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Question:
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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