appreciation of incentive superpower. One of my favorite cases about the power of incentives Is the federal is from a federal express. So FedEx.

52:02 The integrity of the FedEx system requires that all packages be shifted rapidly among airplanes in one central airport each night. The system has no integrity for the customers if the night work shift cannot accomplish its assignment fast. FedEx had one hell of a time getting the right the night shift to do the right thing. Uh, they tried everything in the world without luck. And finally, somebody got the thought.

52:22 that it was foolish to pay the night shift by the hour. Він вот і имплоєр вант. was not maximized billiable hours of employee service, but fault free. Rapid performance of a particular task. If they paid the employees per shift and let all the night shift employees go home when all the planes were loaded, the system would work better.

52:40 And lo and behold, they test this and that solution worked. And then Charlie Mugger tells us another story from business history. Early in the history of Xerox, Joe Wilson, the founder of Xerox, Had a similar experience. He couldn't understand why its new machine was selling so poorly in relation to its older and inferior machine. He found out

52:58 That the commission arrangement with the salesman gave a large and perverse incentive to push. the inferior machine on customers. This maximum Is a wise guide to a great and simple precaution in life. Never ever think about something else when you t when you should be thinking about the power of incentives.

53:16 the most important rule in management is get The incentives right. And so if you analyze the incentives in this story, the behavior makes perfect sense. So there's a many, many ways. Like he's constantly fighting off. Remember, I I think I've said this multiple times. Over a decade people are like this is weird. The books seem funny, like there's no detail, the numbers change, what the hell's going on here? And he's got other ways, you know, he he's an evil genius, so he's got other ways

53:42 to get people off of his trail. He has an auditor Ask him for a bunch of paperwork, that paperwork is back in Sweden. And so he does something here. That I remember yeah, I was this was probably twenty years ago. I was reading a bunch of biographies. of very famous like trial attorneys and I think it was the

53:57 The biography of Roy Black, if I'm not mistaken. And they had a tactic that was very interesting where Let's say they were representing uh their client and your client did something wrong. And in during discovery. you know, the the other side's asking for all the all this information. And you're compelled by law to give them that information. So like, Okay, cool.

54:16 You we need to give this to you? They would essentially bury them in a mountain of paperwork. So you get six months to go through discovery, they'd give you something that you couldn't read in ten years. Now you might But their goal was to just bury you and to lose you in a mountain of paperwork.

54:31 And so he does this exact same thing. He sends the auditor. He says he was overwhelmed by the amount of new information that Evar had sent. He asked if they could meet to discuss how they might filter what he really needed to see. There were so many documents that it was impossible. For them to do more than simply scan to the list. Of what was at the office. More insane shenanigans. You're not gonna believe what I'm about to read to you.

54:53 You're just not gonna believe it. He has this, he builds his match palace in Stockholm, right? He sets up at his office. So he's got a desk, you have a visitor. It's like oh this is great. I'm meeting one of the the wealthiest and most famous businessmen on the planet. And that's what he was at this point, right? He's in this giant mansion. This match palace, right?

55:12 He's sitting on the other side of the desk, and you notice next to his desk is a little table. On the table. It's three telephones. The middle phone Was fake.

55:21 It was a non working phone. That Evar could cause to ring by stepping on a button under the desk. He used it for two purposes. One If you're visiting him and he wants to get you h You'll step on the button.

55:34 It rings like oh sorry, like I have another visitor, I have to take this call. The second thing that he would do is let's say he has a a uh he had like Percy Rockefeller in his office, right? He's got very famous uh like s important people. Impressive people he wants to impress. He press the button.

55:49 He's literally taking fake phone calls. The phone would ring he'd pick up and he would pretend to receive call from various European government officials. including Benito Mussela Mussolini and Joseph Stalin. That's not it. It's not this is not over. Are you like But wait till we hear get to what's next.

56:06 That evening. He threw a lavish party and introduced Rockefeller to numerous ambassadors, and I put ambassadors In quotation marks. Ambassadors from various countries. Who actually were movie extras that he had hired for the night. This guy's got fake phone calls and hired actors.

56:22 What is that? I don't think I've ever read a book like this. And so the longer this goes on, the more questions happen. The more questions happen, the higher the bills go. This is how And why

56:35 His auditor winds up becoming an accomplice, and he doesn't ever get in trouble for this, by the way. And the reason that the auditor at Ernst and Ernst that AD Burning never said anything is exactly what happened. The Ernst Brunning the Ernst brothers who run the firm that he works for. Told burning. That they had an important matter to discuss with him after seven years You've already become one of the firms

56:54 Biggest clients and burning deserve the credit. You are now resident Partner. Mrs. Burning certainly was proud of her husband. Now they could afford a new apartment. at fortieth Fifth Avenue in Greenwich Village. They could afford a new social circle as well.

57:09 The Burnings joined several of New York's Most prestigious societies. And so remember this only works if the companies keep growing and if he can keep tapping the markets. All this Is gonna fall apart.

57:22 And it is absolutely remarkable, the timing is remarkable because He's gonna do his biggest deal ever. He's like, I'm gonna loan I'm gonna get a German match monopoly. I'm gonna loan the German government a hundred and twenty five million dollars. He does not have a hundred and twenty five million dollars to lend. This is October twenty ninth, while he's doing this. This is the craftest thing. I know I keep saying that'cause it's a crazy story. While he's signing this deal, the stock market is closed. due to panic. This is going to be the largest decline in stock in US stock market history.

57:48 At the same weekend. He's signing the biggest deal of his life. And I think this is just great writing. I'm gonna read this paragraph to you. On Saturday Evar met again with the finance minister in Berlin to finalize terms.

58:00 As he held the pen about to sign the loan documents, he considered the two paths his life might follow as a result of his decision. This audacious deal might be the miracle that would reverse the darkening psychology of investors everywhere. Think about how grandiose you have to think about yourself if you think that's even possible. Eivar imagined the buzz spreading about His extraordinary weekend feet.

58:21 When the New York Stock Exchange opened on Monday, his securities would store in value. The rising tide of optimism would make it possible. For him to raise more cash. and shift his personal loan obligations to American investors. With any luck by the close of trading Monday, the worst would be over.

58:39 That was one possibility Evar could imagine, the alternative. The crisis would continue or even deepen Was unthinkable. He couldn't bear to consider what would happen if If the market free for all

58:52 Continued. What a line this is. Evar's greatest triumph was immediately followed by the most spectacular two day decline. In the history of financial markets. This time There would be

59:05 No Recovery. Warren Buffett once said that you don't know who's swimming naked until the tide goes out. That's a just great description of what's taking place here. Now he's shut off from the capital markets. His bankers are suspicious now.

59:16 Nothing's mad adding up. His auditor Uh is suspicious. Durant his main banker Lee Higginson is constantly requesting meetings. He's like, Look, there's just too many coincidences here. And slowly but surely all these financial institutions

59:29 Or cutting them off. Uh, for some banks, such as National City, these coincidences were too much and they stopped dealing in Eivar's securities entirely. Another bank credit suisse. declared Evar a very dangerous person. and said it would not lend to any of his companies. Evar finally conceded

59:46 That he could not afford to pay shareholders. of Swedish match, Evar's companies would soon be in default. If Evar goes down, so does the bank Lee Higginson. So two of the partners go to Evar's apartment in New York to try to see what's going on. He's in a full collapse and breakdown. They are let in. Says although it was midday he was wearing yellow silk pajamas.

1:00:08 He's babbling, he's acting like a madman, they call a doctor. Doctor Wheelwright diag diagnosed cardia fatigue. He prescribed some sedatives. During the next three days, Evar would cycle through episodes of mania and depression. When the drugs were working, he would simply sit and stare into space. When the medication were off, he would stand and shout. I'm losing my mind. I can't remember. I can't think. He imagined knocks at the door.

1:00:29 He answered the phone even though it hadn't rung. And then he collapsed. You know what I thought of? By this time I'm at The end of the book.

1:00:37 I think it's more fakery. I think he's completely acting. No no doubt he was under stress. He's gonna wind up shooting himself. But this mania, this like I can't remember, I'm losing my mind being in pajamas. I don't trust it for a second. This is the same guy that would sit in a room and practice lines for supposed to be casual conversations.

1:00:55 That has a fake phone that carries on fake phone conversations, that hires actors and introduces you to him at parties. Saying this ambassador from Germany. The guy that made rubber stamps of every single government official signature that he ran across. They got it forge documents.

1:01:11 The guy that made up numbers on the fly. That's the same guy that is babbling like a idiot in the middle of the day, sitting in his pajamas. Now I I think I I think he's faking it. That would be my guess. Shortly after he's summoned, he's gotta go to this meeting with all these bankers and investors in Paris. As soon as he gets back there from America. One of his executives, one of the people that works with him is like, Hey, the Swedish government's investigating you. They're investigating your personal and business finances.

1:01:35 They've already got search warrants. They collected many of your important documents. Auditors are already scouring our books. That was the night before this very important meeting. They are supposed to have a meeting at this hotel with all these bankers at eleven AM the next day. That guy leaves

1:01:50 Ivor at six ock that night, летер that same night. The night before he's supposed to meet. These bankers investors at eleven AM. He walks into a gun shop in Paris and buys a gun. And a bunch of ammunition.

1:02:03 The next day in this hotel in Paris, a dozen anxious men are pacing the floor. Well, Eivar's employees are assuring that everyone that Evar would be there soon. But Oscar Rydbeck and Donald Durant were concerned. These are his two main bankers. Because it was the first time they could remember Evar being late. After several hours, a few of them go to Ivar's Paris apartment, they enter the bedroom, and they see a man lying flat on his back.

1:02:27 There was blood on his left wrist and a red stain on his shirt. They shoute he is not sleeping, he's dead. On the bedside table were three sealed personal notes One of them said, I made such a mess of things that I believe this is the most satisfactory solution for everybody concerned. They rushed back to the hotel to tell the bankers that Evar Kroger had committed suicide.

1:02:49 Evar's death confirmed everyone's worst fears about the man and his finances. The investment bankers from Lee Higginson Which had sponsored Evar for a decade were dismayed. Soon Lee Higginson, one of the most prestigious investment banks of the era. Would file bankruptcy.

1:03:05 And the partners would be ruined. George Murname, the senior partner Later told investigators what he thought when he heard the news. I suddenly knew That we had all been idiots.

1:03:17 And that is where I'll leave it for the full story. I highly recommend reading the book. I've already given the book as a gift to one friend already. I think the story is incredible and very unique. And if you buy the book using the link that's in the show notes on your podcast player are available at founderspodcast.com. You'll be supporting the podcast at the same time. That is three hundred and forty eight books down, one thousand to go.

1:03:37 And I'll talk to you again soon. Okay, so I have three things to tell you about real quick. Stick around if you can. I think you'll find this interesting, and there's some deals for you that are not available anywhere else. And so the first one is highly gonna recommend if you don't or if you aren't doing so already, to subscribe to Founders Notes. Founders Notes is the personal tool that I have built. It's what I use to make the podcast. It contains all my every single note. Highlight. And all the transcripts for every single book and episode that I've ever done.

1:04:01 And the way I would describe it, there's a bunch of different ways to use it, but there's two ideas that I think I actually have around this. And so one, it actually came from something that Charlie Munger said, the entire reason that founders knows exist is because he said that learning from history is a form of leverage. And I think Founders Notes is a tool that enables you to do so. He said, I read Barron's magazine for fifty years. In fifty years, I found one investment opportunity in Barron's, out of which I made about eighty million dollars with almost no risk. I took the eighty million and gave it to Lee Lu, who turned it into four hundred or five hundred million dollars. So I have made four hundred or five hundred dollars four hundred or five hundred million dollars.

1:04:36 Reading Barons for fifty years and following one idea. And so if you subscribe to Founders Notes, you can read my notes and highlights on a different book every single day. And over the lifetime of your career, the idea that you're not gonna find one idea in there that's not additive and helpful and actually improves the odds of your success in business is the probability of that's as close to zero as possible. And when I reread that note about Charlie saying that he made four or five hundred million dollars from one idea reading this magazine for fifty years. I was thinking about a few weeks ago when I did that Tarantino episode. Uh if if you listen to that

1:05:07 And even if you didn't, I guess I can tell you. Tarantino had this like historical database in his head. Of the entire movie, the history of the entire movie industry, because he was obsessed with films. He says, he has this great line in that book. He's like, I didn't go to film school, I went to films. And the reason it was important because it was in his head is one He could call on and use he can call on that information that's in his head and then use it

1:05:28 in his work later on. And so there's many examples in that episode. Right, where he's talking about, Hey, I saw this movie You know, nineteen seventies, and I took that exact scene or a principle from that or an idea from that scene. And For this movie I made in

1:05:41 The nineteen nineties or in two thousand. There's exact scenes in Kill Bill. that first appeared in a movie that he saw thirty years ago. And so I use this all the time. Let me give you an example. It's from this episode that you just listened to. There's multiple times where there's something's happening in a book that I was like, wait, this is like something else. And so I just um got off the phone. I had a Zoom with the team at ReadWise, because I'm I built this part product in partnership with ReadWise. I've been using ReadWise since twenty eighteen. I you know, I mentioned it, you can go back and listen to past episodes and talk about how great this app is. Had no idea they'd be partnering with them. Go on other people's podcasts, talk about it. But There was a multiple time so the the reason I bring that up

1:06:15 Is because Th there's a lot of different ways to use uh founders' notes. There's a lot of different features in there. And so I just want to highlight one of'em. uh that I don't think I talk about enough. And essentially it's just this giant database that you can search anytime you want. For the collective knowledge of history's greatest entrepreneurs.

1:06:31 And it happened because How many Did uh the importance of incentives and understanding the superpower that incentives So

1:06:41 I just talked to the team Readwise, they just updated the keyword search in founders' notes. It is Super fast now. And so we were talking about that yesterday. And I noticed it because this week so I I type in let me give a sample real world example. I would type in power of incentive. So actually I'm gonna do this with you live, okay? So what you do is when you're when you subscribe to Founders Notes and if you already have subscription, try this, okay?

1:07:05 So when once you log into founders notes, you'll see search highlights, right? And in that box, it's the very top page, I put in Power. of incentives. I press enter.

1:07:17 Two seconds later. It's showing me It shows you Anytime sentences has been mentioned, either in a note, a highlight, Or on the podcast, because it searched the transcripts too. So within that two seconds, founders notes searched, and then the left column it'll show you every single book or episode.

1:07:33 It found the word power of incentives or incentives from one two, three, four, five, six, seven, eight, nine, ten, eleven, twelve, thirteen, fourteen, fifteen, sixteen, seventeen, eighteen, nineteen, twenty twenty twenty two, twenty three, twenty four twenty five, twenty six, twenty seven, if I'm counting correct, twenty seven different Instances. Inside of those instances.

1:07:51 It's sometimes multiple times I mentioned it. So in this oh my God, I haven't done this episode in years. John Bogle. Uh it's mentioned twice in that book. Same thing happened. When I search now this is the remarkable thing, right? This is why I think it's a tool that Uh if you're gonna invest.

1:08:07 a lot many, many hours and listening to Founders. This allows you to like there's gonna be something you hear in the podcast and you're like, Damn I David said that like What was that months from now? Well, if you have access to founders' notes, you just search it and you find it. Like that's it. That's valuable. That's worth a hundred times the cost right there. But

1:08:24 I was blown away. Buy Just this The horrible position that Evar Kroger put himself in. So I just searched Debt. That is the one key word I put in. Debt.

1:08:33 The first thing that pulls up f so again, it pulls up I can't even count. There's like Thirty books. I don't even know how many. But the first thing it pulls up It's Henry Ford. In this book today and tomorrow.

1:08:43 And he's talking about it's a The the note I left myself on the highlight is what a powerful warning to be Lerry of Debt from Henry Ford. And I'm rereading this highlight. And then I'm like, Wait a minute. First of all. I didn't remember him saying that.

1:08:55 When did I do this? It's from the book today and tomorrow. You know where this is from? It's from episode eighty. I published episode eighty on July fourteenth, two thousand nineteen. That is the superpower right there. I remember reading the book. I made the podcast on it. I'm sure I've re read the highlights.

1:09:12 But I didn't remember this exact thing and I wouldn't have. If I didn't have access to this tool. So if you're interested and if you're already running a successful company, I would buy the lifetime version because that means not only do you get access to every note, highlight, every feature that I've done. Everything I've done in the past, you could for every future note, every future highlight, every f the ability to f search every future transcript.

1:09:31 Any additional features? I ever add. And this is a living breathing tool for me. I'm building the tool for myself. So I'm always gonna be constantly updating it. It's embedded in my workflow. So to do that, you go to foundersnotes.com. That is founders with an ass, just like the podcast, foundersnotes.com. Second thing I wanna tell you about is I'm working on So think about it. I sit in between

1:09:51 Uh a bunch of killer entrepreneurs, investors, business nerds. And then a bunch of people listening to the podcast I've become friends with are also building products and services. For Businesses. And so I'm building this out. It'll eventually be on my website. I will let you know when it's

1:10:06 um when it's finished. But Essentially I'm going around. This is this is also is related to why I'm doing events. And this this idea that comes up over again, that relationships run the world. So I am going to Friends of mine. Right, that I've built relationships with.

1:10:21 that I talk to on the phone, that I text, that I have dinner with. That I go on walks for. All of them listen to the podcast. And I'm going to them saying, Hey, I wanna build it's it's I don't think it's up there yet, but it'll be on my website. You'll it'll be a party under like deals or something like that. I'll let you know when the name.

1:10:37 uh when I do it. But essentially I'm saying, hey, you're building a service, like we have a good relationship. You love the podcast. Uh you're building a service that is valuable to the people that listen to founders. I want you. I'm finagling them. I'm Groom. collaring them in a in a as nicely as w possible way. Right, I will talk about your product and service.

1:10:57 In return, and I'm gonna build this directory of people that are doing this, and it's already been Like I I already have a ton I haven't even talked to you about yet. And in return I want you to give them a deal that is a discount that is not available anywhere else.

1:11:11 It cannot be just your standard, you know, oh like no no, it cannot be standard. It has to be special. And so There's only there's two I want to talk about real quick. One is in direct relation to a main theme of the podcast you just listened to. So my friend Eric Jorgensen is He he how I met him. Uh in addition he in addition to being a fan of founders. He wrote one of my favorite books, which is the Almanac and Naval Rabakon. I think it's like episode one ninety one or something like that.

1:11:35 When he wrote that book, he was a customer of Scribe, he used Scribe media. To publish. That book. He is now CEO of that company and part owner of that company. He sold well over a million copies of that book. And so the reason it relates to

1:11:50 What we just went over it's like it mentioned the fact that Evar Did something really smart, which is he made it a point to become well known, because becoming well known helped serve his business. Like the his needs in business. Now, obviously, we don't want to run Ponzi schemes and all that stuff, but the actual concept behind it's really smart. In fact, when I sat down So that was one of the things when I had lunch with Sam Zell before shortly before he died. That's one of the things he said to me because we were talking about some of his business

1:12:16 obviously he sold a company, you know, for thirty eight billion dollars, but he was talking about some of the best investments he ever made be came because he was writing op eds in he was a well before he was a national and world renowned entrepreneuri. He was uh w relatively well known and famous inside of uh Chicago. And the way he built his audience in Chicago was he would write op eds in newspapers. As a result of that, he was invited to make an investment in The Chicago Balls.

1:12:43 And so he was making the point to me. that the bigger your podcast gets, the more well known your you become. Like you're going to have Opportunities presented to you. That wouldn't have come otherwise if you didn't have the platform that you have. And so recently I went to teach at I was invited to teach at Harvard Business School.

1:12:58 So if I teach at Columbia business school and Notre Dame too, but at Harvard business school I was like, listen, I employ you. I implore you, rather. Please, like you guys are doing so much research, so much learning. You have not only your main curriculum at Harvard Business School, but all the learning you're doing. Just organize that. It doesn't matter if it's a newsletter, I do it in a podcast. Write a book you need to be easy to interface with.

1:13:19 And so what scribe media does and the reason I'm telling you about it is because there's a t all Think about all the founders, investors, executives, consultants, all these other professionals that are that are listening to founders, right? You have domain specific knowledge. you just haven't found a way to put it to organize it and then put it out there so you're easy to interface with. Scribed Media essentially will do what they'll do is like they have a bunch of different services. Anywhere from like if you want to write a book and you want like a like essentially like a co writer, like a guided author, they have three main things that I think are that you'd be interested in. And you go to scribedia.com forward slash founders to look at all this. Guided author. Scribe professional and then scribe elite ghostwriting.

1:13:57 Scribe has already produced twenty three New York Times and Wall Street Journal bestsellers. Their programs are designed for entrepreneurs, consultants, executives, and other professionals. And so when I talk to Eric about this idea, this is not like a high margin business, but he gave you discounts that are available nowhere else. And so I'll list them down below. A thousand dollars off of Guided Author,$1,000 off of Scribe Professional, and$1,000 off of Scribe elite ghostwriting.

1:14:21 So at ScribMedia.com forward slash founders. The link will be in the show notes as well. And then the last thing is Vesto. I know the founder of uh Vesto, it's Vesto.com, V E S T O, V isn'Victor, E is an egg, S is in San Sunra. T is in Tom, O is an Oprah. Dotcom Ben is giving founders, listeners, five hundred dollars off.

1:14:42 And this product was actually pulled out of Ben. Because Ben's main business was helping businesses, whether you're bootstrapped or venture funded. get a better return on their idle cash and then All these listeners, the founders were scheduling a demo because you actually talked to Ben, and a bunch of these people had the same problem, which is like, Hey, I own a ton of different companies. These companies have bank bank accounts at different banks, sometimes in different countries.

1:15:07 Can you please make a dashboard so I can actually see all of my company's financial accounts in one view? So if you have that problem, go to Vesto.com, schedule a demo. Tell Ben David from Founder sent you. And he will give you five hundred dollars off. I will have a lot more deals to announce in the future and then I'll put them all in or they're already in one organized place. It's just not public yet.

1:15:26 But once that is public, I will let you know. Thank you very much for listening. Thank you very much for the support and I'll talk to you again soon.

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