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A classic lesson in how markets are made.
rehypothecating - strads? yes, it's all in there.
The great Stradivarius swindle
. . .
Machold qualified as a lawyer before joining his father's violin business in the early 1980s. It was clear that his talents lay less in the violin maker's craft than in financial speculation. Roger Hargrave, a respected violin maker who from 1981 helped Machold expand the Bremen firm, which became an empire with branches around the world, recalls it as a heady experience.
'It was dynamic and fun to be a part of,' he says. 'I was handling Strads, Amatis, Guarneris on a daily basis. I would fly to Boston to fit a sound-post, to Budapest to cut a bridge, and be driven through Checkpoint Charlie in a diplomatic car to East Berlin's North Korean embassy to adjust the odd Strad or two. Dietmar was a wizard in his own field: making, working with and moving money. He could have sold carpets and done the same kind of deals. It did not surprise me when he began to open shops all over the world.' But eventually Hargrave declined Machold's offer of a partnership. 'By 1984 I began to see things that were very unsettling. There were too many overnight trips to Switzerland with unmarked briefcases.' In 1986 Hargrave left to start his own business.
. . .
Fitzgerald became uneasy when Machold telephoned him to ask about the bank's response to his proposals. 'He was talking conspiratorially, businessman to businessman. I asked for proof that a fine violin was a prime investment. What if the market went down or demand declined?' Fitzgerald says. He recalls Machold's answer. 'He said, "I make the prices of Stradivaris. They go up when I make them go up. The other dealers all follow me."' Asked to justify valuations far in excess of the market, Machold retorted, 'I have contacts in every orchestra in the world and can produce the necessary documents. I know them all well. They will all accept my valuations, even higher ones.'
. . .
rehypothecating - strads? yes, it's all in there.
The great Stradivarius swindle
. . .
Machold qualified as a lawyer before joining his father's violin business in the early 1980s. It was clear that his talents lay less in the violin maker's craft than in financial speculation. Roger Hargrave, a respected violin maker who from 1981 helped Machold expand the Bremen firm, which became an empire with branches around the world, recalls it as a heady experience.
'It was dynamic and fun to be a part of,' he says. 'I was handling Strads, Amatis, Guarneris on a daily basis. I would fly to Boston to fit a sound-post, to Budapest to cut a bridge, and be driven through Checkpoint Charlie in a diplomatic car to East Berlin's North Korean embassy to adjust the odd Strad or two. Dietmar was a wizard in his own field: making, working with and moving money. He could have sold carpets and done the same kind of deals. It did not surprise me when he began to open shops all over the world.' But eventually Hargrave declined Machold's offer of a partnership. 'By 1984 I began to see things that were very unsettling. There were too many overnight trips to Switzerland with unmarked briefcases.' In 1986 Hargrave left to start his own business.
. . .
Fitzgerald became uneasy when Machold telephoned him to ask about the bank's response to his proposals. 'He was talking conspiratorially, businessman to businessman. I asked for proof that a fine violin was a prime investment. What if the market went down or demand declined?' Fitzgerald says. He recalls Machold's answer. 'He said, "I make the prices of Stradivaris. They go up when I make them go up. The other dealers all follow me."' Asked to justify valuations far in excess of the market, Machold retorted, 'I have contacts in every orchestra in the world and can produce the necessary documents. I know them all well. They will all accept my valuations, even higher ones.'
. . .