Should Milken be pardoned?

The legal case against Michael R. Milken, the Drexel's head of the junk bond department who made over a half-billion dollars in a single year, effectively ended in 1990. As part of a plea bargain arrangement, he pled guilty to six counts of violating U.S. security laws. He subsequently served 22 months in a federal prison, paid $1.1 billion in fines and settlements and, in 1992, was released on parole in 1992.

There is less satisfactory closure to the economic revolution he engineered. At the time, the investment banking establishment described his principal instrument junk bonds, which were a kind of equity investment disguised as a bond, as "corporate swill." While less charitable editorial writers called it nothing short of a Ponzi Scheme that would bring about economic ruin. But despite this ranting against them, junk bonds not only survived, they became a staple of the establishment's corporate financing.

In retrospect, Milken was no ordinary financier. In a few years in the late seventies and early eighties, he changed the financial world in a way that no one else had done since J.P. Morgan. To begin with, he destroyed the dam of traditional restraints that had effectively penned in huge a reservoir of capital in a highly-restricted bond market. Up until then, it had served principally as a source of funds for Fortune 500 and utility companies.

Milken, through his junk bonds, was able to channel this money into new hands. The most visible result of this breach was that it allowed corporate raiders to challenge the hold of established management had on corporate America, arousing great enmity. A more subterranean effect was that it gave non-traditional entrepreneurs, especially those with novel technologies, the wherewithal to lay the groundwork for a radically new system of global communications.

Milken's junk bonds, in this mode, funded MCI's construction of the single-mode fiber-optic network. They funded Corning Glass' conversion from a producer of glass and ceramic kitchenware to a global source of fiber optic fiber. They funded McCaw's creation of a national wireless telephone system. They funded TCI, Viacom, Time Warner, Cablevision Systems and Turner development of cable networks. By doing so, they forced other telecommunications to build similar resources. The result was a system for delivering information that led to unprecedented productivity in other industries and paved the way for the new economy. After suffering the slings and arrows of outrageous fortune and journalism, Milken deserves recognition for his vision: Why not at least a symbolic Presidential pardon.

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