The Golden Age of Junk

Highly Confident: The True Story of the Crime and Punishment of Michael Milken

by Jesse Kornbluth
Morrow, 384 pp., $23.00

A License to Steal: The Untold Story of Michael Milken and the Conspiracy to Bilk the Nation

by Benjamin J. Stein
Simon and Schuster, 219 pp., $23.00

The First Junk Bond: A Story of Corporate Boom and Bust

by Harlan Platt
M.E. Sharpe, 236 pp., $21.95 (paper)

King Icahn: The Biography of a Renegade Capitalist

by Mark Stevens
Dutton, 326 pp., $23.00

Den of Thieves

by James B. Stewart
Touchstone, 587 pp., $12.00 (paper)

Nightmare on Wall Street: Salomon Brothers and the Corruption of the Marketplace

by Martin Mayer
Simon and Schuster, 272 pp., $23.00

High Yield Bonds: Issues Concerning Thrift Investments in High Yield Bonds, 3/2/89, GGD-89-48

General Accounting Office
51 pp., free, $2.00 each additional document

The Predators’ Ball: The Inside Story of Drexel Burnham and the Rise of the Junk-Bond Raiders

by Connie Bruck
Penguin, 399 pp., $8.95 (paper)

Michael Milken was released from prison to a halfway house on January 4, 1993, after serving twenty-two months in jail for securities fraud and other crimes. His original ten-year sentence was reduced in 1992, because he cooperated, although only in a small way, with the government investigation. A month later, he was released from the halfway house to his home in Encino, California, where he remained under a “home confinement program” until his final release on March 2. He is required to perform community service for three years while on probation and has been working in a drug prevention program in Los Angeles public schools and has lectured at UCLA. He is now exploring the possibility of forming an educational cable-television network. At a dinner this April to raise funds for his foundation to cure prostate cancer, from which he suffers, Milken received a message from President Clinton who said how “impressed” he was by Milken’s “energy.”

The story of Milken’s early life is by now well known and differs little in the many accounts that have appeared. He was raised in a middleclass Jewish family in the San Fernando Valley. He was a good student, active in student government, a cheerleader who was elected prom king. While still in his teens, he resolved to become a millionaire by the time he was thirty, and he spent the mid-Sixties as a business major at Berkeley, aloof from the political and social currents of the time. An active member of his fraternity, he invested money for friends and fraternity brothers, absorbing all losses and keeping 50 percent of the profits. By 1970, two years after graduating from Berkeley, Milken had already decided what he wanted to do. In an op-ed piece, submitted to (and rejected by) The New York Times, he wrote: “Unlike other crusaders from Berkeley, I have chosen Wall Street as my battleground for improving society. It is here that the government’s institutions and industries are financed.”

He became fascinated with lowgrade or “junk” bonds while still an undergraduate, after reading W. Braddock Hickman’s 1958 study Corporate Bond Quality and Investor Experience. Junk bonds are securities that receive a low (below “investment-grade”) rating from Moody’s or Standard & Poor’s, the two major investment rating agencies. They are not backed by company assets comparable to those of investment-grade bonds or by comparable cash flow. They also are traded in less liquid markets. If the company that issues them is successful, their yields are much higher than for investment-grade corporate bonds or government bonds, but the risk of default or non-payment is also considered to be high by the rating agencies. Still, Hickman and his National Bureau of Economic Research colleagues’ study of corporate bonds sold in the United States from 1900 to 1943 had found that a portfolio of these high-risk bonds usually outperformed the higher-rated, “safer” securities, “if the list is large and held over a long period.” They also cautioned that these …

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