Payback: The Conspiracy to Destroy Michael Milken and his Financial Revolution

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Return to Book Page. Preview — Payback by Daniel R. A law professor and economist charges that Michael Milkin, Drexel Burnham, and other Wall Street wheeler-dealers, whose strategies actually helped to reform the market, were wrongfully prosecuted by a nervous corporate establishment. Get A Copy.

Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution

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Sep 21, Lonnie rated it it was ok Recommends it for: financial history buffs. The book tries to defend Milken's practices while defaming his accusers.

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I found it boring but maybe because I didn't believe the author's case that Milken was a naive nerd who just wanted to give the small players a shot at the big time. Jon Hill rated it it was amazing Jun 28, Kevin Purfield rated it it was amazing Feb 27, Jerry rated it did not like it Jun 27, Gilson Landry S.

Brasil rated it liked it Sep 26, Ilyn Ross rated it it was amazing Jul 12, Tj rated it it was amazing Dec 27, Ethan rated it really liked it Oct 14, Jeremy Vogan rated it liked it Jan 01, Pravin rated it it was amazing Dec 14, Fateme added it Sep 09, Financial conditions in the United States in the s set the stage for the success of the junk-bond market. The collapse of the Bretton Woods system of fixed exchange rates see foreign exchange resulted in an upward spiral of inflation and interest rates.

By the mids, three decades of interest rate stability came to an abrupt end, and short-term borrowing costs doubled in less than two years.


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At the same time, two oil shocks and a recession sent stock prices into a two-year slide that reduced the market value of U. Banks curtailed lending to all but the largest and highest-rated companies, and as yields in the open market rose above government-set interest-rate ceilings on bank deposits, funds flowed out of the banking system into money market accounts.

"Payback: The Conspiracy to Destroy Michael Milken and the Financial Re" by Daniel R. Fischel

From these circumstances, the contemporary high-yield securities market emerged. But these other debtors can protect themselves with debt covenants see bonds that give them certain rights when junk bonds are issued in a recapitalization or merger transaction. The market for new-issue junk bonds dramatically reopened for business in when Bear Stearns and Company underwrote the first new-issue junk bond in decades. Soon thereafter, Drexel Burnham brought the debt of seven below-investment-grade companies to market.

By more than one-third of all corporate bond issues were noninvestment grade. Today, the junk-bond market, by most definitions, exceeds half a trillion dollars. This explosive growth had several causes.

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High-yield bonds were extremely attractive for borrowers, as they had lower interest rates and greater liquidity than private placements, and they imposed fewer restrictions on the actions of the borrowers restrictive covenants than either loans or private placements. The value of high-yield bonds to investors, moreover, was strengthened by the research of W. Braddock Hickman, Thomas R. Atkinson, Orin K. Burrell, and others, who discovered that below-investment-grade debt earned a higher risk-adjusted rate of return than investment-grade bonds.

In other words, the interest rate that premium junk bonds offered more than compensated investors for the added risk of default. Michael Milken trumpeted these insights to both his investor customers and entrepreneurs seeking growth capital, with stunning success. The companies Milken financed with these bonds created millions of new jobs between the s and s. As well as financing innovation , junk bonds allowed firms and industries in distress to restructure and increased efficiency through the market for corporate control.

Junk bonds financed the successful restructuring of numerous manufacturing firms, including Chrysler, and funded consolidations in a host of industries.

Payback: Conspiracy to Destroy Michael Milken and His Financial Revolution, The

During this period, yields averaged This period ended by , when a politically driven campaign by Rudolph Giuliani and financial competitors that had previously dominated corporate credit markets against the high-yield market resulted in a temporary market collapse and the bankruptcy of Drexel Burnham. Almost overnight, the market for newly issued junk bonds disappeared, and no significant new junk issues came to market for more than a year.

Investors lost 4. The market rebounded sharply in with positive total returns of a stunning 40 percent. The s saw the market mature with increased emphasis by traders and investors on risk and portfolio management.

Junk bonds left the controversy of the s behind and became just another, albeit rather profitable, asset class. Default rates fell from their and highs From to , the market returned an average of 15 percent annually. From to , difficulties in the telecom industry, combined with the general downturn in U. The average default rate for this short period was 9. Indeed, was a record year for defaults and bankruptcies, but the number of defaults decreased dramatically in The high-yield market recovered from this downturn as the telecom defaults became a thing of the past and the U.

The default rate in was 4. At the same time, the total rate of return for these years was 29 percent and Despite external shocks to the market, such as the bankruptcy of Drexel Burnham, two wars in Iraq, three recessions, and the disruption of markets following the September 11, , terrorist attacks, the new-issue and secondary markets recovered, issuers continued to tap the market, and institutional buyers returned.

The continuing strength of the junk-bond market is based on linking the U. A discussion of the junk-bond era of the s would be incomplete without at least a brief exposition of the legal case involving Michael Milken. Press accounts at the time promoted the view that Milken had committed serious crimes. But there was nothing illegal about the use of junk bonds per se.