Michael Milken

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Liar's Poker by Michael Lewis

barriers to entry, Bear Stearns, Bonfire of the Vanities, business cycle, Carl Icahn, cognitive dissonance, corporate governance, corporate raider, disinformation, financial independence, financial innovation, fixed income, Glass-Steagall Act, Home mortgage interest deduction, interest rate swap, Irwin Jacobs, John Meriwether, junk bonds, London Interbank Offered Rate, low interest rates, margin call, Michael Milken, mortgage tax deduction, nuclear winter, Ponzi scheme, risk free rate, The Predators' Ball, yield curve

Reports of the magical sums of money to be made working for Michael Milken trickled back into Salomon and made us drool. One Salomon middle executive left to join Milken in Beverly Hills in 1986. In his third month on the new job he found an extra hundred thousand dollars in his weekly paycheck. He knew it wasn't bonus time. He assumed Drexel's accountants had made a mistake. He told Milken. "No," said Milken, "it is no mistake. We just want to let you know how happy we are with the job you are doing." Another former Salomonite told of his first bonus with Michael Milken. Milken handed him several million dollars more than he expected.

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"Soon you'll be offering free lipstick samples with every purchase of bonds more than a million dollars, which means I will own a lot of lipstick," he said, then hung up. Why was a lipstick merchant coming after us? The most intriguing answer was that it wasn't his idea. Perelman's bid could easily be seen as a hate bomb lobbed at John Gutfreund by Drexel's junk bond king, and Perelman's true backer, Michael Milken. Milken often lobbed hate bombs at people who treated him badly. And Gutfreund had treated him badly. In early 1985 Milken had visited our offices for a breakfast meeting with Gutfreund. It started with Milken growing angry because Gutfreund refused to speak to him as an equal. It ended in a shouting match, with Milken being escorted from the building by a security guard.

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One of my former fellow trainees who had gone to work for Milken told me that, of the eighty-five who staffed the Beverly Hills Office, "Twenty to thirty are worth ten million dollars or more, and five or six have made more than a hundred million." Whenever a newspaper printed an estimate of Milken's paycheck, apparently, the entire Beverly Hills office of Drexel had a chuckle at how low it was. My friend and others with him told me that Milken was worth more than a billion dollars. Still, you had to wonder what gave Michael Milken greater pleasure, making a billion dollars or watching Gutfreund squirm as one of his biggest clients, Ronald Perelman, stalked Salomon Brothers. "I know Michael, and I like Michael," says Lewie Ranieri, who had been fired by Gutfreund two months before (and now appeared like the Ghost of Christmas Past).

The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the JunkBond Raiders by Connie Bruck

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alvin Toffler, Bear Stearns, book value, Carl Icahn, corporate raider, diversified portfolio, Edward Thorp, financial independence, fixed income, Future Shock, Glass-Steagall Act, Irwin Jacobs, junk bonds, Michael Milken, mortgage debt, offshore financial centre, Oscar Wyatt, paper trading, profit maximization, Tax Reform Act of 1986, The Predators' Ball, yield management, Yogi Berra, zero-coupon bond

Richard Sandler, who had been Lowell’s close friend when they were growing up and had attended UC Berkeley and UCLA Law School with him, also joined and functioned as Michael Milken’s personal attorney. Cambrent would be located at Drexel—adjacent to Milken’s trading floor, in fact. But it would have no relationship to Drexel. And its very existence would underline the utter separatism of the Milken operation. Lowell Milken was the technician with the green eyeshade, the administrator of the empire. But he would also be his brother’s closest adviser and probably his sole confidant. His office was shouting distance from Michael Milken’s desk in the center of the trading floor. Friends of both say that Michael trusted his brother to do the equity analysis that he did not have time to do himself.

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Feelgood 3: Transformation 4: Merge with Mike 5: The Cloister at Wilshire and Rodeo 6: The Air Fund PART TWO: Pawns Capture Kings 7: Triangle–National Can: Kingmaker 8: Icahn-TWA: From Greenmailer to Manager-Owner 9: Pantry Pride–Revlon: The Crucial Campaign PART THREE: The Zenith—and the Fall 10: “Drexel is like a god . . .” 11: Proven Prophet—So Far 12: Milken’s Money Machine 13: The Enforcer 14: Sovereign Privileges 15: Boesky Day 16: The Center Cannot Hold 17: The Humbling Acknowledgments Index FOR ARI SCHLOSSBERG Prologue: The Ball IN THE third week of March 1985, the faithful, fifteen hundred strong, came to Beverly Hills to pay homage to Michael Milken, the legendary junk-bond guru of Drexel Burnham Lambert whom many of his followers called simply “the King.” For the next four days, they would savor the world he had created for them. By five-thirty each morning, an armada of about one hundred limousines glided into position around Beverly Hills.

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The only way for them to borrow money was in short-term loans from banks or in private placements with insurance companies, which carried covenants so restrictive that they made the money almost not worth having. Then, one day, Drexel’s investment bankers had come knocking at the door. Drexel would underwrite their bonds, low-rated though they were, for the public marketplace. Michael Milken, a most extraordinary junk-bond trader, could raise $50 million, $100 million or more—the kind of long-term, relatively covenant-free capital that was available to these companies nowhere else. All they had to do was pay the price: a high yield to the investors, and an enormous fee to Drexel.

Den of Thieves by James B. Stewart

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Bear Stearns, Black Monday: stock market crash in 1987, book value, Carl Icahn, corporate raider, creative destruction, deal flow, discounted cash flows, diversified portfolio, fixed income, fudge factor, George Gilder, index arbitrage, Internet Archive, Irwin Jacobs, junk bonds, margin call, Michael Milken, money market fund, Oscar Wyatt, Ponzi scheme, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, South Sea Bubble, Tax Reform Act of 1986, The Predators' Ball, walking around money, zero-coupon bond

., New York Stephen Hammerman, general counsel Richard Drew, vice president, compliance Major investors Carl Icahn, corporate raider and future chairman of TWA John Mulheren, head of Jamie Securities Henry Kravis, principal, Kohlberg Kravis Roberts Inc. At Wachtell, Lipton, Rosen & Katz, New York (counsel for Goldman, Sachs) Martin Lipton, partner Ilan Reich, partner Lawrence Pedowitz, partner At Paul, Weiss, Rifkind, Wharton & Garrison, New York (counsel for Michael Milken and Dennis Levine) Arthur Liman, partner Martin Flumenbaum, partner At Williams & Connolly, Washington, D.C. (counsel for Michael Milken) Edward Bennett Williams, partner Robert Litt, partner At Cahill, Gordon & Reindel, New York (counsel for Drexel Burn-ham) Irwin Schneiderman, partner Thomas Cumin, partner At Fried, Frank, Harris, Shriver & Jacobson, New York and Washington (counsel for Boesky) Harvey Pitt, partner Leon Silverman, partner At Mudge Rose Guthrie Alexander & Ferdon, New York (counsel for Siegel; later at Fried Frank) Jed Rakoff, partner Audrey Strauss, partner At Robinson, Lake, Lerer & Montgomery, New York (public relations advisors for Michael Milken) Linda Robinson, partner Kenneth Lerer, partner At the United States attorney's office.

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(counsel for Michael Milken) Edward Bennett Williams, partner Robert Litt, partner At Cahill, Gordon & Reindel, New York (counsel for Drexel Burn-ham) Irwin Schneiderman, partner Thomas Cumin, partner At Fried, Frank, Harris, Shriver & Jacobson, New York and Washington (counsel for Boesky) Harvey Pitt, partner Leon Silverman, partner At Mudge Rose Guthrie Alexander & Ferdon, New York (counsel for Siegel; later at Fried Frank) Jed Rakoff, partner Audrey Strauss, partner At Robinson, Lake, Lerer & Montgomery, New York (public relations advisors for Michael Milken) Linda Robinson, partner Kenneth Lerer, partner At the United States attorney's office. New York Rudolph Giuliani, U.S. attorney Benito Romano, deputy to Giuliani, future U.S. attorney Charles Carberry, assistant U.S. attorney, future head of fraud unit Bruce Baird, assistant U.S. attorney, future head of fraud unit John Carroll, assistant U.S. attorney Jess Fardella, assistant U.S. attorney At the Securities and Exchange Commission, Washington, D.C.

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As Kathy waited for the ticker to resume its account, Siegel felt his almost perfect world collapsing. Everything he had worked for all his life. His $3.5 million compensation and his $2 million bonus he earned when he moved to Drexel from Kidder, Peabody & Co. earlier that year. The astoundingly lucrative mergers-and-acquisitions practice he was melding with Michael Milken's junk-bond money machine. The blue-chip clients, like Martin Marietta, Goodyear, and Lear Sie-gler, that were now flocking to use Drexel's and his services. The house on the beach in Connecticut, with its own tennis courts and swimming pool. The four-bedroom cooperative apartment in Manhattan's exclusive Gracie Square.

Sabotage: The Financial System's Nasty Business by Anastasia Nesvetailova, Ronen Palan

Alan Greenspan, algorithmic trading, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Bernie Sanders, big-box store, bitcoin, Black-Scholes formula, blockchain, Blythe Masters, bonus culture, Bretton Woods, business process, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, critique of consumerism, cryptocurrency, currency risk, democratizing finance, digital capitalism, distributed ledger, diversification, Double Irish / Dutch Sandwich, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, gig economy, Glass-Steagall Act, global macro, Gordon Gekko, high net worth, Hyman Minsky, independent contractor, information asymmetry, initial coin offering, interest rate derivative, interest rate swap, Joseph Schumpeter, junk bonds, Kenneth Arrow, litecoin, London Interbank Offered Rate, London Whale, Long Term Capital Management, margin call, market fundamentalism, Michael Milken, mortgage debt, new economy, Northern Rock, offshore financial centre, Paul Samuelson, peer-to-peer lending, plutocrats, Ponzi scheme, Post-Keynesian economics, price mechanism, regulatory arbitrage, rent-seeking, reserve currency, Ross Ulbricht, shareholder value, short selling, smart contracts, sovereign wealth fund, Thorstein Veblen, too big to fail

‘Stars of the Junkyard’, Economist, 21 October 2010, www.economist.com/briefing/2010/10/21/stars-of-the-junkyard. 5. W. Cohan, ‘Michael Milken invented the modern junk bond, went to prison, and then became one of the most respected people on Wall Street’, Business Insider, 2 May 2017, http://uk.businessinsider.com/michael-milken-life-story-2017-5?r=US&IR=T. 6. ‘Stars of the Junkyard’, Economist. 7. Cohan, ‘Michael Milken invented the modern junk bond’. 8. ‘Stars of the Junkyard’, Economist. 9. Cohan, ‘Michael Milken invented the modern junk bond’. 10. Insights for this section come from the best story written about the role of Ranieri personally and Salomon Brothers as an institution: Michael Lewis’s Liar’s Poker: Two Cities, True Greed, Hodder and Stoughton, 1989. 11.

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Only we would add that if we have learned anything in the past four decades, it is that financial innovation includes the sabotage not only of governments but also of clients and competitors. It is this unique ability to combine all three of the qualities John Tuld lists to his board that seems to ensure really big money. THE KING OF JUNK In the early 1980s a certain Michael Milken invented what became known as the ‘junk bond’; or, more elegantly, the high-yield bond. Junk bonds are considered among the most important innovations in twentieth-century finance. Their creator, Michael Milken, would be widely celebrated by the industry. Eventually Milken’s efforts would afford him residency of an exclusive gated community in California, better known as the Bay Area Prison. On the surface, Milken’s idea appeared innocuous enough.

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., ‘Former Bear Stearns boss Jimmy Cayne blames conspiracy for bank’s collapse’, Guardian, 5 May 2010, www.theguardian.com/business/2010/may/05/bear-stearns-boss-denies-blame [accessed 23 June 2017. CNN, ‘ICO Scams Have Raised More Than $1 Billion, Report Claims’, 19 May 2018, www.ccn.com/ico-scams-have-raised-more-than-1-billion-report-claims. Cohan, W., ‘Michael Milken invented the modern junk bond, went to prison, and then became one of the most respected people on Wall Street’, Business Insider, 2 May 2017, http://uk.businessinsider.com/michael-milken-life-story-2017-5?r=US&IR=T. Cohan, William D., House of Cards: How Wall Street’s Gamblers Broke Capitalism, Allen Lane, 2009, pp. 244–53. Commons, J. R., Institutional Economics, vol. 1: Its Place in Political Economy, Transaction Publishers, 1990.

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

Andrei Shleifer, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, collapse of Lehman Brothers, compensation consultant, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Michael Milken, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, the new new thing, The Predators' Ball, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

The next chapter shows how the looting of the S&Ls metastasized into the market for junk bonds in the beginning of our new age of greed. Soon-to-be-bankrupt S&Ls played a significant role in the expansion of the market for junk bonds, which underlay hostile takeovers of even the largest firms—previously deemed impossible. TEN Michael Milken Phishes with Junk Bonds as Bait The work of one man, Michael Milken, in the 1970s and 1980s changed the face of US finance forever. No longer could corporate executives of large US corporations be confident that their companies were too big to be challenged by corporate raiders threatening hostile takeovers because now the raiders could acquire even very large companies without putting up much capital.

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. ∞ Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 CONTENTS PREFACE vii INTRODUCTION Expect to Be Manipulated: Phishing Equilibrium 1 PART ONE Unpaid Bills and Financial Crash CHAPTER ONE Temptation Strews Our Path 15 CHAPTER TWO Reputation Mining and Financial Crisis 23 PART TWO Phishing in Many Contexts CHAPTER THREE Advertisers Discover How to Zoom In on Our Weak Spots 45 CHAPTER FOUR Rip-offs Regarding Cars, Houses, and Credit Cards 60 CHAPTER FIVE Phishing in Politics 72 CHAPTER SIX Phood, Pharma, and Phishing 84 CHAPTER SEVEN Innovation: The Good, the Bad, and the Ugly 96 CHAPTER EIGHT Tobacco and Alcohol 103 CHAPTER NINE Bankruptcy for Profit 117 CHAPTER TEN Michael Milken Phishes with Junk Bonds as Bait 124 CHAPTER ELEVEN The Resistance and Its Heroes 136 PART THREE Conclusion and Afterword CONCLUSION: EXAMPLES AND GENERAL LESSONS New Story in America and Its Consequences 149 AFTERWORD The Significance of Phishing Equilibrium 163 ACKNOWLEDGMENTS 175 NOTES 181 BIBLIOGRAPHY 233 INDEX 257 PREFACE It’s “the economy, stupid!”

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But, contrary to most economic thinking, new ideas and technical innovation do not invariably yield economic progress; some of them, instead, give new ways to phish for phools. Chapter 8: Tobacco and Alcohol. The preface began with Mollie and her addictive gambling. Gambling and drugs, and especially tobacco and alcohol abuse, are huge threats to our well-being. For many, many people, those threats are realized. Chapter 9: Bankruptcy for Profit, and Chapter 10: Michael Milken Phishes with Junk Bonds as Bait. We will revisit financial markets. We will see, from the US savings and loan crisis of the late 1980s, how seemingly small deviations from standard financial accounting (a form of information phish) can be remarkably consequential. Chapter 11: The Resistance and Its Heroes.

Panderer to Power by Frederick Sheehan

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, book value, Bretton Woods, British Empire, business cycle, buy and hold, California energy crisis, call centre, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversification, financial deregulation, financial innovation, full employment, Glass-Steagall Act, Greenspan put, guns versus butter model, inflation targeting, interest rate swap, inventory management, Isaac Newton, John Meriwether, junk bonds, low interest rates, margin call, market bubble, Mary Meeker, McMansion, Menlo Park, Michael Milken, money market fund, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, Norman Mailer, Northern Rock, oil shock, Paul Samuelson, place-making, Ponzi scheme, price stability, reserve currency, rising living standards, Robert Solow, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, savings glut, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, stock buybacks, stocks for the long run, supply-chain management, supply-chain management software, The Great Moderation, too big to fail, transaction costs, trickle-down economics, VA Linux, Y2K, Yom Kippur War, zero-sum game

He bought the stock from Lindner’s American Financial Corporation, which had accumulated 19 percent of Gulf Broadcast shares.18 In Securities Markets in the 1980s, Barrie Wigmore wrote that Carl Lindner and Saul Steinberg “ran small insurance companies and dealt repeatedly in borderline investment tactics.”19 In Wigmore’s opinion, the evolution of the pair’s “activities illustrates the combination of native cunning and access to leverage that made them effective.”20 Regarding the relationship of Lindner and Steinberg, Wigmore wrote: “[i]t is tempting to conclude they also represented a cabal, who worked through Michael Milken’s group.”21 14 Ibid., p. 167. 15 Ibid., p. 173. 16 Seidman, Full Faith and Credit, pp. 235–236. 17 Mayer, Greatest-Ever Bank Robbery, p. 174. 18 Ibid. 19 Barrie A. Wigmore, Securities Markets in the 1980s, vol. 1 (New York: Oxford University Press, 1997), p. 360. 20 Ibid., p. 356. When Seidman was appointed to head the Resolution Trust Corporation (RTC)—the agency created to resolve problems in the S&L industry—he faced a mystery: why was the heaviest financial carnage among the largest holders of junk bonds sold by Michael Milken? These included Lincoln; Centrust Savings Bank of Miami, Florida; and Columbia Savings and Loan of Beverly Hills, California.

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Integrated Resources, a financial services company that seemed to dabble in everything, but specialized in selling tax shelters and absorbing Drexel Burnham issues, met its maker on June 13, 1989. That was the day when no bank would roll over its commercial paper. It was also the day that Michael Milken resigned from Drexel.28 The daisy chain that had bloomed from the X-shaped desk in Los Angeles was withering.29 In fact, it started to gasp for water in late 1988 when Drexel Burnham Lambert agreed to settle insider trading investigations. Early in 1989, Michael Milken was indicted on 98 counts of fraud and racketeering. The market had been flooded with worthless paper: junkbond issues rose from $2 billion in 1980 to over $200 billion issued in 1988.

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Luckily for Greenspan, his nomination preceded the public denouement of Lincoln Savings and Loan and of Charles Keating. Greenspan had been hired by Keating to persuade the Federal Home Loan Bank of San Francisco that Lincoln was in good shape. Greenspan succeeded even though Lincoln was one of Michael Milken’s top three junkbond customers among savings and loans (S&Ls).25 The rise of Milken—and of Greenspan—was attuned to the hectic financialization of America in the 1980s. “Maximizing shareholder value” turned out to be a veil for loading corporate balance sheets with debt, a much cheaper and faster route to growth than from retained profits.

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "World Economic Forum" Davos, Bear Stearns, Bernie Madoff, Carl Icahn, Donald Trump, Fairchild Semiconductor, family office, fear of failure, financial deregulation, hiring and firing, income inequality, junk bonds, light touch regulation, locking in a profit, margin call, Market Wizards by Jack D. Schwager, medical residency, Michael Milken, mortgage debt, p-value, pets.com, Ponzi scheme, proprietary trading, rent control, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, Skype, The Predators' Ball

Aizer had negotiated to keep 50 percent of the trading profits his team made, which added up to millions of dollars a month. They moved into a larger office adjacent to Gruntal’s trading floor to accommodate all the new traders being hired. Many of them came from Drexel Burnham Lambert, where Michael Milken worked, which had developed a reputation for training aggressive traders. Even in the bigger space, though, there was a disproportionate number of men with volcanic tempers squished together so tightly that they were practically on top of one another. Cohen and the rest of Aizer’s employees couldn’t have chosen a more opportune moment to begin a career in finance.

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Days before, he and his traders had all watched in horror as Drexel’s top mergers and acquisitions banker, Dennis Levine, was arrested and charged with orchestrating a massive insider trading scheme by paying off lawyers and bankers to leak him information about takeovers and other deals. The Levine arrest was just the beginning of the unraveling of Michael Milken’s junk bond empire, an unprecedented series of prosecutions that would dominate news headlines for months. The SEC accused Levine of accumulating $12.6 million in illegal profits and froze all his assets, preventing him from paying his legal bills. Around 6 P.M. on June 5, 1986, the same day that Levine pleaded guilty to tax evasion, securities fraud, and perjury and agreed to help the Justice Department by providing evidence against others committing crimes on Wall Street, Cohen arrived at 26 Federal Plaza, at Broadway and Worth Street, wearing his best suit.

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The company employees were supposed to share only information that was publicly available, to avoid breaking any laws. Or at least that was the idea. By the 2000s, after years of regulatory scrutiny, most traders had become more careful about sensitive mergers and acquisitions information. The Michael Milken case had taught traders to avoid buying shares of companies right before takeovers were announced; big price movements in stocks right before takeovers were announced often drew the attention of the SEC. Still, investors were desperate for information that might provide them with an advantage, and they went to a lot of effort to get it.

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

Philipp Meyer (2009) American Rust, Simon & Schuster, London: 348. 20. Quoted in Anders, Merchants of Debt: 74. 21. Quoted in Baker and Smith, The New Financial Capitalists: 82. 22. Connie Bruck (1988) The Predators’ Ball: How Michael Milken and his Junk Bond Machine Staked the Corporate Raiders, Simon & Schuster, New York: 37. 23. Benjamin J. Stein (1992) A License to Steal: The Untold Story of Michael Milken and the Conspiracy to Bilk the Nation, Simon & Schuster, New York: 24, 25. 24. Sobel, Dangerous Dreamers, John Wiley, New York: 99. 25. Stein, A License to Steal: Chapter 9. 26. Sobel, Dangerous Dreamers: 187–91. 27.

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Andrew Smithers and Stephen Wright (2000) Valuing Wall Street: Protecting Wealth in Turbulent Markets, McGraw-Hill, Illinois. Robert Sobel (1993) Dangerous Dreamers: The Financial Innovators from Charles Merrill to Michael Milken, John Wiley, New York. Andrew Ross Sorkin (2009) Too Big To Fail: Inside the Battle to Save Wall Street, Allen Lane, London. Benjamin J. Stein (1992) A License to Steal: The Untold Story of Michael Milken and the Conspiracy to Bilk the Nation, Simon & Schuster, New York. James B. Stewart (1992) Den of Thieves, Simon & Schuster, New York. Joseph Stiglitz (2002) Globalisation and its Discontents, Penguin Books, London.

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Under an agreement with the government, Drexel pleaded nolo contendere (no contest) to six felonies and paid a record fine of $650 million. In March 1989, Milken was indicted and left the firm. In February 1990, Drexel filed for bankruptcy. National Treasure The Wall Street Journal stated: Not since J.P. Morgan has any financier influenced Wall Street and the nation the way Michael Milken has.... Not surprisingly, Mr. Milken, 42, aroused the fear and loathing of industrialists whose companies fell to his onslaughts or seemed likely candidates for his attention. He was “the most important financier of the century.”46 In its August 1985 article, Forbes considered that Milken “isn’t just a step ahead of his Wall Street peers—he’s a quantum leap ahead, acting as venture capitalist, investment banker, trader, investor.”47 Milken’s activities entailed inherent conflicts of interest.

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire by Sujeet Indap, Max Frumes

Airbnb, Bear Stearns, Blythe Masters, book value, business cycle, Carl Icahn, coronavirus, corporate governance, corporate raider, Credit Default Swap, data science, deal flow, Donald Trump, family office, fear of failure, financial engineering, fixed income, Jeffrey Epstein, junk bonds, lockdown, low interest rates, Michael Milken, mortgage debt, NetJets, power law, ride hailing / ride sharing, Right to Buy, Robert Solow, Savings and loan crisis, shareholder value, super pumped, Travis Kalanick

The central figure in the Caesars brawl was, however, absent from the room. Apollo Global Management had been one of the two principal private equity firms who had acquired the storied casino chain in 2008. Apollo was defined by two traits: genius and impunity. The firm was co-founded by Leon Black, Michael Milken’s right-hand man at Drexel Burnham Lambert. Milken had famously invented the junk bond market in the 1980s. After Milken’s fall from grace, Black, in 1990, had formed Apollo to exploit the imploding debt markets that Milken and Drexel themselves had wrought. Over its twenty-five-year existence, Apollo’s hallmark had become discerning opportunity where no one else dare tread and then striking deals everyone else was too timid to make.

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The Roman antiquity theme was to play to guests’ urges for hedonism and decadence. Caesars Palace would be built with Teamsters money and, notwithstanding ties to organized crime, Sarno’s vision would quickly become the most famous casino in the world. Ironically, Caesars, when it was independent, found itself in the middle of the Michael Milken criminal proceedings. The junk bond king had been accused by the federal government of insider trading in Caesars bonds where his firm, Drexel Burnham Lambert, was leading a debt restructuring of the company in the 1980s. In the summer of 2004, Harrah’s announced it would acquire the newly re-christened Caesars Entertainment—which would give it not just Caesars but Bally’s, the Flamingo, and the Paris hotel—for $9 billion.

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But Drexel’s wild ride of the previous decade had ended with an abrupt thud. On February 13, Drexel filed for Chapter 11 bankruptcy protection after pleading guilty to six counts of securities and mail fraud a year earlier—the fallout of the sprawling and spectacular white-collar crime spree masterminded by its larger-than-life banker, the so-called “junk bond king,” Michael Milken. Milken himself was facing ninety-eight counts of insider trading, securities fraud, and racketeering related to accusations of massive self-dealing while running the Drexel junk bond unit. In his five years at Drexel, Rowan established himself as an uncommonly sharp thinker on finance. After graduating from Wharton with both an undergraduate and MBA degree in 1985, he’d been hired as a junior investment banker, a position which involved plugging numbers into spreadsheet models and drafting investment memos.

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Albert Einstein, anti-communist, asset allocation, Bear Stearns, beat the dealer, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bletchley Park, Brownian motion, buy and hold, buy low sell high, capital asset pricing model, Claude Shannon: information theory, computer age, correlation coefficient, diversified portfolio, Edward Thorp, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, Henry Singleton, high net worth, index fund, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, John Meriwether, John von Neumann, junk bonds, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Michael Milken, Myron Scholes, New Journalism, Norbert Wiener, offshore financial centre, Paul Samuelson, publish or perish, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ronald Reagan, Rubik’s Cube, short selling, speech recognition, statistical arbitrage, Teledyne, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, traveling salesman, value at risk, zero-coupon bond, zero-sum game

They can make sure trades are executed quickly and offer attractive rates. A broker can also pass on information ranging from research reports to rumors. The important thing was that the broker be someone of unquestioned honesty and discretion. Regan found someone who seemed just about perfect. His name was Michael Milken. Michael Milken IN HIS OWN WAY, Milken founded his career on the less-than-perfect efficiency of the market. As a Berkeley business student, Milken came across a study by W. Braddock Hickman on the bonds of companies with poor credit ratings. Hickman determined that a diversified portfolio of these neglected bonds was in fact a relatively safe and high-yielding investment.

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Thorp once met Milken’s attorney brother, Lowell, who had an office in the same Beverly Hills building and who handled Michael’s legal affairs. Thorp’s closest approach to Michael Milken, however, was seeing him across Drexel’s Beverly Hills trading floor—behind a pane of glass. In the early 1970s, Steve Ross and Caesar Kimmel believed that it might make sense to take Warner Communications private. They wanted to buy back most of the stock issued, limiting ownership to the few biggest shareholders. To get the necessary money, Warner Communications would have to issue junk bonds. Ross asked Michael Milken for advice. Milken devised a plan and met with Ross in New York to discuss it.

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. • Private Wire • Minus Sign PART TWO: BLACKJACK Pearl Necklace • Reno • Wheel of Fortune • More Trouble Than an $18 Whore • The Kelly Criterion, Under the Hood • Las Vegas • The First Sure Winner in History • Deuce-Dealing Dottie • Bicycle Built for Two PART THREE: ARBITRAGE Paul Samuelson • The Random Walk Cosa Nostra • This Is Not the Time to Buy Stocks • IPO • Bet Your Beliefs • Beat the Market • James Regan • Resorts International • Michael Milken • Robert C. Merton • Man vs. Machine • Why Money Managers Are No Good • Enemies List • Widows and Orphans PART FOUR: ST. PETERSBURG WAGER Daniel Bernoulli • Nature’s Admonition to Avoid the Dice • Henry Latané • The Trouble with Markowitz • Shannon’s Demon • The Feud • Pinball Machine • It’s a Free Country • Keeping Up with the Kellys • Though Years to Act Are Long • All Gambles Are Alike • A Tout in a Bad Suit • My Alien Cousin PART FIVE: RICO Ivan Boesky • Rudolph Giuliani • With Tommy Guns Blazing • The Parking Lot • Welcome to the World of Sleaze • Ultimatum • Princeton-Newport Partners, 1969–88 • Terminator • The Only Guy on Wall Street Who’s Not a Rat PART SIX: BLOWING UP Martingale Man • Kicking and Screaming • I’ve Got a Bad Feeling About This • Thieves’ World • Fat Tails and Frankenstein • Survival Motive • Eternal Luck • Life’s Rich Emotional Experiences PART SEVEN: SIGNAL AND NOISE Shannon’s Portfolio • Egotistical Orangutans • Indicators Project • Hong Kong Syndicate • The Dark Side of Infinity Notes Bibliography Acknowledgments Prologue: The Wire Service THE STORY STARTS with a corrupt telegraph operator.

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

Abraham Maslow, accounting loophole / creative accounting, Alan Greenspan, AOL-Time Warner, Asian financial crisis, bank run, Bear Stearns, book value, Bretton Woods, business cycle, capital controls, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Glass-Steagall Act, Greenspan put, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Bogle, John Meriwether, junk bonds, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, low interest rates, market bubble, Mary Meeker, Michael Milken, minimum wage unemployment, MITM: man-in-the-middle, Money creation, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, scientific management, shareholder value, short selling, Silicon Valley, Simon Kuznets, tail risk, Tax Reform Act of 1986, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

The time was driven by the prospects of riches on Wall Street—and finance determined business strategy. Welch made GE into a bank; he did not save American business. Seven years later, the banks in America nearly collapsed. 13 Michael Milken “THE MAGNIFICENT” In the poor economy of the 1970s and the early 1980s, financing for risky companies was especially difficult to raise. A young, independent-minded man, Michael Milken, stepped into the breach to provide money for many of these kinds of companies, and later in the 1980s became the key financier of among the largest takeover contests of the decade. In doing so, he became by far the richest man on Wall Street at his peak, almost single-handedly creating and controlling a $200 billion market for junk bonds—the high-interest-paying debt of risky companies.

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Ronald Reagan The Making of an Ideology 8. Ted Turner, Sam Walton, and Steve Ross Size Becomes Strategy 9. Jimmy Carter Capitulation 10. Howard Jarvis and Jack Kemp Tapping the Anger 11. Paul Volcker, Jimmy Carter, and Ronald Reagan Revolution Completed Two THE NEW GUARD 12. Tom Peters and Jack Welch Promises Broken 13. Michael Milken “The Magnificent” 14. Alan Greenspan Ideologue 15. George Soros and John Meriwether Fabulous Wealth and Controversial Power 16. Sandy Weill King of the World 17. Jack Grubman, Frank Quattrone, Ken Lay, and Sandy Weill Decade of Deceit 18. Angelo Mozilo The American Tragedy 19. Jimmy Cayne, Richard Fuld, Stan O’Neal, and Chuck Prince Collapse Epilogue Notes Acknowledgments Index Illustration Credits A Note About the Author Other Books by This Author Introduction This book starts with a relatively unknown man named Lewis Uhler, a Southern Californian, who, like his father before him, hated the New Deal.

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Several other firms besides Goldman, including Salomon, had both large merger banking departments and aggressive arbitrage departments. Commercial banks, with funds to lend, due partly to Walter Wriston’s aggressive maneuvers, became generous lenders to companies making bids, especially since they could charge handsome interest rates and high fees per loan. In the 1980s, Michael Milken almost single-handedly developed the junk bond market—where the bonds of riskier companies traded—which was used to finance the largest takeovers to that point. In the 1980s, Boesky hit jackpots in the oil mergers in which giant firms like Conoco, General America, Gulf, and Phillips Petroleum were bought for billions of dollars each.

All the Money in the World by Peter W. Bernstein

Albert Einstein, anti-communist, AOL-Time Warner, Bear Stearns, Berlin Wall, Bill Gates: Altair 8800, book value, call centre, Carl Icahn, Charles Lindbergh, clean tech, Cornelius Vanderbilt, corporate governance, corporate raider, creative destruction, currency peg, David Brooks, Donald Trump, estate planning, Fairchild Semiconductor, family office, financial engineering, financial innovation, George Gilder, high net worth, invisible hand, Irwin Jacobs: Qualcomm, Jeff Bezos, job automation, job-hopping, John Markoff, junk bonds, Larry Ellison, Long Term Capital Management, Marc Andreessen, Martin Wolf, Maui Hawaii, means of production, mega-rich, Menlo Park, Michael Milken, Mikhail Gorbachev, new economy, Norman Mailer, PageRank, Peter Singer: altruism, pez dispenser, popular electronics, Quicken Loans, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Sand Hill Road, school vouchers, Search for Extraterrestrial Intelligence, shareholder value, short squeeze, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, SoftBank, stem cell, Stephen Hawking, Steve Ballmer, Steve Jobs, Steve Wozniak, tech baron, tech billionaire, Teledyne, the new new thing, Thorstein Veblen, too big to fail, traveling salesman, urban planning, wealth creators, William Shockley: the traitorous eight, women in the workforce

These two sectors, more than any others, represented “Oklahoma” in the money rush of the last twenty-five years. More traditional fields for making big money, such as oil and manufacturing, grew at a much slower rate. In the 1980s, as the chapter on finance, Beyond Wall Street, chronicles, corporate raiders dominated the news, with Michael Milken (the so-called junk bond king) becoming the financial poster boy of his generation. Milken and other leveraged buyout (LBO) players would, in the popular phrase, “unlock” the value of the American corporation; typically, they would buy a company with borrowed money and then sell off some of its pieces and ruthlessly streamline others until they repaid their debt and made back their investment many times over.

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The founders of these largely unregulated pools of capital funds pay themselves a managing fee and whatever percentage of fund profits the market will tolerate; and the market, not surprisingly, tolerates just about anything if the fund still offers a good return. The founders of hedge funds were not known, as a group, for a modest assessment of their own talents. In 2006 the highest-paid founder13 of a hedge fund was James H. Simons. His paycheck was $1.7 billion. If Michael Milken symbolized the emergence of new financial fortunes, Bill Gates, the founder of Microsoft, played that part for the tech revolutionaries—and, unlike Milken, he has remained a powerhouse over the last twenty-five years. He joined the list in 1986 and has been number one since 1994. His fortune now equals14 the combined GDP of eleven African countries (Burundi, Niger, Ethiopia, Tanzania, Central African Republic, Lesotho, Liberia, Namibia, Sierra Leone, Malawi, and the Congo), with a population totaling 226 million.

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Craig began investing in cellular licenses from the outset, buying pops for as little as $6 each, at a time when the business was so new that few people were thinking about it. But as cellular grew27, so did the cost of acquiring the pops. The bill for licenses ran into hundreds of millions of dollars. Throughout the 1980s McCaw bought hundreds of thousands of pops, aided by junk bonds issued by junk-bond king Michael Milken. (See Chapter 8, Beyond Wall Street.) McCaw began by building a cellular network on the West Coast; but it soon became obvious that he needed a national network. After he sold Twin City Cablevision in 1987, McCaw was free to devote even more time to his cellular plans and to plow ever-greater sums into the acquisition of pops.

King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, asset allocation, banking crisis, Bear Stearns, Bonfire of the Vanities, business cycle, Carl Icahn, carried interest, collateralized debt obligation, corporate governance, corporate raider, credit crunch, deal flow, diversification, diversified portfolio, financial engineering, fixed income, Future Shock, Gordon Gekko, independent contractor, junk bonds, low interest rates, margin call, Menlo Park, Michael Milken, mortgage debt, new economy, Northern Rock, risk tolerance, Rod Stewart played at Stephen Schwarzman birthday party, Sand Hill Road, Savings and loan crisis, sealed-bid auction, Silicon Valley, sovereign wealth fund, Teledyne, The Predators' Ball, éminence grise

On the debt side of the LBO equation, U.S. banks flush with petrodollars from oil-rich clients in the Middle East and Japanese banks eager to grab a piece of the merger business in the States began building their presence and pumping huge sums into buyout loans. At the same time, a new form of financing emerged from the Beverly Hills branch of a second-tier investment bank. The brainchild of a young banker there named Michael Milken, the new financing was politely called high-yield debt but was universally known as the junk bond, or junk for short. Until Milken, bonds were the preserve of solid companies—the sort of companies that investors could feel confident would pay off their obligations in installments steadily for ten or twenty or fifty years.

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Both shared a view that corporate America was riddled with inefficiencies. (“We don’t have assistants to assistants anymore,” the chairman of Owens-Illinois told Fortune magazine in 1988, the year after KKR bought the glass and packaging company. “In fact, we don’t have assistants.”) The fact that both groups had developed symbiotic relationships with Michael Milken ensured that they would be lumped together in the public’s consciousness. True or not, the image of LBO artists as a pernicious force on the corporate landscape was being permanently etched. Egged on by the corporate establishment and labor unions, Congress explored ways to combat hostile takeovers and junk bonds.

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It forged an abiding tie between Blackstone and Chemical Bank’s Jimmy Lee that would be of enormous consequence to both. A gregarious spark plug of a man who resembled a back-gelled Martin Sheen and was known for his spiffy silver-dollar suspenders, Lee soon emerged as a kingpin of leveraged finance, a banker’s banker to other LBO luminaries such as Henry Kravis and Ted Forstmann. Just as Drexel Burnham’s Michael Milken had created the junk-bond market, tapping the public capital markets to finance the corporate raiders and buyout shops of the 1980s, Lee reinvented the bank lending market with his syndicates, which allowed risk to be shared and thereby allowed much larger loan packages to be assembled. At Chemical and its later incarnations (Chase Manhattan Bank, the name Chemical adopted in 1996 after buying Chase, and later JPMorgan Chase, after Chase bought J.P.

Three Felonies a Day: How the Feds Target the Innocent by Harvey Silverglate

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Berlin Wall, Home mortgage interest deduction, illegal immigration, Julian Assange, junk bonds, mandatory minimum, medical malpractice, Michael Milken, mortgage tax deduction, national security letter, offshore financial centre, pill mill, Potemkin village, RAND corporation, Ronald Reagan, short selling, Silicon Valley, Steve Jobs, Steven Pinker, technology bubble, urban planning, WikiLeaks

Consider some of the cases that will be discussed in more detail further on in this book: Philip Russell, a lawyer from Greenwich, Connecticut, was indicted in 2007 for obstruction of justice because he destroyed child pornography, despite the fact that child porn is illegal even to possess (“contraband”) and therefore holding, rather than destroying it, arguably would be criminal. Michael Milken, under threat that the Department of Justice would prosecute his younger brother if the older brother did not take a plea bargain, pled guilty in 1990 to a felony that a judge later ruled (in a trial against a Milken cohort) did not constitute a crime. The Department of Justice in 2002 indicted, and then convicted Arthur Andersen & Company, at the time one of the nation’s “Big Five” accounting firms, for obstruction of justice simply because the firm followed its normal document-retention-and-destruction policy before receiving a document-production subpoena in connection with the government’s investigation of Enron Corporation.

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“They’re just cutting me loose,” the doctor lamented. In the Department of Justice’s world of “eat or be eaten,” whoever makes it to the prosecutor’s door first generally gets the deal. There and only there is the “truth” written, or perhaps composed. chapter four Following (or Harassing?) the Money I think often of the prosecution of Michael Milken, the financial genius and guiding star of the brokerage firm of Drexel, Burnham & Lambert. Milken and his firm flowered in the 1970s and ’80s when Milken created a whole new capital market capable of financing daring new ventures that threatened to upset many an old order. But the firm and its visionary leader suddenly crashed and burned at the climax of the Department of Justice’s assault on the “decade of greed” in the late1980s and early-’90s.

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As is so often the case with federal criminal prosecutions, the fabrication consisted, in part, of dubious testimony given by rewarded witnesses, and felony charges for conduct (admitted to by Milken) that, to informed and objective observers, did not appear to constitute crimes. 98 Following (or Harassing?) the Money Michael Milken’s pioneering development of higher-risk, higher-yield corporate bonds (dubbed “junk bonds” by his detractors) gave birth to some of the most important start-up (and, in a real sense, upstart) companies of the decade. Among these were such now well-known challengers to America’s corporate status quo as McCaw Cellular, Barnes & Noble, MCI, and Ted Turner’s Cable News Network (CNN).

Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees by Patrick Dillon, Carl M. Cannon

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", accounting loophole / creative accounting, affirmative action, Alan Greenspan, AOL-Time Warner, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, buy and hold, Carl Icahn, collective bargaining, Columbine, company town, computer age, corporate governance, corporate raider, desegregation, energy security, estate planning, Exxon Valdez, fear of failure, fixed income, Gordon Gekko, greed is good, illegal immigration, index fund, John Markoff, junk bonds, mandatory minimum, margin call, Maui Hawaii, McDonald's hot coffee lawsuit, Michael Milken, money market fund, new economy, oil shale / tar sands, Ponzi scheme, power law, Ralph Nader, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, Silicon Valley, Silicon Valley startup, Steve Jobs, the High Line, the market place, white picket fence, Works Progress Administration, zero-sum game

Then profits continued to drop with fewer referrals and less business. As a result, he calculated a deflated price of $63 million that Lexecon finally sold for on December 31, 1998. He did not tell the jury that the purchaser was his old friend and convicted felon Michael Milken or that he had authored an apologia for Milken in 1995 entitled Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution. Salpeter directed Fischel to recall Milberg Weiss attorney Pat Coughlin’s attempt to discredit him with the trial judge. “After the Apple trial in 1991, California law firms weren’t interested in hiring us anymore,” Fischel told the jury.

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For three decades, as Americans created the greatest gain of wealth in the history of the world, the vengeful, fearless, abrasive, tactically brilliant Lerach had shaken down the “who’s who” of the Fortune 500 list. No one had been immune—not Disney, not Drexel Burnham, not Citibank, Goldman Sachs, Bank of America, Merrill Lynch, Credit Suisse First Boston, Global Crossing, AT&T, Hewlett-Packard, Apple Computer, Exxon, Time Warner, R.J. Reynolds, Arthur Andersen, WorldCom, Enron. Not Michael Milken or T. Boone Pickens. Not Charles Keating, Ivan Boesky, Al Dunlap, Michael Ovitz, Ron Perelman, Bernard Ebbers. Not Kenneth Lay or even Dick Cheney. During those thirty years Bill Lerach, and the firm Milberg, Weiss, Bershad, Hynes & Lerach—for whom he had been the shrewdest and most aggressive legal strategist, its boldest negotiator, its star litigator—returned more than $45 billion in fraud judgments and settlements to millions of shareholders, small and large, and institutional investors—minus his own cut, which was not inconsiderable.

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AT THE TIME HE purchased Lincoln Savings, Charlie Keating pledged to retain Lincoln’s experienced executives and continue its primary business of making home loans. He did not keep this promise. Within months all company officers were replaced by staffers from American Continental, and its home loan programs were gutted. Next, Keating—through Lincoln—purchased $2.7 billion in high-risk junk bonds, mostly from Michael Milken’s Drexel Burnham. These were far riskier waters than Lincoln had ever navigated, and the men at the helm had little experience in such ventures. Meanwhile, not liking the noise Ed Gray was making in Washington, Keating began doling out contributions to key congressional members—nearly half a million dollars in all.

Shaky Ground: The Strange Saga of the U.S. Mortgage Giants by Bethany McLean

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Alan Greenspan, Bear Stearns, collateralized debt obligation, crony capitalism, housing crisis, junk bonds, Michael Milken, mortgage debt, negative equity, obamacare, Pershing Square Capital Management, race to the bottom, Savings and loan crisis

Goldfarb, Washington Post, March 6, 2010. http://www.washingtonpost.com/wp-dyn/content/article/2010/03/05/AR2010030501764.html 106“This paper lays out the Administration’s plan”: “Reforming America’s Housing Finance Market: A Report to Congress,” Department of Treasury and Department of Housing and Urban Development, February 2011. http://www.treasury.gov/initiatives/Documents/Reforming%20America%27s%20Housing%20Finance%20Market.pdf 111“will not be able to earn their way back”: Speech by Ed DeMarco, September 30, 2011. http://problembanklist.com/fhfa-head-says-fannie-mae-and-fred-die-mac-cannot-be-fixed-0407/ 112The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History, by Gregory Zuckerman (Crown Business, 2009). 114“make clear the Administration’s commitment”: “The Untouchable Profits of Fannie Mae and Freddie Mac,” by Gretchen Morgenson, New York Times, February 15, 2014. http://www.nytimes.com/2014/02/16/business/the-untouchable-profits-of-fannie-mae-and-freddie-mac.html 118“Undoubtedly, rosy reporting”: “Revealing Fannie Mae’s and Freddie Mac’s Budget Costs: A Step Toward GSE Elimination,” by Romina Boccia, The Heritage Foundation, March 16, 2014. http://www.heritage.org/research/reports/2014/03/revealing-fannie-maes-and-freddie-macs-budget-costs-a-step-toward-gse-elimination 124“the perpetual conservatorships”: “FHFA’s Permanent Conservatorship Ignores the Law,” by Michael H. Krimminger, American Banker, December 17, 2014. http://www.americanbanker.com/bankthink/fhfas-permanent-conservatorship-ignores-the-law-1071687-1.html 128“Investments in quality education”: “Michael Milken: How Housing Policy Hurts the Middle Class,” by Michael Milken, Wall Street Journal, March 5, 2014. http://www.wsj.com/articles/SB10001424052702304610404579401613007521066 130“While housing usually leads the country out of recession”: “Obama to Outline Proposals to Bolster a Lagging Housing Sector,” by Jonathan Weisman, New York Times, January 7, 2015. http://www.nytimes.com/2015/01/08/us/obama-to-outline-proposals-to-bolster-a-lagging-housing-sector.html 135“four core principles for what I believe reform should look like”: President Obama’s remarks on homeownership, August 6, 2013. https://www.whitehouse.gov/the-press-office/2013/08/06/remarks-president-responsible-homeownership 141“The critical flaws in the legacy system”: Michael Stegman’s remarks, March 5, 2015. http://www.treasury.gov/press-center/press-releases/Pages/jl9987.aspx 142“The housing lobby likes to pretend”: “Life Without Fannie and Freddie,” Wall Street Journal, December 26, 2014. http://www.wsj.com/articles/life-without-fannie-and-freddie-1419635987 147“Housing for housing’s sake”: “Karen Petrou on Mortgages and Medicare,” by Karen Shaw Petrou, Federal Financial Analytics, June 28, 2013. http://www.fedfin.com/blog/1318-karen-petrou-on-mortgages-and-medicare Columbia Global Reports is a publishing imprint from Columbia University that commissions authors to do original on-site reporting around the globe on a wide range of issues.

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This happened after Democrats, frustrated by their inability to confirm nominees, took the dramatic step of eliminating filibusters for most of the president’s nominations. This allowed the administration to appoint Mel Watt, a gracious, charming, liberal Democratic former congressman from North Carolina and a longtime evangelist for homeownership. DeMarco took a position at the Milken Institute, a pro-market think tank run by former junk-bond king Michael Milken. (Right around that time, Milken wrote an op-ed for the Wall Street Journal in which he argued that subsidized mortgages create nothing good. “Investments in quality education and improved health will do more to accelerate economic growth than excessive housing incentives,” he wrote.) A few months later, DeMarco gave a speech at the Richmond Federal Reserve.

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank by John Tamny

Airbnb, Alan Greenspan, Apollo 13, bank run, Bear Stearns, Bernie Madoff, bitcoin, Bretton Woods, business logic, buy and hold, Carl Icahn, Carmen Reinhart, corporate raider, correlation does not imply causation, cotton gin, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Donald Trump, Downton Abbey, Fairchild Semiconductor, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, Home mortgage interest deduction, Jeff Bezos, job automation, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kickstarter, Larry Ellison, liquidity trap, low interest rates, Mark Zuckerberg, market bubble, Michael Milken, Money creation, money market fund, moral hazard, mortgage tax deduction, NetJets, offshore financial centre, oil shock, peak oil, Peter Thiel, Phillips curve, price stability, profit motive, quantitative easing, race to the bottom, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Solyndra, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, Travis Kalanick, Uber for X, War on Poverty, yield curve

The risk of lending the $10,000 to him is logically much greater. The loan may well be made (figure Lawrence would have all manner of credit sources lining up to lend to her), but only at a rate of interest that reflects the risk involved. That, in its most basic form, is high-yield finance. Enter Michael Milken. His name was needlessly sullied in the 1990s for having spent time in prison for alleged violations relating to “insider trading” (something the SEC, Congress, and the courts still can’t even define12). Yet Milken would be one of the faces on any Mount Rushmore meant to lionize the greatest capitalists ever.

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No matter what the Fed does, the cost of credit (meaning the economy’s resources: those tractors, computers, actors and actresses, cameras, and so on) in the real economy is always detached from what the Fed wishes. In Hollywood, it is incredibly difficult to access credit, no matter one’s track record. In Silicon Valley, those who need credit acquire it by trading equity stakes in their concepts with venture capitalists and salary-deprived employees. On Wall Street, it’s often about track record, yet Michael Milken found credit for companies that were traditionally ignored by Wall Street and major banks but were willing to pay high rates of interest (“junk bonds”) for the privilege. What this should illustrate is that the Fed can’t change the on-the-ground economic reality. This is a good thing. While credit will always be easy for Apple no matter the fed funds rate, it will always be expensive for the up-and-coming company with an idea but little or no revenues.

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Banks, too, have corporate lending arms that regularly work with small businesses, not to mention far more established companies in need of finance. For a company to expand and frequently create the jobs that come with that expansion, there must be savers first. Banks and investment banks are paid handsomely for bringing the two together. Going back to Michael Milken, while he cleaned the clocks of investment banks that turned their noses up at “junk bonds,” ultimately those same banks learned from their mistakes. Now, they all have junk-bond or “high-yield” bankers who raise money for the riskier business concepts willing to pay higher rates of interest in return for credit.

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead by David Callahan

1960s counterculture, affirmative action, Alan Greenspan, business cycle, Cornelius Vanderbilt, corporate governance, corporate raider, creative destruction, David Brooks, deindustrialization, East Village, eat what you kill, fixed income, forensic accounting, full employment, game design, greed is good, high batting average, housing crisis, illegal immigration, income inequality, job satisfaction, junk bonds, mandatory minimum, market fundamentalism, Mary Meeker, McMansion, Michael Milken, microcredit, moral hazard, multilevel marketing, new economy, New Urbanism, offshore financial centre, oil shock, old-boy network, PalmPilot, plutocrats, postindustrial economy, profit maximization, profit motive, RAND corporation, Ray Oldenburg, rent stabilization, Robert Bork, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, Shoshana Zuboff, Silicon Valley, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, War on Poverty, winner-take-all economy, World Values Survey, young professional, zero-sum game

As sociologist Robert Merton wrote fifty years ago, the "sacrosanct goal" of wealth "virtually consecrates the means"—any means.30 F. Scott Fitzgerald's Jay Gatsby is an iconic figure in this regard—he was irresistibly appealing despite the sordid origins of his fortune. Real-life America has been filled with similar characters, ranging from Joseph P. Kennedy, who made much of his fortune illegally, to Michael Milken, who easily rehabilitated his image following his conviction for insider trading in the late 1980s. Even very nasty people who prevail in ugly mudslinging or backstabbing contests can win grudging respect—as Richard Hatch did when he triumphed on the reality television show Survivor. Survivor was supposed to simulate a situation in which a group of sixteen people must battle the elements and eke out an existence on a desert island off Borneo.

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"Wall Street is a cesspool of hanky-panky and the biggest gambling casino in the country," complained a Republican former commissioner in 1982. "The SEC has got to let the industry know that there's a cop on the beat." Shad sent the opposite message.13 Shad lost some of his fervor for gutting the SEC as a crime wave engulfed the business world during the mid-1980s. He went on to prosecute Ivan Boesky, Michael Milken, and other insider traders with considerable zeal. In many ways Shad was cleaning up his own mess. Deregulation not only sent a permissive signal to Wall Street, it also led to increased corruption among accountants. While overshadowed by the insider trading cases and big scandals involving defense contractors, the 1980s saw the largest wave of accounting abuses in history.

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It is the largest U.S. government law enforcement team focused exclusively on crimes related to the stock market, including insider trading, false earnings reports, and other kinds of deception. The office became famous in the 1980s, when it prosecuted the insider trading scandals involving Ivan Boesky and Michael Milken. In 2002, as scandals engulfed corporate America, the task force had only twenty-five lawyers. Assistant U.S. attorneys did their own copying. Numerous cases were not pursued because of a lack of resources. "We've got too many crooks and not enough cops," one federal regulator told Fortune magazine.

Devil's Bargain: Steve Bannon, Donald Trump, and the Storming of the Presidency by Joshua Green

4chan, Affordable Care Act / Obamacare, Ayatollah Khomeini, Bernie Sanders, Biosphere 2, Black Lives Matter, business climate, Cambridge Analytica, Carl Icahn, centre right, Charles Lindbergh, coherent worldview, collateralized debt obligation, conceptual framework, corporate raider, crony capitalism, currency manipulation / currency intervention, data science, Donald Trump, Dr. Strangelove, fake news, Fractional reserve banking, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, guest worker program, hype cycle, illegal immigration, immigration reform, Jim Simons, junk bonds, liberation theology, low skilled workers, machine translation, Michael Milken, Nate Silver, Nelson Mandela, nuclear winter, obamacare, open immigration, Peace of Westphalia, Peter Thiel, quantitative hedge fund, Renaissance Technologies, Robert Mercer, Ronald Reagan, Silicon Valley, social intelligence, speech recognition, Steve Bannon, urban planning, vertical integration

FOUR “A DANGEROUS WAY TO LOOK AT THE WORLD” After Bannon graduated from Harvard Business School in 1985, he parachuted into a war zone, landing in Goldman Sachs’ New York office at the height of the hostile-takeover boom. The job thrust him into the kind of high-pressure situation he adored: a primal, intense, all-consuming struggle between two warring factions. Goldman Sachs put him on the front lines. A few years earlier, in the late 1970s, a young bond trader named Michael Milken had quietly set the stage for a revolution on Wall Street when he discovered that, in the aggregate, bonds of former blue-chip corporations that had fallen on hard times—known as “fallen angels”—consistently outperformed those of current blue chips with better creditworthiness. Because struggling corporations held a higher risk of failure, fallen angels had to offer higher interest rates than blue-chip bonds to attract customers.

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After Milken was freed and had begun rehabilitating his image, Bannon appeared as a featured speaker at one of his conferences. More than anything, Milken was a kind of spirit animal who fired the imagination and showed just how far you could go if you stopped worrying about appearances and seized opportunity. His lesson was never forgotten. If you took Michael Milken and Drexel in 1985 and teleported them from Wall Street to Washington, D.C., in 2015, what you’d wind up with would look a lot like Stephen Bannon and Breitbart News: a band of outsiders laying siege to a comfortable, fattened, and vulnerable establishment. — Two big things were going on at Goldman Sachs in the late 1980s.

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(Société Générale . . . not so much—the independent distribution business had dried up by then.) No longer needing a day job, Bannon dabbled in minor Hollywood moguldom. He became an executive producer of movies, including Anthony Hopkins’s 1999 Oscar-nominated Titus. He rolled up a succession of small media properties from, among others, Michael Milken, Terry Semel, and Doug Liman (the latter carrying residuals to Fox’s prime-time teen soap opera The O.C.—“great intellectual property,” Bannon boasted to Variety). “He loved doing deals,” said Vorse. “He had his hands in everything.” He invested in, or served on the board of, companies that made products ranging from homeopathic nasal spray to branded video games for Burger King.

American Secession: The Looming Threat of a National Breakup by F. H. Buckley

Affordable Care Act / Obamacare, Andrei Shleifer, belling the cat, Bernie Sanders, British Empire, Cass Sunstein, colonial rule, crony capitalism, desegregation, diversified portfolio, Donald Trump, Francis Fukuyama: the end of history, guns versus butter model, hindsight bias, illegal immigration, immigration reform, income inequality, low interest rates, Michael Milken, military-industrial complex, old-boy network, Paris climate accords, race to the bottom, Republic of Letters, reserve currency, Ronald Coase, Stephen Fry, Suez crisis 1956, transaction costs, Washington Consensus, wealth creators

After the acquisition, the very proper executives and lawyers of the tobacco firm traveled south in their three-piece suits to meet their new employees, and came across a group of women in one of the restaurants. “What do you do?” an executive asked them. “We’re FFMs,” was the response. “What’s that?” asked a lawyer. “We’re finger-f____ mammas.” The merger wasn’t a success. People like Michael Milken realized that the conglomerates were too large and too diversified. Executives had lost touch with their separate divisions, and the managers didn’t know how to run them. Breaking up a conglomerate was expected to increase the value of the separate parts, and the evidence shows that it did. Busting up the corporate behemoths produced enormous wealth gains in our economy.3 If America is like a giant conglomerate, with the federal government trying to make rules for South Carolina and California and everything in between, we might be gaining less from economies of scale than we lose from being overlarge.

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Busting up the corporate behemoths produced enormous wealth gains in our economy.3 If America is like a giant conglomerate, with the federal government trying to make rules for South Carolina and California and everything in between, we might be gaining less from economies of scale than we lose from being overlarge. We may need deconglomerization in the form of secession, and the people behind Calexit would be doing the political version of what Michael Milken did in the corporate world. Next, let’s look at how, simply as an exit option, secession might impose costs. Underinvestment Under the compact theory of federalism, a state could secede whenever it wanted, or at least whenever it asserted that the federal government was in breach of the Constitution.

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In general, they’re all too big if the goal is to maximize a country’s per capita GDP. If smaller countries such as Czechoslovakia could benefit from a breakup, then wouldn’t large countries like China, Russia and the United States benefit even more? We’re too large and too centralized, like a 1970s conglomerate, and isn’t that an argument for a political version of Michael Milken’s breakup, deconglomerization mergers? Other countries have been able to bargain their way past the barriers to secession. When our country is so overcentralized in governance but so divided politically, when the level of mistrust is so high, when partisan rancor blocks needed reforms, the costs of secession might be smaller than the costs of remaining united.

How Money Became Dangerous by Christopher Varelas

activist fund / activist shareholder / activist investor, Airbnb, airport security, barriers to entry, basic income, Bear Stearns, Big Tech, bitcoin, blockchain, Bonfire of the Vanities, California gold rush, cashless society, corporate raider, crack epidemic, cryptocurrency, discounted cash flows, disintermediation, diversification, diversified portfolio, do well by doing good, Donald Trump, driverless car, dumpster diving, eat what you kill, fiat currency, financial engineering, fixed income, friendly fire, full employment, Gordon Gekko, greed is good, initial coin offering, interest rate derivative, John Meriwether, junk bonds, Kickstarter, Long Term Capital Management, low interest rates, mandatory minimum, Mary Meeker, Max Levchin, Michael Milken, mobile money, Modern Monetary Theory, mortgage debt, Neil Armstrong, pensions crisis, pets.com, pre–internet, profit motive, proprietary trading, risk tolerance, Saturday Night Live, selling pickaxes during a gold rush, shareholder value, side project, Silicon Valley, Steve Jobs, technology bubble, The Predators' Ball, too big to fail, universal basic income, zero day

I recently attended a San Francisco Giants baseball game, and who threw out the first pitch? Our former-hero-turned-prison-inmate, Michael Milken. The crowd set down their hot dogs and beers and applauded him warmly. After serving two years in prison on multiple felony convictions, he had reinvented himself as a philanthropist, and even his once infamous history as the Junk Bond King was now celebrated. Except that nowadays, no one says junk bond. The accepted term is high-yield bond. So Michael Milken is again a hero, junk bonds are high-yield bonds, and corporate raiders have become activist investors. This signals a major evolution in American business, from the time of Steinberg’s attack on Disney through to the current day.

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Only then had I made an impression, so that’s from where my job offer had come. I was fairly certain I would accept it—until I got interest from Drexel Burnham Lambert. A dozen or so years prior, Drexel had been a mere shrub in the towering forest of Wall Street firms, but that all began to change in the 1970s after Drexel lured a brilliant young Wharton student, Michael Milken, to join its ranks. At Wharton, Milken had noticed a simple market inefficiency—companies with lower credit ratings couldn’t effectively get financing. These weren’t necessarily bad companies; many of them were simply companies that had taken on too much debt, enough to threaten solvency, but they were still likely to survive and pay back their borrowings.

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Drexel Burnham Lambert—which earned the nickname on Wall Street of Drain-’em Burn-’em & Lambast-’em—became the go-to investment bank and facilitator for these hostile takeovers on the strength of Milken’s high-yield bond market. Milken himself became a Wall Street celebrity, coronated as the Junk Bond King. Michael Milken had grown up in the San Fernando Valley outside of Los Angeles. The son of an accountant, he was exposed to numbers and finance at an early age. He was tirelessly ambitious, the definition of a workaholic—even in high school, he slept only three or four hours a night. He played on the basketball team and also served as head cheerleader (imagine the costume changes at timeouts), and he picked up shifts at a local diner for extra cash.

The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry by William K. Black

accounting loophole / creative accounting, affirmative action, Alan Greenspan, Andrei Shleifer, Black Monday: stock market crash in 1987, book value, business climate, cognitive dissonance, corporate governance, corporate raider, Donald Trump, fear of failure, financial deregulation, friendly fire, George Akerlof, hiring and firing, junk bonds, margin call, market bubble, Michael Milken, money market fund, moral hazard, offshore financial centre, Ponzi scheme, race to the bottom, Ronald Reagan, Savings and loan crisis, short selling, The Market for Lemons, transaction costs

Without the 1986 tax act, the Arizona, Texas, and Louisiana real estate bubbles would have continued to inflate. The resultant real estate crash would have been far worse. • S&Ls were a small (overall) player in the junk bond markets. They were important because several of them, including Lincoln Savings, were “captives” of Michael Milken and Drexel Burnham Lambert (Black 1993c). • Economists controlled the drafting of the 1982 St Germain Act. The key lessons that proponents of the conventional wisdom drew were that “a rule against fraud is not an essential or even necessarily an important ingredient of securities markets” (Easterbrook and Fischel 1991, 285), that private market discipline turned presumed conflicts of interest into positive synergies, and that regulators like the Securities and Exchange Commission (SEC) were more harmful than helpful.

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Beebe helped scores of control frauds acquire S&Ls and banks in the Southwest (Mayer 1990, 226). Beebe would loan the money to buy the S&L. The buyer would, in turn, cause his S&L to make far larger loans to Beebe’s straws. The straws, of course, would not repay the loans. Beebe won, the S&L owner won, and the taxpayers lost. Similarly, Michael Milken, the “junk bond king” of Drexel Burnham Lambert, financed Charles Keating’s purchase of Lincoln Savings and David Paul’s purchase of CenTrust Savings (Black 1993c). Keating did not have to spend a penny of his own money to buy the S&L. Another scam was to have the existing shareholders of the S&L direct it to fund the acquisition.

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In 1993, when I served as the NCFIRRE’s deputy staff director, one of the members of the commission told me that Keating called him immediately after buying Lincoln Savings to offer him the job of CEO. Keating told him having a California charter was “a license to steal” and guaranteed his salary would exceed $1 million. He declined Keating’s offer. The third reason to fear Keating was that not a penny of his purchase of Lincoln Savings came from his pocket. Michael Milken and the junk bond operations he controlled at Drexel Burnham Lambert provided all the cash for the deal. Milken had a standard operating procedure in such cases. Drexel greatly overfunded the buyer. Keating needed $51 million to purchase Lincoln Savings, but Drexel issued over $125 million in junk bonds out of American Continental Corp.

A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History by Diana B. Henriques

Alan Greenspan, asset allocation, bank run, banking crisis, Bear Stearns, behavioural economics, Bernie Madoff, Black Monday: stock market crash in 1987, break the buck, buttonwood tree, buy and hold, buy low sell high, call centre, Carl Icahn, centralized clearinghouse, computerized trading, Cornelius Vanderbilt, corporate governance, corporate raider, Credit Default Swap, cuban missile crisis, Dennis Tito, Edward Thorp, Elliott wave, financial deregulation, financial engineering, financial innovation, Flash crash, friendly fire, Glass-Steagall Act, index arbitrage, index fund, intangible asset, interest rate swap, It's morning again in America, junk bonds, laissez-faire capitalism, locking in a profit, Long Term Capital Management, margin call, Michael Milken, money market fund, Myron Scholes, plutocrats, Ponzi scheme, pre–internet, price stability, proprietary trading, quantitative trading / quantitative finance, random walk, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, The Chicago School, The Myth of the Rational Market, the payments system, tulip mania, uptick rule, Vanguard fund, web of trust

Shad informed Volcker that the SEC and the U.S. attorney’s office in New York would hold simultaneous press conferences after the market closed on Friday, November 14, to announce that Boesky had been arrested, had agreed to pay $100 million to settle SEC charges of insider trading, would plead guilty to a single criminal charge, and was cooperating with the government’s continuing criminal investigation. For several months, Boesky had been secretly recording his conversations with various Wall Street figures, including Drexel’s powerful financier Michael Milken. So far, the clandestine tapes had not produced all that prosecutors had hoped for, but it wasn’t possible to keep Boesky’s undercover work a secret any longer. One of Boesky’s investment entities was publicly traded, and the next day, under SEC rules, it had to release its quarterly report—which, of course, would have to disclose the small detail of its CEO’s arrest.

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Boesky’s various investment partnerships currently held about $2 billion in securities, Shad continued, and “for a short period of time, he will be permitted to be associated with these entities in order to preserve the assets and avoid defaults on bank and other loans.” * * * AFTER THE PRESS conferences, “three rumors—all of which turned out to be true—made the rounds on Wall Street,” one account noted. One rumor was that Boesky had been wearing a wire for months, another was that he might implicate Michael Milken and Drexel, and the third—“the one that seemed the most incredible, almost impossible to fathom or accept”—was that Boesky had been allowed to secretly sell hundreds of millions of dollars of stock before the announcement of his arrest. Yes, the SEC had let Boesky start liquidating his holdings in early November.

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Soon Brady would be knee-deep in the savings and loan crisis, which gave him little time for the reforms his own commission had recommended. As the stock market gradually and fitfully recovered, any sense of urgency in Congress evaporated. In September 1988, David Ruder’s enforcement staff filed a landmark civil complaint against Drexel Burnham and its star executive, Michael Milken. As Drexel negotiated a settlement with the SEC and the Justice Department, it turned to former SEC chairman John Shad, asking him to serve as the firm’s new independent chairman as it desperately tried to rebuild its business. * * * CHICAGO WOULD NEED to rebuild, too. In January 1989, Leo Melamed was determined to enjoy the five-day pageantry surrounding the inauguration of George H.

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson, James Kwak

Alan Greenspan, American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Bonfire of the Vanities, bonus culture, book value, break the buck, business cycle, business logic, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency risk, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Glass-Steagall Act, Gordon Gekko, greed is good, Greenspan put, Home mortgage interest deduction, Hyman Minsky, income per capita, information asymmetry, interest rate derivative, interest rate swap, junk bonds, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, Savings and loan crisis, sovereign wealth fund, Tax Reform Act of 1986, The Myth of the Rational Market, too big to fail, transaction costs, Tyler Cowen, value at risk, yield curve

Their serial innovations created the new money machines that fueled the rapid, massive growth in the size, profitability, and wealth of the financial sector over the last three decades—all of which helped Wall Street become a dominant political force in Washington. This process began in the 1970s, when Michael Milken, a trader at Drexel Burnham Lambert, had the insight that “junk bonds”—bonds that were rated below “investment grade” by the credit rating agencies*—were generally underpriced, either because investors had an irrational aversion to them or because they lacked a liquid market in which to trade them.

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—Alan Greenspan, chair of the Federal Reserve, July 16, 20031 The 1980s came to a close with the peak of the savings and loan crisis. The failure of over 2,000 banks between 1985 and 1992 was by far the largest financial sector mass die-off since the Great Depression.2 The government bailout of the S&L industry cost more than $100 billion, and hundreds of people were convicted of fraud.3 In 1990, Michael Milken, the junk bond king, pleaded guilty to six felonies relating to securities transactions. In 1991, Citibank was facing severe losses on U.S. real estate and loans to Latin America and had to be bailed out by an investment from Saudi prince Al-Waleed bin Talal. In 1994, Orange County lost almost $2 billion on complicated interest rate derivatives sold by Merrill Lynch and other dealers; county treasurer Robert Citron pleaded guilty to securities fraud, although no one on the “sell side” of those transactions was convicted of anything.

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Each of them threatened a symbolic stack of paper documents with a pair of garden shears—except for James Gilleran, director of the OTS, who brought a chainsaw.44 Over the past twenty years, finance changed in the public eye from a boring and slightly untrustworthy pursuit to the glistening centerpiece of the modern American economy. In much of the country, suspicion of bankers remained high or even increased with the prosecutions of people from Ivan Boesky and Michael Milken (insider trading) to Henry Blodget (talking up bad stocks). But where it mattered most—on elite academic campuses, in the business and financial media, in think tanks, and in the halls of power in Washington—banking became the latest chapter of the American Dream, the way to make vast riches by working hard and creating innovative new products that would supposedly improve life for everyone.

Capitalism in America: A History by Adrian Wooldridge, Alan Greenspan

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, Alan Greenspan, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Bear Stearns, Berlin Wall, Blitzscaling, Bonfire of the Vanities, book value, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, cotton gin, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, driverless car, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fairchild Semiconductor, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, full employment, general purpose technology, George Gilder, germ theory of disease, Glass-Steagall Act, global supply chain, Great Leap Forward, guns versus butter model, hiring and firing, Ida Tarbell, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, land bank, Lewis Mumford, Louis Pasteur, low interest rates, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, McDonald's hot coffee lawsuit, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Michael Milken, military-industrial complex, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, Phillips curve, plutocrats, pneumatic tube, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, public intellectual, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Robert Solow, Ronald Reagan, Sand Hill Road, savings glut, scientific management, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, vertical integration, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

Junk bonds expanded from a mere 3.5 percent of the bond market in 1977 to a quarter of the market a decade later. Michael Milken became the symbol of the era, with his $550 million salary in a single year and his annual Predators’ Ball. Some of this looked too good to be true. Junk bonds lived up to their name: around a fifth of the bonds issued from 1978 to 1983 had defaulted by 1988. Many of the thrifts that bought junk bonds went bankrupt, as did Drexel Burnham itself in February 1990. Michael Milken was indicted on almost a hundred counts of racketeering, ending up in jail, and his company, Drexel Burnham, was forced into bankruptcy.

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The new generation of entrepreneurs could draw on three resources that existed more abundantly in America than elsewhere, and that, when combined with an entrepreneur-friendly president in Washington, produced a business revolution. Financial innovators provided new sources of cash such as junk bonds from Michael Milken and venture capital from Silicon Valley’s well-established venture-capital industry. Great universities provided science parks, technology offices, business incubators, and venture funds. A liberal immigration policy provided a ready supply of willing hands and brains. Amar Bhidé of Tufts University suggests that “venturesome consumption” also promoted American entrepreneurialism.

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The government largely stood back while all this restructuring took place on the grounds that corporate turmoil promoted wealth creation. Antitrust legislators stood pat for WorldCom’s $37 billion merger with MCI, and Citicorp’s $70 billion merger with Travelers. There were a few exceptions. Rudy Giuliani stepped in to discipline two of the greatest corporate raiders, Michael Milken and Ivan Boesky, and the antitrust authorities fought an intense battle with Bill Gates. Much discussed though they were at the time, however, these exceptions did little to change the character of the era. THE FINANCIAL REVOLUTION Ronald Reagan inaugurated the most exuberant era on Wall Street since the 1920s.

The Quants by Scott Patterson

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, automated trading system, Bear Stearns, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Blythe Masters, Bonfire of the Vanities, book value, Brownian motion, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Carl Icahn, centralized clearinghouse, Claude Shannon: information theory, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Doomsday Clock, Dr. Strangelove, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, Financial Modelers Manifesto, fixed income, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Haight Ashbury, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, index fund, invention of the telegraph, invisible hand, Isaac Newton, Jim Simons, job automation, John Meriwether, John Nash: game theory, junk bonds, Kickstarter, law of one price, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, Mark Spitznagel, merger arbitrage, Michael Milken, military-industrial complex, money market fund, Myron Scholes, NetJets, new economy, offshore financial centre, old-boy network, Paul Lévy, Paul Samuelson, Ponzi scheme, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, risk-adjusted returns, Robert Mercer, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Savings and loan crisis, Sergey Aleynikov, short selling, short squeeze, South Sea Bubble, speech recognition, statistical arbitrage, The Chicago School, The Great Moderation, The Predators' Ball, too big to fail, transaction costs, value at risk, volatility smile, yield curve, éminence grise

Quants were agnostic on such matters, devoting themselves instead to predicting whether a company’s stock would move up or down based on a dizzying array of numerical variables such as how cheap it was relative to the rest of the market, how quickly the stock had risen or declined, or a combination of the two—and much more. That night at the St. Regis was a golden hour for the quants, a predators’ ball for the pocket-protector set. They were celebrating their dominance of Wall Street, just as junk bond kings such as Michael Milken had ruled the financial world in the 1980s or swashbuckling, trade-from-the-hip hedge fund managers such as George Soros had conquered the Street in the 1990s. Muller flicked a lock of sandy brown hair from his eyes and snatched a glass of wine from a passing tray, looking for his friends. A few nonquants, fundamental investors of the old guard, rubbed elbows with the quant crowd that night.

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In mid-December 1987, an army of vans pulled up in front of a nondescript office complex in the heart of sleepy Princeton. A squad of fifty armed federal marshals clad in bulletproof vests burst from the vans and rushed into the office of Princeton/Newport Partners, which was perched in a small space over a Häagen-Dazs shop. They were searching for documents related to the fund’s dealings with Michael Milken’s junk bond empire at Drexel Burnham Lambert. The man in charge of the case was Rudolph Giuliani, the U.S. attorney for the Southern District of New York. He was trying to build more evidence for the government’s case against Drexel and was hoping employees of the hedge fund, threatened with stiff fines and possible prison terms, would turn against Milken.

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Wall Street’s gut traders eventually proved to be no match for such explosive brainpower. Michael Lewis’s Wall Street classic, Liar’s Poker, exemplified and exposed the old-school Big Swinging Dick trader of the 1980s, the age of Gordon Gekko’s “greed is good.” Lewis Ranieri, the mortgage-bond trader made famous in the book, made huge bets based on his burger-fueled gut. Michael Milken of Drexel Burhman for a time ruled the Street, financing ballsy leveraged buyouts with billions in junk bonds. Nothing could be more different from the cerebral, computerized universe of the quants. Those two worlds collided when Aaron Brown strode onto Kidder’s trading floor. As an up-and-coming mortgage trader at a rival New York firm, Brown was an interloper at Kidder.

Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough, John Helyar

Alan Greenspan, Bear Stearns, Black Monday: stock market crash in 1987, buy and hold, buy low sell high, Carl Icahn, corporate raider, Donald Trump, financial engineering, Gordon Gekko, junk bonds, margin call, Michael Milken, Ronald Reagan, Rubik’s Cube, shareholder value, South Sea Bubble

“Why have a dog and bark for yourself?” he would ask. The limited partnership idea had come from one of Johnson’s most determined pursuers, a wild-eyed Wall Street dealmaker named Jeffrey Beck. Beck worked for Drexel Burnham Lambert, the sharp-elbowed investment house whose Beverly Hills-based junk-bond chief, Michael Milken, almost single-handedly transformed the takeover business in the mid-1980s.* On Wall Street they called Beck “Mad Dog.” Although he sported a bow tie and horn-rim glasses, Beck more closely resembled a cross between a stand-up comedian and an assassin. A true character, Beck styled himself the ultimate wheeler-dealer, a rock-’em-sock-’em, behind-the-scenes operator, one of Wall Street’s top seven dealmakers—he could name the other six—a bit of hubris not terribly far from the truth.

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For years the remaining 30 percent—the meat in the sandwich—came from a handful of major insurance companies whose commitments sometimes took months to obtain. Then, in the mid-eighties, Drexel Burnham began using high-risk “junk” bonds to replace the insurance company funds. The firm’s bond czar, Michael Milken, had proven his ability to raise enormous amounts of these securities on a moment’s notice for hostile takeovers. Pumped into buyouts, Milken’s junk bonds became a high-octane fuel that transformed the LBO industry from a Volkswagen Beetle into a monstrous drag racer belching smoke and fire. Thanks to junk bonds, LBO buyers, once thought too slow to compete in a takeover battle, were able to mount split-second tender offers of their own for the first time.

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Oh, it’s a bid, Forstmann reasoned, that is, if Kravis doesn’t get a cold, if the Dodgers win the World Series, if his wife makes fourteen more dresses…. He could feel the anger welling up inside him. It was a familiar feeling. Ted Forstmann had been angry for five years now. Wall Street had been taken over by a cartel, Forstmann believed. A junk-bond cartel. A cartel whose guru was Michael Milken of Drexel Burnham Lambert and whose most powerful member was Henry Kravis of Kohlberg Kravis. A cartel that now had the upper hand in the looming battle for RJR Nabisco. The cartel’s product, the high-yield, or “junk,” bond, was by 1988 being used to raise money—usually for takeovers—by virtually every major investor, brokerage house, and leveraged-buyout firm.

Console Wars: Sega, Nintendo, and the Battle That Defined a Generation by Blake J. Harris

air freight, airport security, Apollo 13, back-to-the-land, Berlin Wall, disruptive innovation, Fall of the Berlin Wall, game design, inventory management, junk bonds, Larry Ellison, Maui Hawaii, Michael Milken, Pepsi Challenge, pneumatic tube, Ponzi scheme, rolodex, Ronald Reagan, Saturday Night Live, Silicon Valley, SimCity, Steve Jobs, uranium enrichment, Yogi Berra

Anderson asked, making his rounds. Several hands rose, the faces below them revealing whimsical excitement and no trace of remorse. “Maybe you should think about leaving too,” Michael Milken suggested to Kalinske when they met for lunch in the summer of 1994. “Come join Larry and me—you’d be an absolutely perfect fit.” “That’s flattering,” Kalinske said, allowing himself for a moment to consider the possibility. Michael Milken, the renowned junk bond kingpin who had celebrated the eighties by shaking up Wall Street—which led to his starting off the nineties by serving twenty-two months in prison—was now a free man, and he wanted to do something good with his life.

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Milken had admired his lunch date ever since the two met in the early eighties, but it was something Kalinske had done at the end of the decade that really got his attention. On April 23, 1989, when the country was busy blaming its financial problems on a recently-indicted Michael Milken, Kalinske wrote an op-ed to the Los Angeles Times declaring that “The U.S. government should have given Michael Milken a commendation and gold medal for the help he’s provided our country’s economy instead of indicting him.” That was the kind of thing someone never forgets, and it further convinced Milken that Kalinske was the right guy to run his new venture.

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The board of directors had the final word, and there were always ways for them to silently retaliate. By 1983 the board’s trigger-happy acquisition strategy, coupled with major losses due to the videogame crash, had led Mattel to the brink of bankruptcy. Miraculously, the company managed to survive—with the last-minute help of junk bond guru Michael Milken. He raised enough money to keep Mattel afloat while simultaneously making the company leaner by selling off its recent, unrelated acquisitions. In the face of failure, the board’s power weakened and some members were let go, but those who remained were not happy to have been proven wrong. Nevertheless, they were in no position to retaliate, since they needed Kalinske’s help to rebuild the company.

Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, behavioural economics, business cycle, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, Glass-Steagall Act, if you build it, they will come, income inequality, Isaac Newton, job automation, junk bonds, Long Term Capital Management, low interest rates, margin call, Michael Milken, money market fund, moral hazard, new economy, profit motive, quantitative easing, race to the bottom, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, secular stagnation, short selling, South Sea Bubble, stocks for the long run, superstar cities, The Chicago School, The Great Moderation, transaction costs, uptick rule, VA Linux, Y2K, yield curve

I’ve gained a great deal from reading the work of Peter Bernstein, John Kenneth Galbraith, Nassim Nicholas Taleb and Charlie Ellis. I’ve continued to pick up pointers from the people I cited in The Most Important Thing and others, including Seth Klarman, Charlie Munger, Warren Buffett, Bruce Newberg, Michael Milken, Jacob Rothschild, Todd Combs, Roger Altman, Joel Greenblatt, Peter Kaufman and Doug Kass. And since Nancy and I moved to New York in 2013 to follow our kids, I’ve been fortunate to add Oscar Schafer, Jim Tisch and Ajit Jain to this circle. Each of these people’s way of looking at things has added to mine.

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And often conditions are exacerbated by exogenous events that sap confidence and damage the economy and the financial markets. In 1990 these consisted of: the Gulf War, which was set off by the Iraqi invasion of Kuwait; the bankruptcy of many of the prominent, highly levered buyouts of the 1980s; and the imprisonment of Michael Milken (the principal investment banker behind high yield bonds) and the collapse of Drexel Burnham (Milken’s employer and the investment bank most closely associated with high yield bonds). With Drexel and Milken gone from the scene, the remedial exchanges that had helped weakened companies avoid default were hard to effect.

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“There’s a guy named Milken in California,” my boss said, “and he’s involved in something called high yield bonds. A client wants a portfolio of those bonds. Can you figure out what that means?” It was just in 1977 or 1978 that high yield bond investing had its institutional inception. That’s when Michael Milken achieved his first success in convincing investors that it’s okay for below-investment grade companies to issue bonds—and for institutions to buy them—if the interest rate is high enough to compensate for the risk. The high yield universe consisted of less than $3 billion of bonds at the time I first got involved.

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-border payments, currency peg, currency risk, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Glass-Steagall Act, Herman Kahn, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Japanese asset price bubble, joint-stock company, junk bonds, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Mary Meeker, Michael Milken, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, Suez canal 1869, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

During economic slowdowns, many firms experience less rapid increases in their revenues than they had anticipated with the result that some that had been in the hedge finance group are shunted into the speculative finance group while some firms that had been in the speculative finance group move into the Ponzi finance group. Drexel Burnham Lambert, Michael Milken, and ‘junk bonds’ One of the great financial innovations in the 1980s was the development of ‘junk bonds’ – the bonds of firms that had not been ranked by one of the major credit-rating agencies. The interest rates on these bonds were generally three to four percentage points higher than interest rates on the bonds that had been ranked in one of the ‘investment grades’.

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The sales pitch was that the buyers of junk bonds – say of a diversified portfolio of these bonds – had a ‘free lunch’ because the additional interest income would be more than enough to cover the losses when one or several of these bonds tanked because the borrowers went bankrupt. The innovation in the 1970s and 1980s was that Drexel Burnham Lambert, then a third-tier investment bank, began to issue junk bonds, known in more polite circles as high yield bonds; the mastermind of this innovation was Michael Milken. The firms that issued these bonds had to pay high interest rates to attract buyers. Many firms issued junk bonds to get the cash to finance leveraged buyouts; often the senior executives of a firm would seek to buy all of its publicly traded shares. Or Firm A might issue high yield bonds to get the cash to acquire Firm B before Firm B got the cash to buy Firm A.

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Initially the supply of junk bonds had been limited to those of the ‘fallen angels’; bonds that had lost their investment grade rating because the firms that had issued them had fallen on tough times. The loss of the investment grade rating meant that some financial institutions could no longer hold these bonds, so the interest rates increased sharply. Michael Milken of Drexel Burnham Lambert developed some market innovations that greatly increased both the demand for and the supply of junk bonds. The decline in interest rates and the increase in the rate of economic growth of the 1980s created an encouraging environment for the growth of the junk bond market.

The Big Short: Inside the Doomsday Machine by Michael Lewis

Alan Greenspan, An Inconvenient Truth, Asperger Syndrome, asset-backed security, Bear Stearns, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, facts on the ground, financial engineering, financial innovation, fixed income, forensic accounting, Gordon Gekko, high net worth, housing crisis, illegal immigration, income inequality, index fund, interest rate swap, John Meriwether, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, medical residency, Michael Milken, money market fund, moral hazard, mortgage debt, pets.com, Ponzi scheme, Potemkin village, proprietary trading, quantitative trading / quantitative finance, Quicken Loans, risk free rate, Robert Bork, short selling, Silicon Valley, tail risk, the new new thing, too big to fail, value at risk, Vanguard fund, zero-sum game

Burry was right about this, too, but it would be three years before he knew it. The party on the other side of his bet against subprime mortgage bonds was the triple-A-rated insurance company AIG--American International Group, Inc. Or, rather, a unit of AIG called AIG FP. AIG Financial Products was created in 1987 by refugees from Michael Milken's bond department at Drexel Burnham, led by a trader named Howard Sosin, who claimed to have a better model to trade and value interest rate swaps. Nineteen eighties financial innovation had all sorts of consequences, but one of them was a boom in the number of deals between big financial firms that required them to take each other's credit risks.

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He included me in a show, along with some child actors who'd gone on to become drug addicts, called "People Who Succeed Too Early in Life.") Anti-Wall Street feelings then ran high enough for Rudolph Giuliani to float a political career upon them, but the result felt more like a witch hunt than an honest reappraisal of the financial order. The public lynching of Michael Milken, and then of Salomon Brothers CEO Gutfreund, were excuses for not dealing with the disturbing forces underpinning their rise. Ditto the cleaning up of Wall Street trading culture. Wall Street firms would soon be frowning upon profanity, forcing their male employees to treat women almost as equals, and firing traders for so much as glancing at a lap dancer.

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The crisis of 2008 had its roots not just in the subprime loans made in 2005 but in ideas that had hatched in 1985. A friend of mine in my Salomon Brothers training program created the first mortgage derivative in 1986, the year after we left the program. ("Derivatives are like guns," he still likes to say. "The problem isn't the tools. It's who is using the tools.") The mezzanine CDO was invented by Michael Milken's junk bond department at Drexel Burnham in 1987. The first mortgage-backed CDO was created at Credit Suisse in 2000 by a trader who had spent his formative years, in the 1980s and early 1990s, in the Salomon Brothers mortgage department. His name was Andy Stone, and along with his intellectual connection to the subprime crisis came a personal one: He was Greg Lippmann's first boss on Wall Street.

Lying for Money: How Fraud Makes the World Go Round by Daniel Davies

Alan Greenspan, bank run, banking crisis, Bernie Madoff, bitcoin, Black Swan, Bretton Woods, business cycle, business process, collapse of Lehman Brothers, compound rate of return, cryptocurrency, fake it until you make it, financial deregulation, fixed income, Frederick Winslow Taylor, Gordon Gekko, high net worth, illegal immigration, index arbitrage, junk bonds, Michael Milken, multilevel marketing, Nick Leeson, offshore financial centre, Peter Thiel, Ponzi scheme, price mechanism, principal–agent problem, railway mania, Ronald Coase, Ronald Reagan, Savings and loan crisis, scientific management, short selling, social web, South Sea Bubble, tacit knowledge, tail risk, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, time value of money, vertical integration, web of trust

Before long, the S&L industry had moved on from its history of small local banks, and was increasingly characterised by quite large organisations, often owned or controlled by property developers, and several of which were connected to the junk bond financier (and later convicted securities fraudster) Michael Milken. It was at this point that the second phase of the S&L crisis can be said to have begun. Nobody better epitomises the S&L scandal than Charles Keating, an amazing fraud, crook and hypocrite. He was the owner of American Continental Corporation (ACC), a real estate company with its headquarters in Phoenix, Arizona.

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The financial structure which Keating brought to the game was a clever means of cash extraction. Lincoln, in order to satisfy regulators, had to declare strong profits, and it did. ACC, on the other hand, did not carry out much profitable business other than borrowing money to finance half-built housing developments and acting as a place for Michael Milken to park junk bond deals. The two companies therefore entered into a ‘tax-sharing agreement’ which allowed ACC’s losses to offset Lincoln’s profits for corporation tax purposes, and incidentally allowed Keating to mingle the cash flows of the regulated bank he controlled with the less-regulated company that he owned.

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Although he was able to bring huge amounts of political influence to bear, his attempts to get bank supervisors fired never really bore fruit. He found out that his detractors were simply better at bureaucratic infighting than his supporters. It did not help matters that ACC, his holding company, went ever more extravagantly bust as it got further and further involved with Michael Milken’s junk bond empire, and that he was financing ACC by selling bonds to widows and orphans in a way that was bound to attract the attention of other regulators, and burn the goodwill and political influence built up by his corrupt S&L. Lincoln Savings & Loan was seized by regulators in April 1989 and at $3.4bn was the most expensive of all the S&L failures.

No Such Thing as a Free Gift: The Gates Foundation and the Price of Philanthropy by Linsey McGoey

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, agricultural Revolution, American Legislative Exchange Council, Bear Stearns, bitcoin, Bob Geldof, cashless society, clean water, cognitive dissonance, collapse of Lehman Brothers, colonial rule, corporate governance, corporate social responsibility, crony capitalism, effective altruism, Etonian, Evgeny Morozov, financial innovation, Food sovereignty, Ford paid five dollars a day, germ theory of disease, hiring and firing, Howard Zinn, Ida Tarbell, impact investing, income inequality, income per capita, invisible hand, Jane Jacobs, John Elkington, Joseph Schumpeter, Leo Hollis, liquidationism / Banker’s doctrine / the Treasury view, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, meta-analysis, Michael Milken, microcredit, Mitch Kapor, Mont Pelerin Society, Naomi Klein, Neil Armstrong, obamacare, Peter Singer: altruism, Peter Thiel, plutocrats, price mechanism, profit motive, public intellectual, Ralph Waldo Emerson, rent-seeking, road to serfdom, Ronald Reagan, school choice, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, Slavoj Žižek, Steve Jobs, strikebreaker, subprime mortgage crisis, tacit knowledge, technological solutionism, TED Talk, The Wealth of Nations by Adam Smith, Thorstein Veblen, trickle-down economics, urban planning, W. E. B. Du Bois, wealth creators

Because the pictures were much better than the reality. But because I see myself as a global citizen, I go anyway’.3 An important stop on the elite conference circuit is the Milken Global Conference, an offshoot of the Milken Institute, founded by Michael Milken one year after he pleaded guilty to multiple felony charges for violating US securities law. In the TED Head world, as one former initiate put it, even ‘Wall Street’s criminals, like Michael Milken and Ivan Boesky, become larger than life. In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the interests of the country’.4 The entrance fees are not cheap.

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Despite the high withdrawal rate, Agora made about $72 million in income in 2011. Agora is managed by K12, a company founded by William Bennett, a former education secretary who suggested that setting up more online schools could help socially shy or bullied children to learn in the privacy of their homes. With investments from Michael Milken, K12 was soon pitching itself to state funders as a cost-effective alternative to public education, reaping vast profits in the process.29 Today, K12 receives about $5,500 to $6,000 per student from state and local governments. Many online schools run aggressive recruiting campaigns, spending taxpayer money on vans, billboards, and radio ads geared at enticing more students – a practice condemned by critics such as Jack Wagner, Pennsylvania’s state auditor general, who has suggested that it is ‘unfair for the taxpayer to be paying for additional expenses, such as advertising’.

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , book value, borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, Carl Icahn, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, Glass-Steagall Act, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, junk bonds, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, long and variable lags, Louis Bachelier, low interest rates, market bubble, Mexican peso crisis / tequila crisis, Michael Milken, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, planned obsolescence, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, proprietary trading, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, stock buybacks, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Unless there's some institutionalized oversight, a serious and representative supervisory board, managers can easily commandeer the institution for their own interest. But unfortunately for those who want to damn cooperative ownership entirely, shareholders in non-mutual thrifts did little better. One of the crucial junk bond buyers in Michael Milken's network was a public thrift, Columbia Savings. Shareholders can be as dispersed and inattentive as small depositors. Economists have their own understanding. Thrift pundit Robert Litan (1992) rejected popular explanations of the crisis, which center on "venality, greed and incompetence," out of professional discomfort.

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Under the influence of Milton Friedman, economists paid attention only to money but not credit — that is, the medium of exchange used to grease immediate purchases and sales, but not the longer-term obligations used to finance investment and consumption. But MM's influence went well beyond the academy, as leverage artists, their bankers, and their apologists chanted a debt-doesn't-matter mantra throughout the 1980s mania. Forgetting the message in the 1958 paper about how debt can't really make you better off, another MM, Michael Milken, used the theory to convince people that debt doesn't hurt either, and thanks to tax deductibility, it really can make you better off. Here's how Business Wfee^(Farrell and Nathans 1989) characterized the popular influence of the MM theory, just after a wave of high-profile leveraged buyouts went bad in the summer of 1989: The rationale for such financings...dates back to seminal work in the late 1950s by two eminent economists, Merton H.

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Two famous axioms from apostles of credit illustrate this faith. In the late 1970s, Citibank chair Walter Wriston, a promoter of Third World lending, rebutted skeptics with the argument that "Countries don't go bankrupt" (quoted in Kuczynski 1988, p. 5). The 1980s' chief debtmonger, the junk bond supremo Michael Milken, used to argue in the days before his incarceration that capital isn't a scarce resource, capital is abundant — it's vision that's scarce (quoted in Bruck 1988, p. 272). This credit culture is a long way from that described by a 19th century Scottish banker, G.M. Bell (quoted in Marx 1981, p. 679), who thought his colleagues to be finer moralists than clerics: RENEGADES Banking establishments are moral and religious institutions.

Transaction Man: The Rise of the Deal and the Decline of the American Dream by Nicholas Lemann

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, Affordable Care Act / Obamacare, Airbnb, airline deregulation, Alan Greenspan, Albert Einstein, augmented reality, basic income, Bear Stearns, behavioural economics, Bernie Sanders, Black-Scholes formula, Blitzscaling, buy and hold, capital controls, Carl Icahn, computerized trading, Cornelius Vanderbilt, corporate governance, cryptocurrency, Daniel Kahneman / Amos Tversky, data science, deal flow, dematerialisation, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, Fairchild Semiconductor, financial deregulation, financial innovation, fixed income, future of work, George Akerlof, gig economy, Glass-Steagall Act, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Ida Tarbell, index fund, information asymmetry, invisible hand, Irwin Jacobs, Joi Ito, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, life extension, Long Term Capital Management, Mark Zuckerberg, Mary Meeker, mass immigration, means of production, Metcalfe’s law, Michael Milken, money market fund, Mont Pelerin Society, moral hazard, Myron Scholes, Neal Stephenson, new economy, Norman Mailer, obamacare, PalmPilot, Paul Samuelson, Performance of Mutual Funds in the Period, Peter Thiel, price mechanism, principal–agent problem, profit maximization, proprietary trading, prudent man rule, public intellectual, quantitative trading / quantitative finance, Ralph Nader, Richard Thaler, road to serfdom, Robert Bork, Robert Metcalfe, rolodex, Ronald Coase, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Snow Crash, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TaskRabbit, TED Talk, The Nature of the Firm, the payments system, the strength of weak ties, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, transaction costs, universal basic income, War on Poverty, white flight, working poor

Within a few years, he had become the leading public advocate and justifier of a number of new techniques in the financial world that suddenly became pervasive: a large increase in mergers and acquisitions, including hostile ones; the development of the junk-bond market, whose high-risk, high-return instruments often financed these activities; enormous raises in the compensation of corporate chief executives, often in the form of stock options; the onset of leveraged buyouts and private equity as ways for financiers to take direct, usually temporary control of formerly publicly held companies. For a new coterie of raiders and financiers of a type Adolf Berle could hardly have imagined—Carl Icahn and Michael Milken, T. Boone Pickens and Irwin Jacobs—Jensen was the provider of the accompanying public philosophy, the scholar who could explain why their techniques were good for America. Between 1981 and 1983 alone, there were more than two thousand corporate takeovers a year valued at more than $1 million, far more than the country had ever seen, enabled in part by Ronald Reagan’s new administration in Washington signaling that it was going to interpret the antitrust laws more loosely.

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A buyout firm would acquire control or even total ownership of a public company, financing the transaction with borrowed money; reorient the company from whatever had been distracting it from pursuing purely economic ends; and then resell it, as a whole or broken up into parts, either to another company or to a new set of public shareholders. The total value of leveraged buyouts in the United States was $1.4 billion in 1979, and $77 billion in 1988. The leading early leveraged buyout firm (of many) was Kohlberg Kravis Roberts, headed by Henry Kravis; the leading supplier of the debt that financed the buyouts was Michael Milken of Drexel Burnham Lambert, who created a substantial market for high-risk bonds to fund ungentlemanly financial transactions. Jensen was a great admirer of both men. On purely economic grounds, the argument against leveraged buyouts was that they piled too much debt onto the target companies.

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Adolf Berle’s dream world of capitalism without capitalists had decisively ended within just a few years, without most of the world even noticing that a significant change had taken place or imagining that capital would now be looking for ways to take advantage of its new empowerment. But there were people who did understand. One of them was the most influential financier of the late twentieth century, Michael Milken of Drexel Burnham Lambert. That Milken—a guy in his thirties from a middle-class background, working out of Beverly Hills, California, for a formerly third-bracket investment firm—could be so important was a sign of how much and how quickly the financial world had changed. Milken saw that the bond markets were no longer the province of buy-and-hold trust officers and insurance companies; he created a market for high-risk, high-yield “junk bonds” that in the old days nobody would have wanted.

For Profit: A History of Corporations by William Magnuson

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Airbnb, bank run, banks create money, barriers to entry, Bear Stearns, Big Tech, Black Lives Matter, blockchain, Bonfire of the Vanities, bread and circuses, buy low sell high, carbon tax, carried interest, collective bargaining, Cornelius Vanderbilt, corporate raider, creative destruction, disinformation, Donald Trump, double entry bookkeeping, Exxon Valdez, fake news, financial engineering, financial innovation, Ford Model T, Ford paid five dollars a day, Frederick Winslow Taylor, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Ida Tarbell, Intergovernmental Panel on Climate Change (IPCC), invisible hand, joint-stock company, joint-stock limited liability company, junk bonds, Mark Zuckerberg, Menlo Park, Michael Milken, move fast and break things, Peter Thiel, power law, price discrimination, profit maximization, profit motive, race to the bottom, Ralph Waldo Emerson, randomized controlled trial, ride hailing / ride sharing, scientific management, Sheryl Sandberg, Silicon Valley, Silicon Valley startup, slashdot, Snapchat, South Sea Bubble, spice trade, Steven Levy, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tim Cook: Apple, too big to fail, trade route, transcontinental railway, union organizing, work culture , Y Combinator, Yom Kippur War, zero-sum game

Now, its initial $10 million of cash had turned into $20 million—a return of 100 percent, all through the magic of debt. Of course, debt is not free. KKR had to pay interest on the money it borrowed, and the higher the interest rate, the harder it was to make money. KKR, recognizing this, turned to a newfangled debt market being developed by an investment banker named Michael Milken.20 In the 1980s, Michael Milken had transformed the sleepy world of bonds into a churning profit machine for his investment bank, Drexel Burnham Lambert. Operating out of his Beverly Hills office, Milken developed a market for so-called junk bonds, risky debt issued by debt-laden or struggling companies. Junk bonds had long been considered off-limits to most mainstream investors.

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The only effective brake on private equity’s acceleration were two unrelated developments at the turn of the decade. The first was a rise in interest rates in the wider economy. Higher interest rates made debt more expensive, thereby making it harder for private equity firms like KKR to load their portfolio companies with bonds. The second development came when Michael Milken, the undisputed champion of junk bonds, was indicted for conspiracy and fraud in connection with his securities work. His investment bank, Drexel Burnham Lambert, pleaded guilty to mail and securities fraud and would eventually go bankrupt. Milken ultimately spent just twenty-two months in jail.

Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein

Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate raider, debt deflation, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, full employment, Glass-Steagall Act, Great Leap Forward, guns versus butter model, implied volatility, index arbitrage, index fund, interest rate swap, invisible hand, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, law of one price, linear programming, Louis Bachelier, mandelbrot fractal, martingale, means of production, Michael Milken, money market fund, Myron Scholes, new economy, New Journalism, Paul Samuelson, Performance of Mutual Funds in the Period, profit maximization, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk free rate, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, stochastic process, Thales and the olive presses, the market place, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, transfer pricing, zero-coupon bond, zero-sum game

In an article that appeared in the American Economic Review in December 1990, Leland and his Berkeley colleague Gerard Gennotte developed a full-scale model of crashes that reflects the same set of investor responses. It catches the sweat and pressure of real-time investing: All of us read and talk and listen and calculate and compute for hours on end and still never feel secure that we have as much—forget more—information than others. Even Ivan Boesky and Michael Milken were never certain they had the informational upper hand. The only hard information we have is the movement of stock prices themselves. “How’s the market?” is no idle question for most investors. The answer to that question on October 19, even when available, was devastating. The inundation of selling during the week preceding the crash and the tumultuous events of the early morning created a pervasive sense that “they” knew something awful.

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Now they have the power to ruin the stock market.” This ad was not paid for by Ralph Nader or by one of the groups usually associated with attacking the rich and powerful. It was placed by a respected brokerage firm that is a full-fledged member of the Wall Street establishment. Just a few months later, Michael Milken, who had earned $25,000 in 1970 and $500 million in 1989, wrote to Judge Kimba Wood that “I never dreamed I could do anything that would result in being a felon.” The government’s measure of the damage he had done to others came to $685,614. Judge Wood sentenced him to ten years in jail. The stock market crash of October 19, 1987 wiped out $600 billion of wealth in six and a half hours.

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Through it all, the only sound we hear is the clanking of primitive computers. They surveyed the scene from the top of the ivory tower. Let us now share their perspective, which reaches beyond the dickering business of eighths and quarters on a block trade and the flashing numbers on a computer screen. As the derring-do of Michael Milken and his cohorts fades from view, as financial innovation advances, and as the global economy fosters increasingly competitive financial markets, the vitality and flexibility of the capital markets come into sharp focus. These markets are the marvel of the capitalist system that the world yearns to emulate.

Buffett by Roger Lowenstein

Alan Greenspan, asset allocation, Bear Stearns, book value, Bretton Woods, buy and hold, Carl Icahn, cashless society, collective bargaining, computerized trading, corporate raider, credit crunch, cuban missile crisis, Eugene Fama: efficient market hypothesis, index card, index fund, interest rate derivative, invisible hand, Jeffrey Epstein, John Meriwether, junk bonds, Long Term Capital Management, Michael Milken, moral hazard, Paul Samuelson, random walk, risk tolerance, Robert Shiller, Ronald Reagan, Savings and loan crisis, selection bias, Teledyne, The Predators' Ball, traveling salesman, Works Progress Administration, Yogi Berra, young professional, zero-coupon bond

They filled the seats and stood in the aisles—the same hearing room where a glowering Michael Milken had pleaded the Fifth. The front was filled with the technical paraphernalia of journalism—television cameras with their blinding spotlights, tape recorders, photographic equipment. The audience picked out Buffett, in a dark suit, seated at the witness table, and Katharine Graham, sitting in front. Now, in their preambles, the congressmen ascended to spasms of telegenic outrage. An arrogant disdain … the American people … ripped off by a few aggressive traders … Ivan Boesky … Michael Milken … our financial culture … these disgraceful episodes …23 Rep.

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Many companies’ shares were being quoted for less than the value of their cash in the bank.19 But Graham, a classicist, could recognize Wall Street’s gloom as part of an all-too-human cycle: That enormous profits should have turned into still more colossal losses, that new theories should have been developed and later discredited, that unlimited optimism should have been succeeded by the deepest despair are all in strict accord with age-old tradition.20 Graham dissected common stocks, corporate bonds, and speculative senior securities (what Michael Milken would call junk bonds) as the biologist did the frog. At first blush, then, Security Analysis was a textbook for a profession still in the making.* But written during the madness of 1929 and its aftermath, the book was also a call to arms against the sins of speculation. In that sense, it was a total break.

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There was no such thing as a bad bond. In a theoretical sense, Buffett agreed. The previous year, Berkshire had made a lot of money buying the (then cheap) bonds of a highly troubled creditor, Washington Public Power Supply System. Bankrupt credits often were attractive on a price-to-value basis; Michael Milken, Drexel’s junk-bond impresario, had gotten his start trading just such “fallen angels.” Junk bonds of recent vintage had the crucial distinction of not having yet fallen: they were weak credits issued at par (full price), with a long way to fall and little upside. Buffett, continuing in his “pejorative” vein, pointed out that the issuers of those junk bonds were raking in very fat fees, as were the deal promoters.

America's Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein

bank run, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, capital controls, central bank independence, Charles Lindbergh, corporate governance, fiat currency, financial independence, full employment, Glass-Steagall Act, Ida Tarbell, Long Term Capital Management, low interest rates, Michael Milken, Money creation, moral hazard, off-the-grid, old-boy network, quantitative easing, The Wealth of Nations by Adam Smith, Upton Sinclair, walking around money

Owen, The Federal Reserve Act (New York: Century, 1919), 2–3. “Fear of a silver basis prevailed”: Barton Hepburn, A History of Currency in the United States (New York: Macmillan, 1924), 349–50. forced to go hat in hand: James Grant, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken (New York: Farrar, Straus and Giroux, 1992), 74. Morgan turned a profit: Vincent P. Carosso, The Morgans: Private International Bankers, 1854–1913 (Cambridge, Mass.: Harvard University Press, 1987), 339. Glass believed, on no evidence: Poindexter, “From Copy Desk to Congress,” 177. “It is just the money power”: Ibid., 206–7.

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“Thoughtful students of economic history”: Speech of Senator Nelson W. Aldrich on S. Bill No. 3023, February 10, 1908, quoted in Warburg, The Federal Reserve System, 1:32. Given carte blanche to do as little: James Grant, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken (New York: Farrar, Straus and Giroux, 1992), 122–23. Tallies of the number of National Monetary Commission volumes differ. Andrew cites thirty-five volumes; see Andrew to Woodrow Wilson, November 23, 1911, A. Piatt Andrews Papers, Box 22, folder 7; however, Andrew L. Gray, Andrew’s grandnephew, cites twenty-three volumes in “Who Killed the Aldrich Plan?”

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a scorching indictment: Untermyer was quite sarcastic in questioning Vanderlip, viz, “Of how many corporations are you a director Mr. Vanderlip; can you remember?”: Pujo Report. “Have you ever competed for any securities”: Ibid., 1542. “well-defined identity and community”: Ibid., 129. Public revulsion was nearly uniform: James Grant, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken (New York: Farrar, Straus and Giroux, 1992), 125. twenty-five thousand individual banks: This figure was widely used, including in the Pujo Report, 251. According to Robert A. Degen, The American Monetary System: A Concise Survey of Its Evolution Since 1896 (Lexington, Mass.: D.C. Heath and Company, 1987), 10, the total of banks in 1914 was twenty-eight thousand, a doubling from 1900.

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

The $224 million all-cash hostile takeover of battery maker ESB (for Electrical Storage Battery Co.) by International Nickel in 1974 marked the beginning of a new era—notable because a blue-chip mining giant was doing the hostile bidding and a blue-chip Wall Street firm, Morgan Stanley, was representing it. Not many companies had that kind of money lying around. The advent of a takeover boom required the arrival of a financier. Michael Milken was that financier. As an undergraduate at UC–Berkeley in the 1960s, Milken had come across a 1957 National Bureau of Economic Research study showing that low-grade bonds delivered better returns than high-grade ones. This made perfect capital asset pricing model sense: Bonds downgraded by S&P or Moody’s had been deemed riskier than bonds that hadn’t, so investors should reap a reward for buying them.

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These guys were just too big a piece of the market to assume that.”25 FINANCIAL RISK IS NOT JUST about numbers and scatter charts and pervasive forces. The actions of individuals matter. Ed Thorp managed his way through the market minefield of the late 1980s almost perfectly—Princeton-Newport Partners turned a profit in 1987—only to be blindsided by Rudy Giuliani. When the U.S. attorney for the Southern District of New York targeted Michael Milken for prosecution, Thorp’s Princeton partners got caught in Giuliani’s web. They were charged with parking securities for Milken’s Drexel Burnham Lambert. Thorp, while never accused of any wrongdoing himself, had to shut down his hedge fund. The influence of Giuliani paled, though, beside that of the most important one-man risk factor of modern times, the chairman of the Federal Reserve Board.

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Drexel was not the first firm to “manufacture” junk bonds; Lehman Brothers was, in 1977. But Drexel soon came to dominate the business. 34. Years later, after a federal judge had thrown Milken in jail for securities fraud, Chicago professor and soon-to-be law school dean Daniel Fischel wrote a book with the very unprofessorial title Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution (New York: HarperBusiness, 1995). 35. Fischel, Payback, 38. (Despite the incendiary title, it’s a useful source of information.) 36. Economic Report of the President, February 1985, Washington, D.C.: U.S. Government Printing Office, 1995, 187–216. In an interview with the author, William A.

Unscripted: The Epic Battle for a Media Empire and the Redstone Family Legacy by James B Stewart, Rachel Abrams

activist fund / activist shareholder / activist investor, AOL-Time Warner, Apple's 1984 Super Bowl advert, Bear Stearns, Bernie Madoff, Black Lives Matter, company town, compensation consultant, corporate governance, corporate raider, Donald Trump, estate planning, high net worth, Jeff Bezos, junk bonds, Mark Zuckerberg, medical residency, Michael Milken, power law, shareholder value, Silicon Valley, Steve Jobs, stock buybacks, Tim Cook: Apple, vertical integration, éminence grise

But others detected a growing sense of invincibility. After the fire his ambitions expanded. His little-known National Amusements chain began buying large stakes in major entertainment companies: Twentieth Century Fox, Warner Communications, MGM Films, Columbia Pictures, and Time, Inc. The 1980s saw the emergence of the Michael Milken–financed corporate raiders, and Sumner joined their ranks. His opponents consistently underestimated his business acumen and fierce determination. Viacom management, who bid against him in 1987, belittled him as a provincial Boston theater operator, an impression reinforced when Sumner showed up at Viacom’s New York headquarters wearing a sports jacket he’d just bought at the discount chain Filene’s Basement—with the tags still on it.

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She’d interrupt lunch with friends (as she often did with Stanger) the instant Sumner called. Soon Holland was indispensable. When Sumner asked Holland to move in with him, she did, taking on the roles of wife, secretary, business manager, and, increasingly, nurse. She redecorated the mansion. She arranged visits there with Sumner’s longtime friends Charlie Rose, Michael Milken, and Sherry Lansing, not to mention the women she imported for his sexual gratification. She oversaw his dealings with CBS and Viacom, organized a CBS board meeting at the house, arranged his Sunday movie screenings, and got him to his dentist and doctor appointments. Sumner made many demands on Holland, all of which she maintained she met: that she be present for every lunch and dinner with him; that she go to sleep when he did (even though this was much earlier than she preferred); that she not take overnight trips without him; that she stop seeing her friends.

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The guest list was a who’s who of current and former Hollywood moguls, although virtually everyone had some direct financial interest in being there: Philippe Dauman and Leslie Moonves, of course; Sumner’s old pal Robert Evans; Sherry Lansing; the producer Brian Grazer; Michael Eisner, the Disney ex-chair; and Jeffrey Katzenberg, the DreamWorks cofounder Eisner had forced out at Disney. (Viacom had bought DreamWorks’ live-action studio for $1.6 billion in 2006.) The former junk-bond king Michael Milken, who had advised Sumner about his prostate cancer, was there, too. Sumner had given $30 million to George Washington University, home to the Milken Institute School of Public Health. Al Gore showed up; the former vice president’s Climate Reality Project was the recipient of $10 million from Sumner.

740 Park: The Story of the World's Richest Apartment Building by Michael Gross

Alan Greenspan, Albert Einstein, anti-communist, Bear Stearns, Bonfire of the Vanities, California gold rush, Carl Icahn, company town, Cornelius Vanderbilt, corporate raider, cuban missile crisis, Donald Trump, Glass-Steagall Act, Irwin Jacobs, it's over 9,000, Jarndyce and Jarndyce, junk bonds, McMansion, Michael Milken, mortgage debt, Norman Mailer, offshore financial centre, oil shale / tar sands, plutocrats, Ronald Reagan, sensible shoes, short selling, strikebreaker, The Predators' Ball, traveling salesman, Upton Sinclair, urban planning

He persuades Alfred this is a cool thing to do and we can make a lot of money, and then Alfred, who was always the brains figuring out the percentages and the legal structures, figures out a way to take over Bonbright, and the other guys there are happy to cash out and let these Young Turks drive the boat. And then it was the twenties and they were financing bonds, financing electric power plants, all over the world.” Soon they’d forged ties with every power in the power business, raising the money that funded the industry’s expansion. “He was the Michael Milken of the twenties,” says Peter Thorne, comparing his grandfather to the junk-bond king of the 1980s who also made a fortune and changed the world by financing what seemed like risky new technology. In the fall of 1924, Thorne and Loomis engineered the creation of United Light and Power, merging utilities in nine states into a $34-million-a-year colossus—and also revealed that they’d secretly organized the American Superpower Corporation, which had acquired ownership interests in some of the largest power companies across the country.

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That was the first of several legal battles he’d have in the 1970s, including another against Barron’s, which accused him of questionable accounting, and a third with the Securities and Exchange Commission, which said he illegally manipulated a stock he was speculating in (Steinberg signed a consent decree without admitting or denying wrongdoing). At the same time, thanks to a young investment banker named Michael Milken at the firm Drexel Burnham Lambert, Saul found his way back to the cutting edge of finance. Saul’s specialty wasn’t really computers; it was investing. He was always on the hunt for new opportunities. In 1973, Milken had begun touting non-investment-grade bonds, also known as high-yield bonds, and later junk bonds, that paid exorbitant interest on what most investors saw as huge risks.

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He started buying stock in Twentieth Century Fox, the New York Times, Filmways, Flying Tiger airlines, an insurance competitor called Republic Financial, Paine Webber, and the utility that owned the Three Mile Island nuclear reactor, but took none of them over; formed an investment partnership with Michael Milken that, Barron’s would say four years later, “has been a corporate whirling dervish, acquiring businesses, making leveraged buyouts and then spinning off pieces of its repackaged holdings to a pliant public”; bought himself a forty-first birthday party featuring a sit-down dinner for two hundred and songs by Broadway’s Evita, Patti LuPone; slept his way through several more women (he even moved out of 740 at the request of one of them, the Lancôme cosmetics model Nancy Dutiel); snorted a bunch more cocaine; and finally settled down for the long run.

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Alan Greenspan, Asian financial crisis, asset allocation, asset-backed security, backtesting, Bear Stearns, Bernie Madoff, book value, Bretton Woods, business process, call centre, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, financial engineering, fixed income, global macro, high net worth, high-speed rail, impact investing, interest rate derivative, Isaac Newton, Jim Simons, junk bonds, Long Term Capital Management, managed futures, Marc Andreessen, Mark Zuckerberg, merger arbitrage, Michael Milken, Myron Scholes, NetJets, oil shock, pattern recognition, Pershing Square Capital Management, Ponzi scheme, proprietary trading, quantitative easing, quantitative trading / quantitative finance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Savings and loan crisis, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, stock buybacks, systematic bias, systematic trading, tail risk, two and twenty, zero-sum game

Even though they were doing very well under the Bass umbrella, after about two years, the siblings were ready to really strike out on their own. “I think it was a little bit of hubris probably,” Lasry admits. He had learned a lot from the superstars at Bass and felt ready to invest his money on his own. What’s more, Drexel Burnham Lambert had collapsed in the wake of Michael Milken’s indictment for securities fraud, which plunged many companies with low junk bond credit ratings deeper in the red. Suddenly, there were massive opportunities for distressed investors. “You know, when you look back on it, I left what probably was one of the best jobs in America, running money for one of the world’s first billionaires,” Lasry says.

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Tepper thinks of his investment track record as something similar to a connect-the-dots game, except the puzzle is never finished and the prize is billions of dollars. “When I got to Goldman, I changed the way junk bonds were traded. It was pretty radical, moving the whole market to trades on sectors. It used to be traded by maturities, which helped perpetuate the monopoly held by Michael Milken at Drexel Burnham,” explains Tepper. This approach to the U.S. junk bond market would serve Appaloosa well in its pursuit of global opportunities. International Intrigue Venturing into the world of emerging markets in the mid-1990s was like second nature to Tepper, who had been a key player in many “different capital markets and things that were happening around the world,” he says, from his time at Goldman.

The Essays of Warren Buffett: Lessons for Corporate America by Warren E. Buffett, Lawrence A. Cunningham

book value, business logic, buy and hold, compensation consultant, compound rate of return, corporate governance, Dissolution of the Soviet Union, diversified portfolio, dividend-yielding stocks, fixed income, George Santayana, Henry Singleton, index fund, intangible asset, invisible hand, junk bonds, large denomination, low cost airline, Michael Milken, oil shock, passive investing, price stability, Ronald Reagan, stock buybacks, Tax Reform Act of 1986, Teledyne, the market place, transaction costs, Yogi Berra, zero-coupon bond

He attributes this error to a flawed assumption recognizable to any first-year statistics student: that historical conditions prevalent during the study period would be identical in the future. They would not. Further illuminating the folly of junk bonds is an essay in this collection by Charlie Munger that discusses Michael Milken's approach to finance. Wall Street tends to embrace ideas based on revenue-generating power, rather than on financial sense, a tendency that often perverts good ideas to bad ones. In a history of zero-coupon bonds, for example, Buffett shows that they can enable a purchaser to lock in a compound rate of return equal to a coupon rate that a normal bond paying periodic interest would not provide.

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The handiwork of the Wall Street of the 1980s is even worse than we had thought: Many important businesses have been mortally wounded. We will, though, keep looking for opportunities as the junk market continues to unravel. It is interesting to compare Wesco's approach (deliberate nondiversification of investments in an attempt to be more skillful per transaction) with an approach promoted for years by Michael Milken to help sell junk bonds. The Milken approach, supported by theories of many finance professors, argued that (1) market prices were efficient in a world where investors get paid extra for enduring volatility (wide swings in outcomes); (2) therefore, the prices at which new issues of junk bonds came to market were fair in a probabilistic sense (meaning that the high promised interest rates covered increased statistical expectancy of loss) and also pro- 1997] THE ESSAYS OF WARREN BUFFETT 103 vided some premium return to cover volatility exposure; and (3) therefore, if a savings and loan association (or other institution) arranged diversification, say, by buying, without much examination, a large part of each new Milken issue of junk bonds, the association would work itself into the sure to-get-better-than-averageresults position of a gambling house proprietor with a "house" edge.

The Greed Merchants: How the Investment Banks Exploited the System by Philip Augar

Alan Greenspan, Andy Kessler, AOL-Time Warner, barriers to entry, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, business cycle, buttonwood tree, buy and hold, capital asset pricing model, Carl Icahn, commoditize, corporate governance, corporate raider, crony capitalism, cross-subsidies, deal flow, equity risk premium, financial deregulation, financial engineering, financial innovation, fixed income, Glass-Steagall Act, Gordon Gekko, high net worth, information retrieval, interest rate derivative, invisible hand, John Meriwether, junk bonds, Long Term Capital Management, low interest rates, Martin Wolf, Michael Milken, new economy, Nick Leeson, offshore financial centre, pensions crisis, proprietary trading, regulatory arbitrage, risk free rate, Sand Hill Road, shareholder value, short selling, Silicon Valley, South Sea Bubble, statistical model, systematic bias, Telecommunications Act of 1996, The Chicago School, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, tulip mania, value at risk, yield curve

In the late 1980s Tom Wolfe’s bestseller Bonfire of the Vanities, Michael Douglas’s Oscar-winning portrayal of Gordon Gekko in the movie Wall Street and Michael Lewis’s tale of the Salomon Brothers jungle, Liar’s Poker, picked out some not very attractive characteristics of investment banking people.16 A crop of insider trading and market manipulation cases – notably the Boesky and Milken affairs in America and the Guinness scandal in the UK – revived old memories of greed and corruption in financial circles.17 Ivan Boesky was a prominent risk arbitrageur – someone who takes stock market positions in the hope of profiting from takeover bids – who received a prison sentence and a $100 million fine in 1986 after admitting to trading on insiders’ tips.18 Boesky was well known in financial circles but what shocked the public at large was where the trail led. Boesky turned state’s evidence and named Michael Milken as an insider dealer. Milken was the high profile investment banker who had transformed junk bonds – high risk, high yielding securities – from a backwater of the capital markets into a mainstream financial instrument. Under the leadership of Milken and the firm he worked for, Drexel Burnham Lambert, junk bonds were used to underpin the leveraged buy-outs – demergers funded largely by debt – that refinanced corporate America in the eighties.

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And indeed it restored its reputation to such a degree that when in 2004 the founders of Google decided to list their company in a groundbreaking way, with all sorts of ethical objectives about the way they wanted ownership to work, guess who they chose to co-lead the issue? No Way In This background of financial volatility, staff turnover and scandal at Lehman, Salomon and CSFB should have provided ideal circumstances for other firms to join the top six. Drexel, Burnham in fact did so in the mid eighties on the back of Michael Milken’s junk bond revolution, but by 1990 it had collapsed when Milken was dragged into the Boesky insider dealing affair. Bankers Trust was another star that burned brightly for a while. It was eighth in 1990 and for the next three years its derivatives business helped to make it the most profitable major bank in the USA.

The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything by Jason Kelly

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, antiwork, barriers to entry, Bear Stearns, Berlin Wall, call centre, Carl Icahn, carried interest, collective bargaining, company town, corporate governance, corporate raider, Credit Default Swap, diversification, eat what you kill, Fall of the Berlin Wall, family office, financial engineering, fixed income, Goldman Sachs: Vampire Squid, Gordon Gekko, housing crisis, income inequality, junk bonds, Kevin Roose, late capitalism, margin call, Menlo Park, Michael Milken, military-industrial complex, Occupy movement, place-making, proprietary trading, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Rubik’s Cube, San Francisco homelessness, Sand Hill Road, Savings and loan crisis, shareholder value, side project, Silicon Valley, sovereign wealth fund, two and twenty

Jimmy Lee was eager to win clients and build a book of business at Chemical, and later Chase’s investment bank. He knew he wasn’t Schwarzman’s first call (because he’d told him so). So he decided to make himself indispensable as Blackstone’s financier and later adviser on M&A. Lee was playing in an area once dominated by Drexel Burnham Lambert Inc., specifically by Michael Milken. It was Milken, a Drexel trader, who pioneered the use of high-yield, noninvestment-grade bonds (aka junk bonds), often in hostile takeovers. Drexel and Milken helped fuel the surge of mergers and acquisitions, including leveraged buyouts, during the 1980s. Milken was indicted for securities violations tied to insider trading, triggering Drexel to file for bankruptcy in 1990.1 While that eliminated a major provider of debt for LBOs, Drexel was a de facto training ground for a number of men who went on to create or work at major private-equity and investment firms.

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See Limited Partners (LPs) LVMH Moet Hennessy Louis Vuitton Madison Dearborn Major, John Manor Care Marchick, David Mark, Joncarlo Markell, Jack Marriott, Bill, Jr. Marriott, Bill, Sr. Mathias, Ed: Carlyle Group and on Conway and D’Aniello Mayer, Michael McKillickan, Rebecca McKinsey & Co. Mehlman, Kenneth Mergers and Acquisitions (M & A) activity Merrill Lynch Metropolitan Museum of Art Meyer, Andre Mezzanine loans Michelson, Michael Milken, Michael Miller, Bill Miranda, Javier Moelis & Company MOIC. See Multiple of invested capital (MOIC) Monaghan, Thomas Monitoring fees Moore, Michael Moran, Garrett Morelli, Vincenzo Morgan Stanley Morris, John Motorola Mount Sinai Hospital Moynihan, Brian Mubadala Development Company Mulroney, Brian Multiple of invested capital (MOIC) Murray, Steve Nassetta, Chris National Venture Capital Association Nature Conservancy Navab, Alexander Nelson, Dean: as head of Capstone KKR recruitment of Regal Cinemas deal New Jersey, commitment to Blackstone New Jersey Investment Council New Jersey pension plan Newman, Arthur Newman, Howard Newsweek New York City Investment Fund New Yorker New York’s Museum of Modern Art New York Times New York University Law Review Nexio Noninvestment-grade bonds (junk bonds) Norris, Steven Norton, Ed Novy-Marx, Robert Nunnelly, Mark Nuttall, Scott Obama Administration Occupy Wall Street movement OMG.

Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, book value, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, Cornelius Vanderbilt, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, flying shuttle, Glass-Steagall Act, Gordon Gekko, Henri Poincaré, Henry Singleton, high net worth, impact investing, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, John Bogle, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, margin call, means of production, Menlo Park, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Performance of Mutual Funds in the Period, Ponzi scheme, Post-Keynesian economics, price mechanism, principal–agent problem, profit maximization, proprietary trading, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Sand Hill Road, Savings and loan crisis, seminal paper, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, tail risk, technology bubble, Teledyne, The Wealth of Nations by Adam Smith, time value of money, tontine, too big to fail, transaction costs, two and twenty, underbanked, Vanguard fund, working poor, yield curve

The real secret to his wealth, though, was not brilliant utilization of a merger arbitrage strategy; it was instead a strategy as old as time—to play “hardball” to stay ahead.133 Boesky consistently relied on insider information and failed to disclose who else was working with him to influence the market. Figures like Dennis Levine, Michael Milken, and Martin Siegel, whose firms had access to information—for example, by virtue of being retained in an advisory capacity on merger and acquisition deals—clandestinely and illegally worked with Boesky to pass along information on what to purchase so that they could share in the profits.134 Illustrating how Boesky’s schemes worked, an early deal Martin Siegel fed Boesky involved Diamond Shamrock, a chemical company that was at the time interested in expanding its operations in oil and planning to do so through an acquisition.

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Boesky did precisely that and made millions when the deal eventually went through.135 The SEC became wise to all of these ostensible acts of prescience by Boesky when it charged Dennis Levine, an investment banker at Drexel Burnham Lambert in New York, with insider trading in 1985.136 Levine cooperated, and the SEC was made aware of Boesky’s involvement.137 Boesky ended up getting a generous deal from the SEC in return for his help turning their attention to what the SEC seemed to regard as an even bigger fish: Michael Milken, also at Drexel Burnham Lambert. In the end, though he did pay $100 million for his transgressions, Boesky was even allowed to sell off his investments, saving him a great deal of money.138 He was sentenced to only three years of jail time.139 Boesky managed to receive minimal punishment largely because of his cooperation.

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The law allowed the SEC to pursue treble damages, or three times the amount of money gained by trades based on inside information. The law came during the 1980s, a difficult decade marked by financial improprieties of many kinds. It was these laws that would aid in making examples of people like Ivan Boesky, Dennis Levine, and Michael Milken, who were extracting enormous fortunes from illicit informational edges and manipulation.163 CONCLUSION The United States has made remarkable progress in democratizing access to a fair market by overhauling the laws and regulations against market manipulation, trading on inside information, and fraud.

The greatest trade ever: the behind-the-scenes story of how John Paulson defied Wall Street and made financial history by Gregory Zuckerman

1960s counterculture, Alan Greenspan, banking crisis, Bear Stearns, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, index fund, Isaac Newton, Jim Simons, junk bonds, Larry Ellison, Long Term Capital Management, low interest rates, margin call, Mark Zuckerberg, Menlo Park, merger arbitrage, Michael Milken, mortgage debt, mortgage tax deduction, Ponzi scheme, Renaissance Technologies, rent control, Robert Shiller, rolodex, short selling, Silicon Valley, statistical arbitrage, Steve Ballmer, Steve Wozniak, technology bubble, zero-sum game

By buying shares of companies being acquired, and selling short companies making acquisitions, Gruss was able to generate profits that largely were shielded from stock-market fluctuations. The ideal Gruss investment had limited risk but held the promise of a potential fortune. Marty Gruss drilled a maxim into Paulson: “"Watch the downside; the upside will take care of itself.”" Paulson’'s buyout business never really took off, however. The 1989 indictment of junk-bond king Michael Milken and a slowing economy made it hard to finance buyouts, and Martin Gruss seemed distracted, perhaps due to a recent second marriage. Soon he and Paulson parted company. Despite Paulson’'s fierce ambition and his love of making money and landing big deals, other urges were distracting the thirty-five-year-old.

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But they proved so unwilling to shell out money at the start of a trade that Simon and his team gave up, unable to sell the fund, thereby losing a chance to undertake the same trades as Paulson. Even the most successful investors shun negative carry; it is like garlic to vampires. In the 1980s, when junior traders suggested that junk-bond king Michael Milken short especially risky bonds, he scoffed at the notion of paying high interest on the debt while waiting for it to fall in price. Trades that lock in instant payments in the hopes of a payday someday in the future make even the likes of George Soros queasy. “"I don’'t know if I would have done it myself, if I was in [Paulson’'s] shoes,”" Soros says.

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, business cycle, buy and hold, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, Future Shock, George Akerlof, George Santayana, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, junk bonds, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Michael Milken, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Paul Samuelson, Phillips curve, plutocrats, Post-Keynesian economics, price stability, profit maximization, public intellectual, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, seminal paper, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, W. E. B. Du Bois, We are all Keynesians now, working-age population, Y2K, Yom Kippur War

The S&Ls were not worth anything as going enterprises—but they were worth a great deal for whatever sweetheart deals their owners could make. Such deals could involve real estate, with receipt of kickbacks from developers, or they could involve the purchase of risky but high-paying assets. The most inventive user of S&L sweetheart money was the junk bond impresario Michael Milken. Up until the 1980s the prevailing wisdom among economists had been that it was very difficult, if not impossible, to engage in a profitable hostile takeover bid. If the firm was undervalued before the bid was made, the bid itself would cause it to rise in value. By the time the deal was closed, the surplus for the bidder would be insufficient to pay the transaction costs of the takeover.10 But Milken found a way to drastically reduce the cost of takeovers.

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Risk, Uncertainty and Profit. New York: Houghton Mifflin. Knoppik, Christoph, and Thomas Beissinger. 2003. “How Rigid Are Nominal Wages? Evidence and Implications for Germany.” Scandinavian Journal of Economics 105(4):619–41. Kornbluth, Jesse. 1992. Highly Confident: The Crime and Punishment of Michael Milken. New York: William Morrow. Krueger, Alan B., and Lawrence H. Summers, 1988. “Efficiency Wages and the Inter-Industry Wage Structure.” Econometrica 56(2):259–93. Krueger, Alan B., and Diane M. Whitmore. 1999. “The Effect of Attending a Small Class in the Early Grades on College-Test Taking and Middle School Test Results: Evidence from Project STAR.”

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic by Leo Gough

Albert Einstein, banking crisis, Bernie Madoff, book value, corporate governance, discounted cash flows, disinformation, diversification, fixed income, index fund, John Bogle, junk bonds, Long Term Capital Management, Michael Milken, Northern Rock, passive investing, Ralph Waldo Emerson, random walk, short selling, South Sea Bubble, The Nature of the Firm, the rule of 72, The Wealth of Nations by Adam Smith, transaction costs, young professional

Here are just a few of the prominent characters from the Rogues’ Gallery during the last few years: Bernie Madoff, arrested in December 2008 for running a fraudulent investment scheme that collapsed owing more than 60 billion dollars; Bernard Ebbers, former CEO of Worldcom, a large telecommunications company, jailed in 2005 for false financial reporting that resulted in a loss of some 11 billion dollars to investors; Jack Grubman, a stock analyst who was fined and banned for life from the securities industry in 2004 for producing over-optimistic reports and ratings on some of the companies he followed; David Walsh, founder of Bre-X Mining, which went bankrupt in 1997 after it was discovered that a gold mine it owned in Borneo had been fraudulently ‘salted’ with gold; Michael Milken, father of the junk bond industry, convicted of insider trading in 1989. The list just goes on and on, but you get the idea: yes there are crooks around in the stock market – lots of them! HERE’S AN IDEA FOR YOU… Your best defence from being cheated is information. Read and learn about how financial frauds happen, and inoculate yourself against the disease of gullibility. 33 AVOIDING THE BIG COLLAPSES ‘… an effort to put a little truth into the falsest text in the English language: “God tempereth the wind to the shorn lamb”.

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite by Duff McDonald

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Albert Einstein, Apollo 13, barriers to entry, Bayesian statistics, Bear Stearns, Bernie Madoff, Bob Noyce, Bonfire of the Vanities, business cycle, business process, butterfly effect, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Clayton Christensen, cloud computing, collateralized debt obligation, collective bargaining, commoditize, compensation consultant, corporate governance, corporate raider, corporate social responsibility, creative destruction, deskilling, discounted cash flows, disintermediation, disruptive innovation, Donald Trump, eat what you kill, Fairchild Semiconductor, family office, financial engineering, financial innovation, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, Glass-Steagall Act, global pandemic, Gordon Gekko, hiring and firing, Ida Tarbell, impact investing, income inequality, invisible hand, Jeff Bezos, job-hopping, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, Kōnosuke Matsushita, London Whale, Long Term Capital Management, market fundamentalism, Menlo Park, Michael Milken, new economy, obamacare, oil shock, pattern recognition, performance metric, Pershing Square Capital Management, Peter Thiel, planned obsolescence, plutocrats, profit maximization, profit motive, pushing on a string, Ralph Nader, Ralph Waldo Emerson, RAND corporation, random walk, rent-seeking, Ronald Coase, Ronald Reagan, Sam Altman, Sand Hill Road, Saturday Night Live, scientific management, shareholder value, Sheryl Sandberg, Silicon Valley, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Steve Jurvetson, survivorship bias, TED Talk, The Nature of the Firm, the scientific method, Thorstein Veblen, Tragedy of the Commons, union organizing, urban renewal, vertical integration, Vilfredo Pareto, War on Poverty, William Shockley: the traitorous eight, women in the workforce, Y Combinator

Enjoying the controversy, Thiel wandered into the realm of gross generalization when addressing a conference of gay MBAs in San Francisco. There he made the claim that MBAs only buy into innovations after they’ve peaked. They were late to the junk bond boom, he pointed out, only arriving en masse in 1989, a year before Michael Milken went to jail. None of them went near Silicon Valley until 1999, he added, at which point “[graduates of] HBS perfectly timed the dot-com bubble.”1 It was all very entertaining, especially for non-MBAs. But it was also wrong. While Thiel was obviously generalizing about the herd behavior of MBAs, the experience of many HBS graduates, in particular, undercut those generalizations at their source.

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But a change in behavior almost always means giving up an associated way of thinking, and giving up a way of thinking is almost always a painful process. Providing students with an opportunity to learn material that fundamentally changes the way they see the world generates confusion, discomfort, and controversy.”24 And get a load of this gem of an argument: “As an example of the confrontation of emotions with reason, we use the case of Michael Milken and Drexel. Who, we ask our students, has created more value in this century than Milken? Was Milken overcompensated for that effort (even after legal penalties) by his contract with Drexel, which gave him a $50,000 salary and approximately one-third of the profits of the division he founded at Drexel?

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From there, everything snowballed. Levine implicated Ivan F. Boesky, an arbitrageur, who then implicated Martin Siegel (’71), formerly of Kidder Peabody but then working for Drexel Burnham Lambert. And here’s a fun fact for your next cocktail party: It was insider trading in the shares of none other than Enron, which Michael Milken had helped finance, that tipped investigators off to Levine in the first place.25 A number of HBS graduates were ensnared in the ensuing investigation, including Siegel, Paul Bilzerian (’77), and Ira Sokolow (’81). Fred Joseph (’63) was CEO of Drexel when it was brought to its knees during the scandal, although he denied any involvement in the insider trading schemes and claimed he was only guilty of “surprising naïveté.”

Saudi America: The Truth About Fracking and How It's Changing the World by Bethany McLean

addicted to oil, Alan Greenspan, American energy revolution, Asian financial crisis, Bear Stearns, buy and hold, carbon tax, Carl Icahn, corporate governance, delayed gratification, Donald Trump, family office, geopolitical risk, hydraulic fracturing, Jeff Bezos, junk bonds, low interest rates, Mark Zuckerberg, Masdar, Michael Milken, oil shale / tar sands, peak oil, Silicon Valley, sovereign wealth fund, Upton Sinclair, Yom Kippur War

He was, in many ways, the embodiment of a transformation that has changed the face of not just the oil and gas industries but of geopolitics as well. The contradictions and questions in McClendon’s story continue to reverberate across the industry he did so much to create. You might think of McClendon as a bit of J. R. Ewing, the fictional character in the television series Dallas, mixed with Michael Milken, the junk bond king who pioneered an industry and arguably changed the world, but spent several years in prison after pleading guilty to securities fraud. Over and over, I heard the same refrain: “Aubrey epitomizes everything we’re talking about.” Unlike many others who come from nothing and make their fortunes in the oil patch, McClendon, who was born on July 14, 1959 in Oklahoma City, was oil industry royalty.

Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World by Tom Wright, Bradley Hope

"World Economic Forum" Davos, Asian financial crisis, Bear Stearns, Bernie Madoff, Boeing 747, collapse of Lehman Brothers, colonial rule, corporate social responsibility, Credit Default Swap, Donald Trump, failed state, family office, financial engineering, forensic accounting, Frank Gehry, Global Witness, high net worth, junk bonds, low interest rates, Michael Milken, middle-income trap, Nick Leeson, offshore financial centre, Oscar Wyatt, Ponzi scheme, Right to Buy, risk tolerance, Savings and loan crisis, Snapchat, South China Sea, sovereign wealth fund, Virgin Galactic

Malaysia’s economy was growing at over 5 percent annually, powered by the export of commodities like palm oil, as well as garments, computer chips, and electronic devices. Attracted by the hot growth, foreign investors poured money into Malaysian stocks and bonds. But there was no oversight. Insiders regularly broke securities laws, as if taking their cues from the excesses of 1980s figures such as Michael Milken, the U.S. junk bond king, and insider trader Ivan Boesky. Malaysians who knew how to play the system became incredibly rich, while minority shareholders lost out. People who worked with Larry considered him charming and a wheeler-dealer, albeit with a lazy streak, preferring drinking late in nightclubs to work, but he benefited nevertheless from a run-up in the garment company’s stock.

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By the time the scheme imploded in late 2008, Madoff had amassed a paper fortune of $800 million, but most of this was the value of his market-making business; the amount he personally stole was a fraction of the amount lost. Low’s mark—the little-known 1MDB, a Malaysian government fund—wasn’t asking for any money back and it wouldn’t so long as he controlled it through his proxies. Low also wasn’t like junk-bond king Michael Milken, who had amassed a personal fortune in the 1980s before going to prison for violating securities laws. The Malaysian had simply taken hundreds of millions of dollars. The excesses of Madoff or the 1980s would seem prosaic compared to the multiyear spending spree on which Low was about to embark.

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street by Jonathan A. Knee

AOL-Time Warner, barriers to entry, Bear Stearns, book value, Boycotts of Israel, business logic, call centre, cognitive dissonance, commoditize, corporate governance, Corrections Corporation of America, deal flow, discounted cash flows, fear of failure, fixed income, Glass-Steagall Act, greed is good, if you build it, they will come, iterative process, junk bonds, low interest rates, market bubble, market clearing, Mary Meeker, Menlo Park, Michael Milken, new economy, Ponzi scheme, pre–internet, proprietary trading, risk/return, Ronald Reagan, shareholder value, Silicon Valley, SoftBank, technology bubble, young professional, éminence grise

In place of this ideal a culture of contingency emerged, a sense not only that each day might be your last, but that your value was linked exclusively to how much revenue was generated for the firm on that day—regardless of its source. At the height of the boom in 1999, I had recently left Goldman Sachs for Morgan Stanley. Once white-shoe Morgan was now locked in battle with relative upstart Donaldson, Lufkin and Jenrette to claim the mantle of junk bond king, up for grabs since the final implosion of Michael Milken’s Drexel Lambert in 1990. The popularization of junk bonds by Drexel had made the debt markets available to all manner of highly leveraged speculative companies—companies, in short, that were the antithesis of Morgan Stanley’s once-pristine client list. Morgan’s primary weapon in this war was its willingness to sponsor debt for “emerging” telecom companies that required huge capital investments.

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DLJ was founded by its named partners in 1959 and focused primarily on underwriting smaller, less-established companies with greater growth prospects than the blue chip corporations the more established investment banks served. As late as the 1980s, DLJ was still a relatively modest firm, although it had made a successful early push into the controversial areas of establishing principal equity funds with its own capital. But after the bankruptcy of Michael Milken’s Drexel Burnham in 1990, DLJ would emerge by the mid-1990s to take the mantle of leading junk bond house. Junk bonds are issued by companies that are too small, too young, too leveraged, or otherwise seen as too risky to attract more traditional and less expensive forms of financing. Junk bonds are defined as those that receive a rating from Moody’s or S&P that designates them as “speculative” credits as contrasted to the “investment grade” ratings earned by larger, less leveraged, more established companies.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, Andrew Wiles, automated trading system, backtesting, Bayesian statistics, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, blockchain, book value, Brownian motion, butter production in bangladesh, buy and hold, buy low sell high, Cambridge Analytica, Carl Icahn, Claude Shannon: information theory, computer age, computerized trading, Credit Default Swap, Daniel Kahneman / Amos Tversky, data science, diversified portfolio, Donald Trump, Edward Thorp, Elon Musk, Emanuel Derman, endowment effect, financial engineering, Flash crash, George Gilder, Gordon Gekko, illegal immigration, index card, index fund, Isaac Newton, Jim Simons, John Meriwether, John Nash: game theory, John von Neumann, junk bonds, Loma Prieta earthquake, Long Term Capital Management, loss aversion, Louis Bachelier, mandelbrot fractal, margin call, Mark Zuckerberg, Michael Milken, Monty Hall problem, More Guns, Less Crime, Myron Scholes, Naomi Klein, natural language processing, Neil Armstrong, obamacare, off-the-grid, p-value, pattern recognition, Peter Thiel, Ponzi scheme, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, Robert Mercer, Ronald Reagan, self-driving car, Sharpe ratio, Silicon Valley, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, Steve Bannon, Steve Jobs, stochastic process, the scientific method, Thomas Bayes, transaction costs, Turing machine, Two Sigma

The unquenchable thirst of traders, bankers, and investors for market-moving financial news unavailable to the general public—known as an information advantage—helped fuel Wall Street’s gains. Tips about imminent corporate-takeover offers, earnings, and new products were coin of the realm in the twilight of the Reagan era. Junk-bond king Michael Milken pocketed over one billion dollars in compensation between 1983 and 1987 before securities violations related to an insider trading investigation landed him in jail. Others joined him, including investment banker Martin Siegel and trader Ivan Boesky, who exchanged both takeover information and briefcases packed with hundreds of thousands of dollars in neat stacks of $100 bills.1 By 1989, Gordon Gekko, the protagonist in the movie Wall Street, had come to define the business’s aggressive, cocksure professionals, who regularly pushed for an unfair edge.

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Skeptics sniffed—one told the Journal that “the real investment world is too complicated to be reduced to a model.” Yet, by the late 1980s, Thorp’s fund stood at nearly $300 million, dwarfing the $25 million Simons’s Medallion fund was managing at the time. But Princeton/Newport was ensnared in the trading scandal centered on junk-bond king Michael Milken in nearby Los Angeles, ending any hopes Thorp held of becoming an investment power. Thorp never was accused of any impropriety, and the government eventually dropped all charges related to Princeton/Newport’s activities, but publicity related to the investigation crippled his fund, and it closed in late 1988, a denouement Thorp describes as “traumatic.”

King Icahn: The Biography of a Renegade Capitalist by Mark Stevens

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Bear Stearns, book value, Carl Icahn, classic study, company town, corporate governance, corporate raider, Donald Trump, financial engineering, flag carrier, Gordon Gekko, Irwin Jacobs, junk bonds, laissez-faire capitalism, low interest rates, Michael Milken, old-boy network, Ponzi scheme, profit motive, shareholder value, yellow journalism

Of all the forces reshaping the business community in the eighties, none had a greater impact than Drexel. The product of a 1971 merger that linked two small, struggling securities firms—Burnham & Company and Drexel Firestone—the combined entity would rise to power on the strength of a young Wharton School graduate, Michael Milken, who had launched his business career with Drexel Firestone. Fascinated by a now-classic study of corporate bonds (conducted by W. Braddock Hickman), Milken came to the conclusion that bonds carrying low ratings from Moody’s or Standard & Poor’s were not the high risk instruments many thought them to be.

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But in his heart Icahn knew the answer. As he surveyed the Wall Street landscape in the new decade of the nineties, he saw carnage, defeat, and despair where just a few years before there had been boundless opportunity and staggering profits. Just like that, Drexel Burnham was gone. Ivan Boesky was gone. Michael Milken was gone. Dennis Levine was gone. Trump’s empire had come unglued. Once rich and arrogant lawyers and investment bankers were scrounging for clients. Increasingly, Icahn talked of the dangers of an economic catastrophe. He made a point of reading The Great Depression of 1990. In private, he speculated that real estate and the stock market might well be on the verge of collapse.

The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

The Great Depression kicked off a multi-decade decline in inequality, what economists refer to as the Great Compression. The turning point came in the early 1980s, as falling interest rates inaugurated a decades-long bull market in stocks and bonds. Wall Street’s fortunes recovered. The leverage buyout industry emerged, minting fortunes for the founders of private equity firms and junk bond issuers, such as Michael Milken of Drexel Burnham Lambert. Interest rates continued declining in the 1990s. Over the course of that decade, ‘inequality went up mainly because of rising stock prices, asset valuations and the incomes drawn from stock option realizations and capital gains, as well as wages and salaries paid in sectors that were financed by new equity.’21 During the Dotcom bubble changes in income inequality were correlated with movements in the Nasdaq index of technology stocks, with most income gains clustered around Silicon Valley and Wall Street, the epicentres of the bubble.22 The final stage of the bubble occurred after the Fed’s rate cut in the fall of 1998.

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Graham, Benjamin and Dodds, David, Security Analysis: Principles and Technique [1940] (New York, 2009). Grant, James, Bagehot: The Life and Times of the Greatest Victorian (New York, 2019). Grant, James, Grant’s Interest Rate Observer (2008–2021). Grant, James, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken (London, 1992). Grant, James, The Forgotten Depression: 1921: The Crash That Cured Itself (New York, 2014). Grantham, Jeremy, ‘This Time Seems Very, Very Different (Part 2 of Not With a Bang but a Whimper – A Thought Experiment)’, GMO Quarterly Letter, April 2017. Grantham, Jeremy, ‘Time to Wake Up: Days of Abundant Resources and Falling Prices are Over Forever’, GMO Quarterly Letter, April 2011.

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Martin Fridson, It Was a Very Good Year: Extraordinary Moments in Stock Market History (New York, 1998), p. 50. 19. Anderson, Economics and Public Welfare, p. 147. 20. Fridson, It Was a Very Good Year, p. 64. 21. Ibid. 22. Anderson, Economics and Public Welfare, p. 209. 23. James Grant, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken (London, 1992), pp. 184–5. 24. Perry Mehrling, The New Lombard Street: How the Fed Became the Dealer of Last Resort (Princeton, 2011), pp. 41–2. 25. See Irving Fisher, Appreciation and Interest [1896] (New York, 1908). 26. See Homer Hoyt, One Hundred Years of Land Values in Chicago: The Relationship of the Growth of Chicago to the Rise of Its Land Values, 1830–1933 [1933] (Washington, DC, 2000); also Herbert D.

Why Wall Street Matters by William D. Cohan

Alan Greenspan, Apple II, asset-backed security, bank run, Bear Stearns, Bernie Sanders, Blythe Masters, bonus culture, break the buck, buttonwood tree, Carl Icahn, corporate governance, corporate raider, creative destruction, Credit Default Swap, Donald Trump, Exxon Valdez, financial innovation, financial repression, Fractional reserve banking, Glass-Steagall Act, Gordon Gekko, greed is good, income inequality, Joseph Schumpeter, junk bonds, London Interbank Offered Rate, margin call, Michael Milken, money market fund, moral hazard, Potemkin village, quantitative easing, secular stagnation, Snapchat, South Sea Bubble, Steve Jobs, Steve Wozniak, tontine, too big to fail, WikiLeaks

“People don’t get smarter about things that get as basic as greed,” Buffett once said. “You can’t stand to see your neighbor getting rich. You know you’re smarter than he is, but he’s doing all these [crazy] things, and he’s getting rich…so pretty soon you start doing it.” Another Wall Street revolutionary was Michael Milken. Milken’s innovation was to realize—as a graduate student at the Wharton School of Business in the 1970s—that investors could make more money, on a risk-adjusted basis, from buying the bonds issued by companies with less-than-stellar credit ratings than they could by investing in the bonds of AAA-rated companies.

Toward Rational Exuberance: The Evolution of the Modern Stock Market by B. Mark Smith

Alan Greenspan, bank run, banking crisis, book value, business climate, business cycle, buy and hold, capital asset pricing model, compound rate of return, computerized trading, Cornelius Vanderbilt, credit crunch, cuban missile crisis, discounted cash flows, diversified portfolio, Donald Trump, equity risk premium, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, full employment, Glass-Steagall Act, income inequality, index arbitrage, index fund, joint-stock company, junk bonds, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market clearing, merger arbitrage, Michael Milken, money market fund, Myron Scholes, Paul Samuelson, price stability, prudent man rule, random walk, Richard Thaler, risk free rate, risk tolerance, Robert Bork, Robert Shiller, Ronald Reagan, scientific management, shareholder value, short selling, stocks for the long run, the market place, transaction costs

Boesky told prosecutors about the arrangement he had made with Siegal, which called for Boesky to pay Siegal a secret cash “bonus” each year based on the value of the information Siegal provided. As a result, Siegal was arrested. But the investigators wanted more than just Siegal. They had reason to believe that Boesky had had improper dealings with one of the most powerful figures on Wall Street, a man who had revolutionized the way the Street did business. That man was Michael Milken. Michael Milken, of Drexel Burnham Lambert, was the apostle of what had become known as the junk bond revolution. By outward appearances he was hardly a natural salesman. Obviously shy, of lean stature, and wearing a toupee with curly brown hair that hid his premature baldness, Milken looked more like a meticulous accountant than a flamboyant promoter.

Philanthrocapitalism by Matthew Bishop, Michael Green, Bill Clinton

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, Albert Einstein, An Inconvenient Truth, anti-communist, AOL-Time Warner, barriers to entry, battle of ideas, Bernie Madoff, Big Tech, Bob Geldof, Bonfire of the Vanities, business process, business process outsourcing, Charles Lindbergh, clean tech, clean water, corporate governance, corporate social responsibility, Dava Sobel, David Ricardo: comparative advantage, digital divide, do well by doing good, don't be evil, family office, financial innovation, full employment, global pandemic, global village, Global Witness, God and Mammon, Hernando de Soto, high net worth, Ida Tarbell, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Dyson, John Elkington, John Harrison: Longitude, joint-stock company, junk bonds, knowledge economy, knowledge worker, Larry Ellison, Live Aid, lone genius, Marc Andreessen, Marc Benioff, market bubble, mass affluent, Michael Milken, microcredit, Mikhail Gorbachev, Neil Armstrong, Nelson Mandela, new economy, offshore financial centre, old-boy network, PalmPilot, peer-to-peer lending, performance metric, Peter Singer: altruism, plutocrats, profit maximization, profit motive, Richard Feynman, risk tolerance, risk-adjusted returns, Ronald Coase, Ronald Reagan, Salesforce, scientific management, seminal paper, shareholder value, Silicon Valley, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, SpaceShipOne, stem cell, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade liberalization, transaction costs, trickle-down economics, Tyler Cowen, wealth creators, winner-take-all economy, working poor, World Values Survey, X Prize

But this is changing, reports Handy in The New Philanthropists: a European tycoon who once would have said that paying taxes was enough to fulfill his responsibilities is nowadays more likely to give back as well. The causes that the superrich feel a responsibility to address often start with a personal experience. This was certainly true of disgraced-but-still-rich former “junk bond king” Michael Milken. The man who is often seen as the epitome of 1980s financial greed suffered from prostate cancer in the 1990s and has since given $750 million to fight the disease. The Larry King Cardiac Foundation was inspired by the veteran interviewer’s quintuple heart bypass in 1987. New York mayor Michael Bloomberg managed to give up his addiction to smoking, which has inspired him to dedicate his foundation to eradicating smoking everywhere.

…

Venture capitalist John Doerr was one of the backers of the New Schools Venture Fund, launched in 1998 to give to or invest in nonprofit and for-profit education entrepreneurs, helping them grow their organizations to scale and connect their work to broader systems change. Since the mid-1980s, Michael Milken’s Milken Family Foundation has recognized thousands of outstanding teachers by giving them $25,000 Educator Awards. The achievements of the winners are widely publicized in an attempt to encourage talented people to teach and generally raise the overall standards of the profession. Across the pond, several philanthropists have given money to start new city academy schools in Britain—a sort of equivalent to U.S. charter schools.

The Fugitive Game: Online With Kevin Mitnick by Jonathan Littman

Apple's 1984 Super Bowl advert, centre right, computer age, disinformation, game design, Hacker Ethic, Howard Rheingold, information security, John Markoff, John Perry Barlow, Kevin Kelly, Menlo Park, Michael Milken, Mitch Kapor, power law, profit motive, Silicon Valley, Steven Levy, telemarketer

Today, the automated Sprint operator is offering a collect call from Kevin Poulsen at Mitnick's old haunt, the Los Angeles Metropolitan Detention Center. Poulsen's working on his fourth year behind bars, and he's still facing another federal case. He sounds optimistic, and frankly I don't understand. Because he's been awaiting trial, Poulsen's never enjoyed a federal camp like the Ivan Boeskys and Michael Milkens of the 1980s. Kevin Poulsen's four years in the 1990s have been hard time. He hasn't studied anything, worked on a degree, or picked up a hobby. He smokes, reads a lot, and beats everyone at Ping-Pong and chess. He has no plans because he can't survive inside dreaming about the future when he doesn't know if he's got one.

…

Kevin Mitnick didn't successfully pocket millions of dollars. He pranked who knows how many people and illegally copied a big corporation's software. He got what he considers torture as his punishment. Mitnick was punished because of what he represented, and, I suspect, because he couldn't afford the kind of lawyers that work for the likes of Michael Milken and Ivan Boesky. But I'm not convinced of the great conspiracy Mitnick keeps harping on. I think Mitnick is cyberspace enemy number one for simpler reasons. Because he or De Payne keep pranking the FBI. Because either the Justice Department or the Assistant U.S. Attorney in California decided he would make a great scapegoat for a much bigger problem they can't control.

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

"World Economic Forum" Davos, Alan Greenspan, algorithmic trading, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, collateralized debt obligation, computer age, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial engineering, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, Glass-Steagall Act, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, junk bonds, Kenneth Rogoff, large denomination, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, Menlo Park, Michael Milken, military-industrial complex, Minsky moment, mobile money, money market fund, Monroe Doctrine, moral hazard, mortgage debt, Myron Scholes, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, plutocrats, Ponzi scheme, profit maximization, prosperity theology / prosperity gospel / gospel of success, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, shareholder value, short selling, sovereign wealth fund, stock buybacks, subprime mortgage crisis, The Chicago School, Thomas Malthus, too big to fail, trade route

Bankers and savings and loan executives, handed new investment latitude by early 1980s deregulation, got our permissive quarter century off to a raucous start with an orgy of bad real estate loans, scams, financial toga parties, and Texas-sized insolvencies that led, beginning in 1989, to a $200 billion federal bailout. Ambitious financiers, some of whom also wound up in jail, explored grander new frontiers of debt issuance. Michael Milken pioneered high-yield or “junk” bonds for lower-rated corporate borrowers until his firm, Drexel Burnham, failed in 1991. Raiders like Henry Kravis, T. Boone Pickens, and Ivan Boesky made a household expletive out of the term “leveraged buyout”—the lucrative process by which companies were taken over, stripped, loaded up with debt, and sold off.

…

Episode number three involved the Federal Reserve Board’s early- 1990s bailout of junk (high-yielding) bonds through sharp interest-rate reductions that took the federal funds rate down to twenty-year lows. Some of these bonds were issued to raise money for weaker corporate borrowers, but others funded the leveraged buyouts that became so notorious. Such bonds also lost cachet as Michael Milken of Drexel Burnham, the architect and promoter of the junk bond concept and distribution system, was indicted on ninety-eight counts in 1989, eventually plea-bargained, went to jail, and paid a fine of $600 million. Drexel itself filed for bankruptcy in 1990. Let me hypothesize: If these innovations and misadventures—prototypical “bad money”—hadn’t been bailed out, the recession of 1990- 91 would probably have deepened into the multiyear crisis of 1990-93 or some such.

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms by Russell Napier

Alan Greenspan, Albert Einstein, asset allocation, banking crisis, Bear Stearns, behavioural economics, book value, Bretton Woods, business cycle, buy and hold, collective bargaining, Columbine, cuban missile crisis, desegregation, diversified portfolio, fake news, financial engineering, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, global macro, hindsight bias, Kickstarter, Long Term Capital Management, low interest rates, market bubble, Michael Milken, military-industrial complex, Money creation, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, price stability, reserve currency, risk free rate, Robert Gordon, Robert Shiller, Ronald Reagan, short selling, stocks for the long run, yield curve, Yogi Berra

Endnotes 52 John Brooks, Once In Golconda – A True Drama of Wall Street 1920–1938 [return to text] 53 Address to the American Liberty League, 25 January 1936, Mayflower Hotel. Washington DC [return to text] 54 Marriner Eccles, Beckoning Frontiers – Public and Personal Recollections [return to text] 55 Wall Street Journal, 2 January 1946 [return to text] 56 James Grant, Money of the Mind: Borrowing and Lending in America From the Civil War to Michael Milken [return to text] 57 Address at Westminster College, Fulton, Missouri, 5 March 1946 [return to text] 58 President Truman’s address to Congress, 12 March 1947 [return to text] Structure of the market in 1949 On one side of the room were the doors of offices; the other side was covered with tremendous pictures of factories and ships and railroads.

…

Geisst, Wall Street: A History: From its Beginnings to the Fall of Enron (Oxford University Press, 2004) Benjamin Graham, The Intelligent Investor (Harper & Row 4th Revised Ed., 1973) James Grant, Bernard M. Baruch, The Adventures of a Wall Street Legend (John Wiley & Sons, 1997) James Grant, Money of the Mind: Borrowing and lending in America from the Civil War to Michael Milken (Noonday Press, 1994) William C Greenough, A New Approach to Retirement Income (CFA, New York, 1951) William Greider, Secrets of the Temple, How the Federal Reserve Runs the Country (Touchstone, 1987) Alex Groner and the Editors of American Heritage and Business Week, The American Heritage History of American Business and Industry (American Heritage Publishing, 1972) William Peter Hamilton, The Stock Market Barometer: A Study of Its Forecast Value Based on Charles H.

The Website Investor: The Guide to Buying an Online Website Business for Passive Income by Jeff Hunt

buy low sell high, content marketing, deal flow, Donald Trump, drop ship, frictionless, frictionless market, intangible asset, medical malpractice, Michael Milken, passive income, Ralph Waldo Emerson, Skype, software as a service

If you are selling a particular shoe, Amazon might show your ad to buyers who have opened a product page for that shoe or other items connected to what you are selling. “My experience indicates that most people who’ve accumulated a great deal of wealth haven’t had that as their goal at all. Wealth is only a by-product, not the original motivation.” —Michael Milken Another way to work with Amazon is to sell on Amazon. That means you offer products that Amazon is either already selling or not selling. If they already sell the product, there is an existing sales page with images and sales copy about the product. If that doesn’t exist, you create your own product page.

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, Cornelius Vanderbilt, corporate governance, Credit Default Swap, cross-subsidies, currency risk, dematerialisation, disinformation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jim Simons, John Meriwether, junk bonds, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, M-Pesa, market design, Mary Meeker, megaproject, Michael Milken, millennium bug, mittelstand, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, reality distortion field, regulatory arbitrage, Renaissance Technologies, rent control, risk free rate, risk tolerance, road to serfdom, Robert Shiller, Ronald Reagan, Schrödinger's Cat, seminal paper, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, vertical integration, Washington Consensus, We are the 99%, Yom Kippur War

This occasion is widely described as the beginning of the application of shareholder value principles in American business: and as he implemented this strategy over the following two decades, Welch became America’s most admired business leader.32 In 1965 an American economist, Henry Manne, had coined the phrase ‘the market for corporate control’.33 The right to manage a corporation was an asset that could be bought and sold. Neglect of ‘shareholder value’ exposed managers to the threat of hostile takeovers. In the 1980s this threat intensified when Michael Milken of Drexel Burnham Lambert invented ‘junk bonds’, and found institutional investors to subscribe for them. These securities, which offered high yields and acknowledged high risks, enabled raiders to threaten even the largest company. The contested takeover in 1988 of RJR Nabisco, the tobacco and food conglomerate, is described by Bryan Burrough and John Helyar in their book Barbarians at the Gate: The Fall of RJR Nabisco, perhaps the best business book of that decade.34 Burrough and Helyar end their book with the plaintive question ‘But what did it have to do with business?’

…

Within three months, all the directors were behind bars. Richard Whitney, president of the New York Stock Exchange, spent over three years in New York’s fearsome Sing Sing maximum-security gaol. Even in the early 1990s Charles Keating, the most notorious fraudster in the deregulation of US thrifts, and Michael Milken, the inventor of junk bonds, went to prison. Scapegoats for the new economy bubble were less harshly treated. The SEC devoted little energy or resource to identifying wrongdoing, and such cases were brought to light through the dogged investigations of now disgraced former New York Attorney General Eliot Spitzer.

The End of Wall Street by Roger Lowenstein

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, benefit corporation, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, break the buck, Brownian motion, Carmen Reinhart, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, fixed income, geopolitical risk, Glass-Steagall Act, Greenspan put, high net worth, Hyman Minsky, interest rate derivative, invisible hand, junk bonds, Ken Thompson, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

Eager lenders such as Countrywide and New Century were hailed as suburban Johnny Appleseeds, planting a mortgage in every backyard. Countrywide’s cofounder, Angelo Mozilo, son of an Italian immigrant, was feted for helping to democratize credit. In Mozilo’s view, every citizen was entitled to a mortgage. In this, he was echoing Michael Milken, who had earlier preached the gospel that every corporation—not just sniffy blue chips—should have access to Wall Street. The Mozilos and the Milkens answered to a distinctly American yearning for a capitalism that was egalitarian, or at least broadly accessible. It was a cross between the Puritan ideal of self-improvement—uplift through work—and the more forgiving siren of populism: uplift (or adjustable mortgages, at any rate) as an unlabored entitlement.

…

Though two of his sons, both senior executives, fled the company—one when Hank lost confidence in him, the other because his father was so difficult—the staff held him in terrified awe. His diminutive stature seemed to heighten his aura, as though his power emanated from an invisible source. In 2002, just as the mortgage boom was heating up, Greenberg tapped Joseph Cassano, a tough-talking son of a Brooklyn cop and a former colleague of Michael Milken’s, to run Financial Products. Under Cassano, revenue soared, ultimately topping $3 billion a year.9 The street-smart Cassano, who had joined AIG in 1987, when the trading unit was formed, had an instinct for finance. He used the parent corporation’s triple-A balance sheet to procure cheap credit for the derivatives operation in London—a business that, had it stood alone, would have been regarded as highly suspect.

Americana: A 400-Year History of American Capitalism by Bhu Srinivasan

activist fund / activist shareholder / activist investor, American ideology, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, bank run, barriers to entry, Bear Stearns, Benchmark Capital, Berlin Wall, blue-collar work, Bob Noyce, Bonfire of the Vanities, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Charles Lindbergh, collective bargaining, commoditize, Cornelius Vanderbilt, corporate raider, cotton gin, cuban missile crisis, Deng Xiaoping, diversification, diversified portfolio, Douglas Engelbart, Fairchild Semiconductor, financial innovation, fixed income, Ford Model T, Ford paid five dollars a day, global supply chain, Gordon Gekko, guns versus butter model, Haight Ashbury, hypertext link, Ida Tarbell, income inequality, information security, invisible hand, James Watt: steam engine, Jane Jacobs, Jeff Bezos, John Markoff, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, laissez-faire capitalism, Louis Pasteur, Marc Andreessen, Menlo Park, Michael Milken, military-industrial complex, mortgage debt, mutually assured destruction, Norman Mailer, oil rush, peer-to-peer, pets.com, popular electronics, profit motive, punch-card reader, race to the bottom, refrigerator car, risk/return, Ronald Reagan, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Steve Wozniak, strikebreaker, Ted Nelson, The Death and Life of Great American Cities, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman, Upton Sinclair, Vannevar Bush, Works Progress Administration, zero-sum game

In this industrial funeral procession, Wall Street assumed the roles of underwriter and undertaker. • • • AT THE HEIGHT of 1980s finance, the epicenter of Wall Street was at the corner of Rodeo Drive and Wilshire Boulevard in Beverly Hills. On one of the floors of the nondescript building, sitting at an X-shaped desk with traders all around him, Michael Milken operated in a once-sleepy backwater of the corporate bond market. His salary at his peak in the eighties was $550 million in cash for one year’s work. The work, in his case, required being in total control of the American junk bond market, the fuel that had transformed corporate America into a giant chessboard.

…

There was only one small area of distinction. Some companies were riskier to lend to than others. For investors to buy bonds of a less creditworthy company, they simply required a higher rate of interest to justify the risk, just as individuals with poor credit ratings pay higher rates. Not much was ever made of this until Michael Milken arrived on Wall Street. As an undergrad at Berkeley in the 1960s, Milken had come across a study by an economist named Walter Braddock Hickman. In a look at nearly every corporate bond that had existed between 1900 and 1945, Hickman’s research revealed that a diversified portfolio of the lowest-rated bonds, the bonds that seemed to present the most risk, returned substantially more than a portfolio of middle-grade bonds.

…

Whereas the start-up entrepreneur was starting with a blank slate to build new things, the financial entrepreneur saw himself as playing a vital, natural role in cleaning up the carcasses of old things in corporate America. There was some truth to this. Yet the logic of the argument was alone not enough. Just as Silicon Valley entrepreneurs needed venture capital, their equivalents on Wall Street needed their own specialized financing. The best and the brightest among them looked west to Beverly Hills, where Michael Milken could raise billions of dollars when the need arose, junk bonds becoming the pirate ship on which the corporate raiders sailed. • • • IF THERE WAS A COMPETITION to find a real-life equivalent to Larry the Liquidator, who relished the persona of financial agitator in the 1980s, the award would have gone to Carl Icahn.

Americana by Bhu Srinivasan

activist fund / activist shareholder / activist investor, American ideology, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, bank run, barriers to entry, Bear Stearns, Benchmark Capital, Berlin Wall, blue-collar work, Bob Noyce, Bonfire of the Vanities, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Charles Lindbergh, collective bargaining, commoditize, Cornelius Vanderbilt, corporate raider, cotton gin, cuban missile crisis, Deng Xiaoping, diversification, diversified portfolio, Douglas Engelbart, Fairchild Semiconductor, financial innovation, fixed income, Ford Model T, Ford paid five dollars a day, global supply chain, Gordon Gekko, guns versus butter model, Haight Ashbury, hypertext link, Ida Tarbell, income inequality, information security, invisible hand, James Watt: steam engine, Jane Jacobs, Jeff Bezos, John Markoff, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, laissez-faire capitalism, Louis Pasteur, Marc Andreessen, Menlo Park, Michael Milken, military-industrial complex, mortgage debt, mutually assured destruction, Norman Mailer, oil rush, peer-to-peer, pets.com, popular electronics, profit motive, punch-card reader, race to the bottom, refrigerator car, risk/return, Ronald Reagan, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Steve Wozniak, strikebreaker, Ted Nelson, The Death and Life of Great American Cities, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman, Upton Sinclair, Vannevar Bush, Works Progress Administration, zero-sum game

In this industrial funeral procession, Wall Street assumed the roles of underwriter and undertaker. • • • AT THE HEIGHT of 1980s finance, the epicenter of Wall Street was at the corner of Rodeo Drive and Wilshire Boulevard in Beverly Hills. On one of the floors of the nondescript building, sitting at an X-shaped desk with traders all around him, Michael Milken operated in a once-sleepy backwater of the corporate bond market. His salary at his peak in the eighties was $550 million in cash for one year’s work. The work, in his case, required being in total control of the American junk bond market, the fuel that had transformed corporate America into a giant chessboard.

…

There was only one small area of distinction. Some companies were riskier to lend to than others. For investors to buy bonds of a less creditworthy company, they simply required a higher rate of interest to justify the risk, just as individuals with poor credit ratings pay higher rates. Not much was ever made of this until Michael Milken arrived on Wall Street. As an undergrad at Berkeley in the 1960s, Milken had come across a study by an economist named Walter Braddock Hickman. In a look at nearly every corporate bond that had existed between 1900 and 1945, Hickman’s research revealed that a diversified portfolio of the lowest-rated bonds, the bonds that seemed to present the most risk, returned substantially more than a portfolio of middle-grade bonds.

…

Whereas the start-up entrepreneur was starting with a blank slate to build new things, the financial entrepreneur saw himself as playing a vital, natural role in cleaning up the carcasses of old things in corporate America. There was some truth to this. Yet the logic of the argument was alone not enough. Just as Silicon Valley entrepreneurs needed venture capital, their equivalents on Wall Street needed their own specialized financing. The best and the brightest among them looked west to Beverly Hills, where Michael Milken could raise billions of dollars when the need arose, junk bonds becoming the pirate ship on which the corporate raiders sailed. • • • IF THERE WAS A COMPETITION to find a real-life equivalent to Larry the Liquidator, who relished the persona of financial agitator in the 1980s, the award would have gone to Carl Icahn.

Television Is the New Television: The Unexpected Triumph of Old Media in the Digital Age by Michael Wolff

activist fund / activist shareholder / activist investor, AOL-Time Warner, barriers to entry, Carl Icahn, commoditize, creative destruction, digital divide, disintermediation, Golden age of television, Great Leap Forward, hiring and firing, Joseph Schumpeter, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Michael Milken, Sheryl Sandberg, Silicon Valley, SoftBank, Steve Jobs, Susan Wojcicki, telemarketer, the medium is the message, vertical integration, zero-sum game

The hierarchical media business was, arguably, disrupted not so much by new technologies as by those lower down on the media ladder suddenly being able to push up by seeming to be more farsighted, more quick-witted, more knowing, more adventurous. The economic power might still reside with the old, but who would not choose foresight over temporary riches? Ken Lerer, for example, Michael Milken’s PR man in the 1980s, and one of the most astute media players (and, subsequently, tech players), went to AOL as its PR chief, helping to create an extraordinary public profile for the company, one that formally turned tech into media. That in turn led to Time Warner’s disastrous merger with AOL, among other results, cementing the impression that technology-led media companies were a thing apart from old-fashioned entertainment and journalism media companies.

Aftershock: The Next Economy and America's Future by Robert B. Reich

Abraham Maslow, Alan Greenspan, Berlin Wall, business cycle, carbon tax, declining real wages, delayed gratification, Doha Development Round, endowment effect, Ford Model T, full employment, George Akerlof, high-speed rail, Home mortgage interest deduction, Hyman Minsky, illegal immigration, income inequality, invisible hand, job automation, junk bonds, labor-force participation, Long Term Capital Management, loss aversion, low interest rates, Michael Milken, military-industrial complex, mortgage debt, new economy, offshore financial centre, Ralph Nader, Ronald Reagan, school vouchers, sovereign wealth fund, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, too big to fail, We are all Keynesians now, World Values Survey

In the 1980s, irresponsible gambles by some savings-and-loan banks cost taxpayers $125 billion; one such bank was owned by Charles Keating, who “donated” $300,000 to five U.S. senators, thereby greasing the skids with federal regulators. Insider trading scandals involving junk-bond kings including Ivan Boesky and Michael Milken did their damage. The BCCI money-laundering scandal ruined the reputation of Clark Clifford, advisor to four presidents. Then came the corporate looting scandals: In 2002, CEOs of giant corporations like Enron and WorldCom were found to have padded their nests at the expense of small investors.

The System: Who Rigged It, How We Fix It by Robert B. Reich

"World Economic Forum" Davos, Adam Neumann (WeWork), affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Bernie Madoff, Bernie Sanders, Big Tech, Boeing 737 MAX, business cycle, Carl Icahn, clean water, collective bargaining, Cornelius Vanderbilt, corporate governance, corporate raider, corporate social responsibility, Credit Default Swap, crony capitalism, cryptocurrency, Donald Trump, ending welfare as we know it, financial deregulation, Glass-Steagall Act, Gordon Gekko, green new deal, Greta Thunberg, immigration reform, income inequality, independent contractor, Jeff Bezos, job automation, junk bonds, London Whale, Long Term Capital Management, market fundamentalism, mass incarceration, Michael Milken, mortgage debt, Occupy movement, opioid epidemic / opioid crisis, Paris climate accords, peak TV, Ponzi scheme, race to the bottom, Robert Bork, Ronald Reagan, Savings and loan crisis, shareholder value, Sheryl Sandberg, stock buybacks, too big to fail, trickle-down economics, union organizing, WeWork, women in the workforce, working poor, zero-sum game

In 1981, the Business Roundtable formally adopted a resolution noting that although shareholders should receive a good return, “the legitimate concerns of other constituencies must have appropriate attention.” But starting in the 1980s, as a result of the takeovers mounted by Icahn and a few other raiders such as Michael Milken and Ivan Boesky, a wholly different understanding about the purpose of the corporation emerged. The system changed profoundly. Raiders targeted companies that could deliver higher returns to shareholders mainly by abandoning their other stakeholders—increasing profits by fighting unions, cutting workers’ pay or firing them, automating as many jobs as possible, abandoning their communities by shuttering factories and moving jobs to states with lower labor costs, or simply moving them abroad.

The America That Reagan Built by J. David Woodard

"Hurricane Katrina" Superdome, affirmative action, Alan Greenspan, anti-communist, Ayatollah Khomeini, Berlin Wall, Black Monday: stock market crash in 1987, Boeing 747, Bonfire of the Vanities, business cycle, colonial rule, Columbine, corporate raider, cuban missile crisis, Deng Xiaoping, friendly fire, glass ceiling, global village, Gordon Gekko, gun show loophole, guns versus butter model, income inequality, invisible hand, It's morning again in America, Jeff Bezos, junk bonds, Korean Air Lines Flight 007, laissez-faire capitalism, late capitalism, Live Aid, Marc Andreessen, Michael Milken, Mikhail Gorbachev, mutually assured destruction, Neil Kinnock, Nelson Mandela, new economy, no-fly zone, Oklahoma City bombing, Parents Music Resource Center, postindustrial economy, Ralph Nader, Robert Bork, Ronald Reagan, Ronald Reagan: Tear down this wall, Rubik’s Cube, Savings and loan crisis, Silicon Valley, South China Sea, stem cell, Strategic Defense Initiative, Ted Kaczynski, The Predators' Ball, Timothy McVeigh, Tipper Gore, trickle-down economics, women in the workforce, Y2K, young professional

As in any business, a few successful corporate raiders operated outside the law. On May 12, 1986, Dennis Levine, who had made $12.6 million on insider-trading deals, implicated two well-known Wall Street traders: Michael Milken and Ivan Boesky. Both men 68 THE AMERICA THAT REAGAN BUILT were charged with violations of federal securities law. Boesky agreed to pay $100 million in forfeitures and penalties, and Michael Milken admitted to six felonies and agreed to pay $600 million in fines. The amount of the fines was staggering, but more revealing was the corporate raider lifestyle the investigations uncovered. In the early 1980s Milken was reportedly making $550 million a year.12 Overall, the freeing of the market for corporate control had important benefits for women in the workforce.

The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History by David Enrich

Bear Stearns, Bernie Sanders, Black Monday: stock market crash in 1987, call centre, centralized clearinghouse, computerized trading, Credit Default Swap, Downton Abbey, eat what you kill, electricity market, Flash crash, Glass-Steagall Act, Goldman Sachs: Vampire Squid, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, London Whale, Long Term Capital Management, Michael Milken, Navinder Sarao, Nick Leeson, Northern Rock, Occupy movement, performance metric, profit maximization, proprietary trading, Savings and loan crisis, tulip mania, work culture , zero-sum game

Meister cherished the certainty behind the finite, controllable science and math. But he soon recognized another certainty, which was that chemical engineering wasn’t sexy. Meister’s attention strayed. He kept reading news stories about the era’s fearless prosecutors, who were cracking down on the New York Mafia’s five families and the likes of Ivan Boesky and Michael Milken, the financiers who would go to jail for crimes related to insider trading. Meister was inspired—and, if he was honest about it, lured by the flame of publicity. Abandoning engineering, he enrolled in law school. After graduating, Meister landed a job at a firm where he defended accused financial criminals for a few years.

…

Tighe’s legs wobbled. Then she vomited. * * * Late that afternoon, Roger Darin was at home in a Zurich suburb when his phone rang. On the line was Bruce Baird, his UBS-appointed lawyer in Washington. Baird was best known for his time as a federal prosecutor in New York, when he led the criminal prosecution of Michael Milken. He subsequently became a white-collar defense attorney. Baird had known that Darin was in legal jeopardy in the Libor case, because Justice had refused to grant him immunity; in fact, the investigators hadn’t even interviewed him. That couldn’t be a good sign. But Baird had doubted his client would actually be charged anytime soon, at least not without someone placing a courtesy call to the well-connected lawyer.

A Man for All Markets by Edward O. Thorp

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", 3Com Palm IPO, Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, beat the dealer, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, book value, Brownian motion, buy and hold, buy low sell high, caloric restriction, caloric restriction, carried interest, Chuck Templeton: OpenTable:, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Garrett Hardin, George Santayana, German hyperinflation, Glass-Steagall Act, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Bogle, John Meriwether, John Nash: game theory, junk bonds, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, Mason jar, merger arbitrage, Michael Milken, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, PalmPilot, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, power law, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, risk-adjusted returns, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, Stanford marshmallow experiment, statistical arbitrage, stem cell, stock buybacks, stocks for the long run, survivorship bias, tail risk, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Tragedy of the Commons, uptick rule, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

This was part of a campaign by Rudolph Giuliani, US Attorney for the Southern District of New York, to prosecute real and alleged Wall Street criminals. As a prosecutor later told a defense attorney, Giuliani’s real objective in attacking individuals in our Princeton office was to get information to further his case against Michael Milken at Drexel Burnham and Robert Freeman at Goldman Sachs. My partner Jay Regan knew them both well and spoke to them often. Freeman had even been a roommate of Regan’s at Dartmouth. Giuliani believed that Regan could help him bring them down. Regan refused to cooperate. The government used evidence from the raid and testimony from a disgruntled former employee to develop their case.

…

To understand why it really happened, you need to go back to the 1970s, when first-tier companies could routinely meet their financing needs from Wall Street and the banking community, whereas less established companies had to scramble. Seizing an opportunity to finance them, a young financial innovator named Michael Milken built a capital-raising machine for these companies from within a stodgy old Wall Street firm, Drexel Burnham Lambert. Milken’s group underwrote issues of low-rated, high-yielding bonds—the so-called junk bonds—some of which were convertible or came with warrants to purchase stock. The higher yield was the extra compensation investors required to offset the perceived risk that the bonds would default.

Word Freak: Heartbreak, Triumph, Genius, and Obsession in the World of Competitive ScrabblePlayers by Stefan Fatsis

deliberate practice, Donner party, East Village, forensic accounting, Golden Gate Park, Gödel, Escher, Bach, index card, ITER tokamak, junk bonds, Michael Milken, Neil Armstrong, Saturday Night Live, zero-sum game

Regardless, say the word “Scrabble” and everyone knows what you’re talking about: the game in which you make words. But it’s much more than that. Before I discovered Washington Square Park, I was aware of the game’s wider cultural significance. Scrabble is one of those one-size-fits-all totems that pops up in movies, books, and the news. I once wrote an article that mentioned the Scrabble tournament that Michael Milken had organized in the white-collar prison where he did time for securities fraud. There’s the scene in the movie Foul Play in which one little old lady plays the word MOTHER and another extends it with FUCKERS. Mad magazine has regularly made fun of the game. (A 1973 feature on “magazines for neglected sports” included Scrabble Happenings: “My Wife 4 ❑ Word Freak Made XEROXED on a Triple . . .

…

That’s the essential act of Scrabble. You don’t need probabilities, you don’t need to win, you don’t need to care about anything else other than finding plays. It doesn’t matter. It’s just finding the plays.” Winning becomes a byproduct, I conclude on my own. Find the right play, and the winning follows. I think of Michael Milken, the junk bond Pied Piper, whom I covered as a reporter. Milken liked to say that money is a byproduct. Make the right deal, and the money will follow. Edley, I decide, is more Mike Milken than Darth Vader: tireless, single-minded, preachy, pensive, persuasive, unflappable, intellectually abstract, a bit of a charlatan.

Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier by Edward L. Glaeser

affirmative action, Andrei Shleifer, Berlin Wall, Boeing 747, British Empire, Broken windows theory, carbon footprint, carbon tax, Celebration, Florida, classic study, clean water, company town, congestion charging, congestion pricing, Cornelius Vanderbilt, declining real wages, desegregation, different worldview, diversified portfolio, Edward Glaeser, Elisha Otis, endowment effect, European colonialism, Fairchild Semiconductor, financial innovation, Ford Model T, Frank Gehry, global village, Guggenheim Bilbao, haute cuisine, high-speed rail, Home mortgage interest deduction, James Watt: steam engine, Jane Jacobs, job-hopping, John Snow's cholera map, junk bonds, Lewis Mumford, machine readable, Mahatma Gandhi, McMansion, megacity, megaproject, Michael Milken, mortgage debt, mortgage tax deduction, New Urbanism, place-making, Ponzi scheme, Potemkin village, Ralph Waldo Emerson, rent control, RFID, Richard Florida, Rosa Parks, school vouchers, Seaside, Florida, Silicon Valley, Skype, smart cities, Steven Pinker, streetcar suburb, strikebreaker, Thales and the olive presses, the built environment, The Death and Life of Great American Cities, the new new thing, The Wealth of Nations by Adam Smith, trade route, transatlantic slave trade, upwardly mobile, urban planning, urban renewal, urban sprawl, vertical integration, William Shockley: the traitorous eight, Works Progress Administration, young professional

A more connected world has brought huge returns to the idea-producing entrepreneurs who can now scour the earth in search of profits. New York reinvented itself during the bleak years of the 1970s when a cluster of financial innovators learned from each other and produced a chain of interconnected ideas. Academic knowledge about trading off risk and return made it easier to evaluate and sell riskier assets, like Michael Milken’s high-yield (junk) bonds, which made it possible for Henry Kravis to use those bonds to get value out of underperforming companies through leveraged buyouts. Many of the biggest innovators acquired their knowledge not through formal training but by being close to the action, like mortgage-backed security magnate Lewis Ranieri of Liar’s Poker fame, who started in the Salomon Brothers mailroom.

…

In the County Business Patterns, 2007 payroll in Oregon was $56 billion and in Nevada was $44.4 billion, and 2007 employment in New Hampshire was 573,209 and in Maine was 503,789. U.S. Census Bureau, County Business Patterns 2007, www.census.gov/econ/cbp. 5 Academic knowledge about . . . assets: Bernstein, Against the Gods, 300-302. 5 Michael Milken’s high-yield (junk) bonds: Lewis, Liar’s Poker, 111. 5 Henry Kravis to use those . . . leveraged buyouts: “The Team,” KKR, Kohlberg Kravis Roberts & Co., 2010, www.kkr.com/team/theteam.cfm. 5 mortgage-backed security magnate . . . mailroom: Lewis, Liar’s Poker, 96. 5 Today, 40 percent . . . still- thriving city: Because New York County is equal to Manhattan, we are able to add up the total payroll of all industries in New York County in 2007, which is nearly $210 billion.

The Partly Cloudy Patriot by Sarah Vowell

Alan Greenspan, Columbine, cuban missile crisis, David Sedaris, financial independence, Michael Milken, Oklahoma City bombing, Ralph Nader, Rosa Parks, Saturday Night Live, slashdot, stem cell, Upton Sinclair, white picket fence

The friend was so touched he sold the map to the Grahamarader, who promptly called the friend the very next day bragging that he’d sold it, and for a tidy profit at that. Map dealers, I came to learn, are not like that. As a group, they tend to be polite, bookish, and don’t inspire comparisons to Schwarzenegger or any other mythic pop figure. Graham is the map dealers’ Michael Milken, their Elvis Presley. In financial terms, he put antiquarian maps on the map. And he popularized them like no one ever had through sheer charisma. “The antiquarian map market before Graham Arader,” says Graham, “was a fairly sophisticated market. The people who collected had in-depth knowledge and understanding, I guess the effect that I had is that I brought map collecting to a lot more people who perhaps in the beginning were not as sophisticated.

The Little Book of Hedge Funds by Anthony Scaramucci

Alan Greenspan, Andrei Shleifer, asset allocation, Bear Stearns, Bernie Madoff, business process, carried interest, corporate raider, Credit Default Swap, diversification, diversified portfolio, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, financial engineering, fixed income, follow your passion, global macro, Gordon Gekko, high net worth, index fund, it's over 9,000, John Bogle, John Meriwether, Long Term Capital Management, mail merge, managed futures, margin call, mass immigration, merger arbitrage, Michael Milken, money market fund, Myron Scholes, NetJets, Ponzi scheme, profit motive, proprietary trading, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, risk/return, Ronald Reagan, Saturday Night Live, Sharpe ratio, short selling, short squeeze, Silicon Valley, tail risk, Thales and the olive presses, Thales of Miletus, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule, Vanguard fund, Y2K, Yogi Berra, zero-sum game

Biggs, Lee Ainslie, Steve Tanabaum, Steve Kuhn, Theo Phanoes, Deepak Narula, John Burbank, Andrew K. Boszhardt Jr., Dan Loeb, Paul Singer, Cliff Asness, Izzy Englander, Jamie Dinan, Russ Bernard, Ken Griffin and many others. We are also pride ourselves in being students of Nouriel Roubini, David M. Darst, Michael Milken, Ed Mathias, David Rubenstein, William Conway, Dan D’Aniello, Prof. Josh Shapiro, Woody Brock, Frank Meyer, and Oliver Stone. My friends at CNBC have been nothing short of amazing. Susan Krakower, Mark Hoffman, Nik Deogun, Melissa Lee, Scott Wapner, Mary Duffy, John Melloy, Patty Martell, Lydia Thew, Gary Kaminsky, Maria Bartiromo, David Faber, Guy Adami, Joe Terranova, Tim Seymour, Amanda Drury, Carl Quintanilla, Jim Cramer, Brian Steel, Brian Sullivan, Maneet Ahuja, Pete and Jon Najarian, Steve Grasso, Steve Cortes, Karen Finerman, Brian Sullivan, Samantha Wright, and a legion of others who always make my time on the network a great learning experience.

The New Class War: Saving Democracy From the Metropolitan Elite by Michael Lind

"World Economic Forum" Davos, affirmative action, anti-communist, basic income, Bernie Sanders, Boris Johnson, Bretton Woods, Brexit referendum, business cycle, Cambridge Analytica, capital controls, Cass Sunstein, central bank independence, centre right, collective bargaining, commoditize, corporate governance, cotton gin, crony capitalism, deindustrialization, disinformation, Doha Development Round, Donald Trump, Edward Snowden, export processing zone, fake news, future of work, gentrification, global supply chain, guest worker program, Haight Ashbury, illegal immigration, immigration reform, independent contractor, invisible hand, Jeremy Corbyn, knowledge economy, Les Trente Glorieuses, liberal world order, low skilled workers, low-wage service sector, manufacturing employment, Mark Zuckerberg, mass immigration, means of production, Michael Milken, moral panic, Nate Silver, new economy, offshore financial centre, oil shock, open borders, plutocrats, Ponzi scheme, purchasing power parity, Ralph Nader, regulatory arbitrage, rent-seeking, Richard Florida, Ronald Reagan, scientific management, Silicon Valley, SoftBank, The Wealth of Nations by Adam Smith, Thorstein Veblen, Timothy McVeigh, trade liberalization, union organizing, universal basic income, upwardly mobile, WikiLeaks, Wolfgang Streeck, working poor

This is a common theme among rich people who feel entitled to a supporting cast of low-wage, foreign-born servants. The billionaire and former New York mayor Michael Bloomberg has asked: “Who takes care of the greens and the fairways in your golf courses?”18 Speaking to a wealthy audience in Abu Dhabi, at a summit organized by the disgraced former financier Michael Milken’s think tank, former president George W. Bush, the former governor of Texas, once the leading cotton-producing slave state in the US, declared: “Americans don’t want to pick cotton at 105 degrees but there are people who want to put food on their family’s tables and are willing to do that.”19 Another Texan born like Bush into an upper-class family, Representative Robert “Beto” O’Rourke, agreed with Bush, his partisan and political opposite, that low-wage immigrants were needed to pick and process cotton in the former Confederate state of Texas.

Wealth and Poverty: A New Edition for the Twenty-First Century by George Gilder

accelerated depreciation, affirmative action, Albert Einstein, Bear Stearns, Bernie Madoff, book value, British Empire, business cycle, capital controls, clean tech, cloud computing, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversified portfolio, Donald Trump, equal pay for equal work, floating exchange rates, full employment, gentrification, George Gilder, Gunnar Myrdal, Home mortgage interest deduction, Howard Zinn, income inequality, independent contractor, inverted yield curve, invisible hand, Jane Jacobs, Jeff Bezos, job automation, job-hopping, Joseph Schumpeter, junk bonds, knowledge economy, labor-force participation, longitudinal study, low interest rates, margin call, Mark Zuckerberg, means of production, medical malpractice, Michael Milken, minimum wage unemployment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, mortgage debt, non-fiction novel, North Sea oil, paradox of thrift, Paul Samuelson, plutocrats, Ponzi scheme, post-industrial society, power law, price stability, Ralph Nader, rent control, Robert Gordon, Robert Solow, Ronald Reagan, San Francisco homelessness, scientific management, Silicon Valley, Simon Kuznets, Skinner box, skunkworks, Solyndra, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas L Friedman, upwardly mobile, urban renewal, volatility arbitrage, War on Poverty, women in the workforce, working poor, working-age population, yield curve, zero-sum game

When a company reaches a certain size, it becomes an object of assault by government and by countless pressure groups professing to enhance the interests of “the people.” Despite the achievements of such heroic creators as John D. Rockefeller, J. J. Hill, Andrew Carnegie, Thomas Edison, George Westinghouse, George Eastman, Henry Ford, Walt Disney, A. P. Giannini, Estée Lauder, Charles Merrill, Chester Carlson, Bill Gates, Ray Kroc, Norman Borlaug, Michael Milken, Steve Jobs, Jeff Bezos, Mark Zuckerberg, Larry Page, Sergey Brin, and so many others, commerce is perceived as a somewhat-grubby, less-than-exalted undertaking. It is portrayed as something of a Faustian bargain: businesspeople succeed by appealing to our baser instincts; they are motivated by greed and too often may bend the rules.

…

Why should Warren Buffett be permitted to parlay positions in newspapers, insurance companies, and Coca Cola into a fortune that sometimes makes him the world’s richest man while Sarah Cinderella holds down two jobs—working as a receptionist during the day and waitressing at night—to make ends meet as a single mom? Why should coffee monger Howard Schultz command a fortune worth $5 billion while Harry Homeless lives on a blanket on a grate outside a Starbucks, holding out a discarded paper cup for spare change? And why should Michael Milken, the junk bond pioneer who spent time in jail for trumped up “economic crimes,” still be a billionaire, while the president of the United States earns some $450,000 per year? Does any of this make any sense? These huge disparities seem to defy every measure of proportion and propriety. They apparently correspond neither to need, nor to virtue, nor to IQ, nor to credentials, nor to education, nor to social contribution.

Capitalism 3.0: A Guide to Reclaiming the Commons by Peter Barnes

Albert Einstein, car-free, carbon tax, clean water, collective bargaining, corporate governance, corporate personhood, corporate raider, corporate social responsibility, cotton gin, dark matter, digital divide, diversified portfolio, do well by doing good, Easter island, en.wikipedia.org, Garrett Hardin, gentrification, hypertext link, Isaac Newton, James Watt: steam engine, jitney, junk bonds, Michael Milken, military-industrial complex, money market fund, new economy, patent troll, precautionary principle, profit maximization, Ronald Coase, telemarketer, The Wealth of Nations by Adam Smith, Tragedy of the Commons, transaction costs, War on Poverty, Yogi Berra

Williams, 457 U.S. 55, 1982. 146 Economist Vernon Smith: Sean Butler, “Life, Liberty, and a Little Bit of Cash,” Dissent, Summer 2005. www.dissentmagazine.org/article/?article=211. Chapter 4: The Limits of Privatization 152 “. . . a license to obfuscate.”: Clive Cook, “The Good Company,” The Economist, Jan. 20, 2005. 153 Hurwitz: Ned Daly, “Ravaging the Redwoods: Charles Hurwitz, Michael Milken, and the Costs of Greed,” Multinational Monitor, Sept. 1994. www.multinationalmonitor.org/hyper/issues/1994/09/mm0994_07.html. See also David Harris, The Last Stand: The War Between Wall Street and Main Street Over California’s Ancient Redwoods (San Francisco: Sierra Club Books, 1997). 172 | Notes to Pages 54–82 154 Working Assets: Report on Socially Responsible Investing Trends in the United States (Washington, D.C.: Social Investment Forum, 2005). www.socialinvest.org/areas/research/trends/sri_trends_report_2005.pdf. 155 Fortune 500 companies socially responsible?

Company: A Short History of a Revolutionary Idea by John Micklethwait, Adrian Wooldridge

affirmative action, AOL-Time Warner, barriers to entry, Bear Stearns, Bonfire of the Vanities, book value, borderless world, business process, Carl Icahn, Charles Lindbergh, classic study, company town, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, double entry bookkeeping, Etonian, Fairchild Semiconductor, financial engineering, Great Leap Forward, hiring and firing, Ida Tarbell, industrial cluster, invisible hand, James Watt: steam engine, John Perry Barlow, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, knowledge economy, knowledge worker, laissez-faire capitalism, manufacturing employment, market bubble, Michael Milken, military-industrial complex, mittelstand, new economy, North Sea oil, pneumatic tube, race to the bottom, railway mania, Ronald Coase, scientific management, Silicon Valley, six sigma, South Sea Bubble, Steve Jobs, Steve Wozniak, strikebreaker, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, Triangle Shirtwaist Factory, tulip mania, wage slave, William Shockley: the traitorous eight

This was unfair: the seventeen companies bought out by KKR in 1977–1989 increased employment by 310,000 (and also spent more on research and development).16 But the process could be savage. At Safeway, for instance, where the company motto had been “Safeway offers security,” 63,000 people lost their jobs.17 LBOs, in turn, relied on another Wall Street invention: “junk bonds.” Wall Street had always traded bonds in distressed companies. The genius of Michael Milken was to create bonds specifically for this “non-investment-grade” market, opening up the market to ventures that were too small or risky to issue regular bonds. Milken first began to push his “high-yield” bonds in the 1970s; by the 1980s, his firm, Drexel Burnham Lambert, dominated the junk-bond market, and his annual Predators Ball in Los Angeles had become a fixture for entrepreneurs and politicians.

The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life by Alexander Green

Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, behavioural economics, borderless world, buy and hold, buy low sell high, cognitive dissonance, diversification, diversified portfolio, Elliott wave, endowment effect, Everybody Ought to Be Rich, financial independence, fixed income, framing effect, hedonic treadmill, high net worth, hindsight bias, impulse control, index fund, interest rate swap, Johann Wolfgang von Goethe, John Bogle, junk bonds, Long Term Capital Management, means of production, mental accounting, Michael Milken, money market fund, Paul Samuelson, Ponzi scheme, risk tolerance, risk-adjusted returns, short selling, statistical model, stocks for the long run, sunk-cost fallacy, transaction costs, Vanguard fund, yield curve

High-yield bonds are more closely correlated to stocks than investment grade bonds. True again. But so what? The two asset classes don’t move in lock step and there are plenty of periods when high-yield bonds perform better than equities. To those who insist high-yield bonds are simply too risky to include, remember the words of junk bond king Michael Milken: The rating on triple-A bonds only has one way to go—down. Sure, most investment-grade obligations maintain their standing. But in no case do triple-A-bonds receive upgrades. In short, including a 10% allocation to high-yield bonds gives you an edge. Historically, portfolios that include exposure to this asset class have performed better than those that rely solely on investment-grade bonds for the fixed-income allocation.

Damsel in Distressed: My Life in the Golden Age of Hedge Funds by Dominique Mielle

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, airline deregulation, Alan Greenspan, banking crisis, Bear Stearns, Black Monday: stock market crash in 1987, blood diamond, Boris Johnson, British Empire, call centre, capital asset pricing model, Carl Icahn, centre right, collateralized debt obligation, Cornelius Vanderbilt, coronavirus, COVID-19, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, family office, fear of failure, financial innovation, fixed income, full employment, glass ceiling, high net worth, hockey-stick growth, index fund, intangible asset, interest rate swap, John Meriwether, junk bonds, Larry Ellison, lateral thinking, Long Term Capital Management, low interest rates, managed futures, mega-rich, merger arbitrage, Michael Milken, Myron Scholes, Northpointe / Correctional Offender Management Profiling for Alternative Sanctions, offshore financial centre, Paul Samuelson, profit maximization, Reminiscences of a Stock Operator, risk free rate, risk tolerance, risk-adjusted returns, satellite internet, Savings and loan crisis, Sharpe ratio, Sheryl Sandberg, SoftBank, survivorship bias, Tesla Model S, too big to fail, tulip mania, union organizing

The opportunity to make a wide range of creative decisions in ever-changing markets and investments is the reason I was so excited to join this Los Angeles-based hedge fund, then mostly dedicated to special situations and distressed investments. In addition, they enjoyed a pedigree of the noblest level in my ranking, the founders being former close associates of Michael Milken, the financial guru creator of the junk bond market at the now-defunct investment bank Drexel Burnham Lambert. When I met the founders for my interview, I was wearing five-inch stilettos, making me five feet nine, which, by the way, is rather tall in the world of high finance. One partner was coming from the gym.

Survival of the Richest: Escape Fantasies of the Tech Billionaires by Douglas Rushkoff

"World Economic Forum" Davos, 4chan, A Declaration of the Independence of Cyberspace, agricultural Revolution, Airbnb, Alan Greenspan, Amazon Mechanical Turk, Amazon Web Services, Andrew Keen, AOL-Time Warner, artificial general intelligence, augmented reality, autonomous vehicles, basic income, behavioural economics, Big Tech, biodiversity loss, Biosphere 2, bitcoin, blockchain, Boston Dynamics, Burning Man, buy low sell high, Californian Ideology, carbon credits, carbon footprint, circular economy, clean water, cognitive dissonance, Colonization of Mars, coronavirus, COVID-19, creative destruction, Credit Default Swap, CRISPR, data science, David Graeber, DeepMind, degrowth, Demis Hassabis, deplatforming, digital capitalism, digital map, disinformation, Donald Trump, Elon Musk, en.wikipedia.org, energy transition, Ethereum, ethereum blockchain, European colonialism, Evgeny Morozov, Extinction Rebellion, Fairphone, fake news, Filter Bubble, game design, gamification, gig economy, Gini coefficient, global pandemic, Google bus, green new deal, Greta Thunberg, Haight Ashbury, hockey-stick growth, Howard Rheingold, if you build it, they will come, impact investing, income inequality, independent contractor, Jane Jacobs, Jeff Bezos, Jeffrey Epstein, job automation, John Nash: game theory, John Perry Barlow, Joseph Schumpeter, Just-in-time delivery, liberal capitalism, Mark Zuckerberg, Marshall McLuhan, mass immigration, megaproject, meme stock, mental accounting, Michael Milken, microplastics / micro fibres, military-industrial complex, Minecraft, mirror neurons, move fast and break things, Naomi Klein, New Urbanism, Norbert Wiener, Oculus Rift, One Laptop per Child (OLPC), operational security, Patri Friedman, pattern recognition, Peter Thiel, planetary scale, Plato's cave, Ponzi scheme, profit motive, QAnon, RAND corporation, Ray Kurzweil, rent-seeking, Richard Thaler, ride hailing / ride sharing, Robinhood: mobile stock trading app, Sam Altman, Shoshana Zuboff, Silicon Valley, Silicon Valley billionaire, SimCity, Singularitarianism, Skinner box, Snapchat, sovereign wealth fund, Stephen Hawking, Steve Bannon, Steve Jobs, Steven Levy, Steven Pinker, Stewart Brand, surveillance capitalism, tech billionaire, tech bro, technological solutionism, technoutopianism, Ted Nelson, TED Talk, the medium is the message, theory of mind, TikTok, Torches of Freedom, Tragedy of the Commons, universal basic income, urban renewal, warehouse robotics, We are as Gods, WeWork, Whole Earth Catalog, work culture , working poor

Funders, scientists, and royals end up with better excuses to stay at one of Jeffrey Epstein’s properties; Israeli and U.S. intelligence services get surveillance assets and backdoor technologies; and the Davos elite get to explore “solutions” for their own death (transhumanism) or for global inequality (eugenics). Do just a little reading on any of these initiatives and you see names like felons Jeffrey Epstein, Ghislaine Maxwell, and Michael Milken alongside those of royals like Princes Charles and Andrew, tech founders like Bill Gates and Paul Allen, politicians like Bill and Hillary Clinton, and mega-project science advisors like Boris Nikolic and Melanie Walker. Each name serves as a trailhead to an entitled culture of would-be philosopher kings for whom conventional notions of morality and equity are mere obstacles to perpetuating their own dominance.

Ethics in Investment Banking by John N. Reynolds, Edmund Newell

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, banking crisis, Bear Stearns, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, financial independence, Glass-Steagall Act, index fund, invisible hand, junk bonds, light touch regulation, margin call, Michael Milken, moral hazard, Nick Leeson, Northern Rock, proprietary trading, quantitative easing, shareholder value, short selling, South Sea Bubble, stem cell, the market place, The Wealth of Nations by Adam Smith, too big to fail, two and twenty, zero-sum game

Yet the academic discipline of business ethics is relatively new, developing primarily over the last quarter of a century or so. A major impetus for business schools – and indeed businesses – to turn their attention to ethics was a spate of financial scandals in the late 1980s, which exposed the problem of “insider trading” in Wall Street, when the activities of Ivan Boesky, Michael Milken and others captured international headlines. Here was an issue of moral judgement – whether to use privileged information for personal gain – that caused public outcry and raised questions about the trustworthiness of employees and the way firms conducted their business. Since then a number of high-profile and highly damaging incidents have also raised ethical concerns over finance.

Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs by Andy Kessler

23andMe, Abraham Maslow, Alan Greenspan, Andy Kessler, bank run, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bob Noyce, bread and circuses, British Empire, business cycle, business process, California gold rush, carbon credits, carbon footprint, Cass Sunstein, cloud computing, collateralized debt obligation, collective bargaining, commoditize, computer age, Cornelius Vanderbilt, creative destruction, disintermediation, Douglas Engelbart, Dutch auction, Eugene Fama: efficient market hypothesis, fiat currency, Firefox, Fractional reserve banking, George Gilder, Gordon Gekko, greed is good, income inequality, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, Joseph Schumpeter, junk bonds, Kickstarter, knowledge economy, knowledge worker, Larry Ellison, libertarian paternalism, low skilled workers, Mark Zuckerberg, McMansion, Michael Milken, Money creation, Netflix Prize, packet switching, personalized medicine, pets.com, prediction markets, pre–internet, profit motive, race to the bottom, Richard Thaler, risk tolerance, risk-adjusted returns, Silicon Valley, six sigma, Skype, social graph, Steve Jobs, The Wealth of Nations by Adam Smith, transcontinental railway, transfer pricing, vertical integration, wealth creators, Yogi Berra

Time Warner and Comcast: cable. Disney: TV licenses and cable stations like ESPN. News Corp.: TV licenses, cable stations, and newspapers. Even Warren Buffett got in on the game, trying to make Buffalo, New York, a one-newspaper town so he could control a pipe. Years ago, I sat through a presentation by junk bond king Michael Milken, long released from involuntary housing for manipulating markets (“stock parking,” if you want to get technical). Milken flashed some photos of his former clients: Ted Turner, John Malone, John Kluge, Rupert Murdoch, Craig McCaw. Each one of them had borrowed billions in high-yield junk debt to build their media empires.

Wall Street Meat by Andy Kessler

accounting loophole / creative accounting, Alan Greenspan, Andy Kessler, automated trading system, banking crisis, Bob Noyce, George Gilder, index fund, Jeff Bezos, John Bogle, junk bonds, market bubble, Mary Meeker, Menlo Park, Michael Milken, Pepto Bismol, pets.com, Robert Metcalfe, rolodex, Salesforce, Sand Hill Road, Silicon Valley, Small Order Execution System, Steve Jobs, technology bubble, undersea cable, Y2K

It wasn’t the rip-roaring bull market that would show up in 1987, but things were hopping. All of New York caught stock fever. Still, it wasn’t so easy. No matter how good a call you had, most of the stocks that were working were takeovers, leveraged buyouts and companies put in play by Drexel Burnham and its junk bond king, Michael Milken. I heard about these guys every day. The rest of the street was in awe. One day, I was walking down 5th Avenue with one of our salesmen and his client, when the salesman asked why the account didn’t do more business with us. The client was brutally honest. “Who needs you? I get a call every morning from my Drexel salesman who tells me the next set of companies that are going to be in play.

After the New Economy: The Binge . . . And the Hangover That Won't Go Away by Doug Henwood

"World Economic Forum" Davos, accounting loophole / creative accounting, affirmative action, Alan Greenspan, AOL-Time Warner, Asian financial crisis, barriers to entry, Benchmark Capital, book value, borderless world, Branko Milanovic, Bretton Woods, business cycle, California energy crisis, capital controls, corporate governance, corporate raider, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, digital divide, electricity market, emotional labour, ending welfare as we know it, feminist movement, fulfillment center, full employment, gender pay gap, George Gilder, glass ceiling, Glass-Steagall Act, Gordon Gekko, government statistician, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, intangible asset, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, Larry Ellison, liquidationism / Banker’s doctrine / the Treasury view, low interest rates, manufacturing employment, Mary Meeker, means of production, Michael Milken, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, PalmPilot, pets.com, post-work, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, rewilding, Robert Gordon, Robert Shiller, Robert Solow, rolling blackouts, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, stock buybacks, structural adjustment programs, tech worker, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, warehouse automation, women in the workforce, working poor, zero-sum game

Grubman wasn't Wall Street's only renaissance man—nor was telecommunications the only industry field in which the multiply talented actors performed. At Credit Suisse First Boston (CFSB), another son of South Philly, Frank Quattrone, played promoter, banker, and analyst. He operated from the Sihcon Valley, far from CFSB's New York headquarters, prompting comparisons to Michael Milken's Beverly Hills operation in the 1980s, which was largely independent of Drexel Burnham Lambert's Manhattan home office. One of his synergistic innovations, which once might have been considered a conflict of interest, was that he also ran a venture-capital frind; Quattrone's shop would invest in startups, then take them pubhc in an IPO.

Rigged Money: Beating Wall Street at Its Own Game by Lee Munson

affirmative action, Alan Greenspan, asset allocation, backtesting, barriers to entry, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, call centre, Credit Default Swap, diversification, diversified portfolio, estate planning, fear index, fiat currency, financial engineering, financial innovation, fixed income, Flash crash, follow your passion, German hyperinflation, Glass-Steagall Act, global macro, High speed trading, housing crisis, index fund, joint-stock company, junk bonds, managed futures, Market Wizards by Jack D. Schwager, Michael Milken, military-industrial complex, money market fund, moral hazard, Myron Scholes, National best bid and offer, off-the-grid, passive investing, Ponzi scheme, power law, price discovery process, proprietary trading, random walk, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, risk/return, Savings and loan crisis, short squeeze, stocks for the long run, stocks for the long term, too big to fail, trade route, Vanguard fund, walking around money

Now that I have your attention, let’s break down the major issues with junk bonds, and more specifically ETFs that trade baskets of those bonds. Don’t worry, there is a place for these ugly ducklings, but they are not for those trying to get fixed income risk and return. If that doesn’t keep you reading, nothing will. The junk bond market developed by Michael Milken in the 1980s is predominately a U.S. phenomenon, though they exist anywhere there is tradable debt. Simply stated, they are bonds with a poor rating. Most notably, junk bonds have higher credit risk and illiquidity, but also higher interest payments—as long as they keep paying. I want to cover the problem with junk bonds within a portfolio, the true cost of owning them, and how investors should approach the junk bond market.

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

Alan Greenspan, banking crisis, banks create money, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bond market vigilante , Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency risk, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, Glass-Steagall Act, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, junk bonds, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, market bubble, market clearing, Martin Wolf, means of production, Michael Milken, mobile money, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nixon triggered the end of the Bretton Woods system, Paul Volcker talking about ATMs, Ponzi scheme, profit motive, proprietary trading, prudent man rule, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, Savings and loan crisis, seigniorage, shareholder value, Silicon Valley, SoftBank, Solyndra, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

They only embraced change when their future suddenly became insecure, and then it was mostly too late. No, the parade into the new Golconda was led by a motley crew of outsiders who saw gold in the sheer rottenness of the old regime. These included takeno-prisoners bond houses, such as the Solomon Brothers, who were immortalized by Michael Lewis in Liar’s Poker (Penguin, 1990). Michael Milken’s junk bonds fueled Drexel Burnham and the leveraged-buyout firms that followed. The entire venture capital industry that funded Silicon Valley and much else was equally new as a market force, though it traces its roots to the repressed 1940s. Private equity represented another essentially new industry in the 1980s, and the same is true for hedge fund industry that grew up a decade or so later.

The Money Machine: How the City Works by Philip Coggan

activist fund / activist shareholder / activist investor, algorithmic trading, asset-backed security, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, bond market vigilante , bonus culture, Bretton Woods, call centre, capital controls, carried interest, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, disintermediation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, endowment effect, financial deregulation, financial independence, floating exchange rates, foreign exchange controls, Glass-Steagall Act, guns versus butter model, Hyman Minsky, index fund, intangible asset, interest rate swap, inverted yield curve, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", joint-stock company, junk bonds, labour market flexibility, large denomination, London Interbank Offered Rate, Long Term Capital Management, low interest rates, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, negative equity, Nick Leeson, Northern Rock, pattern recognition, proprietary trading, purchasing power parity, quantitative easing, reserve currency, Right to Buy, Ronald Reagan, shareholder value, South Sea Bubble, sovereign wealth fund, technology bubble, time value of money, too big to fail, tulip mania, Washington Consensus, yield curve, zero-coupon bond

The market marked down the price of the bond because it feared the company would be unable to repay the capital, or even maintain the interest payments. In the language of the rating agencies (referred to above), the bonds would be ‘below investment grade’ with a rating below BBB. A smart trader called Michael Milken, who worked for a US banking group called Drexel Burnham Lambert, saw the opportunity for profit in junk bonds. Say a bond was issued with a coupon of 10 per cent, but the company gets into difficulty and its price falls to 50 (compared with a face value of 100). If the company just pays the interest, the investor will earn a running yield of 20 per cent (10/50).

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader by Colin Lancaster

"World Economic Forum" Davos, Adam Neumann (WeWork), Airbnb, Alan Greenspan, always be closing, asset-backed security, beat the dealer, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, Black Monday: stock market crash in 1987, bond market vigilante , Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, buy the rumour, sell the news, Carmen Reinhart, Chuck Templeton: OpenTable:, collateralized debt obligation, coronavirus, COVID-19, creative destruction, credit crunch, currency manipulation / currency intervention, deal flow, Donald Trump, Edward Thorp, family office, fear index, fiat currency, fixed income, Flash crash, George Floyd, global macro, global pandemic, global supply chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Growth in a Time of Debt, housing crisis, index arbitrage, inverted yield curve, Jeff Bezos, Jim Simons, junk bonds, Kenneth Rogoff, liquidity trap, lockdown, Long Term Capital Management, low interest rates, low skilled workers, margin call, market bubble, Masayoshi Son, Michael Milken, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, moral hazard, National Debt Clock, Nixon triggered the end of the Bretton Woods system, Northern Rock, oil shock, pets.com, Ponzi scheme, price stability, proprietary trading, quantitative easing, Reminiscences of a Stock Operator, reserve currency, Ronald Reagan, Ronald Reagan: Tear down this wall, Sharpe ratio, short selling, short squeeze, social distancing, SoftBank, statistical arbitrage, stock buybacks, The Great Moderation, TikTok, too big to fail, trickle-down economics, two and twenty, value at risk, Vision Fund, WeWork, yield curve, zero-sum game

But not the Big D. He’s not yet concerned. In a tweet, he wrote, “The coronavirus is very much under control in the US. We are in contact with everyone and all relevant countries. CDC and World Health have been working hard and very smart. Stock market starting to look very good to me!” He also pardoned Michael Milken. Milken was featured in books such as Den of Thieves and Predators Ball when I was first getting interested in this business. He surfed a couple of big waves. He rode one better than anyone else. Another was a complete wipeout. The third was an amazing model of rehabilitation. His waves were a sign of the times.

Unreal Estate: Money, Ambition, and the Lust for Land in Los Angeles by Michael Gross

Albert Einstein, Ayatollah Khomeini, bank run, Bear Stearns, Bernie Madoff, California gold rush, Carl Icahn, clean water, Cornelius Vanderbilt, corporate raider, cotton gin, Donald Trump, estate planning, family office, financial engineering, financial independence, Henry Singleton, Irwin Jacobs, Joan Didion, junk bonds, Maui Hawaii, McMansion, Michael Milken, mortgage debt, Norman Mailer, offshore financial centre, oil rush, passive investing, pension reform, Ponzi scheme, Right to Buy, Robert Bork, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Steve Wozniak, tech billionaire, Teledyne, The Predators' Ball, transcontinental railway, yellow journalism

., a company that was the combination of a declining old-school Wall Street brokerage and a feisty, mostly Jewish one staffed by eager come-from-nowheres like Winnick hoping to make a mark and some money. The firm was known as Drexel Burnham Lambert by the time Winnick was promoted to bond salesman and met Michael Milken, who ran a then backwater department selling high-yield securities considered so risky they were called junk bonds. Their first encounter in 1976 wasn’t a good one, wrote James B. Stewart in his book Den of Thieves. Though Winnick was supposed to earn a preestablished cut of a deal he made through Milken, the more experienced trader cheated him out of most of it, leading Winnick to complain to Milken’s boss.

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Their cast of regulars features Huffington, Hollywood types like David Geffen, Mike Medavoy, Lawrence Bender, Norman Lear, Albert Brooks, Rob Reiner, Michael York, Warren Beatty and Annette Bening, Aaron Sorkin, Yvette Mimieux, Bill Maher, and Larry David and his activist ex-wife Laurie, as well as the writer Gore Vidal and the former financier Michael Milken. “It’s a fuller life when you know, in the same life, Martha Stewart and Jared Diamond, Edgar Doctorow and Joan Didion and Sylvester Stallone,” Lynda said when she was profiled in The New Yorker. Yes, The New Yorker. What attracts them all? “To have dinner at the long table under the huge chandelier in the dining room,” observed the author Amy Wilentz, “is to feel as if one were a part of some kind of modern aristocracy, of an entitled few.

The Power Law: Venture Capital and the Making of the New Future by Sebastian Mallaby

"Susan Fowler" uber, 23andMe, 90 percent rule, Adam Neumann (WeWork), adjacent possible, Airbnb, Apple II, barriers to entry, Ben Horowitz, Benchmark Capital, Big Tech, bike sharing, Black Lives Matter, Blitzscaling, Bob Noyce, book value, business process, charter city, Chuck Templeton: OpenTable:, Clayton Christensen, clean tech, cloud computing, cognitive bias, collapse of Lehman Brothers, Colonization of Mars, computer vision, coronavirus, corporate governance, COVID-19, cryptocurrency, deal flow, Didi Chuxing, digital map, discounted cash flows, disruptive innovation, Donald Trump, Douglas Engelbart, driverless car, Dutch auction, Dynabook, Elon Musk, Fairchild Semiconductor, fake news, family office, financial engineering, future of work, game design, George Gilder, Greyball, guns versus butter model, Hacker Ethic, Henry Singleton, hiring and firing, Hyperloop, income inequality, industrial cluster, intangible asset, iterative process, Jeff Bezos, John Markoff, junk bonds, Kickstarter, knowledge economy, lateral thinking, liberal capitalism, Louis Pasteur, low interest rates, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, Marshall McLuhan, Mary Meeker, Masayoshi Son, Max Levchin, Metcalfe’s law, Michael Milken, microdosing, military-industrial complex, Mitch Kapor, mortgage debt, move fast and break things, Network effects, oil shock, PalmPilot, pattern recognition, Paul Graham, paypal mafia, Peter Thiel, plant based meat, plutocrats, power law, pre–internet, price mechanism, price stability, proprietary trading, prudent man rule, quantitative easing, radical decentralization, Recombinant DNA, remote working, ride hailing / ride sharing, risk tolerance, risk/return, Robert Metcalfe, ROLM, rolodex, Ronald Coase, Salesforce, Sam Altman, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Skype, smart grid, SoftBank, software is eating the world, sovereign wealth fund, Startup school, Steve Jobs, Steve Wozniak, Steven Levy, super pumped, superconnector, survivorship bias, tech worker, Teledyne, the long tail, the new new thing, the strength of weak ties, TikTok, Travis Kalanick, two and twenty, Uber and Lyft, Uber for X, uber lyft, urban decay, UUNET, vertical integration, Vilfredo Pareto, Vision Fund, wealth creators, WeWork, William Shockley: the traitorous eight, Y Combinator, Zenefits

By freeing talent to convert ideas into products, and by marrying unconventional experiments with hard commercial targets, this distinctive form of finance fostered the business culture that made the Valley so fertile. In an earlier era, J. P. Morgan’s brand of finance fashioned American business into muscular oligopolies; in the 1980s, Michael Milken’s junk bonds fueled a burst of corporate takeovers and slash-and-burn cost cuts. In similar fashion, venture capital has stamped its mark on an industrial culture, making Silicon Valley the most durably productive crucible of applied science anywhere, ever. Thanks to venture capital, the Traitorous Eight were able to abandon William Shockley, launch Fairchild Semiconductor, and set this miracle in motion.

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His name was Yuri Milner. To Shleifer’s amazement, Milner thought the way he did. The son of a Soviet management professor who specialized in American business, he had been the first Russian to study at Wharton, and he was romantically pro-capitalist. The 1980s takeover artists—Henry Kravis, Ronald Perelman, Michael Milken—were among his heroes.[28] After returning to Russia and losing his banking job in the financial crisis of 1998, Milner had read a pile of investment bank studies, seeking career inspiration. Among them was an internet report by Mary Meeker, then Morgan Stanley’s star tech analyst. At the time, nobody in Russia was talking about the internet, and Milner himself did not even use email.

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina Vanden Heuvel, William Greider

Alan Greenspan, Asian financial crisis, banking crisis, Bear Stearns, Bretton Woods, business cycle, buy and hold, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, declining real wages, deindustrialization, Exxon Valdez, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, full employment, Glass-Steagall Act, green new deal, guns versus butter model, housing crisis, Howard Zinn, Hyman Minsky, income inequality, information asymmetry, It's morning again in America, John Meriwether, junk bonds, kremlinology, Long Term Capital Management, low interest rates, margin call, market bubble, market fundamentalism, McMansion, Michael Milken, Minsky moment, money market fund, mortgage debt, Naomi Klein, new economy, Nixon triggered the end of the Bretton Woods system, offshore financial centre, payday loans, pets.com, plutocrats, Ponzi scheme, price stability, pushing on a string, race to the bottom, Ralph Nader, rent control, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, sovereign wealth fund, structural adjustment programs, subprime mortgage crisis, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, wage slave, Washington Consensus, women in the workforce, working poor, Y2K

When the savings and loan industry was deregulated in the early 1980s, Keating saw a window of opportunity as big and as gloriously brilliant as the stained glass of Sainte-Chapelle. Saying that he was certain that he could “profit immensely,” in 1984 he bought for $51 million the old-line Lincoln Savings & Loan of Irvine, California, which had assets of almost $1 billion. Money for the purchase was obtained, naturally, by everyone’s favorite junk-bond swindler, Michael Milken of Drexel Burn-ham Lambert. How could a guy who only five years earlier was battling the S.E.C.’s fraud charges, which he escaped not by proving his innocence but by promising to behave himself, wind up with a savings and loan? Why would the bank board approve such a purchase? It was one of the blackest marks on Ed Gray’s record, hardly lessened by his claim of ignorance: “I had never heard of Charles Keating.

When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle by Scott Wapner

activist fund / activist shareholder / activist investor, AOL-Time Warner, asset allocation, Bear Stearns, Bernie Madoff, Carl Icahn, corporate governance, corporate raider, Credit Default Swap, deal flow, independent contractor, junk bonds, low interest rates, Mark Zuckerberg, Michael Milken, multilevel marketing, Pershing Square Capital Management, Ponzi scheme, price discrimination, Ronald Reagan, short selling, short squeeze, Silicon Valley, Tim Cook: Apple, unbiased observer

While Saxon initially talked tough, the company settled after only six months and agreed to buy back Icahn’s stock for $10.50 a share, more than three dollars above Icahn’s average purchase price.20 Icahn made $2.2 million on the deal, and the scores kept coming.21 Icahn pocketed $10 million in a deal with Hammermill Paper the same year, $7 million from Simplicity Pattern in 1981, and $17 million on an investment in the storied department store chain Marshall Fields the following year.22 By the mid-1980s, Icahn had become a player on Wall Street’s emerging takeover scene alongside the day’s other dealmakers, such as Ivan F. Boesky, T. Boone Pickens, and Michael Milken, the Drexel Burnham Lambert banker whose infamous “junk bonds” helped finance the buying frenzy of the times. Milken’s high-yielding securities had earned him the nickname “The Junk Bond King” since he had all but invented the market for the securities. The men—coined corporate raiders by the media—were shrewd, often ruthless negotiators, stopping at nothing to shake up companies whose CEOs were deemed either too “imperial” or too “country-club,” more interested in their golf scores than their shareholders.

Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, and Cheaper Than Yours (And What to Do About It) by Salim Ismail, Yuri van Geest

23andMe, 3D printing, Airbnb, Amazon Mechanical Turk, Amazon Web Services, anti-fragile, augmented reality, autonomous vehicles, Baxter: Rethink Robotics, behavioural economics, Ben Horowitz, bike sharing, bioinformatics, bitcoin, Black Swan, blockchain, Blue Ocean Strategy, book value, Burning Man, business intelligence, business process, call centre, chief data officer, Chris Wanstrath, circular economy, Clayton Christensen, clean water, cloud computing, cognitive bias, collaborative consumption, collaborative economy, commoditize, corporate social responsibility, cross-subsidies, crowdsourcing, cryptocurrency, dark matter, data science, Dean Kamen, deep learning, DeepMind, dematerialisation, discounted cash flows, disruptive innovation, distributed ledger, driverless car, Edward Snowden, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fail fast, game design, gamification, Google Glasses, Google Hangouts, Google X / Alphabet X, gravity well, hiring and firing, holacracy, Hyperloop, industrial robot, Innovator's Dilemma, intangible asset, Internet of things, Iridium satellite, Isaac Newton, Jeff Bezos, Joi Ito, Kevin Kelly, Kickstarter, knowledge worker, Kodak vs Instagram, Law of Accelerating Returns, Lean Startup, life extension, lifelogging, loose coupling, loss aversion, low earth orbit, Lyft, Marc Andreessen, Mark Zuckerberg, market design, Max Levchin, means of production, Michael Milken, minimum viable product, natural language processing, Netflix Prize, NetJets, Network effects, new economy, Oculus Rift, offshore financial centre, PageRank, pattern recognition, Paul Graham, paypal mafia, peer-to-peer, peer-to-peer model, Peter H. Diamandis: Planetary Resources, Peter Thiel, Planet Labs, prediction markets, profit motive, publish or perish, radical decentralization, Ray Kurzweil, recommendation engine, RFID, ride hailing / ride sharing, risk tolerance, Ronald Coase, Rutger Bregman, Salesforce, Second Machine Age, self-driving car, sharing economy, Silicon Valley, skunkworks, Skype, smart contracts, Snapchat, social software, software is eating the world, SpaceShipOne, speech recognition, stealth mode startup, Stephen Hawking, Steve Jobs, Steve Jurvetson, subscription business, supply-chain management, synthetic biology, TaskRabbit, TED Talk, telepresence, telepresence robot, the long tail, Tony Hsieh, transaction costs, Travis Kalanick, Tyler Cowen, Tyler Cowen: Great Stagnation, uber lyft, urban planning, Virgin Galactic, WikiLeaks, winner-take-all economy, X Prize, Y Combinator, zero-sum game

To do so, we: Reviewed sixty classic innovation management books by such authors as John Hagel, Clayton Christensen, Eric Ries, Gary Hamel, Jim Collins, W. Chan Kim, Reid Hoffman and Michael Cusumano. Interviewed C-Level executives from several dozen Fortune 200 companies with our survey and frameworks. Interviewed or researched ninety top entrepreneurs and visionaries including Marc Andreessen, Steve Forbes, Chris Anderson, Michael Milken, Paul Saffo, Philip Rosedale, Arianna Huffington, Tim O’Reilly and Steve Jurvetson. Investigated the characteristics of the one hundred fastest growing and most successful startups across the world, including those that comprise the Unicorn Club (Aileen Lee’s name for the billion-dollar market cap startup group), to tease out commonalities the companies used to scale.

Social Life of Information by John Seely Brown, Paul Duguid

Alvin Toffler, business process, Charles Babbage, Claude Shannon: information theory, computer age, Computing Machinery and Intelligence, cross-subsidies, disintermediation, double entry bookkeeping, Frank Gehry, frictionless, frictionless market, future of work, George Gilder, George Santayana, global village, Goodhart's law, Howard Rheingold, informal economy, information retrieval, invisible hand, Isaac Newton, John Markoff, John Perry Barlow, junk bonds, Just-in-time delivery, Kenneth Arrow, Kevin Kelly, knowledge economy, knowledge worker, lateral thinking, loose coupling, Marshall McLuhan, medical malpractice, Michael Milken, moral hazard, Network effects, new economy, Productivity paradox, Robert Metcalfe, rolodex, Ronald Coase, scientific management, shareholder value, Shoshana Zuboff, Silicon Valley, Steve Jobs, Superbowl ad, tacit knowledge, Ted Nelson, telepresence, the medium is the message, The Nature of the Firm, the strength of weak ties, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, Turing test, Vannevar Bush, Y2K