Michael Milken was a bookish suburban kid who married his high school sweetheart, worked 14-hour days and lived with his family in a nice house in the same neighborhood where he grew up. Along the way, he had one big idea that turned him into a billionaire, and it eventually helped make him a felon.
Once, in the grip of hubris, Milken compared himself to Socrates. Like the Greek philosopher, he said he was persecuted for his unconventional views despite having devoted himself to the pursuit of truth.
Milken had it at least half right. In the stuffy realm of corporate finance, he was indeed unconventional, even radical. His idea of issuing high-paying IOUs called "junk bonds" provided the money that unleashed the corporate takeover era. Some -- especially those he had enriched -- saw him as a genius, the most important financier ever.
"If you look back in history," Lori Milken recently said of her husband, "at geniuses who promoted change, people don't like it and people in power try to stop it." To his detractors, however, Milken was everything that was wrong with the American economy in the 1980s. He was vilified as the architect of a system that valued "paper shuffling" over people and production. With his outsized bonuses and salaries -- $550 million in 1987 alone -- Milken was an easy target for populist vituperation.
Michael Milken, 44, was born on the Fourth of July and was as normal as they come. In the smoggy sink of the San Fernando Valley in Los Angeles, he grew up contented. His boyhood pleasures included helping his father in his accounting business, doing tax returns and sorting checks at the age of 10. He was the high school prom king, the head yell leader, a practical joker.
At the University of California at Berkeley in the mid-1960s, Milken concentrated on his studies in math and business and was unconcerned about coming off as a boy scout. "I didn't feel embarrassed drinking orange juice while everyone was drinking beer," he once said.
It was at Berkeley that Milken came across an old study showing that the default rate on low-rated corporate bonds was relatively low. Yet these bonds traditionally paid high rates of interest to make up for their perceived riskiness. The practical application of this was self-evident to Milken: If an investor bought a diverse group of these bonds, he or she could spread the risk of default among a few of them while earning high returns.
This financing technique was employed to raise billions of dollars for companies that otherwise weren't deemed creditworthy, and it was also used by the likes of T. Boone Pickens, Ronald Perelman and Carl Icahn in their takeovers of such companies as Unocal Corp., Texaco Inc., Revlon Group Inc. and Trans World Airlines Inc. Not just takeover targets responded to the junk bond revolution either. One of Milken's legacies is the massive increase in indebtedness assumed by companies to avoid takeovers, actual or threatened. The failures of some of these companies in a recession will be another Milken legacy.
Although technically a mere employee of the investment banking firm Drexel Burnham Lambert Group Inc., Milken was so powerful that for a time the $250 billion junk bond market virtually revolved around him at Drexel's office in Beverly Hills, Calif. Milken had no office; he moved from meeting room to meeting room, juggling deals.
Until his legal problems began to surface, Milken remained something of a mysterious recluse. He did not give interviews and insisted that Drexel keep his photograph out of its annual report. By the time the veil was lifted, Milken was revealed to be both an obsessive dealmaker and a rather decent family man. Despite his wealth, he lived unostentatiously with his wife and three children in Encino, a semi-fashionable Los Angeles suburb.