1. Ok, so let's talk about Michael Milken. Why does he matter? Milken is in many ways the organizer of modern politics and the Democratic Party. Trump just pardoned him. He runs the most important conferences in finance. Clinton almost pardoned him. nytimes.com/2000/12/09/us/…
2. Part of Goliath is on monopolies, but part is on the war over finance. When democracy falters, Wall Street becomes the private government of our economy. That's what Milken did, restore the political primacy of Wall Street over democracy. simonandschuster.com/books/Goliath/…
3. The New Deal in the 1930s did to break the backs of financiers whose job was to organize either monopolies like U.S. Steel or General Motors, or to self-deal when they could not. It's very much like hedge funder Jeff Bezos creating Amazon vs Softbank/JP Morgan creating WeWork.
4. "Today, banks stand like harpies, watching until a client shows signs of illness, and then rushing in to force him into liquidation. The bank then takes a hand in reorganizing the concern, makes a profit, and puts some of its men on the new directorate." Ernest Hopkins, 1932
5. Much of the power of the robber baron class came not from technical innovation or business savvy, but by being able to gamble with other people's money. That's how JP Morgan restructured and 'Morganized' most of corporate America in the early 1900s.
6. The New Deal broke the power of the oligarchs. They broke up banks, broke up public utility companies, broke up aerospace companies, and they regulated and shrank Wall Street dramatically. From 1929-1950, the New York Stock Exchange hired eight floor traders. Total.
7. Jokes were common. "Banks offer an opportunity to an educated, personable, but uncourageous young man for a pleasant, interesting, and dignified life." As one businessman put it, encountering a Yale grad at a bank in the 1950s, you had to speak "very slowly."
8. This changed in the 1960s, with conglomerates serving as the arm of the great banking houses. I go into the mechanics of how, but it was political trench warfare between Wright Patman and the cosmopolitan progressive Walter Wriston of Citibank. simonandschuster.com/books/Goliath/…
9. Patman ended up breaking up dozens of banks in the early 1970s with amendments to the Federal Bank Holding Company Act, but that was the last hurrah for the New Deal.
10. The Reagan administration got rid of antitrust under Robert Bork and the Democrats, under John Kenneth Galbraith's influence, basically fell in line. But if you couldn't get a bank loan, you couldn't buy companies. Enter Michael Milken.
11. Milken invented a myth about himself, that he was a genius who understood that certain bonds of companies who had gone under, so-called 'fallen angels,' over-performed the regular bond market. These bonds got a name. Junk banks.
12. Milken started issuing new junk bonds, for sketchy corporate raiders like Carl Icahn, Mushulam Ricklis, Victor Posner. Basically today's Jeff Epstein crew and/or those who run private equity. But when other banks tried to mimic him, their bonds defaulted. How did he do it?
13. He was a genius! A mastro! A philosopher king! Los Angeles Mayor Tom Bradley called him "that man of genius, that man of courage, that man of vision, that man of conviction." Democrats Tim Wirth, Bill Bradley, Ted Kennedy came to his conferences. Bob Rubin was in his world.
14. He could raise a billion dollars with a letter. A pledge from Milken was like gold. His bonds never defaulted. And he did, helping raiders buy up old economy companies, load them up with debt, eliminate their R&D. He began the destruction of our mid-size manufacturing base.
15. The truth was, as Paul Romer and George Akerloff noted in Looting: The Economic Underworld of Bankruptcy for Profit, Milken just cheated. He ran an economy-wide Ponzi scheme for fifteen years until it crashed in the late 1980s. brookings.edu/bpea-articles/…
16. Milken was stuffing losses into mutual funds, insurance corporations, and savings and loans banks backed by the taxpayer. In other words, he was gambling with other people's money. That's why no one could match his default rates. They were fake.
17. The way Milken gained control of these pots of other people's money was he gave favors to the people who ran those funds by letting them into outside partnerships that profited based on inside information on the deals he organized.
18. Milken also financed many top Democrats, including Tony Coelho, who ran the DCCC and eventually had to resign when he was caught with $100,000 junk bond from Milken's company. Coelho went to Wall Street and chaired Gore's campaign in 2000.
19. Without any real enforcement of white collar crime laws or bank regulations, Milken changed corporate America fundamentally. His bank invented the golden parachute, so CEOs would stop resisting the mass looting.
20. Old-line corporate America fell apart. Goodyear, under attack from a raider, sold its energy and aerospace divisions, cut research, capital investment, laid off workers and bought back its own stock. "In the long run," said one executive, "We destroyed wealth."
21. By the time he went to jail in the late 1980s, a jail sentence that was almost accidental, America was different. In just one year, from 1984-1985, 398 of the 950 largest companies restructured out of fear of corporate takeovers. They loaded up with debt.
22. Milken did finance some risky companies like CNN and MCI, which were important. But those were incidental According to Ben Stein, Milken's bank, Drexel, issued $220 billion in debt, with losses to investors/taxpayers of between $40 billion to $100 billion. That's a legacy.
23. Since he pled guilty, Milken has been aggressively trying to get rid of the stain on his reputation. He is beloved among the old finance set, and among certain old politicians. I talked to Democrat Tim Wirth, and he lauded Milken creating CNN.
24. In many ways, the Drexel alums who run many of our giant private equity firms control America. Trump is very much surrounded by them, and he himself used junk bonds in the 1980s though I don't know if Milken did his deals.
25. Michael Milken represented a counter-revolution in America, a return to control of our society by men like JP Morgan's and Andrew Mellon's. They were explicit at Drexel in their goal to restore, in their own words, robber barons. simonandschuster.com/books/Goliath/…
26. Today, Trump is President, and the Democrats are intertwined with the financial model called private equity that Milken created. And Milken is still doing what he does best. wsj.com/articles/hundr…
